In his Budget reply speech in May, Opposition Leader Bill Shorten announced plans to impose a cap on the amount that can be claimed for getting tax returns done by a tax agent. Shorten said Labor would apply a cap of $3,000, claiming that 48 wealthy individuals had paid an average of $1 million to get their tax done in 2014-15, as a result of which they managed to get away with paying no tax.
However, accounting bodies state that the actions of a wealthy few should not penalise the 13.4 million taxpayers who are doing the right thing, and have vowed to fight the proposed reforms. From The AFR:
As the polls firm in Labor’s favour, accountants and lawyers are increasingly nervous about what the policy will mean for clients – and their own business models.
Accounting bodies say the nation’s 13.4 million taxpayers should not be denied deductions because of the deeds of 48 individuals, or 0.0003582 of the taxpaying population.
They say a cap will affect more than just the “rich” because some life events, such as divorce and redundancy, require intensive tax advice, while starting and operating a business will be more expensive.
Institute of Public Accountants senior tax adviser Tony Greco said the proposal was a “direct attack” on the profession and would not be accepted “without a fight”.
‘”Changing policy for a handful of taxpayers appears excessive and disproportionate to the perceived rare problem of claiming more than $1 million in adviser fees,” he said.
“Even your suburban accountant can clock up substantial fees trying to help a client with a complex matter”…
Mr Shorten’s cap will increase tax revenue by $1.8 billion over a decade. There will be a carve-out for small businesses with turnover of up to $2 million. Overall, 1 per cent of taxpayers or 90,000 individuals would be affected.
Back in May, The Australia Institute (TAI) released a well-argued briefing note showing the average tax deduction is just $378 and claiming Labor’s proposal would only impact the very highest income earners and would restore integrity to the tax system:
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The Labor party has announced a policy to limit the deduction that can be claimed for managing your tax affairs to $3,000. The complexity of the tax system means that some people are spending large amounts of money on accounting advice to take advantage of tax loopholes to significantly reduce their taxable income. They can then reduce their disposable income further by deducting the cost of this advice. Extreme examples of this have emerged where people earning considerable amounts of money are claiming more than a million dollars for the management of their tax affairs…
About 47% of those submitting a tax return claim a deduction for expenses incurred in managing their tax affairs. While the average (mean) amount that people deducted was $378 the median was much lower at just $165. A large difference between the average and median indicates that a small minority are claiming considerably larger amounts than the average. This minority are dragging up the average…
Using the taxation statistics from 2014-15 (latest figures) we can break down how much people deducted, on average… It shows that people that have a gross income of between $180,001 and $250,000 deducted on average $832 for managing their tax affairs. The average amount deducted then rises to reach $12,657 for people earning more than a million dollars…
High income earners who have managed to reduce their taxable income to below the tax free threshold deduct even more for managing their tax affairs. These high income earners have found deductions that are large enough that they do not pay tax.
Figure 2 shows the average deductions for managing tax affairs for those with large gross incomes who paid no tax…
If we look at the top 50% of tax payers by gross income we see that people in most income brackets deduct very little for managing their tax affairs. It is only those on very high incomes that claim considerable amounts.
This graph shows that only those on very high incomes are likely to be negatively affected by restricting deductions for managing tax affairs to $3,000…
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
