The head of an Australian accounting body has hit out at a proposal to limit the deductions for managing tax affairs to $3,000, and expressed concern that it would unfairly hit small business owners.
In May 2017, Labor announced that it would seek to introduce a cap on managing tax affairs if it came into government, in a bid to raise $1.8 billion over a decade.
It suggested that the measure would affect around 90,000 taxpayers, or 1 per cent of all taxpayers.
“It is interesting to note that the ALP proposal to cap the tax deductibility of managing tax affairs to $3,000 has not received more airplay,” said Andrew Conway, chief executive of the Institute of Public Accountants (IPA).
Current laws allow taxpayers to claim expenses incurred in managing their tax affairs, including litigation costs such as Administrative Appeals Tribunal fees, purchasing software to allow the completion and lodgement of tax returns, and obtaining tax advice from a tax adviser.
Mr Conway has been highly critical of Labor’s measure, noting that such a cap would have a “disastrous impact” on the community.
“It is genuinely and obviously a revenue grab. If you cap it at $3,000, the likelihood of a person engaging appropriate tax advice is reduced,” Mr Conway told My Business sister title Accountants Daily last year.
“We think it would have disastrous impacts on the community. If you look at the people who are generally deserving of a tax deduction, based on this proposal, they would be unable to get it. This is not affecting the top end of town; it’s really affecting individuals who might be running small businesses.
“We think it’s tax policy construction gone mad.”
Under Labor’s plan, the proposal would take effect from the next financial year (from 1 July, 2019), but would include a “carve-out” for SMEs with positive income and annual turnover of up to $2 million. However individuals as well as business structures including trusts and partnerships would be hit with the cap.
“Labor understands there is a role for tax deductions in managing tax affairs. However, should an individual choose to pay an accountant more than a reasonable cost to manage their tax affairs, that extra expense will be borne solely by them, not in effect subsidised by tax payers,” it said in a fact sheet outlining the proposal.
It suggested that the average deduction for managing tax affairs by Australian taxpayers was $378 in 2014-15, but that 2,458 individuals claimed over $25,000 in deductions each.
The opposition also took exception to a group of just 48 individuals who it said earned more than $1 million in 2014-15 but paid no tax, claiming that 19 of these individuals claimed an average of $1.1 million in deductions for tax advisers and lawyers that “helped them pay no tax”.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.