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ATO changes labelling on tax affairs deductions

Jotham Lian
Jotham Lian
09 May 2019 2 minute readShare

Greater clarity over the breakdown of the cost of managing tax affairs will soon be available as the Tax Office implements a change to the deduction label ahead of tax time.

The ATO has implemented a change to split the deduction label D10 “Cost of managing tax affairs” into three components: interest charged by the ATO, litigation costs and other expenses incurred in managing tax affairs.

The change varies from previous years’ returns where taxpayers simply add up the costs of managing tax affairs.

This comes as Labor proposes to limit the deductibility for the cost of managing tax affairs to $3,000 on the back of ATO data which showed that, in 2016–17, 69 people earned more than $1 million but paid no tax, with 27 of them claiming an average $607,000 for the cost of managing tax affairs.

CPA Australia’s head of external affairs, Paul Drum, personally lobbied for the change of labelling as part of his membership on the National Tax Liaison Group, noting that the aggregation of the deduction could distort interpretation and analysis of what costs are actually being claimed.

Taxpayers are generally able to claim fees paid to a recognised tax adviser for doing their tax return, costs of applications made to the Administrative Appeals Tribunal or appeals to the courts, and interest charges imposed by the ATO.

“There are moves afoot to try and defrag and unpack this, because our view has been that if we understand precisely what people are claiming, maybe the policy will be cast differently,” Mr Drum said.

“Does Labor actually think it is appropriate that no one can get a deduction for general interest charge? Do they think it is inappropriate to get a deduction to do BAS and keep up to date with Single Touch Payroll? Do they think it is okay for a company still being able to claim everything, but a partnership and a trust and a business over $2 million can’t?

“You’ve got to split this up because this is a conversation that is going to go for some time and everybody needs to understand what we are arguing about; otherwise, we end up in the wrong place.”

Labor’s policy is set to impact individuals, and other business-like structures such as trusts and partnerships that are taxed as individuals, and not companies.

here will be a carve-out for individual small businesses with positive business income and annual turnover up to $2 million.

The ATO has refrained from providing further information regarding the breakdown of components within label D10 for previous years.

Commissioner Chris Jordan – who has expressed scepticism over any deductions cap – had previously said that the large figures associated with the cost of managing tax affairs were probably down to general interest charges in large settlements.

“When people see a quick headline, ‘millionaires paying millions not to pay tax’, there might well be some other reason entirely, like GIC, and I think we’re trying to break that box down now,” Mr Jordan said.

“For this one, it is the label on the tax return, and in that label, it is not just tax agent fees but penalties and deductible interest. If you’ve got all that GIC and you’ve paid an enormous settlement, you can claim the GIC as a tax deduction — so, yes, you might have millions of dollars of income, but I can’t see any rational, or even irrational person, spending over a million to not pay tax on a million.”

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ATO changes labelling on tax affairs deductions
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Jotham Lian
Jotham Lian

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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