Simple change could eliminate the need for work tax receipts

Capping tax deductions for work-related expenses (WRE) could fund the introduction of a revenue-neutral and more equitable WRE standard deduction, according to new research.

Dr John Minas
Dr John Minas, Adjunct Research Fellow at Griffith’s Law Futures Centre

Study co-author Dr John Minas, Adjunct Research Fellow at Griffith’s Law Futures Centre says the study’s findings could be a game-changer in reducing Australia’s tax system complexity.

“The Henry Tax Review highlighted that rules around tax deductions are complicated. There is also the added compliance burden of keeping receipts and records,’’ he said.

The study used a mathematical optimisation model and the Australian Tax Office’s 2017-2018 individual tax return dataset to test different policy reform proposals.

Dr James Minas, from Ithaca College’s School of Business, who co-authored the study, said they found four options which balanced the trade-off between simplicity and minimising the proportion of taxpayers who will face increased tax liability under a WRE deductions cap.

“One of the four options proposes a standard deduction of $1040 and a cap on actual WRE deductions of $8000. Based on the ATO’s individual tax return sample file, this would benefit 59% of taxpayers and only 4.5% would be worse off on actual WRE deductions.”

Dr John Minas said the proposal recognises some taxpayers will have deductions above the standard WRE level and gives them the choice to itemise and claim their actual WRE deductions up to the cap.

“The simplicity gains for taxpayers and tax administrators are key arguments in favour of reform. You could eliminate the compliance burden of keeping receipts and records for this group of taxpayers.”

“Our evidence-based reform proposal is not only equitable it could also move us closer to the policy goal of some taxpayers no longer needing to lodge a tax return.”

Deductions for work related expenses in Australia: an analysis of options for reform is published in Australian Tax Forum.