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.
The measure is expected to affect around 90,000 taxpayers, or less than 1 per cent of all taxpayers.
In 2014–15, the total value of deductions claimed for managing tax affairs was $2.34 billion, with the average deduction at $378 across 6.2 million Australians who claimed the deduction.
Accountants Daily understands that there will be a carve-out for individual small businesses with an annual turnover of up to $2 million.
Individuals, and other business-like structures such as trusts and partnerships that are taxed as individuals, will be affected by the measure.
“The ‘managing tax affairs’ deduction covers expenses relating to preparing and lodging tax returns and activity statements include the costs of lodging tax returns through a registered tax agent, obtaining tax advice from a recognised tax adviser, appealing to the Administrative Appeals Tribunal or courts in relation to tax affairs, interest charges by the ATO, and dealing with the ATO about tax affairs,” a Labor spokesperson told Accountants Daily.
The Tax Institute’s senior tax counsel Professor Robert Deutsch has labelled the proposal as “outrageous”.
“This proposal is outrageous and as a matter of equity should not proceed. People are entitled to spend whatever is needed in managing their tax affairs,” said Professor Deutsch.
“If a claim is put in and the ATO believes, for whatever reason, that it is excessive or entirely incorrect, the ATO should test its veracity to ensure that the amount is properly claimable. A simple blanket limit cannot be the answer.
“It will have implications for the tax advisory industry because it will mean that those who are around the $3,500 to $4,000 mark- there will be a heap of pressure on the adviser to bring it down to $3,000 so it will change behaviour and there’s no question about that.”
Findex senior partner Trevor Pascall believes such a measure could see taxpayers limit their advice to a dollar amount.
“The cost of managing the tax affairs of an individual taxpayer can vary significantly depending on the complexity of such an individual’s circumstances. For example, managing tax affairs of an individual deriving income from multiple sources, which may or may not involve various family trusts or investment properties, will often involve costs in excess of $3,000,” said Mr Pascall.
“If the maximum deduction is limited to $3,000, we are concerned that this cap will lead taxpayers to limit their advice to a dollar amount, not what is required for them to have their tax affairs in proper order.
It’s likely people will not want to spend more than $3,000 to get adequate advice to manage their tax affairs – thus leaving them exposed to potential risks of not getting their tax affairs in order and, potentially, paying more tax than they are required to under the law.”