The IPA’s public support of a new education deduction comes as other accounting and tax bodies have shied away from the proposal, arguing that it would not benefit individuals who need support the most, including low-income taxpayers or the unemployed.
However, an analysis of Commonwealth-funded vocational education and training (VET) programs by the IPA has revealed no less than six programs specifically geared towards unemployed and low-income earners.
Tony Greco, general manager of technical policy at the IPA, believes the new deduction will instead fill a void in the tax system that has neglected taxpayers who have been forced to bear the full cost of retraining and reskilling, despite the productivity boost it delivers to the economy.
Education expenses that do not have a sufficient connection to an individual’s current employment are currently not deductible.
These taxpayers should instead be incentivised to improve their employment prospects, particularly in a post-pandemic environment where jobs have been displaced and overseas immigration of skilled labour has been curtailed, Mr Greco said.
“Incentivising individuals to invest in themselves is generally a good thing especially if it leads to enhancing the productive capacity of our economy,” Mr Greco continued.
“While we acknowledge that the measure will add more complexity to the administration of tax deductions, if that’s what it takes to encourage individuals to retrain and reskill, then is it not just as worthy as any other eligible tax deduction?”
Mr Greco also believes the counter-argument that the new deduction would favour higher-income earners is a moot point, noting that it would be no different to any other eligible deduction.
He also argues that the new deduction will be required if the government decides to push through with its plan to exempt employers from fringe benefits tax if they provide retraining and reskilling benefits to redundant, or soon-to-be-redundant, employees where the benefit may not relate to their current employment.
“To provide equity to individuals who do have employer support for reskilling or retraining, this proposal is important, to extend a similar tax concession to individuals who undertake further education costs themselves, by dipping into their own pockets,” he added.
Safeguarding the tax system
While supportive of a new deduction, Mr Greco believes there needs to be appropriate integrity measures in place to deal with taxpayers who are looking to take advantage of the tax system.
An option contained in the IPA’s submission includes quarantining half the upfront deduction until the individual earns income from an activity associated with the retraining.
This ensures that taxpayers do not wear the entire cost of education outlay in cases where the retraining does not result in the furtherance of a new activity.
“Quarantining is a pre-existing concept familiar to tax practitioners and currently applies to non-commercial losses,” Mr Greco said.
“If this initiative is implemented, a shared risk approach with the individual who proposes to take advantage of the concession is warranted.”
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Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.