Further clarification needed on draft laws for standard deduction, says NTAA

The association has called for more clarity from the government regarding claims that exceed $1,000.

"As currently drafted, proposed subsection 25-130(2) appears to prevent a taxpayer from claiming the standard deduction once their eligible WREs exceed $1,000. This is because the standard deduction is reduced to nil by the deductions listed in paragraphs 25-130(2)(c) to (g)," the submission said.

"As a result, a taxpayer whose eligible WREs deductions exceed $1,000, even by a single dollar, would be required to fully substantiate their claim under the existing rules."

The NTAA said the draft legislation therefore appears to provide no option for a taxpayer to choose to claim the $1,000 standard deduction in lieu of substantiating a higher amount.

"This appears inconsistent with the policy intent," it said.

"NTAA considers that eligible individuals should be able to choose to claim the $1,000 standard deduction, regardless of whether their eligible WRE deductions exceed that threshold."

The association said while a taxpayer claiming $20,000 of work-related expenses is unlikely to forego that amount, another taxpayer with work-related expenses of around $1,010 may decide to forego the additional $10 to be relieved of substantiation obligations.

"If the policy intent is to allow taxpayers with WREs exceeding $1,000 to choose to claim the standard deduction instead of substantiating a higher claim, NTAA recommends that this choice be clearly reflected in the legislation, or at a minimum, explicitly articulated in the final explanatory memorandum," it said.

"This approach would address the apparent inequity between a taxpayer with $999 of expenses who can claim the standard deduction and another with $1,001 who seemingly cannot.

"It would also accommodate risk-averse taxpayers who may prioritise certainty over quantum."

Allowing an explicit choice, it said, would not undermine the role of tax agents or displace existing compliance work.

"Rather, it would protect both practitioners and clients by enabling agents to advise clients to claim the standard deduction with confidence where WREs marginally exceed $1,000," it said.

"This would reduce audit risk, exposure to interest charges and penalties, and support an agent’s reasonable-care obligations under section 30-10 of the Tax Agent Services Act 2009 (Cth), while providing a constructive basis for future discussions about appropriate record-keeping in later income years."

The NTAA said further clarification was also needed of how the draft legislation for the deduction would interact with other rules such as self-education expenses.

"Self-education expenses claimed at label D4 of the individual income tax return are a significant category for many taxpayers, particularly those undertaking employer-supported tertiary study or continuing professional development," it said.

"Although D4 expenses are not expressly listed in proposed subsection 25-130(2), we consider that self-education expenses deductible under section 8-1 would fall within paragraph 25-130(2)(c)."

The submission said that the treatment of self-education expenses is not clear from either the exposure draft or the draft EM.

"Member feedback suggests that many practitioners initially understood D4 expenses to be excluded from those WREs that reduce the standard deduction under paragraph 25-130(2)(c)," it said.

The NTAA suggested that the government include a worked example in the draft EM to illustrate the treatment of self-education expenses deductible under section 8-1 would remove any uncertainty.