The Australian Taxation Office (ATO)

Discuss about the Australian Tax System on Work Related Expenses Deductions.

A good tax system is an important tool for collecting accurate amount of tax from citizens of a country. A tax system refers to a legal system that is used to assess and collect taxes. It is a system that interprets and enforces tax laws (Brackin, 2014). Taxes are mandatory financial change and authorizes expect citizens full compliance. Taxes are important part of government source of income and governing tool of the country. The government use taxes as income to fund it operations, distribute resources and control consumption. Taxes can either be direct or indirect. Some of the taxes in Australia include; taxes are income tax, FBT, GST, and Medicare levy. Failure to pay, resistance to taxation or evasion are punishable by law. An effective tax system should be neutral, simple, flexible, efficient, and fair (Slemrod, & Gillitzer, 2013). This enables the tax system to be production, equal and beneficial to all stakeholders in the country. The following write-up is a discussion of whether the Australian System of claiming deductions for work related expenses is in need of reforms. This is as a result of ATO press release warning taxpayers about their close attention to other work related expenses claims. The write up will analyze the current situation, advantages and disadvantages of the current system, issues in the system and need for reforms in the ATO work related expenses claims tax system in Australia.

The Australian government use Australian Taxation Office (ATO) as principle revenue collecting agency. The ATO have responsibilities of collecting revenue, administering goods and services taxes (GST), governing redistribution programs of benefits back to Australians, administering Australian superannuation system, and keeping the Australian Business Register. The ATO is governed by public Governance, Performance, and Accountability Act 2013 that is within the Treasury portfolio and is accountable under Public Service Act 1999. The ATO envisions being a leading superannuation and tax administration committed to advancing and achieving taxpayers’ confidence. It purpose is contribute to social and economic wellbeing of Australians by enhancing willing participation and help people understand rights, obligations, benefits of compliance and access benefits while managing noncompliance in accordance with the law.  

The ATO is currently faced with taxpayers over claiming their deductions on other related work expenses. The ATO published on 20^th February 2018 warning taxpayers that they will pay close attention to other work related expenses claims and reminded citizens to keep appropriate records. Kath Anderson, Assistant Commissioner stated that the Agency recorded $7.9 billion deduction claims for other related work expenses from 6.7 million taxpayers (“Australians on notice to keep their receipts”, 2018). This amount respected a significant money and the Agency has a responsibility of ensuring citizens are not over-claiming. The ATO stated in the publication that it will be strict to ensure taxpayers don’t claim more or less of their actual claim. Ms Anderson insisted that the Agency will be keen to substantiate and accurately ascertain that all claims made are legit and meet the golden rules. The problem in the agency are people not keeping records for expenses and claiming deductions for all expenses both work and private. For instance, some people incorrectly claimed their entire internet and phone bundles expenses while there were other claiming for overseas study trip which they had holiday in the same time as part of the trip.

Issues with claiming deductions for work related expenses

The ATO allows other related work expenses claim as deduction to expenses directly incurred when earning an income. Work-related deduction aim to reduce taxpayer’s tax burden by taxing only the amount earned without including expenses used to earn the income. The work related deduction must meet the golden rule to be allowed for deduction. First, the taxpayer must have incurred the cost and it wasn’t reimbursed. Second, the expenses must directly relate to earning the income and lastly there must be record for proving the expenses (“Deductions you can claim”, 2018). Expenses for both private and work purposes can only be claimed for work related portion. Examples of work related expenses that can be claimed are union fees, overtime meals, home office, tools and equipments, internet bundles and mobile phone bundles. Work related expenses are therefore deducted from income case and benefits claimed with an objective of ensuring taxpayers are only taxed on earned income.

The current ATO tax system to collect and administer for other work related expense claims has advantages to the government, agency, and the taxpayer. The first advantage is that the tax system is simple. The taxpayer can easily understand the rules correctly and comply in a cost-efficient way. The work related expense deduction system is integrated in the tax portal and taxpayers are able to simply claim the benefit while filling their tax return. The ten thousands taxpayers who used myTax or tax agent reported that the process was easy and 90% said that they were planning to use the system again (Lignier, & Evans, 2012). The tax system is also simple for taxpayers to understand the tax consequences that reduce errors and increase system confidence. Secondly, the ATO system to manage work related expense claim is convenient. The tax system is convenience and taxpayers are able to timely claim their benefits. Convenience allows taxpayers to know how much tax they will be taxed and benefits accrued. Convenience enhances the tax system compliance (Liu, & Altshuler, 2011). Another advantage of the ATO tax system is that it certain. The system is allows user interface where people are able to see the amount of benefits they have been allowed. The tax system clearly specifies how work related expenses are claimed and how amount is determined. The ATO provides sufficient information to taxpayers who then understand how tax is accurately calculated. This means that taxpayers are able to know about their tax burden once they determine their income. Certainty improves the level of confidence that taxpayers have to the tax system.

Advantages of the current ATO tax system

The current tax system is manage work related claims is manned by several disadvantages. First, the tax system lacks fairness. The current system is not equal to all Australian. The ATO tax system in it current state lead to some people getting more deductions hence paying less tax which is against the tax law. All taxpayers are supposed to pay fair share of tax (Whiteford, 2010). The ATO tax system on work related expenses claim allows some people to claim more than they are supposed to as outlined by the tax law. This means that other Australian who legitimately files their claims carry the burden of the ones that fraud the ATO. This is unfair and leads to the tax system being unequal (Evans, 2012). Secondly, the ATO tax system for claiming work related expense benefits is not neutral. The tax system lacks neutrality. The current ATO tax system allows citizens to claim all other expenses incurred in earning income which can influence their decisions to a particular transaction. This means that a taxpayer other expenses incurred out of their workplace or main job that earn them income can be filed for benefits claim. People can increase their expenses because they know they will claim them when filling tax returns (Brealey, Myers, Allen, & Mohanty, 2012). For instance, an individual can be high fuel consuming, luxurious car to commute everyday instead of using public system or a less consuming car as it would be the case if there was no work related expense claim. Another disadvantage of the current ATO tax system is lack of transparency and visibility. The taxpayers are claiming for both private and work related expenses. It is difficult for ATO to accurately draw a line between private expense and work related expenses. The information uploaded by taxpayers to claim benefits cannot be verified leading to over-claiming. Therefore, the current ATO tax system to claim work related expense benefits is not neutral, transparent and fair that lead to over-claiming.

The Australia tax system has issues that need to be addressed for the system to function well and claim deductions. Despite the system offering several benefits to Australians, some issues undermine it ability to operate effectively and meet the claim deduction objective by the government. Australians tax system delivers claim deductions but require reform to stop the current over claiming that is disadvantage other. The reforms will ensure the government is not over compensating on other work related expenses claims and taxpayers are submitting accurate information. The reforms needed are majorly based on neutrality, fairness, and transparency of the tax system.

Disadvantages of the current ATO tax system

The first reform should be enhancing the neutrality of the tax system. A tax system should never influence taxpayer’s decision. This entails that the ATO tax system on claiming work-related deductions should be redesigned to enhance neutrality. The will involve only including expenses that do not change taxpayers behavior and keep them minimizing their cost. Whait (2015) stated that a tax law that affects people decisions to consume or undertake a particular transaction either in the workplace or private life should be kept minimal. For instance, the Australian tax law should be set maximum deductions that an individual can claim at a particular time. Therefore, neutrality will ensure the Australia tax system effect on work related expenses are minimal.

Secondly, the Australian tax system should be reformed to enhance fairness. Fairness can be enhanced by standardization of expenses that can be claimed for benefits (Brys, Matthews, & Owens, 2011). Fairness can be done by creating a strict system that monitors and evaluates every detail that people submit on the tax portal. This will ensure there is consistency and logic to information submitted. The ATO then can use the system to further investigate taxpayers whose information is not consistent. Fairness can also be achieved by grouping people to different categories and setting limits of the amount that they can claim as deductions in relation to work expenses. This will ensure people in same job group or age group have a limit to their work related expenses. Setting claim limits by group will make sure no taxpayer gets extremely high deductions that the others while in the same group. This will ensure that people does not claim more than what ATO estimates to be an individual work related expenses deduction. Therefore, fairness will regulate amount that can be claimed by a taxpayer that will ensure no individual burden is distributed to other legit taxpayers.

The Australian tax system should enhance transparency. Transparency is important stopping people who intend to fraud ATO by over claiming. The tax system can enhance transparency by introducing a document verifying code or software (Meade, 2013). This means that all receipts uploaded in the system as proves for work related expenses can be automatically be verified from organizations where an expense was incurred by a taxpayer. Transparency will therefore ensure all documents uploaded in the system to claim deductions are original copies and no one can use them to fraud ATO. 

Conclusion

From the discussion, the Australian Tax Office (ATO) has a responsibility of ensuring an effective tax system. An effective tax system is simple, efficient, flexible, neutral, and equal. The ATO has experienced inefficiency in it tax system that has led to over claiming. The current ATO tax system for managing work-related expense deduction has both advantages and disadvantages. The tax system is simple, consistent and convenience to taxpayers and ATO. On the other side, the tax system lacks neutrality, fairness, and transparency. The Australian tax system on work-related expenses deductions need to be reformed to address major disadvantages of the current tax system. The reforms will involve enhancing tax system fairness, transparency, and neutrality. Therefore, Australian tax reforms will stop people from attempts to fraud the ATO and enhance fairness while minimizing tax effects on individual decisions.

References

Australians on notice to keep their receipts. (2018). Ato.gov.au. Retrieved 2 May 2018, from https://www.ato.gov.au/Media-centre/Media-releases/Australians-on-notice-to-keep-their-receipts/

Brys, B., Matthews, S., & Owens, J. (2011). Tax reform trends in OECD countries.

Brealey, R. A., Myers, S. C., Allen, F., & Mohanty, P. (2012). Principles of corporate finance. Tata McGraw-Hill Education.

Brackin, T. (2014). Taxation as a Component of Financial Literacy: How Literate are Australians in Relation to Taxation.

Dalton, H. (2013). Principles of public finance. Routledge.

Deductions you can claim. (2018). Ato.gov.au. Retrieved 2 May 2018, from https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/

Evans, C. (2012). Reviewing the reviews: A comparison of recent tax reviews in Australia, the United Kingdom and New Zealand or. Journal of Australian Taxation, 14(2), 146.

 Liu, L., & Altshuler, R. (2011). Measuring the burden of the corporate income tax under imperfect competition.

Lignier, P., & Evans, C. (2012). The rise and rise of tax compliance costs for the small business sector in Australia.

Meade, J. E. (2013). The Structure and Reform of Direct Taxation (Routledge Revivals). Routledge.

Slemrod, J., & Gillitzer, C. (2013). Tax systems. MIT Press.

Whiteford, P. (2010). The Australian Tax?Transfer System: Architecture and Outcomes. Economic Record, 86(275), 528-544.

Whait, R. B. (2015). The role of Foucauldian Discourse in the adoption of the Australian Taxation Office’s Compliance Model.