Automatic tax deductions could guarantee Aussies up to $1000 back at tax time

A proposal to guarantee people money back at tax time – without hoarding receipts – could also help stamp out “gaming” of the system by high income earners.

Filing a tax return can be a painful chore at the end of the financial year, but there’s always the chance of getting a slab of money back.

But what if you could throw out the tedious paperwork and still receive at least $400 to $1000, without the hassle of saving receipts?

That’s the proposal of a new Aussie think tank called Blueprint Institute, which has called for complex tax returns to be scrapped for around 80 per cent of taxpayers.

It suggested that the Australian Taxation Office offer standard work-related expenses worth $3000 to be claimed automatically, allowing people to submit a form that was already pre-filled. For the 20 per cent with high work-related expenses, they could have the option to fill out a full tax return.

Three quarters of Australians claim tax deductions, totalling $37 billion a year, with 70 per cent of people using an accountant to file their return.

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Aussies spend the same amount on Coca-Cola throughout the year as they do on managing their tax affairs. Picture Karen Bleier/AFP

According to the Institute, Aussies spend $2.3 billion a year on managing their tax affairs – the equivalent to what the nation spends on Coca-Cola products in a year. Because it’s tax deductible, a big chunk is also picked up by the taxpayer, it added.

“The ATO costs us $3.8 billion a year to administer and enforce the tax law, employing nearly 20,000 people,” the Institute wrote.

“That means one in every $300 in our economy goes to the ATO or a personal tax accountant or lawyer — two sides of the same coin.”

However, the scheme would mean the government would miss out on $5 billion in revenue. Steven Hamilton, chief economist at the Blueprint Institute, said he wants to see “gaming” of the system stamped out, particularly from higher income earners.

“The Government is not a charity; taxes, by definition, are not optional. But our vague system of deductions, which affords considerable discretion to the taxpayer, makes them so,” he said.

“Our failure to introduce a standard deduction, despite a series of reviews recommending it, is a microcosm of our failure to enact serious tax reform in the last two decades. A new tax reform process must focus on tangibly improving people’s lives. On simplifying our tax system, cutting away the red tape that makes our lives more difficult.”

The Institute calculated that the new system would also save $750 million a year in accounting and legal fees and reduce compliance costs by $4 billion per year.

“We’ve made big leaps with pre-filling and the online myTax system, but they’ve hardly moved the needle in peeling people away from their tax accountants,” added Daniel D’Hotman, director of research at Blueprint Institute.

“When you get your phone bill, the phone company doesn’t ask you to itemise all the calls you made, on what dates, for how long, and to whom. They send you a bill. And that’s exactly how our tax return process should work.”

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More money would be put back in Aussie pockets, according to the Institute. Picture: iStock

Charitable giving, super contributions and investment expenses, like the interest on negatively geared property, would be excluded under the Institute’s proposal.

Taxpayers could continue to itemise their deductions if they wished, so nobody would be worse off, it added.

The Australian Taxpayers’ Alliance, the nation’s largest grassroots advocacy group representing taxpayers, came out in support of the Institute’s proposal for a standard tax deduction.

Emilie Dye, policy director for the Australian Taxpayers’ Alliance, said a standard deduction would stop the ATO from wasting so many resources determining whether our dry cleaning really was a work expense.

“Taxes are costly. We spend not only our hard-earned money to pay them, but also hours of our time. This is as unnecessary as it is wasteful,” she said.

“Once taxpayers have successfully paid and filed their tax returns the ATO spends $2.8 billion of our money enforcing this convoluted tax system. Australians cannot afford this kind of inefficiency.

“Taxpayers should not have to waste their time saving every crumpled receipt, and taxes should not be so complicated that we have to hire someone to figure out how to pay them. Making the tax system simpler would save Australians billions.”

Back in 2010, Labor Treasurer Wayne Swan proposed a standard deduction for workplace expenses worth $500 and rising to $1000 the next year, but it was never implemented.

It would have cost the government $608 million in revenue.