Treasury is looking at a potential clampdown on work-at-home expenses to repair budget

Treasury is weighing a proposal to claw back a rise in deductible work-related expenses which are forecast to cost the budget more than $10.4bn a year in forgone revenue.

Treasury officials had been actively working up an internal policy proposal over recent weeks as it searches for potential savings in the May budget. Picture: AAP

Treasury is looking to dust off a mothballed proposal to claw back a rise in deductible work-related expenses which are forecast to cost the budget more than $10.4bn in forgone revenue annually by next year.

The Australian understands Treasury officials had been working up an internal policy proposal over recent weeks as they search for potential savings in the May budget.

No formal proposal had yet come across Jim Chalmers’ desk, with sources saying no such plan had reached the government for consideration.

Treasurer Jim Chalmers Picture: Dan Peled

Work-related expenses are claimed by almost 10 million taxpayers a year.

It is understood the issue was first raised by Treasury, and was under consideration by the former Coalition government, in 2016 but was ultimately rejected.

There was concern over the impact such a plan would have on small and sole operator business and tradies. “It is a huge amount of money,” said a source.

Any scaling back or crackdown on broader work-related expenses would go further than recent changes by the Australian Taxation Office to tighten working from home expenses.

The recent Tax Expenditures and Insights Statement released in February by the government said 9.8 million people claimed work-related expenses in 2019-20 worth $22.6bn in total and resulting in a tax reduction of $8.3bn.

This is forecast to increase to $10.4bn in 2023-24. After concessional tax breaks for superannuation, capital gains tax discounts, tax breaks for trusts and negative gearing, this was the largest cost to the budget in terms of revenue forgone.

It is more than the forgone GST on food, according to the tax benchmarks statement.

This year was the first time a special line item for this category had been included in the annual tax benchmarks statement, in a hint that it was also under the microscope for reform alongside already announced changes to superannuation concessional tax rates and the treatment of some franking credits.

Work-related expenses generally include deductions for work travel, clothing, self-education, tools, equipment and other work incurred costs such as mobile phones, internet and subscriptions. However, a more general category of “other” made up the largest component of work-related expenses claimed.

It is understood a range of options could be examined, including a fixed-expense allowance for individuals – based on a New Zealand model and one that would reduce the need for accountants – or a scaling back or fresh targeting of some allowances.

A parliamentary report from the House of Representatives standing committee on economics into work-related expenses in 2017 recommended the current system be maintained.

“The committee recommends that the government maintain the current personal income tax framework that allows Australians to claim deductions for valid expenses, including those related to their work,” it concluded.

“The committee sees this as an entirely appropriate part of our taxation system.

“While there are opportunities to improve the operation of the system, the committee supports the ongoing ability of Australians to claim legitimate deductions.”

However, it also recommended the ATO be tasked with investigating abuse of the system.

The 2017 report cited an ATO review that had identified $100m in abuse of work-related expenses in a single year, concluding that there was scope for a crackdown on compliance.