Goodbye receipts, hello $1000: The future of tax returns is coming

The lack of tinsel, fairy lights and fir trees means it may have slipped past you, but for out and proud finance nerds like myself, it’s officially Christmas in July. Yep, that most magical time of the year is once again upon us: tax return season.

Whether you’re eagerly awaiting statements from your employer or private health insurer or still frantically sifting through smartphone photos and a shoebox to find all of your receipts from the past 12 months, this time of year is a hotly anticipated moment for millions of us banking on getting some money back.

Keeping track of all your deductions can be a nightmare, but the government is about to make it much easier.Credit: Louie Douvis

According to the Australian Taxation Office, more than 15.7 million people lodged an individual tax return for the 2023-24 financial year, with about 75 per cent receiving refunds that amounted to $132.9 billion. See what I mean about Christmas in July?

This year, though, if you’re preparing your own tax return, you might notice something a little different. And that is the presence of a little blue hyperlink alerting you to the federal government’s proposed “automatic deductions” scheme.

So, what is the proposed instant tax deduction, and how will it apply to you? I’m so glad you asked.

In a nutshell, the instant deduction would allow working Australians to claim a flat rate of $1000 in work expenses when doing their tax return, meaning those days of rifling around for receipts would officially be over.

If you’re among the fraction of people who treat deductions like a sport of what you can get away with, things are only getting tougher.

According to the government, this option will be available to part-time and full-time workers alike, but will not be available to those whose income is not drawn from labour (i.e. those who draw an income only from investments).

The Albanese government actually announced this plan during the election campaign, but among the wall-to-wall scare campaign ads it was easily missed by many. And though it won’t apply to tax returns lodged for the 2024-25 financial year or earlier, they’re clearly using this year to let as many of us know about the proposed policy as possible, and get us warmed up to the idea of saying goodbye to the task of record keeping.

If at this point you’re freaking out and worrying that you’re set to lose money or get a lower return than previously, fear not. If you are someone who claims more than $1000 in deductions come tax time (which is about 60 per cent of people), the current model will still be in place and little will change for you.

But make no mistake – this will be a big change for a huge chunk of people. According to the ATO, about 39 per cent of Australians claim less than $1000 in work expenses each year. In moving to an automatic deduction model, the government estimates it could simplify the tax process for 5.7 million people – the vast majority of whom (88 per cent) have a taxable income of $135,000 or less.

For its part, the ATO estimates the move to an automated model won’t just make the historically confusing and time-consuming process easier, but also much faster. So much so that this method would require just six steps, meaning you could comfortably lodge a return in under half an hour and still get the same return you otherwise would. By all accounts, that sounds pretty good to me.

But even though this might be the first time you’re hearing about it, the idea of automated deductions isn’t itself new. In fact, it was first raised by former Treasury secretary Ken Henry all the way back in 2010.

Fifteen years ago, Henry and the Department of Treasury noted: “For many people, the personal tax system is complex not only because of the rates scale and the lack of a coherent definition of taxable income, but also because they must deal with a large suite of complex dedication rules, numerous tax offsets and a variety of exempt forms of income.”

The complexity Henry spoke of also points to a bigger issue at play, which is the number of Australians paying professionals to help them lodge their annual tax returns.

Former Treasury secretary Ken Henry.Credit: Arsineh Houspian.

Don’t get me wrong, there are lots of legitimate reasons for needing, or wanting, to pay someone to help you ensure you not only lodge your tax statement correctly, but that you maximise your potential return. If you work several jobs, are self-employed, or receive income from investments, for example, a tax specialist can be of great help.

But for the average worker who has a single source of full-time employment and wants to claim standard deductions, even if they are more than $1000, a tax agent simply isn’t needed any more.

And yet, the ATO says, of the 15.7 million returns lodged last year, 60 per cent (9.5 million) were lodged by tax agents. If using an agent guaranteed us all mega-returns beyond our wildest dreams, maybe it would be worth it. But the average return for the same financial year was about $2900, and the average fee for a tax accountant ranges anywhere from $100 to $500.

Yes, there are still many complexities in our tax system, and it can be confusing to navigate. But spend five minutes on the ATO app or their online myTax tool, and you’ll see that a once overly complicated process has become a lot easier and much more streamlined.

What’s more, the ATO has gotten a lot better at auditing claims thanks to AI and data matching tools. Every year, the Tax Office is auditing people more regularly and consistently, and finding bogus claims – like the truck driver who tried to claim a pair of Speedos, or the mechanic who tried to claim a gaming console and TV (among other things).

If you’re among the small fraction of people who treat deductions like a sport of what you can get away with, things are only getting tougher. But if you are among the 39 per cent of Australians who claim less than $1000 in deductions, things are set to become a lot easier (and merrier).

Victoria Devine is an award-winning retired financial adviser, bestselling author and host of Australia’s No.1 finance podcast, She’s on the Money. She is also founder and director of Zella Money.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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