Is it time to axe the tax return?
A simpler standardised process could save time and be less of a drag on the economy
A record number of Australians have lodged their tax returns early in the hopes of getting their hands on a hefty refund. However, a senior UNSW academic asks if it is time for Australia to abandon the process of filing an annual tax return.
Kathrin Bain, a lecturer in the school of taxation and business law at UNSW Business School, says many Australians may love putting in a tax return in the hope of claiming back some money, but this year is unusual.
“Normally, a tax refund means we are just claiming back money we’ve lent the government, interest free. Put in those terms, the tax return just seems like an expensive drag on the economy,” says Bain.
This year’s early rush of eager tax returnees has been attributed to the tax cuts passed in parliament last week. Low and middle-income earners should receive up to an extra $1080 in their tax refunds this year.
“It’s understandable that with the additional tax offset this year for low and middle-income earners, that people want to lodge their returns as soon as possible. It’s likely that many of the people who have filed already have very simple returns: they are employees with little or no deductions, with most of their information already pre-filled by the ATO.
"For those taxpayers, doing their own return may be as simple as checking the ATO pre-filled figures, calculating a few minor deductions and then submitting. However, a number of these taxpayers will still visit an accountant, at several hundred dollars a year,” says Bain.
Over two million people this year have already filed their tax returns – a record number so early. However, she questions that if these people have relatively simple tax returns, why they should have to file a return at all.
New Zealand removed the obligation to file a tax return a decade ago. However, that went hand in hand with removing work-related deductions, and Bain doesn’t think that would go down well in Australia which is so wedded to claiming back tax.
“It’s part of the culture. And indeed justified – if you spend money on something for work you should claim it back. However, perhaps introducing a standard deduction [which was suggested in the 2010 Henry Tax Review], would make more taxpayers feel comfortable with lodging their own tax returns.
"For a lot of taxpayers, it would remove the need for any deduction calculations. Those taxpayers who want to calculate their actual deductions would still be allowed to do so. Eventually, if claiming the standard deduction became the norm, this could lead to an eventual phasing out of tax returns for many taxpayers, like has happened in the UK. Most employees there never file a return, and essentially just accept the tax office’s calculation.”
Any attempt by the government to move away from a system of work-related deductions and refunds would have to be met with a reduction in individual tax rates, and Bain doesn’t see that happening anytime soon.
“Certainly, the current government has indicated a desire to lower tax rates in the long term. However, current changes have been focused on increasing existing tax offsets, which will increase the expectation of getting a tax refund each year and further embed the tax refund culture,” she says.