Tax deductions inquiry report by Parliamentary Committee tabled – recommendations include keeping ‘work related expense’ deductions but quantifying and policing them better and no significant change for companies (particularly interest deductions)

On Thursday 15 June 2017, the House of Reps Standing Committee on Economics tabled its 119-page Report on the inquiry into tax deductibility.

It’s recommendations were directed to personal tax and income tax (which are extracted below).

1. For personal deductions, the focus was on ‘work related expenses’ which it concluded should continue, but with more explicit and rigorous quantification and policing.
2. For company deductions, the focus was on interest deductibility, which it again recommended should remain as is, but with continued focus on the BEPS and other anti-avoidance initiatives.

The Committee’s view is that the ATO should remain proactive in identifying areas that are at risk of systemic abuse and it recommended that the the ATO be instructed to analyse each detailed subcategory of tax deductions and identify areas it believes are particularly open to systemic abuse and overclaiming, then ranking them in order of the size of the financial risk they represent to Government revenue, and recommend amendments to law or policy where appropriate.

[APH – Economics Committee’s Report; FJM; LTN 111, 15/6/17]

Extracts from the Report

Personal income tax deductions – recommendations

1. 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. 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.
2. The Committee recommends that the Australian Taxation Office be instructed to analyse each detailed subcategory of tax deductions and identify areas that it believes are particularly open to systemic abuse and over-claiming. The Australian Taxation Office should then rank these subcategories in order of the size of the financial risk they represent to Government revenue, and recommend amendments to law or policy where appropriate.
3. The committee recommends that Treasury be required as a matter of priority to provide a clear estimate of the actual cost to Government revenue of Work Related Expenses as necessary to properly inform policy in this area.
4. The committee recommends that the Australian Taxation Office review its compliance activity in relation to Work Related Expenses. The fact that $100 million of abuse was identified in a single year through a review of one in one thousand taxpayers suggests that there is considerable scope in this area.
5. The committee recommends that the Australian Taxation Office continue with technological development and progress on pre-filling of returns to support the implementation of the reform agenda and to simplify taxpayers’ interaction with the tax system, with the eventual goal to minimise, and ultimately remove, the need for taxpayers to amend pre-filled returns.

Company income tax deductions – recommendations

1. The committee recommends that the Government maintain the current company income tax framework that allows the deductibility of interest incurred by businesses in deriving their income.
2. The committee recommends that the Government continue its important work on the implementation of the G20/OECD Base Erosion and Profit Shifting (BEPS) recommendations to further strengthen Australia’s rules addressing tax integrity.