Australian Taxation System and Deductions
Discuss About The Managerial Finance Pearson Higher Education.
The issue that has been presented in the question is that the Australian Taxation Office has resulted in the publishing of the particular report that there has been a crackdown in regards to the work related expenses. This means that the particular figure of 12 million in that have been engaged in the Australian workforce have claimed deductions in regards to tax on account of other expenses. The Australian Taxation Officer had initiated a crackdown for the purpose of claiming the work related expenses and has been of the suggestion that there had been a significant loss to revenue in regards to a large number of taxpayers. There has been a further report of the fact that the claims in regards to the laundry and the clothing expenses have increased by a percentage of 20%. Moreover, during the last five years it has been found out that the 1.6 million people have been claiming a deduction of $150 and have been of the misconception that they claim the money without having to spend it (Bond and Wright, 2017).
This particular study aims to find out the fact that whether the Australian system has been such that the entities can claim deductions in regards to the work related expenses and whether the particular system is in constant need of reform. This study also discusses the advantages and the disadvantages of the current system.
The Income Tax Assessment Act 1997 provides that an individual is required to pay taxes on the ordinary income as per section 6-5 of the Income Tax Assessment Act 1997 and statutory income as per section 6-10 of the Income Tax Assessment Act 1997. The provisions under tax law provides that an individual can claim deduction for expenses incurred under section 8-1 of the Income Tax Assessment Act 1997. The existing structure of the taxation system in Australia has been discussed in order to understand the Australian income tax law. The primary features of the Australian income tax law has been mentioned as follows:
A particular deduction is permitted for the cost that has been incurred for the purpose of producing an assessable income. Moreover, it has been recognized that individuals that share the similar levels of income might result in the incurring of the different costs for earning that income (Prince, 2016).
In regards to the employment income, there has been a dynamic range of work related expenses which can be deducted on the grounds of travel, specific clothing and expenses that are educational in nature (Prince, 2016).
Work-Related Expenses
For the purpose of an expense to be deductible in nature there must be a direct connection between the process of the expense being incurred and the production of the taxpayer’s income that is assessable in nature. Moreover, it must be noted here that the expense should not be domestic or private in nature.
To be more precise, the Income tax Assessment Act, 1997 results in the application of the following provisions. It has been stated that under this act, a particular loss or deficiency in income can be deducted when it has been incurred in regards to the production of the assessable income (Prince, 2016).
The loss or deficiency will also be deductible when it has been incurred in regards to the carrying on of a business for producing assessable income.
A particular loss or outgoing will not be necessarily deducted when the loss is in the nature of a capital loss
A outgoing or loss will not be necessarily deducted when the loss is domestic in nature or when the loss is private in nature
When an outgoing or a loss has been incurred on the basis of exempt income or non-exempt and non-assessable income then the loss will not be deductible in nature
Another important condition that should be considered is when the provision of this particular Act results in the prevention of the deduction of the loss (Tran?Nam caes et al., 2016).
It has been further mentioned in the Income Tax Act that in regards to the expenses in relation to education, a particular deduction can be claimed when the activity in regards to education has established a direct connection with the current employment of the taxpayer by the process of either resulting in the improvement or maintenance of the specific set of skills that is required for the purpose of employment or will very likely result in an increased income.
Furthermore, it has been mentioned that the no deduction will be allowed in regards to educational activities when it results in the enabling of the taxpayer to get employed or to obtain new employment or to result in a new set of income earning activity
The particular expenses from the educational sector that can be claimed for deduction include the expenses for formal education that is education from college, university, school and other places of education. In regards to the particular section of informal education, it can be listed as the expenses from the conferences, seminars workshops and other training modules (Hallsworth, 2014).
Education-Related Expenses
Moreover, it can be mentioned here that a particular deduction will not be allowed for the for the initial 0 self-educational expenses.
This can be understood more clearly with the help of the information that has been provided under the Section 82A (1) of the Income Tax Assessment Act which mentions the fact that the initial $250 in regards to a prescribed course of education cannot be deductible.
A number of tax amendments in regards to the legislations of tax has been further mentioned under the particular Section of 82A. It has been observed that since the year of 1972 that the self-educational expenses have been included in the income tax law. Then in 1975 it had been decided by the Government that it wanted to replace the concessional deduction with one of the concessional rebates. As because the amount of concessional rebate had been $250 the section 82A of the Income Tax Assessment Act 1936 resulted in the deductions in regards to the expenses of self-education (Tran?Nam caes et al., 2016.).
Therefore, in regards to the current taxation system in Australia it can be observed that the logical rationale behind the current system is that there are important equity reasons for the purpose of maintaining the particular approach of fair recognition. The approach further states the fact individual having the similar level of income might incur different costs for the purpose earning that particular income (Bond and Wright, 2017).
The advantages of the current system of taxation in Australia comes with the following advantages:
Globalization and digital disruption – globalization and digitalization of the economy are the positive developments that have been leading to the reshaping of the world. It must be noted here that Australia depends on corporate tax more in comparison to the other countries. Moreover, much initiative is taken by the Government of the country for the purpose of improving the tax structure and leading to a much safer tax environment (Tran?Nam caes et al., 2016).
Tax administration of Australia – A strong policy framework and a good legislative body has resulted in the development of a well-resourced and administration of tax that is skilled in nature. The government of Australia has also been providing $876 million to the Australian taxation Office over the period of the next three years for the purpose of continuing with the Shifting of Profit and the International Structuring Program.
The Government of Australia has also taken much initiative for the purpose of removing the tax avoidance and the other schemes that have been in the nature of the evading the tax that has been incurred by the individuals on the basis of their assessable income.
Advantages of the Australian Taxation System
Digital tax loophole – the digital tax loophole refers to the online purchase of goods and services by the customers that has further complicated the tax system in Australia. It has been further stated that the Goods and Services Tax that has been applied to the digital products and services has to be applied very carefully in regards to these online items. Furthermore, it has become very easy for the tax evaders to evade tax via this particular system.
The issue of work related expenses is also a potential disadvantage of the Australian taxation system. It has been mentioned in the reports that the work related expenses have been the most common tax deduction particularly in the year of 2012 and 2013. To be precise, 63% of the total value of the deductions comprised of the work related expenses.
The work related expenses of the Australian taxation system has been exploited by certain entities while the other entities have been of the opinion that the work related expenses are crucial and provided the proper scope to the tax payers for the purpose of applying for legitimate deductions on their assessable income.
It has been found out that the Australian taxation system has been relatively lenient in regards to the extent up to which the work related expenses have been allowed. The expenses have also added to the complexity to the structure of income tax that has been personal in nature. Moreover, it has resulted in the compliance with the costs that have been imposed on the taxpayers. This can be further understood from the related figures. The work related deduction that have been claimed in the country has increased from A$7763 in the year of 1999 and 2000 to the particular amounts of A$16362 in the year of 2008 and 2009. There has been no particular reason as to why there has been an increase in the amounts of deductions from the work related expenses. It has not been clear as to why the employees should make more payments in regards to the expenses that have been essential for their work. For the better understanding of the situation a particular example of Canada can be taken. It must be noted here that Canada utilizes a similar tax structure as present in Australia. It has been estimated that the tax system in Canada has been estimated to be within a range of 10 to 15 percent in regards to the work related expense structure and it has been found out that this particular 10 to 15 percent has been invalid in nature. If this similar figure is applied in case of Australia it can be found out that the claims in regards to work related expenses would add up to $1.4 to $2.1 billion in the year of 2006 to 2007.
Disadvantages of the Australian Taxation System
Therefore, in order to answer whether the taxpayers have been over claiming or not it can be stated that the tax system in Australia has been vulnerable to tax evaders. The particular deduction that can be claimed upon work related expenses has been exploited by the taxpayers, no doubt. However, this does not present the provision to the Australian taxation Office or other regulatory bodies to abolish the tax deductions in regards to the work related expenses structure. The high officials of the Australian taxation office have been noted to quote that the work related expenses have been a very appropriate part of the taxation system. Moreover, it has been found out that only 4% of the total work related deduction that have been incurred account for the individuals that have been withholding the tax revenue in Australia. Therefore, the complete abolition of the work related expenses deductions would only result in the covering of the cost of a meagre amount of in regards to the total personal income tax rates.
The only recommendation that can be applied to this particular situation is that the officials of the Australian taxation Office should analyze the sub sections of the deduction especially in regards to work related expense deductions for the purpose of determining whether the particular expense should be permitted a deduction or not.
Conclusion
The particular conclusion that can be arrived at refers to the fact that the taxation system in the country of Australia is exposed to the practice of tax evading. The proper initiative should be taken by the Government and the Australian Taxation Office for the purpose of ensuring that the element of work related expenses in the tax structure is utilized properly. Therefore, based on the above discussion it can be concluded that there is a need to reform the existing system of claiming deduction for work related expenses
References
Bond, D. and Wright, A., 2017. A Snapshot of the Australian Taxpayer.
Braithwaite, V. (Ed.). (2017). Taxing democracy: Understanding tax avoidance and evasion. Routledge.
Chardon, T., Freudenberg, B., & Brimble, M. (2016). Tax literacy in Australia: not knowing your deduction from your offset. Austl. Tax F., 31, 321.
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson Higher Education AU.
Hallsworth, M. (2014). The use of field experiments to increase tax compliance. Oxford Review of Economic Policy, 30(4), 658-679.
McClure, R., Lanis, R., & Govendir, B. (2017). Analysis of Tax Avoidance Strategies of Top Foreign Multinationals Operating in Australia: An Expose.
O’Keefe, P., Smith, B., Shimeld, S., & Minas, J. (2015). The Abandoned Education Cap Policy: Public Participation in Tax Reform Consulatation. Austl. Tax F., 30, 3.
Prince, J. B. (2016). Tax for Australians for Dummies. John Wiley & Sons.
Tran?Nam, B., Evans, C., Krever, R. and Lignier, P., 2016. Managing tax complexity: the state of play after Henry. Economic Papers: A journal of applied economics and policy, 35(4), pp.347-358
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