David Coleman (Banks, Liberal Party) Share this | Hansard source

I will now make a short statement in relation to this important report. The committee's review on tax deductibility focused on enhancing compliance in relation to tax deductions. The committee noted that $100 million of abuse was identified in a single year by the ATO through a review of work related expenses and claims of about one in 1,000 taxpayers. The committee sees considerable scope for improvement in this area and has recommended the ATO review its compliance activity in relation to workplace related expenses.

The committee's view is that the ATO should remain proactive in identifying areas that are at risk of systemic abuse. Accordingly, the committee recommended that the ATO be instructed to analyse each detailed subcategory of tax deductions and identify areas that it believes are particularly open to systemic abuse and overclaiming. The ATO 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.

The committee also considered options to simplify the personal and company income tax systems and examined options to broaden the base of these taxes in order to fund reductions in marginal rates. In particular, the committee's review examined the areas of workplace related expenses and interest deductibility. While the committee sees opportunities to improve the operation of the tax system and has recommended changes to strengthen compliance, the committee supports the ongoing ability of Australians to claim legitimate deductions.

In relation to workplace expenses, the committee saw little rationale for altering existing arrangements that allow Australians to claim personal income tax deductions for valid WREs. WRE deductions represent only four per cent of individual and other withholding tax revenue. This means that even the complete abolition of workplace related expenses deductions would only cover the cost of a very modest reduction in personal income tax rates.

Figures currently provided by the Treasury show that in 2014-15 there were $21.8 billion in WRE deductions claimed, comprising almost two-thirds of total deductions. However, this is not an indicative cost to the budget of WREs, because the amount a person received is calculated based on their taxable income. It is for this reason that the PBO was asked to provide the total value of selected income tax deductions and estimates of the revenue forgone. While the PBO provided a general estimate of the cost to government revenue WREs, the Treasury was unable to provide a confirmed figure. In the committee's view, it is important that the actual cost to government revenue of WREs is clearly understood in order to inform budget planning. It is for this reason that the committee recommends that Treasury provide a clear estimate of the actual cost to government revenue of WREs so as to properly inform policy in this area.

The committee heard that, while significant compliance burdens are associated with Australia's personal income tax system, technological advancements and assisting with simplifying taxpayers' experience with claiming deductions and lodging their tax returns are improving. The committee has recommended that the ATO continue with this work, which shows promise in utilising technology to streamline tax processes. In relation to company income tax deductions, the committee saw no evidence for change.

I commend the report to the House.

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