Standard Tax Deduction for Work Related Expenses – Is it worth it?

By Juris Stega

In the 2010-11 Federal Budget the Treasurer announced that the Government would introduce a standard tax deduction for individual taxpayers, to cover work related expenses and the cost of managing tax affairs.

On 30 September 2011, the Government released exposure draft legislation for public consultation. The draft legislation provides for a standard tax deduction of $500 for the 2012-13 income year with an increase to $1,000 for the 2013-14 income year and subsequent years.Taxpayers whose claims for work related expenses exceed the standard deduction will still be able to claim deductions for their expenses.

The Government expects up to 4.6 million taxpayers to take up the offer of the standard tax deduction. However, the Government’s expectations may be too optimistic as Australian Taxation Office (ATO) figures for the 2008-09 income year reveal that the average work related expenses claim is $2,039 (up from $1,950 the year before). Based on the tax returns prepared by our practice in the past year, this figure will increase in the 2009-10 and future income years.

Unless a taxpayer has simple tax affairs with salary income only and minimal claims for deductions, the standard tax deduction when compared to the average claim, will not prove cost effective. The only benefit being that no substantiation is required for the standard claim.

Taxpayers who use their own assets such as car or a computer for work purposes, or with business or investment income, including rental property income, will derive no benefit from a standard tax deduction and should continue to claim whatever they are entitled to claim. Using an accountant to prepare your tax return will ensure that you maximise your legitimate tax deduction claims. For these taxpayers the standard tax deduction is not an option.

The introduction of a standard tax deduction may be the first step in the introduction of an optional tax return system, a measure recommended in the 2010 Henry Tax Review, but rejected by the Government last year. An optional tax return system exists in New Zealand where individual taxpayers with domestic income from salary, interest and dividends are not required to lodge tax returns. Optional tax return systems rely on timely and accurate reporting of income to the ATO by employers, financial institutions and share registries. Based on information contained in current client reports extracted from the ATO by tax agents, the present system for reporting income is anything but reliable.

The introduction of the standard tax deduction is not guaranteed as it is dependent on the successful passage through Parliament of the mining tax measures.

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