Back in 2017, the Leader of the Opposition, Bill Shorten, announced in his budget reply speech that the Australian Labor Party would cap the deductibility of fees paid in relation to managing tax affairs.
‘In 2014-15, forty-eight Australians earned more than one million dollars and paid no tax at all.
Not even the Medicare levy.
Instead, using clever tax lawyers, they deducted their income down from an average of nearly $2.5 million…to below the tax-free threshold.
One of the biggest deductions claimed was the money they paid to their accountants – averaging over one million dollars.
These individuals are not just counting cards in the casino – they are bringing their own dealer and their own deck.
Loopholes for millionaires means middle Australia pays more.
That’s why a Labor Government will cap the amount individuals can deduct for the management of their tax affairs at $3000.’
With the election called for 18 May 2019, this issue has taken on heightened importance.
Whilst no further details on the policy are presently available, there appears to be several practical issues for accountants and their clients as follows:
- Does the cap only relate to the cost of preparing a tax return, or does it relate to general accounting and taxation advice and more specialised tax advice?
- Is it a per tax return cap? A tax agent might charge more than $4,000 to prepare 4 years’ worth of outstanding tax returns bringing the total cost of each tax return to $1,000? Would this be deductible or because the invoice was issued in one financial year would a proportion of the amount charged be non deductible?
- If the accounting fees are incurred as part of running a business and are usually claimed as other business expenses, would the fee charged be exempt from the cap as they are not claimed as accounting fees or at label D10?
- Will the cap only relate to individual taxpayers or to other type of entities?
Given the extreme complexity of Australia’s tax system (which is getting worse annually), $3,000 is not an uncommon amount to pay to obtain appropriate and sound professional advice in order to remain compliant with the requirements of our tax system. Australian taxpayers can face many one-off events during their lives requiring one off specialised tax advice – for example, a capital gains tax event, residency issues, divorce, retirement, dealing with a deceased’s estate, etc. It is not just wealthy Australians that are affected by such events. They also affect the kind of people that Mr Shorten would describe as ‘middle Australia’.
Any taxpayer who has been through an ATO review or an audit only knows too well the inordinate amount of time and effort required in meeting the demands of the ATO for requests for information, detailed explanations of transactions and possible settlement negotiations.
Taxpayers have no control nor input over how the ATO conduct the audit or the amount of information requested, yet would they be expected to incur non-deductible cost in order to satisfy the ATO’s requests. Accounting and legal bills can add up very quickly, especially if the audit matter is complex.
This appears to be another example of the classic un-intended consequences…
For further insight into the proposed policy, please refer to the attached news article.
This article was co-authored by Charlene James – HLB Mann Judd Melbourne