Australia Institute supports cap on tax advice deductions

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Bill Shorten’s Budget reply speech earlier this month outlined a plan to limit the tax deductions available for the cost of managing tax affairs to $3000. New analysis of tax data shows this change would affect very few Australians.

Shorten said that one of the biggest deductions (on average around $1 million) claimed by millionaires who paid no tax was to their accountants.

“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,” he said.

“That’s why a Labor Government will cap the amount individuals can deduct for the management of their tax affairs at $3000.”

The Australia Institute has researched the data and found that the change would have no impact on most Australians.

The majority of Australians make no claim for managing their tax affairs, and even among those in the top three per cent of income earners, most claims do not exceed the $3000 mark.

However, the policy does stand to net gains for the government due to the size of the claims of aggressive tax minimisers, some of whom claim over $1 million in deductions for tax advice annually.

Those on over $1 million dollar incomes deduct an average of $12,657 for the management of their tax affairs.

“A $3000 dollar cap will go unnoticed by the vast majority of Australian taxpayers,” senior economist at The Australia Institute, Matt Grudnoff said.

“One of the most remarkable figures we uncovered was the average deduction for those who earn over $1 million dollars and don’t pay any income tax. They spent, on average, over $1 million dollars on tax advice in a year.

“This loophole is legal, but when it’s being exploited in such an excessive way it probably doesn’t pass the pub test for most taxpayers,” Grudnoff said.

One of the interesting findings from The Australia Institute’s research is that nine out of the top 10 electorates with the highest cost for managing their tax affairs are Liberal strongholds, with the ALP-held Melbourne Ports the only exception.

Read The Australia Institute report.

Opinion: Closing obvious tax-dodging loophole a no-brainer

Government attempts to make Australia’s highest income earners pay their fair share of tax are always a bit like a game of whack-a-mole. As soon as one loophole is closed, accountants are able to find another one that has opened up and the chase seems to go on forever.

However, Labor’s latest policy does seem like a very sensible way of addressing the issue, taking away one of the easiest ways hide money from the ATO, while having zero impact on middle and low-income households.

Any time tax figures highlight the incredibly low tax paid by the country’s highest earners, Australians are rightly furious, especially when the Government is giving big business a $65 million tax cut.

The change seems logical. Not only will it force the very highest income earners to pay more of the tax that they owe, it will raise $1.8 billion over the next decade according to Shadow Treasurer Chris Bowen.

Unfortunately, the Liberal Party doesn’t seem to have much interest in this proposal, and once you look at the electorate breakdown of those most affected it is easy to see why. Prime Minister Malcolm Turnbull’s Wentworth electorate has the second-highest average cost of managing tax affairs in the country, behind Assistant Treasurer Kelly O’Dwyer’s seat in Higgins.

What do you think? Should there be a cap on the deductions available for managing your tax affairs? Do you employ a tax agent or do your taxes yourself?

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Written by Ben

61 Comments

Total Comments: 61
  1. 0
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    Its not rocket science, someone earns a million dollars a year and claims that every cent of the money goes on tax advice and they don’t actually pay tax. Indeed cap it and make no exceptions, including the ministers and their staff themselves. They should be subject to the same rules as everyone else.

  2. 0
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    I don’t use accountants myself but do understand that returns which are complex need more work than that of a wage earner.
    There are better things to target than this and perhaps the many deductions, for want of another word, and the accounting fiddles and offshore tax shelters need to be the ones targeted. That is I suggest where the real actiom is in tax avoidance and the area this government does not want to go. I wonder why.

    • 0
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      Mick,
      I used a tax accountant when I was working because of allowances etc, never got near a $3000 bill, why should a person earning very income use tax management deductions to reduce his taxable income to nil or very low, this also reduces their exposure to the medicare levy (medicare levy should be on gross tax for individuals earning in excess of $200,000 to pluck a figure out of the air they would not be able to avoid it then)

    • 0
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      Liberals are simply true to form by not touching the rich tax avoiders using tax loopholes.

      However, Labor (Shorten / Bowen) are also pathetic when they pick up only one method used for evading reasonable tax and suggesting a fix (because the media reported factual ATO information), and ignoring the rest of the loopholes. After 6 years of inaction in Govt, they are still ignoring their own internal members who have been recommending a Buffet-rule type of tax as an alternative solution – whether 35% or whatever on Gross Income without allowing any deductions as a “Minimum Tax”.

      So the question remains – who can the people vote for to get fair rules?

  3. 0
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    IF THE SINISTER MILLIONAIRES ARE NOT PAYING ANY TAX, HOW DOES A TAX DEDUCTION HELP THEM OR HOW DOES DENYING A DEDUCTION HINDER THEM??
    THOSE PROVIDING TAX ADVICE ARE ALSO PROVIDING BUSINESS STRUCTURING ADVICE, FINANCIAL ADVICE ETC ETC….THIS IS TYPICAL POLITICS OF ENVY WHICH WILL ACHIEVE FAR FAR LESS THAN STATED

    • 0
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      Mark they are NOT payong tax because the DEDUCTIONS bring their taxable income down to the threshhold

    • 0
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      Very touchy there Mark.
      You are muddying the water mate as there are all shades of grey here. The important issue is that the top end continues to refuse to release the PERCENTAGE of tax it pays and this is the figure that matters. The ATO has information so no problem releasing it…..say the % of tax paid by income earners earning over $400,000 pa.
      Your call about ‘envy’ is the normal red herring which often comes from the top as it seeks to hide its indiscretions. I seem to recall that our PM has managed to hide his financial dealings now from scrutiny recently. Why might that be?

    • 0
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      ” I seem to recall that our PM has managed to hide his financial dealings now from scrutiny recently. Why might that be?”

      Ummm…. Perhaps because it is none of your business! He is breaking no laws.

    • 0
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      KSS, of course he breaks no laws, when you are in a position to ensure the laws do not adversely affect oneself you can ensure any laws which may adversely affect yourself do no get into the statute books. The current tax laws were bought in by previous governments to the advantage of high wealth corporations and individuals and the current government shows no inclination to change them.
      Nevertheless the way one manages ones personal affairs (particularly financial affairs) reflects on ones integrity. For instance if they are using overseas tax shelters to avoid Australian tax would be a pertinent question of those holding political power.

    • 0
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      And perhaps he does not want people to know that the leader of the country has his fortune stowed in offshore tax havens. God forbid that the public might see (legal) tax avoidance from any from the big end of town. Not to be tolerated!

  4. 0
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    High net worth individuals are required to complete a much longer and more detailed tax return form than others. It is a different form and amounts to discrimination. This proposal increases that discrimination.

    • 0
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      No so Mark. Tax returns for individuals do not vary that much. High income earners may how ever have other income streams from investments and other business interests. Then the treturns match their activities and charges apply by their tax agents. And so they shoud.

    • 0
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      I do not oppose reasonable costs for managing affairs but draw the line where highly paid lawyers and accountants are employed to devise schemes to legally defraud the tax system. Those costs should never be allowed as deductions.

    • 0
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      Mick, If the action is legal then it is NOT defrauding anything or anyone. Tax minimisation is perfectly legal and I would suggest a very large number of taxpayers do that every year (right down to the person claiming the $300 a year ‘business expenses’ which don’t have to be receipted).

      Legally defraud????? Simply not possible. Its either legal or it isn’t.

    • 0
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      I don’t know how it increases discrimination, wouldn’t a change is the deduction threshold just be closing as the above article says, a legal loophole that’s being exploited?

    • 0
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      I think you are missing the point KSS in that it is the laws drawn up to favour the wealthy that are discriminatory and as such unfair.
      A complication in all this was Sir Garfield Barwick, a former Liberal politician, when Chief Justice of the High Court set a precedence by insisting that a law must be interpreted by its wording and not by its intent.
      This opened the door to the wealthy employing highly paid lawyers and accountants to minutely examine laws for loopholes that would favour their tax deductions.
      It was reported recently that a number of people on gross incomes exceeding 2 million per year were using a deductions for tax return preparation of 1 million to minimise tax. Their other deductions eliminated their tax bill entirely. This is, by current laws, quite legal but is it fair and is it morally ethical?

    • 0
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      KSS: who do you think makes the laws for the top to rort the system? And why are loopholes NOT closed as soon as they appear?

      The whole point about fraud, legal or otherwise, is that it should not be permitted. Your post suggests that you may be a player in this game and it so you are a disgrace to this country which was founded on fairness rather than how much you can avoid by invoking schemes of arrangement which are fraudulent in their very nature. Forget about ‘legal’. The law is an ass. Talk about the difference between right and wrong.

    • 0
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      How dare you Mick. If anyone is the disgrace it is you with your rude and abusive comments to me and others. I have repeatedly said I am not wealthy by any means. I earn well under the national average and what I have I have worked damn hard for.

      I just don’t have the jealousy gene that you seem to have multiple copies of. Pull your head in!

    • 0
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      To KSS, obviously we need to change the law make it illegal then it would become FRAUD if indulged in.

      It is not reasonable for some individuals to pay very large amounts for advice on how to avoid paying their share of tax in this country where they derive all of their benefits and then be able to claim very large deductions (CAP the deduction limit for tax advice for INDIVIDUALS by all means) , it has not been uncommon for high net worth individual to so structure their taxable incomes that they are “eligible” for welfare payments meant for people who need it. (In my mind legal or not that is FRAUD and unethical)

  5. 0
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    It certainly is a no-brainer that this loophole should & must be permanently closed for the rich & ludicrously wealthy. It doesn’t make any ” pub sense ” at all that a 1 million + income earner would willingly pay a million bucks on ” Tax Advice ” just to pay no tax whatsoever on their income. Any rich person who has a ” moral compass ” would see/recognise/acknowledge the ” value ” of paying their fair share of the overall tax burden Australians pay. Because rich, wealthy people drive on roads, use public transport – when it suits them, use our public hospitals – when they have no alternative, expect to be kept safe by our law enforcement personnel . . . . the list is endless.

    Folks; it is the taxes ” WE PAY ” that enable us to enjoy what we consider as ” essential services provision ” by Federal & State Governments. Not a single individual of the 1 to 5 % of Australia’s wealthiest population has any right to ” bot fly or sponge ” off all non-wealthy taxpayers who often work much harder & longer hrs just to earn an honest living, & pay their fair share of tax.

    • 0
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      I’m sure those in the pub would like to pay less tax too if only they knew how.

    • 0
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      You are correct Geezer but the issue is that the rich can manipulate the system whilst average earners cannot. If they could the loopholes would be closed tomorrow.

    • 0
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      Raises the question, is GST payable on ‘tax advice’? If so a $1M tax advice bill would recoup $100k in GST.

    • 0
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      GST deduction would only apply if you registered with the ATO for GST.

      GST for individuals is just another tax.

      From what I understand in this article, it is targeting individuals not companies.

  6. 0
    0

    What an extremely sound and fair way of managing the excessive tax deductions of those that do not seem to pay their way. This may cause a downturn in some accounting firms profits but that is in a good cause. We may also see a rush of newly formed companies as the lemmings scamble to retain the perks.

  7. 0
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    Placido, I thought it was loopholes that were being attacked, not deductions; because a deduction to one person is INCOME to the recipient accountant!

    • 0
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      If the cost of using loopholes becomes less attractive (reduced deductions for advice) then there would be less use of the loopholes. I guess the accountant losing that income could offset it by claiming advice deductions through the services of another accountant (individuals would have tax management deduction caps applied in this proposal not businesses) excessive deductions for tax “management” is in itself a LOOPHOLE.

    • 0
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      Nay it’s easy than that.

      The accountant is a company registered overseas possibly belonging to person claiming the tax deduction and they pay little if any income in Australia.

    • 0
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      Probably need both Mark. The ATO needs to have powers to determine what is fair and what is not.

  8. 0
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    Earn $5 million give $3 million to a charity run by your wife, rest to your accountant which you own and is registered in the Cayman Islands and you pay no tax but get the benefits of the whole $5 million.

  9. 0
    0

    This article, and some of the comments, suggest that the very rich pay no tax and this is not the case. Some of the very rich are very good at what they do to earn their money but are not trained in the complex tax laws of Australia so they turn to those who are expert in that area. Just as wage earners claim the donations, union fees etc, the very rich are claiming their legitimate deductions which includes paying for someone to assist completion of the tax return. This suggestion by Shorten is just the “tall poppy” syndrome and the usual Labor politics of envy.

    Labor has moaned about people who are using offshore tax havens and multinationals which are avoiding tax with clever accounting but they haven’t formulated a plan to stop these rorts. They are aiming for low hanging fruit but they forget that these are the companies which employ people who, in turn, pay their taxes.

    • 0
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      The issue here is if the rich are paying a fair PERCENTAGE of their income in tax or not. Under 10% is not acceptable if they are on the top marginal rate. Nor is the ability for massage the figures and claim dubious deductions which you or I would have denied if we included them in our returns.
      You are correct about both sides not changing the laws. Offshore tax shelters are not going to be touched. Why? And then we have the whole minimisation industry which is rife with tax avoidance. Thinking of putting my dog and cat in a Trust so that I can income split and then claiming some other deductions for each of them as well. That’ll work if Mr Fugia the accountant puts in the return for me…….

    • 0
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      There are also Family Trusts which are used to minimise tax but it is almost impossible to find out details on those.
      It appears a large number of LNP politicians have family trusts as do some ALP ones.
      Why are so many politicians so involved with tax minimisation? It certainly indicates that it is hopeless to expect Parliament to legislate fair and equitable tax laws when those who will make the decisions are up to their necks in reducing the amount of tax they themselves pay.
      We really need a Royal Commission into the taxation system in this country. Don’t hold your breath tho’.

    • 0
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      Thank you MICK, your figures are intriguing. Are you saying that the rich are paying under 10% or is that the figure that you find unacceptable? The deductions you and I would find unacceptable is irrelevant because we aren’t making the judgement on what is acceptable and what is not. Australian tax law as defined by the ATO makes those decisions and I’ll run with that.

    • 0
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      A ball park figure only Old Man.
      Many rich pay no tax at all on their companies and whilst the ATO may want them to they are able to refuse. Even the ATO does not have the resources to spend the next 8 years in the courts whilst the big earners have an unlimited supply of money to pay its legal teams We’ll have to agree to disagree about the tax laws as we may with the current tax cuts for the rich. Both were pushed through by the rich man’s Party for the benefit of its rich election funding contributors.

    • 0
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      @MICK, why not cut the maximum earnings of any individual to $100,000. Exceed and then slap on a punitive tax rate of 95%. Maybe that would be more to your liking.

  10. 0
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    OMG – here we go again -if someone is smart enough to earn a quid – quick, take it off them and give it to someone who isn’t (or a so-called public servant).

    Those with complex affairs can easily have accounting/tax/legal costs of more than $3000 pa. simply because of complexity of red tape and regulation in Australia – look at the size of the Tax Acts & regulations.

    Leftie, rent seeking economists at the likes of AI have no idea or experience of the complexity of the real world of commerce and business and the interface to personal income.

    • 0
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      So are you advocating that there be no threshold for deductions to manage your tax affairs?

    • 0
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      Cool so one can keep their accounting company in the Caymans so they pay no tax.

    • 0
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      Why should there be a threshold to any legitimate business expense – and how one arranges one’s business affairs is one’s personal choice – just ask, say, Twiggy Forrest, Graham Richardson, Gina Rinehart, Bill Shorten,Malcolm Turnbull, Lindsay Fox, many military, police diplomats, politicians, tradies to name but a few.

    • 0
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      Not a Bludger – this proposed threshold is for individuals not companies.

    • 0
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      Trees – I know that, which is why I referred above to the interface between company taxes, dividends and personal income – viz., imputation credits which when credited can mean reduced or no personal income tax – because significant tax has already been paid prior to distribution on the earnings.

    • 0
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      Thanks for clarifying what you meant.

      Understand now that you were pointing out the the individual/company relationships,so this threshold won’t affect them, correct?

      Miliary, police, tradies etc. will be restricted by the threshold, why is that a bad thing?

    • 0
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      In part, Trees – but it is the same wether one is Gina Reinhrart or a tradie.
      If one takes one’s earnings from dividends, paid from after tax profits, imputation credits for the tax paid are in the hands of the dividend recipient.

      The purpose is to ensure that tax is paid only once not twice.

    • 0
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      I have no issues with any taxpayers with complex affairs to be able to deduct $3000 from their taxable income. But bear in mind that even the small fry will then be deducting this amount.
      I dare say the real cost of managing affairs and paying people to dream up tax schemes for the big boys might be far greater and have at last one zero at the end of $3000, and maybe more.

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