Labor’s $3000 limit on accounting deductions will only hit millionaires.
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.
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?