A standard deduction in place of the constantly misunderstood current $300 substantiation limit would be sensible, but there is a lack of political appetite from both sides of Parliament, says one tax expert.

* Article by Jotham Lian first appeared on accountantsdaily.com.au on 31st May 2019.

Speaking ahead of tax time 2019, HLB Mann Judd partner Peter Bembrick said the Tax Office’s constant focus on work-related deductions, with a particular focus on the $300 substantiation limit, shows there is a case for a standard deductions scheme.

“The $300 substantiation limit is constantly misunderstood, and there has been talk of bringing a standard deduction here like in the US where everyone can claim $1,000,” Mr Bembrick said.

“A lot of people think they can claim a $299 deduction, but the ATO is certainly awake to this and if they see taxpayers and tax agents where everyone of their clients spend $299 worth of deductions, they will go and have a look.

“The basic rule is, the $300 limit is there as a practical measure to say you don’t have to have all of your receipts for small amounts, but you still got to explain what you spent the money on.”

Last year, the House of Representatives Standing Committee on Tax and Revenue’s long-awaited Inquiry into the Taxpayer Engagement with the Tax System recommended that the work-related deductions scheme be reformed by introducing the standard deduction concept as proposed by the Australia’s Future Tax System Review, with taxpayers allowed to claim above the set amount by providing full substantiation through the tax return process.

“It could be a sensible idea and it certainly has been thrown up, but the government hasn’t shown any interest in it really, and I don’t know if the ATO is necessarily against it,” Mr Bembrick said.

“The government and Labor had other policy ideas on their mind, so it doesn’t seem to be a high priority at this stage.

“A standard deduction could be looked at like a tax rate reduction where everybody gets a deduction. Does that mean if you spend above that then you are able to claim more, but it means that people who are not currently spending and claiming anything get to claim up to that amount which is another way of giving them a tax cut.”