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18 Apr 2019 Preamble – 18 April 2019

$3,000 cap Labor intends to impose on the costs of managing tax affairs - A deeper analysis

Labor’s proposal to disallow any amount above $3,000 spent on managing one’s tax affairs as a tax deduction is a misguided and inappropriate policy response.

I say that for a number of reasons including:

  • It appears to have been generated as a result of some 48 deduction claims which appear one way or another to have given rise to excessive amounts of foregone revenue. I know nothing about those 48 claims but no matter how egregious they are, it is hardly appropriate to respond by subjecting the whole taxpaying community to this broad-brush draconian response.
  • The well-heeled will continue to pay for these tax management services irrespective of the tax deductibility as they have the funds to do so. The people who will suffer the consequences are especially those who are experiencing change requiring careful tax advice which currently could depending on the circumstances be fully deductible but will now be restricted to a $3,000 deduction. This could include either partner in a divorce situation, either partner left after the death of a spouse or partner, and people in small business restructure arrangements.

All these can require complex and involved tax advice which will be far more expensive as a result of this proposal.

  • Ever since the introduction of self-assessment, the Australian Tax Office has effectively been using tax agents as quasi front-line auditors to weed out bogus or inflated claims.

While the majority of agents have done a very good job in playing that role, there is no doubt that some aspects of that work have not been done to the standard required. With that in mind there is now a clear and unambiguous process being undertaken to remove the worst elements through regulation and education. As a result, I am confident, and the latest figures do bare this out, that overall standards are improving.

That process however will not be helped by a heavy-handed approach that will make competent, entirely legal tax advice more expensive especially when provided by tax advisors who are doing their best to ensure their clients comply with the law.

This proposal is deeply flawed and should be abandoned at the earliest opportunity.

As always, we welcome your thoughts via the Vine Feedback inbox.

Kind regards,

Bob Deutsch, CTA