Miscellaneous 2022

The exploitation of tax professional expenses for tax minimisation: evidence from Australia

Source: Australian Tax Forum Journal Article

Published Date: 1 Jul 2022

 

Existing literature suggests that tax advisers can play important roles as both tax enforcers and tax exploiters. Specifically, they can ensure their clients are fully compliant where the tax legislation and rules are clear and certain but can also exploit provisions that are uncertain or ambiguous to the benefit of their clients. This article utilises the recently released Australian Taxation Office ('ATO') Longitudinal Information Files ('ALife') to identify and quantify the extent of this 'tax exploitation' behaviour by tax advisers. By using over five million observations in a four-year period from the ALife data set, this article finds that high-income taxpayers in Australia are best able to mitigate their tax liabilities by taking advantage of the tax deduction available for the cost of managing their tax affairs. Further, this cohort of taxpayers exhibits aggressive tax avoidance behaviour that is not as evident in individuals who are not high-income taxpayers. In addition, this article finds that the imposition of a carefully calibrated cap on the amount that can be deducted for the cost of managing tax affairs is likely to be an effective policy tool in curtailing such behaviour.

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Youngdeok Lim

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Ann Kayis Kumar

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Chris Evans

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