Removing the Hassle of a Shoebox Full of Receipts

Australian taxpayers will be able to claim a $500 standard income tax deduction, without receipts, instead of going to the hassle of using receipts to claim work-related expenses and the cost of managing their tax affairs.

Assistant Treasurer Bill Shorten today released a discussion paper outlining the proposed standard deduction for individual taxpayers, which was announced in the 2010-11 Budget.

“A standard deduction removes the hassle of a shoebox full of receipts for Australian taxpayers. It simplifies income tax returns for individuals and the Australian Taxation Office,” Mr Shorten said.

From 1 July 2012, the $500 deduction, which will rise to $1,000 from 1 July 2013.

“Providing a standard deduction will remove this burden for many taxpayers and increase their tax return. No taxpayers will be disadvantaged. Taxpayers with expenses above the standard deduction will be able to continue to claim those expenses when lodging their tax return under the existing rules.”

The government thinks that the standard deduction is expected to be a chosen by approximately 4.6 million taxpayers in 2012?13,  and by 6.4 million taxpayers in 2013-14.

Of those that benefit, around 66 per cent would have a taxable income of less than $50,000 in 2012?13 and around 60 per cent would have a taxable income of less than $50,000 in 2013-14.

“A standard deduction makes it easier for working families to get the best possible tax return and continues the Gillard Government’s ongoing efforts to simplify the tax system. I encourage interested taxpayers and others to make submissions to the discussion paper,” Mr Shorten said.

The Government values consultation and invites interested parties to view the discussion paper and provide comments. Copies of the discussion paper can be obtained from the Treasury website (www.treasury.gov.au). The closing date for submissions is 8 April 2011.

The original $300 exemption from needing receipts was introduced way back when Paul Keating was treasurer and $300 was  a high level of deductions. These days most union members pay close to $500 in that one expense alone.

Non-commercial losses

If you have a net loss from a business activity you carry on as an individual, either as a sole trader or in partnership, the non-commercial loss rules will apply. These rules determine whether you can use your business loss to offset income from other sources.   

Changes to the operation of the non-commercial loss rules apply for the 2009-10 and later income years.

The key changes include:

  • The introduction of an income requirement to further restrict the circumstances where a business loss can offset other income. You will meet the income requirement where your income for non-commercial loss purposes is less than $250,000.
  • A new exception for business losses solely caused by deductions claimed for the small business and general business tax break.
  • A new Commissioner’s discretion for individuals who do not meet the income requirement but whose business activity is subject to a lead time.
  • Ensuring existing Commissioner’s discretions continue to apply.

The new rules became law on 14 December 2009

For income years prior to 2009-10, you can only offset your loss against assessable income from other sources if:

  • one of the exceptions for primary production or professional arts businesses apply
  • your business activity passes one of four tests (profits test, assessable income test, other assets test, real property test), or
  • the Commissioner of Taxation (the Commissioner) exercises a discretion to allow the loss to be offset against other income.

For the 2009-10 and later income years, you can only offset your loss against assessable income from other sources if:

  • one of the exceptions for primary production or professional arts businesses apply
  • you meet the income requirement and one of the four tests is satisfied (profits test, assessable income test, other assets test, real property test)
  • the Commissioner has exercised his discretion to allow you to claim the loss, or
  • the loss is solely due to a deduction claimed under the small business and general business tax break.

In every year that your business activity makes a net loss, you must consider whether:

  • you can deduct the loss in the current year, or
  • you must defer the loss.

Details of the four tests can be found in the ATO fact sheet

Henry tax review to examine company tax reduction

In a recent speech, Dr Ken Henry discussed some progress of the review into the tax system. Some of the points he raised included:
• the review panel needs to seriously consider the merits of a reduction in the company tax rate
• Australia and New Zealand are now the only two countries in the OECD that maintain dividend imputation systems, though most OECD countries provide some form of shareholder relief, such as through a lower tax rate on dividends or a uniform credit. Dr Henry said, however, that he thought the time had not yet come ‘for dividend imputation to be abandoned’
• the trans-Tasman mutual recognition of imputation credits will be considered by the review panel

Perspectives on company tax