Produced by Chartered Accountants Australia New Zealand
Used with permission
The below letter outlines the main policy arguments against Labor’s proposed $3,000 cap on deductions for managing tax affairs.
CAANZ advise that this infomration can be redistributed and used as appropriate
Labor’s proposed $3,000 cap:
- Could apply to any Australian regardless of wealth.
- For all types of costs currently claimable as a deduction, such as:
- preparing and lodging your tax return and activity statements
- dealing with the Australian Taxation Office (ATO) on your behalf (e.g. in an audit of your tax affairs, obtaining a private ruling)
- travel costs associated with obtaining tax advice (e.g. to attend a meeting)
- litigation costs on a tax matter
- obtaining a valuation for tax purposes
- any interest charges the ATO imposes on you (e.g. for late payment of tax)
Access the full CA ANZ detailed discussion paper
The IPA have made comment in Accountants Daily
One part of the proposal to think about:
Any business needs to incur time and cost to meet the compliance requirements and receive advice to know how to meet their obligations.
A large complex business does need to incur more time and cost to meet the compliance requirements.
The cost to comply is not only related to keeping tax down. it costs money to keep records. it costs money to charge, collect, report, pay GST on behalf of the government. it costs time, money and effort to understand and apply the tax laws.
$3000 does not cover the cost of compliance.
What is in the definition?
What problem is this supposed to fix?
By limiting the tax deduction for tax advice, many businesses will not know how to comply?
By limiting the tax deduction for doing business in a complex environment many businesses will not invest the money.
We did some maths to see the impact
lets say it is $6000 in total we need to spend to properly apply the various tax laws.
Under the proposal we get a deduction for the expense of $3000, then we pay another $3000 to get the advice needed.
If we just consider the additional $3000 that we are no longer getting a tax deduction for.....at a 30% tax rate we would have had to earn $4,285 profit to pay $1285 tax and be left with the $3000 to pay the expense.
What if I am a margin business (whether selling good or services, I make a margin on my costs)?
Lets say I make 40% margin over costs. That 40% margin could be considered my profit (if I ignore everything else)
I would have to make sales of $10,714 to make a margin of $4285 to pay that $3000 of non deductible advice and assistance.
That was compared to $7500 sales if it was deductible.
If I am right this $3000 of non deductible advice requires me to make $3200 more sales at a 40% margin on my sales.
A question (with tongue firmly planted in cheek)
"If the payment for tax advice is not a tax deduction does this mean the fee received by the Advisor is not Taxable Income?"