Pre-filled tax returns? Could it work in Australia?

Andy Hutt, Director, Australian Tax Centre

A parliamentary committee has recommended that the Commonwealth Government should undertake a review before 2022 for the purpose of identifying how Australia’s tax system can be simplified.

The report by the House of Representatives Standing Committee on Tax and Revenue (Committee) ‘Taxpayer Engagement with the Tax System’ urges that Australia should seek to progress towards a wholly “push return” tax system, where the Australian Taxation Office (ATO) is pushing the data out to taxpayers in a pre-filled return form.

The Committee has identified the relative complexity of Australia’s tax system as a barrier in the way of achieving the “one touch” or even “no touch” taxpayer acceptance of their pre-filled return, which is now commonplace in Scandinavia for example. However this is not the only contributing factor – further adoption of digital technology including certified cash registers at retail outlets and mandatory e-invoicing will also be important. Russia commenced a transition to certified cash registers in 2017.

The Committee highlights two particular areas where reform of the tax law would support progress towards the “push return”. The first of these is work-related deductions. The Committee recommends consideration of introducing a standard deduction amount for all workers, with the option to provide full substantiation via the tax return if the taxpayer wishes to claim a higher amount.

The second area is the distinction between an employee and an independent contractor. The Committee asks whether a possible solution to the current uncertainty of classification experienced by workers and businesses would be to introduce a new concept of the “dependent contractor” to cover workers who are not common law employees, but are also not carrying on an enterprise.

It is interesting to ponder the Committee’s recommendations in terms of how the Committee seeks to reconcile its views on simplicity and fairness. One of the reasons for our current system’s complexity is the legislature’s aspiration for the tax laws to be seen as fair, and as immune as possible to the “rort”. It is likely to be the case that if we truly desire simplicity, we will have to accept a certain bluntness in the way the future tax laws apply.

However if those laws can work with greater efficiency, then a consequence may be lower tax rates for all.

One thought on “Pre-filled tax returns? Could it work in Australia?

  1. During my time with the Tax Office I had proposed the first option discussed – but it was impossible to gain traction (potentially due to the perceived adversarial nature of the Taxpayer/Tax Office relationship). I did work on the Pre-Filling project so I understand the extent of the data that is available to pre-fill – and you would have to think that the opportunity is there to dramatically reduce the compliance cost to both the taxpayer and the Tax Office through initiatives such as these. Risk Ratings could play an important role also. Here’s to the day when we (taxpayers) can just make a simple election and determine the way ‘we’ will engage with the tax system.

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