Analysis of Work-Related Expense Deductions in Australian Tax System

This report examines the Australian tax system's approach to work-related expense deductions, prompted by ATO's concerns about over-claiming. It begins with an introduction to the Australian tax system, highlighting its importance and the role of the ATO. The report then explores the advantages and disadvantages of the current system, including its simplicity and convenience, as well as issues of fairness, neutrality, and transparency. It analyzes the need for reforms, focusing on enhancing neutrality, fairness, and transparency within the system. The report suggests specific reforms, such as setting limits on deductible expenses and implementing verification systems to combat fraud. The conclusion emphasizes the necessity of reform to address the shortcomings of the current system and ensure its effectiveness in collecting taxes and promoting fairness among taxpayers.

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Australian Tax System on Work Related
Expenses Deductions
Introduction
A good tax system is an important tool for collecting accurate amount of tax from citizens of a
country. A tax system refers to a legal system that is used to assess and collect taxes. It is a
system that interprets and enforces tax laws (Brackin, 2014). Taxes are mandatory financial
change and authorizes expect citizens full compliance. Taxes are important part of government
source of income and governing tool of the country. The government use taxes as income to fund
it operations, distribute resources and control consumption. Taxes can either be direct or indirect.
Some of the taxes in Australia include; taxes are income tax, FBT, GST, and Medicare levy.
Failure to pay, resistance to taxation or evasion are punishable by law. An effective tax system
should be neutral, simple, flexible, efficient, and fair (Slemrod, & Gillitzer, 2013). This enables
the tax system to be production, equal and beneficial to all stakeholders in the country. The
following write-up is a discussion of whether the Australian System of claiming deductions for
work related expenses is in need of reforms. This is as a result of ATO press release warning
taxpayers about their close attention to other work related expenses claims. The write up will
analyze the current situation, advantages and disadvantages of the current system, issues in the
system and need for reforms in the ATO work related expenses claims tax system in Australia.
Background Information
The Australian government use Australian Taxation Office (ATO) as principle revenue
collecting agency. The ATO have responsibilities of collecting revenue, administering goods and
services taxes (GST), governing redistribution programs of benefits back to Australians,
administering Australian superannuation system, and keeping the Australian Business Register.
The ATO is governed by public Governance, Performance, and Accountability Act 2013 that is
within the Treasury portfolio and is accountable under Public Service Act 1999. The ATO
envisions being a leading superannuation and tax administration committed to advancing and
achieving taxpayers’ confidence. It purpose is contribute to social and economic wellbeing of
Australians by enhancing willing participation and help people understand rights, obligations,

benefits of compliance and access benefits while managing noncompliance in accordance with
the law.
The ATO is currently faced with taxpayers over claiming their deductions on other related work
expenses. The ATO published on 20th February 2018 warning taxpayers that they will pay close
attention to other work related expenses claims and reminded citizens to keep appropriate
records. Kath Anderson, Assistant Commissioner stated that the Agency recorded $7.9 billion
deduction claims for other related work expenses from 6.7 million taxpayers ("Australians on
notice to keep their receipts", 2018). This amount respected a significant money and the Agency
has a responsibility of ensuring citizens are not over-claiming. The ATO stated in the publication
that it will be strict to ensure taxpayers don’t claim more or less of their actual claim. Ms
Anderson insisted that the Agency will be keen to substantiate and accurately ascertain that all
claims made are legit and meet the golden rules. The problem in the agency are people not
keeping records for expenses and claiming deductions for all expenses both work and private.
For instance, some people incorrectly claimed their entire internet and phone bundles expenses
while there were other claiming for overseas study trip which they had holiday in the same time
as part of the trip.
The ATO allows other related work expenses claim as deduction to expenses directly incurred
when earning an income. Work-related deduction aim to reduce taxpayer’s tax burden by taxing
only the amount earned without including expenses used to earn the income. The work related
deduction must meet the golden rule to be allowed for deduction. First, the taxpayer must have
incurred the cost and it wasn’t reimbursed. Second, the expenses must directly relate to earning
the income and lastly there must be record for proving the expenses ("Deductions you can
claim", 2018). Expenses for both private and work purposes can only be claimed for work related
portion. Examples of work related expenses that can be claimed are union fees, overtime meals,
home office, tools and equipments, internet bundles and mobile phone bundles. Work related
expenses are therefore deducted from income case and benefits claimed with an objective of
ensuring taxpayers are only taxed on earned income.

Advantages of the current work system
The current ATO tax system to collect and administer for other work related expense claims has
advantages to the government, agency, and the taxpayer. The first advantage is that the tax
system is simple. The taxpayer can easily understand the rules correctly and comply in a cost-
efficient way. The work related expense deduction system is integrated in the tax portal and
taxpayers are able to simply claim the benefit while filling their tax return. The ten thousands
taxpayers who used myTax or tax agent reported that the process was easy and 90% said that
they were planning to use the system again (Lignier, & Evans, 2012). The tax system is also
simple for taxpayers to understand the tax consequences that reduce errors and increase system
confidence. Secondly, the ATO system to manage work related expense claim is convenient. The
tax system is convenience and taxpayers are able to timely claim their benefits. Convenience
allows taxpayers to know how much tax they will be taxed and benefits accrued. Convenience
enhances the tax system compliance (Liu, & Altshuler, 2011). Another advantage of the ATO tax
system is that it certain. The system is allows user interface where people are able to see the
amount of benefits they have been allowed. The tax system clearly specifies how work related
expenses are claimed and how amount is determined. The ATO provides sufficient information
to taxpayers who then understand how tax is accurately calculated. This means that taxpayers are
able to know about their tax burden once they determine their income. Certainty improves the
level of confidence that taxpayers have to the tax system.
Disadvantages of ATO tax System
The current tax system is manage work related claims is manned by several disadvantages. First,
the tax system lacks fairness. The current system is not equal to all Australian. The ATO tax
system in it current state lead to some people getting more deductions hence paying less tax
which is against the tax law. All taxpayers are supposed to pay fair share of tax (Whiteford,
2010). The ATO tax system on work related expenses claim allows some people to claim more
than they are supposed to as outlined by the tax law. This means that other Australian who
legitimately files their claims carry the burden of the ones that fraud the ATO. This is unfair and
leads to the tax system being unequal (Evans, 2012). Secondly, the ATO tax system for claiming
work related expense benefits is not neutral. The tax system lacks neutrality. The current ATO
tax system allows citizens to claim all other expenses incurred in earning income which can

influence their decisions to a particular transaction. This means that a taxpayer other expenses
incurred out of their workplace or main job that earn them income can be filed for benefits claim.
People can increase their expenses because they know they will claim them when filling tax
returns (Brealey, Myers, Allen, & Mohanty, 2012). For instance, an individual can be high fuel
consuming, luxurious car to commute everyday instead of using public system or a less
consuming car as it would be the case if there was no work related expense claim. Another
disadvantage of the current ATO tax system is lack of transparency and visibility. The taxpayers
are claiming for both private and work related expenses. It is difficult for ATO to accurately
draw a line between private expense and work related expenses. The information uploaded by
taxpayers to claim benefits cannot be verified leading to over-claiming. Therefore, the current
ATO tax system to claim work related expense benefits is not neutral, transparent and fair that
lead to over-claiming.
Reform Issues in ATO Tax System
The Australia tax system has issues that need to be addressed for the system to function well and
claim deductions. Despite the system offering several benefits to Australians, some issues
undermine it ability to operate effectively and meet the claim deduction objective by the
government. Australians tax system delivers claim deductions but require reform to stop the
current over claiming that is disadvantage other. The reforms will ensure the government is not
over compensating on other work related expenses claims and taxpayers are submitting accurate
information. The reforms needed are majorly based on neutrality, fairness, and transparency of
the tax system.
The first reform should be enhancing the neutrality of the tax system. A tax system should never
influence taxpayer’s decision. This entails that the ATO tax system on claiming work-related
deductions should be redesigned to enhance neutrality. The will involve only including expenses
that do not change taxpayers behavior and keep them minimizing their cost. Whait (2015) stated
that a tax law that affects people decisions to consume or undertake a particular transaction either
in the workplace or private life should be kept minimal. For instance, the Australian tax law
should be set maximum deductions that an individual can claim at a particular time. Therefore,
neutrality will ensure the Australia tax system effect on work related expenses are minimal.

Secondly, the Australian tax system should be reformed to enhance fairness. Fairness can be
enhanced by standardization of expenses that can be claimed for benefits (Brys, Matthews, &
Owens, 2011). Fairness can be done by creating a strict system that monitors and evaluates every
detail that people submit on the tax portal. This will ensure there is consistency and logic to
information submitted. The ATO then can use the system to further investigate taxpayers whose
information is not consistent. Fairness can also be achieved by grouping people to different
categories and setting limits of the amount that they can claim as deductions in relation to work
expenses. This will ensure people in same job group or age group have a limit to their work
related expenses. Setting claim limits by group will make sure no taxpayer gets extremely high
deductions that the others while in the same group. This will ensure that people does not claim
more than what ATO estimates to be an individual work related expenses deduction. Therefore,
fairness will regulate amount that can be claimed by a taxpayer that will ensure no individual
burden is distributed to other legit taxpayers.
The Australian tax system should enhance transparency. Transparency is important stopping
people who intend to fraud ATO by over claiming. The tax system can enhance transparency by
introducing a document verifying code or software (Meade, 2013). This means that all receipts
uploaded in the system as proves for work related expenses can be automatically be verified
from organizations where an expense was incurred by a taxpayer. Transparency will therefore
ensure all documents uploaded in the system to claim deductions are original copies and no one
can use them to fraud ATO.
Conclusion
From the discussion, the Australian Tax Office (ATO) has a responsibility of ensuring an
effective tax system. An effective tax system is simple, efficient, flexible, neutral, and equal. The
ATO has experienced inefficiency in it tax system that has led to over claiming. The current
ATO tax system for managing work-related expense deduction has both advantages and
disadvantages. The tax system is simple, consistent and convenience to taxpayers and ATO. On
the other side, the tax system lacks neutrality, fairness, and transparency. The Australian tax
system on work-related expenses deductions need to be reformed to address major disadvantages

of the current tax system. The reforms will involve enhancing tax system fairness, transparency,
and neutrality. Therefore, Australian tax reforms will stop people from attempts to fraud the
ATO and enhance fairness while minimizing tax effects on individual decisions.

References
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