Comprehensive Analysis of the Australian Taxation System and Reforms

This report provides a detailed analysis of the Australian taxation system, focusing on the recent crackdown by the Australian Taxation Office (ATO) regarding work-related expense deductions. It examines the existing structure of the system, highlighting key characteristics such as allowable deductions for income generation and the importance of a direct link between expenses and income. The report explores the advantages and disadvantages of the current system, including the impact of globalization, digitization, and the role of tax practitioners. It identifies loopholes, such as those related to digital tax and work-related expenses, and discusses the need for reforms to address issues like tax avoidance and ensure proper revenue generation. The report concludes with recommendations for the ATO to improve the system, emphasizing the importance of accurate record-keeping and oversight of tax practitioners. The analysis covers various aspects of the Australian tax system, including the Goods and Services Tax (GST), and its implications for both individuals and businesses.

Running head: TAXATION
TAXATION
Name of the Student:
Name of the University:
Author Note

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Table of Contents
Introduction......................................................................................................................................2
Existing structure of the system:......................................................................................................3
Advantages and disadvantage of the current system of taxation in Australia.................................6
Conclusion:......................................................................................................................................8
References........................................................................................................................................9

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Introduction
The present report deals with the issue of the recent crackdown that has been
implemented by the Australian Taxation Office. The crackdown has been done in respect of the
deduction claimed by the business entities in respect of other work related expenses. The amount
of deduction claimed by the business entities operating in the country amounted to $12 million in
the previous year (Mossialos et al., 2015). The Australian Taxation office brought the crack
down for the purpose of reducing the loss that is being borne by the exchequer in respect of the
deduction that are claimed by the business houses in relation to other work related expenditure. It
has been observed by the office that there has been an increase of around 20% in the amount
claimed as deduction. In addition to this, it has been noted by the Australian Taxation Office that
people are taking the maximum available amount available as the deduction irrespective of the
actual expenditure that has been incurred by them (Farag et al., 2015). The maximum limit of
certain expenditure such as motor vehicle use expenditure and laundry expenses have been made
standard amount that are being claimed as deduction.
Hence, the present report will discuss whether the present system of Australian tax is
such that the entities are able to exploit it to get deduction they are not supposed to get. It is also
determined in the report whether the present taxation system is in dire need of reforms for
changing the present scenario of deduction.

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Existing structure of the system:
It is essential to discuss the present system of the Australian taxation law in order to
understand the present scenario prevalent in the country. The main characteristics of the taxation
laws of the country are as follows:
a) All the costs that have been incurred to generate a particular source of income are
allowed as deductions. It is also recognized by the system that various individual having
the same kind of income may have to incur different sorts of expenses.
b) For the purpose of deduction in case the individual is an employee, the statute has given
several deductions. They include expense related to travel, clothing and the expenses that
can be attributed to educational purposes (Banks et al., 2015).
c) It is clearly established in the framework of the law that for claiming deduction the
assessee will have to display a direct connection between the source of income and the
expense that has been incurred for its generation. In addition to this, the expense should
also be not personal or private in nature.
d) In other words, the provision of the Income tax assessment act 1977 a loss incurred or
foregoing of income can be claimed as deduction if that leads to generation of a taxable
and assessable income (Evensen et al., 2015).
e) All the expenditure and loss can be claimed as deduction for carrying out a business
activity.
f) A loss or expense will not be deductible incase that is private in nature.
g) If the expense incurred results in the generation of a non-taxable, non-assessable and
exempt income, the same shall not be claimed as deduction by the assessee.

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h) Furthermore, if the provisions of a particular act prevent the deduction of certain kind of
expenses or loss then the same cannot be claimed as deduction by the assessee.
i) The deduction in respect of education of an employee can only be claimed as deduction
only if the same has been able to increase the skill set of the employee or is required to be
taken for maintaining the efficiency and effectiveness of the employee (Pascoe et al.,
2014). The educational expense shall be incurred for ensuring increase in the present
income of the employee.
j) Section 900 30 (2) gives deduction in respect of travel allowance expense. This deduction
is received by the employee in respect of the incidental costs that are associated with
travelling for instance accommodation, food or drink and other miscellaneous
expenditure incidental to the travel (Gilbert & Van Voorhis, 2017).
k) Section 900 30 (3) gives deduction to the implies in respect of the travel that is
undertaken by the taxpayer in pursuance of performance of duty outside the normal place
of residence. It is irrelevant whether the travel has taken place in within the country or
outside the country (Harding, 2014).
l) Section 900 30(5)
Under this section, the deduction can be claimed by the employer in respect of the
allowance that has been given to the employees for buying meals and drinks for
themselves (Houseworth et al., 2014).
m) In respect of the educational expense deduction, it has been stated in the statute that an
initial amount of $250 for the purpose of self-education shall not be allowed as deduction
(Knabe et al., 2016).
n) The point is referred to in the section 82 A (1) of the Income tax assessment act 1977.

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The current system of Australian Taxation Office is in need of reform in case of some
expense like in case of motor vehicle expense and laundry expense. The reason being that in case
of certain expenses there is a maximum limit. Like incase of motor vehicle expense the limit is of
5000 km per annum and in case of the laundry, expenditure the limit is of $150 per annum. The
taxpayers of the country are not taking the deduction given under these sections properly. The
expenditure can only be claimed if the same has been incurred by the taxpayers, but they are
claiming it as a standard deduction (Belz et al., 2018). In other words, the taxpayers have taken it
for granted that in respect of these expenditure they are going to claim the maximum deduction
that has been made available to them by the statute. Such kind of deduction claimed by the
employees will result in loss of several amount of revenue from the treasury of the government.
Moreover a trend is being noticed in the taxation system of Australia that the persons who are
filing their returns on their own are paying more taxes amounting to $2600 on average whereas
in cases where the tax consultants are used by the tax payers they are paying about $2000 on
average (Lignier et al., 2014). This suggests a major shortcoming in the operations of the tax
practitioners of the company. In pursuance of their duties, they are only looking after the needs
of their clients. This is seriously hampering the revenue generation of the state.
The Australian Taxation Office must set up a regulatory body or increase the efficiency of
the present regulatory body that overlooks the duties of the tax practitioners of the country. This
will ensure that they do not indulge in activities that encourage the claiming of undue deduction
by the taxpayers of the country (Yates et al., 2016).

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Advantages and disadvantage of the current system of taxation in Australia
There are several advantages that are availed by the government of the country due to the
certain presence of the certain features and circumstances that are present in the tax laws o0f the
country. The advantages of the present tax law of the country are as follows:
a) Globalization and digitization-
With the advent of the globalization, the tax rules and regulations of other countries
started to affect the present taxation scheme of the country. The reason being that not
only in respect of the deduction in respect of work related expenses several other
deductions was also influenced from the prevalent practices all across the world. It is also
to be noticed that Australia is dependent more on corporate taxes rather than individual
taxes as compared to other countries (Watts et al., 2015). As most of the companies are
multinational, the country has the advantage of considering the global practices for its
own provisions. Ina addition to this the use of digitization has significantly eased the
process of dying of return and payment of taxes on time.
b) The administration of tax in the country-
The present structure of tax is governed by a well-formed policy framework and is
supervised by a skillful and reliable statutory body. For further strengthening of the tax
structure of the country the government of the country is offering the Australian Taxation
Office an amount of $876 million for the purpose of furtherance of initiatives like
Shifting of Profit and the International Structuring program (De Goeij et al., 2015).
c) There has also been an increased effort on the part of the government to reduce the
phenomenon of tax avoidance in the country. Regulations being passed in respect of these

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loopholes in the regulations have enabled it to stop the leakage of revenue in the form of
false deduction that is being claimed by the taxpayers.
There are several disadvantages and loopholes in the present tax structure of the company too.
They are as follows:
a) Digital tax loophole-
This involves the online purchase of goods and services y the taxpayer’s fop the country.
Due to the result of this phenomenon, the complexity of the present structure of taxation
has increased several folds. The main reason being that the application of the goods and
services tax has to be conducted very carefully in respect of the goods that are being
purchased online by the taxpayers (Gurran & Phibbs, 2015). The reason being that it is
not necessary that the goods will be bought from within Australia. Many international
online shopping websites provide the option of providing international commodities to
the taxpayers. This results in difficulty in the application of the Goods and Services taxes.
b) One of the most important ad significant bottleneck of the tax structure present in the
country the issue of deduction that are being claimed in respect of work related
expenditures. The deduction in respect of work related expenses accounted for around
63% of the total value of deduction that were being claimed by the taxpayers (Fojo & Lo,
2016).
c) The responses regarding the tax provisions stated out by the provisions of the statute. For
instance in case of the work related expenses deduction the company companies are of
the view that getting good deduction in respect of the world related expenditure allows
them to provided better services and work place and working conditions to the
employees. This increases the quality of living and the quality of work that is being

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delivered by them. On the other hand, the Australian Taxation Office is of the view that
due to the ambiguity present in the provisions of the work related expenditure this
becomes a major loophole for the tax practitioners to take advantage (Marre et al., 2015).
The government in the end has to meet up with the effects such deductions claimed by
the taxpayers, as the ultimate result is that the revenue earned by the government is
reduced substantially (Gilbert, 2017).
Conclusion:
After conducting the detailed study of the present tax structure of Australia it can be
easily concluded that, there is an immediate requirement of many reforms in the tax structure do
the company. As within the present framework there are several loopholes especially relating to
the work related expenses. There is also a significant issue regarding the overseeing of the
operations of the tax practitioners of the country. The reason being that it is found that they work
towards the benefit of their clients while ignoring the interest of the exchequer. Hence this has
led to the wide spread tax avoidance within the country. For the purpose of addressing this
problem, the Australian Taxation Office should ensure that the deduction should be provided
only in case there are proper records maintained in respect of them. In as of ambiguity the proper
officer concerned should consider other incidental circumstances of the expenditure incurred by
the taxpayer to establish the authenticity of the deduction claimed by him.

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