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May 27, 2010

Australian institutes unimpressed by response to Henry Review

The Australian accounting institutes are unimpressed with the lukewarm response from the Australian government to a major tax review.

The Henry Review into Australia’s tax system, headed by Treasury Secretary Ken Henry, made a series of recommendations early this year. But the government’s response, released on 2 May, was underwhelming.

“We expected the government to address every one of the 138 recommendations in some way, to say whether or not it supported a proposal or whether or not certain proposals were worth exploration in the future,” Institute of Chartered Accountants in Australia (ICAA) tax counsel Yasser El-Ansary said.

“Instead all we got was the announcement of a proposal for a tax on the mining sector and a handful of very small changes to the tax system. This really doesn’t represent the serious tax reform that we were all expecting.”


One small step

One minor change is a proposed simplification to individual tax returns.

Australia has a complex tax system that has led to a disproportionately high number of tax payers using the services of a tax agent. El-Ansary said about 72% of Australian adult tax payers use a tax agent every year to get annual tax returns completed, compared with an average of about 35% in other Organisation of Economic Co-operation and Development countries.

However, despite the need for simplification, the proposed change is superficial.

Individual tax payers will be allowed to choose a standard deduction of A$500 ($416) for work related expenses in the first year, rising to A$1,000 in the second year.

National Institute of Accountants senior tax adviser Tony Greco said the average claim for work related expenses is currently A$2,000, so most tax payers will probably continue to claim whatever deduction they think they are entitled to.

“The government is saying that five million or six million people will be eligible, and that is half the size of the number of people who are required to lodge returns. We can’t understand how they got to those numbers,” Greco said.

El-Ansary said that although the simplified deduction proposals represent a visible leap forward, the Australian tax authority has, through technology advances, been moving towards simplification for about a decade.

The simplification of tax returns will not adversely affect many members of the three professional bodies.

El-Ansary said that even the ICAA members that could be affected support simplification efforts.

“They would like to see simplified tax returns introduced as quickly as possible because it would allow those accountants to focus more of their energy, time and resources towards working with clients who really do require high value accounting and tax services,” El-Ansary said.


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