Warning sounded on potential fallout from Labor’s $3000 cap on tax agent deductions

One of the nation’s peak bodies for accountants says the Labor Party’s plan to cap the dollar amount individuals can claim for tax agent services could result in small business owners being put under even more pressure from clients asking for accountancy work to be completed faster.

Bill Shorten outlined the policy in his budget reply speech earlier this year by referencing 48 taxpayers who earned around $2.5 million in the 2014-15 financial year but were yet to pay income tax.

At the time, he said saying the cap on tax deductions for tax agent services, combined with other tax policies, would mean “the days of earning millions and paying nothing, are over — no matter who you are”.

Members of the tax community are outraged at the proposal, reports Fairfax, with representatives from Chartered Accountants Australia and New Zealand and CPA Australia among those raising concerns about both the logic of the approach and its general application to all taxpayers.

The cap would apply to individual taxpayers, as well as self-managed superannuation funds, trusts and partnerships, but tax experts argue it would be based on concerns about the tax accounts of only 48 high-earning individuals, and would not take into account the many genuine reasons an individual might have for accumulating more than $3000 in accountancy fees each year.

Minister for Revenue and Financial Services Kelly O’Dwyer says Labor is “using a sledgehammer to crack a nut”.

In a statement to SmartCompany, O’Dwyer said tax agent fees often include other expenses which need to be tax deductible.

“The Commissioner of Taxation told Senate Estimates that the tax return amount for a fee to a tax agent will also include other expenses. One item included is the interest the ATO is charging the taxpayer as a result of an audit. It’s deductible because any interest the ATO pays where they change an assessment in a taxpayer’s favour will be taxable,” she says.

Senior adviser at the Institute of Public Accountants Tony Greco tells SmartCompany there are several complicated “life events” that could mean extra work needs to be completed for an individual in a financial year, and putting a hard limit on genuine accountancy services amounts to “telling people they can’t seek the services of a tax agent” to get that advice.

He says these infrequent but important life events everyone goes through, including succession planning and selling assets, take time and expertise on the part of tax agents, and it’s critical the details for complicated tax arrangements are completed correctly.

“Three thousand dollars is not a lot of money, if you’re looking at what an accountant charges for their time. You’re not talking a large quantum of advisor fees to generate that spend,” he says. 

Greco believes the policy presents another big challenge to small businesses in the accounting space, because clients will be looking to get complicated work done quickly if this policy becomes a reality.

He says the tax system is complicated and there is often “no alternative” but to take a longer period of time, and charge more, to ensure the details of a client’s account are correct.

“With the complexity of the tax system, well we didn’t create that mess, and neither did the taxpayer. There’s already a lot of pressure on accountants anyway, and they want to make sure they’re working within the rules,” he says.

The opposition said in May it believes capping the claim amount would save the budget $1.3 billion over the medium term.

But Greco says individuals shouldn’t be limited when it comes to claiming amounts for advice they genuinely need to get their tax affairs in order.

“People don’t want to overpay anyway, so there is a natural pull the other way. Individuals are questioning the advisor fees,” he says.

Shadow Small Business Minister Senator Katy Gallagher was contacted for comment but was unable to respond prior to publication.

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