IPA urges government to simplify laws for WRE deductions

In a statement released yesterday (6 May), senior tax adviser at the Institute of Public Accountants (IPA), Tony Greco, said that the proposed instant tax deduction (ITD) does not benefit those who will claim more than $1,000 in work-related expenses (WREs).

Data from the ATO puts the average tax deduction for 2022–23 at $2,739.

While acknowledging that the proposed framework is simplified and streamlined by removing the need to prove spending, which will benefit self-lodgers in particular on straightforward claims, the IPA said that this neither helps the majority of taxpayers nor clarifies compliance.

It noted that average tax deductions are growing year on year due to the increasing prevalence of hybrid working arrangements and general cost increases. According to Greco, taxpayers and professional tax advisers will “continue to be burdened with trying to decipher and apply a set of principles-based WRE deduction rules which are often unclear, have not been updated for the modern work environment, subject to personal and professional judgment”.

Current deduction frameworks, he added, “create more compliance and record-keeping.”

Greco also critiqued the current reliance on regular judicial and tribunal rulings and ATO guidance regarding the interpretations of many WRE rules, and highlighted that it is not often cost-effective to challenge decisions at this level.

The proposed rules, he added, do not cover every type of WRE, and that “in all but the most basic situations” a tax agent or self-lodger will still need to accurately identify and categorise the expenses, with some needing to be claimed separately.

“While this may not, in itself, be particularly difficult, it still requires resources and knowledge of the details of the ITD law and reasonable care to be taken.”

In the same vein, proposed repeals within the exception to the substantiation requirements for laundry or transport expense limits without substantiation will “increase the compliance burden for taxpayers who incur these expenses and who do not choose to utilise the ITD”.

Similarly, amendments to capital allowances and fringe benefits taxes will apparently impose additional rules, with the proposed FBT changes creating more legal and administrative change for employers, despite the ITD targeting individuals.

Greco encouraged the government to consider simplifying the law on WRE deductions – in particular, the complex rules on working from home, self-education, and work travel deductions- to provide greater certainty and compliance relief.

Referencing the Treasurer’s statement on 20 April, which described the proposed ITD as, at last in part, a cost-of-living (COL) measure, he supported “appropriately targeted and fiscally responsible COL measures to assist individual taxpayers” but did not agree that it met the “yardstick of fairness”.

The benefit and its extent would be measured, Greco added, on the quantum of the deductive WREs they have incurred, rather than the quantum of their income or a similar measure of economic need. This also means higher income earners using the ITD will receive a greater monetary benefit “even if they have not incurred any relevant expenditure, or where their employer has reimbursed all of their WREs”.

“While higher income earners do receive a greater tax benefit from all types of tax deductions, in almost all cases they must have spent the money themselves, and in any case other tax deductions are not designed for the purposes of providing COL relief,” he said.

Calculated to cost as much as $2.5 billion over the first two years and $12 billion in the nine years to 2035–36 – with projected year-on-year growth – Greco labelled the measure “unacceptable high”.

“This measure does little to address the structural deficiency of our tax system, particularly the over-reliance on personal taxes as a proportion of the overall tax take,” he said.

Regarding the drafting of proposed section 25-130 of the legislation, Greco said it was unclear whether the taxpayer chooses to claim the ITD regardless of whether expenses exceed the $1,000 cap, and it was therefore crucial to redraft the legislation given the intention of transparency, simplification and choice.

Greco also petitioned for the inclusion of WREs specifically excluded in proposed subsection 25-130(3), saying, “Should the proposed measure proceed, we urge the Government to consider including self-education into the list of WREs”.

“The increased rate of globalisation and technological change are other drivers that are contributing to the need for continued upgrading of skills. Our current tax settings do not support or encourage the retraining and reskilling in a field unrelated to the industry in which the individual is currently earning an income.”

A concern was also expressed regarding the potential for taxpayers to self-lodge tax returns to claim the ITD “in situations where they benefit from the expertise and services of a tax agent”, and it was suggested that any amendments come with advice to continue seeking professional guidance.

“Taxpayers may deliberately or inadvertently claim deductions to which they are not entitled, and without accurate information they may also miss out on legitimate deductions … there are technical nuances to the proposed rules which need to be understood in order to be correctly applied.”

Greco also suggested the deductions section of the Individual Tax Return form be revised in the following ways:

• A new field for claiming the ITD.
• Separately itemised WRE excluded deductibles.
• Explanation that, where ITD is chosen, additional deductions may be claimed for WREs listed in subsection 25-130(3).
• Clarity in instructions regarding when the assessable labour income must have been derived, and an explanation that the ITD is capped at the amount of assessable labour income when income is less than $1,000.

The ATO and digital service providers were also urged to have systems in place from 1 July of this year to allow for early lodgments.

Further, it was recommended that the government “consider inserting an integrity measure to address situations where a taxpayer who is not an employee is employed by a family member or a related party for a short period in the financial year in order to be eligible to claim the ITD.”

Greco also expressed surprise regarding the proposed changes to the Fringe Benefits Tax Assessment Act 1986, considering they were not included in the original policy announcement. He expressed concern that the change to the rules regarding salary sacrifice arrangements (sections 58X and 24) would only increase employers' costs, which would either be passed on to employees or end the benefit altogether.

“While we acknowledge that some revenue leakage may arise through the double operation of the ITD and the existing reductions in FBT taxable values, the proposed amendments represent an overly punitive approach.”

Finally, Greco criticised “the unacceptable short consultation period for this matter”; both the ED and draft EM were released on Monday, 20 April, with submissions due “a mere 10 business days” later – nine for some states due to the ANZAC public holiday – and exacerbated by the consultation timeframe overlapping with those of other tax matters such as the foreign resident CGT regime and the TPB sanctions framework.

“The ITD framework was initially announced in the 2025-26 Federal Budget – 11 months before the consultation was released – and in our view the consultation period could have been lengthened by starting the process earlier, even taking into account the proposed commencement date of 1 July 2026 and Parliamentary sitting dates.”

“We urge the Government and the Treasury to consider the OIA recommendations in future consultations to enable the best consultative outcomes.”