Chartered Accountants Australia and New Zealand (CA ANZ) has made a joint submission with CPA Australia and The Tax Institute (Joint Bodies) to Treasury on draft legislation introducing a standard $1,000 deduction for work-related expenses.

The Joint Bodies support efforts to reduce compliance costs for individual taxpayers. The proposed standard deduction aims to make it easier for employees to claim work-related expenses without detailed substantiation. However, the submission recommends several changes to ensure the legislation delivers genuine simplification and fairness.

Key Recommendations

The submission makes several recommendations to improve the draft legislation:

• Index the $1,000 deduction to protect its real value.
• Explicitly draft the legislation to allow taxpayers to choose between the standard deduction and claiming actual expenses. The current draft reduces the standard deduction as work-related expenses are claimed, forcing taxpayers with more than $1,000 in work-related expenses to keep receipts to substantiate claiming any deduction.
• Retain existing simplified substantiation rules, such as the $150 laundry expenses concession, for taxpayers who do not use the standard deduction.
• Stop tuition fees reducing the standard deduction so that those with tuition fees can continue to be eligible for the standard deduction for other work related expenses.
• Expand the Explanatory Memorandum to explain the policy rationale and to include practical examples of the low-value pooling and balancing adjustment rules for depreciating assets used to earn employment income.
• Provide more practical explanations and examples in the Explanatory Memorandum to clarify eligibility and interactions with other deductions.

The ATO will need to run a comprehensive education campaign to ensure taxpayers understand the standard deduction applies only to employment income, not self-employment or side hustles.

The interaction between the standard deduction and the fringe benefits tax (FBT) regime is problematic. The proposed FBT change switches off the otherwise deductible rule (ODR) for all salary packaged work‑related expenses, rather than just the $1,000 standard deduction amount. The joint bodies recommend:

• Amendment of the proposed legislation to reduce the ODR amount by up to $1,000 per employee per year rather than removing the ODR entirely.
• Review the commencement and application of the income tax and FBT amendments to ensure coherent operation during the transition period.

The draft Bill contains an unexpected amendment to the FBT treatment of work‑related items, such as portable electronic devices, computer software, protective clothing, briefcases and tools of trade. Removing the FBT exemption for items provided under salary packaging arrangements represents a significant policy change. The joint bodies recommend that the existing FBT exemption for work-related items, including those provided under a salary packaging arrangement be retained.