Taxpayers may welcome the Government’s new initiative to introduce a $500 standard deduction for work-related expenses, but the accounting industry is worried the move could hurt small accountants and tax agents who could see demand for the services plummet.
But one expert says tax agents could use this as an opportunity to rethink their business model and offer more services to existing clients.
The Government announced in last night’s Federal Budget that taxpayers will be able to choose to take a standard tax deduction of $500 from July 1, 2012 instead of having to list out their work-related expenses and tax processing expenses as separate items. The standard deduction will be increased to $1,000 from July 1, 2013, with some 6.4 million Australians expected to benefit.
But some accounting industry professionals have said this will result in a loss of business, and that smaller tax agents will be forced to close as most of their business disappears.
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Rob Nixon, chief executive of specialist consultancy firm Nixon Advantage, says businesses will lose out on hundreds of millions in revenue due to the changes.
“Yes, of course they will lose business. There are plenty of people who will use this standardised deduction instead of itemising their expenses one-by-one, and the accounting industry is set to lose over $900 million as a result. That is a lot of revenue.”
But some disagree. While H&R Block regional director Frank Brass says more low-income earners will take advantage of the standardised deduction, he believes higher-income earners, or taxpayers with more work-related expenses, will still do things the old way.
“The average tax return for work related expenses is about $2,600. Now why would someone who is going to get that large amount of money instead choose to take a $500 deduction? It doesn’t make any sense.”
“I think that for people with lower incomes or those with lower amounts of work related expenses, they will take this new deduction and more business will be lost as a result, but as for others, there is no reason why they would choose this instead of itemising their entire return and get a bigger benefit.”
Brass says he believes the Government is trying to implement a system that not many people would actually use.
“Research has shown that most people think they have a right to their tax returns and aren’t going to give them up. I think this recommendation from the Henry Review they are implementing is something a lot of people won’t actually use.”
But Nixon says for accounting firms which lose their business, this provides an opportunity to look at their business model and provide new products for existing customers.
“This is actually a great opportunity for business. For those firms that are going to lose revenue from income tax returns, they can shift their focus and resources to giving new products and resources to their existing business customers.”
“Businesses are under serviced by the accounting industry in a big way, so accounting practices should really think about what they are doing, and their business models, and see if they can’t provide any new services in order to make up the revenue they will lose.”