Outgoing ATO boss says getting rid of work-related tax deductions would be a 'big step'

New Zealand banned work-related expense deductions while also implementing tax cuts, and if Australia did the same that could simplify the tax system, according to outgoing tax commissioner Chris Jordan.

But Mr Jordan noted that “Australians love their work-related expense deductions” and that abolishing them in favour of lower personal income tax rates “would be a big step”.

He was speaking on Wednesday at the National Press Club in his last public outing as tax commissioner before he officially exits the Australian Taxation Office (ATO) next week.

In March, a man with 30 years of public service experience, Rob Heferen, will step into the top job at the ATO.

Mr Heferen has previously worked at the ATO and also served as the deputy secretary of Revenue Group at the Treasury between 2011 and 2016, where he had responsibility for tax policy, tax legislation and revenue forecasting.

Mr Jordan reflected on his 11-year tenure and was also asked about the thousands of Australians that have been advised they have old tax debts – ranging from a few cents to thousands of dollars – that could be taken from their future refunds after they lodge their tax returns.

He said the ATO had no choice but to chase these amounts that were once deemed “uneconomical to pursue” and it would be up to the minister of finance to write off individual debts in cases of hardship.

Mr Jordan also revealed the scale of cyber attacks the agency was having to constantly deal with.

He said the ATO defends against almost 5 million attempted cyber attacks each month.

“On average, we defend against 4.7 million attempted cyber attacks each month — 4.7 million attempted intrusions each month, that target our websites, our services, and our infrastructure.”

Mr Jordan also called the recent GST fraud promoted on TikTok, which saw some 150 ATO officials investigated, as a ‘shock’ and said ATO systems were never designed to deal with such a massive scale of fraud.

He was also asked whether, in the wake of the PWC tax leaks scandal, there needs to be greater regulation and if the size of the big four partnerships should be limited.

He said it was not for government or regulators to determine the size of private enterprise, but the issue of consultancies and how they are regulated was worthy of broader policy discussion.

Will Australia ever do away with work-related expense deductions?

The number of Australians claiming deductions has increased in recent years, especially since more Australians claim work-from-home expenses.

In 2021-22, almost 9 million Australians claimed about $22 billion worth of work-related expenses. Five million of those were related to working from home.

Mr Jordan was asked a question about whether Australia’s marginal personal tax rate was too high, which he did not directly answer.

But he said it was the ATO’s job to ensure taxpayers follow the rules and that it was common for some taxpayers to try to split their pay so that their incomes get taxed at a lower corporate tax rate rather than a higher individual rate.

Tax reforms in New Zealand in the 1980s, which provided income tax cuts, also involved the removal of work-related expense deductions.

“Countries like New Zealand took some pretty drastic steps — and I think it’d be difficult here – (but) they abolished all work-related expenses — all of them,” Mr Jordan told the National Press Club.

“And they reduced the top marginal rate to 30 per cent. I think they’ve since put it up (it is now 39 per cent), but Australians love their work-related expense deductions.”

Nevertheless, he said, such changes would help “simplify the system” and, in the case of New Zealand,  did allow a lot more people to get what’s called push returns”.

Standard tax deduction could create ‘winners and losers’

There’s also been discussion over the years about whether Australia should introduce a standard tax deduction in order to create simplicity, stop people exploiting loopholes, and bring down the cost to the federal budget.

But former Labor prime minister Kevin Rudd failed to get up a plan for a $500 standard tax deduction, and other plans – like one proposed in 2021 by the Blueprint Institute – have not gained real traction.

Previous parliamentary reviews looking at the pros and cons of changing the rules for work-related deductions have also warned it could spark behavioural changes.

Mr Jordan said standard deductions could create “winners and losers”.

But he said he was pleased more than 5.5 million individuals were now self-lodging their own tax returns.

ATO had ‘no choice’ but to chase up debts once ‘uneconomical to pursue’

The agency has also face much backlash over its decision to chase historic debts that were put on hold as Australia struggled through the 2020 Black Summer bushfires and the COVID-19 pandemic.

The debts were revived in mid-2022, and many Australians were only alerted at tax time or via the MyGov website.

In a letter to some 28,000 tax agents late last year, the ATO said it would offset clients’ tax refunds or credits against debts on hold that had been written off as “uneconomic” to recover.

“…while we aren’t taking steps to collect them, the law requires us to use any tax refunds or credits your clients become entitled to, to pay off their debts,” the letter said.

But tax agents have expressed concern that many of the debts date back decades, and could cause much distress for some taxpayers who have not kept records dating that far back.

Mr Jordan said these debts were being chased now because the Australian National Audit Office pulled up the ATO on why it had not collected the debts.

“The Australian National Audit Office were saying, ‘what are these things here? Why, why are you not collecting these uneconomic-to-pursue amounts’,” Mr Jordan said.

“And there were some thresholds — low income, small amount of debt, very old — that we just put in a bucket and never sought to collect. If people did get a refund, it would be offset against it.

‘And they [ANOA] gave us a negative finding on our accounts and said ‘you’re not confirming with the law’.

“So, we’re working our way through.”

He said the correspondence from ATO to taxpayers in this case “probably wasn’t the best example of a project to communicate to people “.

TikTok GST fraud ‘bizarre’ and ATO was ‘shocked’

Asked about the ATO’s Operation Protego, which investigated the GST fraud, Mr Jordan said a search of 60,000 people over five years had revealed that 150 ATO officials had “the indicators” of the GST fraud.

Among those 150 officials, three were current employees at the time they committed the fraud and nine were contractors, he said.

“It is totally unacceptable to have even three,” Mr Jordan said.

“Clearly they’re terminated and compliance actions have been taken.

In total, about 57,000 Australians were involved in the fraud, which was “unheard of”.

“Now, you might say, ‘well, how come it sort of got away from you?’

“Our systems were never designed for people to commit fraud at such scale in such a short period in their own names,” Mr Jordan said.

“They were real people, with real addresses, real tax file numbers, real bank accounts. And it just went off on social media and on TikTok. People advertising.

“It’s bizarre. So, it really shocked us that the community could have such an appetite to commit fraud and take money from government in that way.”

PwC issue ‘shone a light’ on governance issues

Mr Jordan also noted that in the wake of the PwC tax leaks scandal there could be changes to how the big four consultancy firms are regulated.

“The PwC issue has really shone a light on what should be the government’s governance arrangements,” Mr Jordan noted.

“I don’t think that people ever thought years ago that there’d be partnerships of nearly 1,000 partners, that they would be doing work across such an extremely broad area, consulting, way beyond the traditional audit and tax work.”

He said he was “not sure” a stand-alone regulator was the answer to that, “but it is certainly worthwhile investing time and effort to see what is possible”.

“Other countries have clearly looked at this and they’ve got rotation of auditors, and very clear rules around what auditors … can and can’t do for the clients,” Mr Jordan said.

“But it’s a matter for government.”

Mr Jordan reflected on the progress the agency had made during his 11-year extended term, and called for the ATO to have the power to collect evidence as part of criminal investigations.

A 2018 Treasury paper had suggested giving the ATO a wide range of increased data-gathering and enforcement powers to stamp out black economy crimes, but it never got up.

Mr Jordan also spoke about what he sees as the agency’s “landmark victories” during his time, including getting multinationals such as Apple, Facebook, Microsoft, Google, BHP and Rio Tinto to pay billions more in tax.

He said the ATO’s tougher approach had create big shifts in global attitudes towards tax compliance.