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Future Changes to Australian Tax Returns: A Shift Towards Simplicity
The Australian Taxation Office (ATO) is poised to revolutionise the way tax returns are processed, potentially easing the traditionally stressful experience for taxpayers. Jeremy Hirschhorn, the ATO’s Second Commissioner, has indicated that future tax returns may differ significantly from what Australians currently know.
Current Tax Return Process
At present, taxpayers must submit their tax returns after July 1 each year, detailing their taxable income and any deductions they wish to claim. This process can induce anxiety, as Mark Chapman from H&R Block notes: ensuring every detail is correct is often a strain for individuals.
A Move Towards Assisted Assessment
Hirschhorn suggests that a transformation in tax processing is underway, moving away from ‘self-assessment’ towards a system of ‘assisted assessment’. This change is largely driven by the influx of data that the ATO can now access, including details from financial institutions, employers, and other third-party entities.
As more information—such as salary, interest and dividend income, and health insurance data—flows directly into the ATO’s systems, taxpayers with straightforward financial situations could receive a pre-filled tax return come July 1. In such cases, they would need only to confirm the information matches their own records, simplifying the process drastically.
Limitations for Complex Tax Situations
It is important to note that this new assisted assessment mechanism will not be available for individuals with complex tax returns, as various data points remain elusive to the ATO, necessitating manual reporting for these taxpayers.
The Role of Third-Party Data
Hirschhorn’s vision for an improved tax system hinges on the capabilities of the ATO to collect and leverage third-party data. This includes information from employers, banks, investment firms, health insurers, and other relevant governmental agencies. The idea is that with greater access to accurate data, the ATO will have a clearer picture of each taxpayer’s financial situation, thereby reducing the need for individuals to source this information themselves.
In the past, taxpayers were responsible for gathering all their information; however, as compliance continues to modernise, much of this data will likely be fed directly into the tax system, enhancing efficiency and accuracy.
Evolving Tax Compliance Framework
The traditional tax compliance framework rested on four pillars: registration, lodgement, payment, and correct reporting, placing the burden of verification solely on individuals. However, the emergence of third-party reporting stands as the new fifth pillar, refining reporting accuracy and marking a significant shift in how tax compliance is managed.
Hirschhorn emphasises that modern tax administrators are looking to broaden the sources of information available from companies and to redefine tax systems around the enhancing capabilities of third-party data.
Conclusion
As the ATO prepares to unveil these anticipated changes, the implications for taxpayers are immense. The potential simplification of the tax return process could alleviate stress and improve compliance. In the long run, this progress not only aims to streamline the interaction between taxpayers and the tax system but also reflects a broader shift towards reliance on data-driven strategies in public administration. The future of tax time, as envisioned by the ATO, promises to be both more efficient and less daunting for ordinary Australians.
