Recently the Australian tax office postured that eventually there would be no need to lodge tax returns, as the ATO moves to a system of automatic data exchange which will end the annual lodgement requirements.
Before we throw this thought as impossible, it’s worth considering Australia’s tax system versus other tax systems. In some other countries, the employer is responsible for calculating and remitting the employee’s employment income. Other items are taxed at source, such as bank interest, and logically Australia already taxes dividend income through the franking system. Should Australia move to a system, like other countries, of taxing rental income on a flat percentage based on the income, excluding deductions, then we might see a movement towards a digital solution for taxation.
There are a few “sacred cows” in Australia, like superannuation and negative gearing that might take some major work to overcome. However, reduction of taxes has always been a remarkable incentive for change.
Once everything is going through the banks, and the cash economy is minimised, then the likelihood of major changes increases.
The “canary in the coal mine” is likely to be the individual tax returns. An automated system would be a major shift for the economy as not only does the ATO receive more than 14.2 million individual income tax returns every year, it consumes a major part of Australian accounting compliance work for 2-3 months, as well as consuming productivity of the taxpayers.
As the ATO already collected information from taxpayers on weekly, monthly, quarterly and annual reporting deadlines (including through the single-touch payroll system used for employee wages), it seems logical we move away from an annual lodgement process, and even an annual “year by year” basis of calculation.
As we mentioned in a previous blog, ATO Commissioner Chris Jordan said last month the ATO wanted “seamless, integrated, and automated systems” in place to enable effortless flow of data by 2030.
So we can expect in the next several years significant changes will occur within the Australian tax preparation landscape.