Australian Government is already at the proposal stage to eliminate tax deductions claimed for non-compulsory work uniforms. This would save the government treasury to around $30 million every year keeping in view, 500,000 tax payers who claim deductions from the tax every year. If we look at 2013-14 tax year, around 492,000 tax payers had claimed $104 million worth of deductions for expense on non-compulsory uniforms. Blocking these deductions would save the department of Industry, Innovation and Science, the costs overhead in administration of assessing and registering designs that come under claimable deductions. This alone costs approximately $100,000 every year.
As per current rules, the employees are able to claim a tax deduction for non-compulsory uniform expenditures, wherein the employers have the design of the uniforms being approved and included on the Approved Occupational Clothing by the secretary of the Department of Industry, Innovation and Science. The aim of division 34 was to only give way to deductions for non-compulsory uniforms in scenarios where the clothing is obviously identifiable as a corporate uniform.
The issue been raised against these guidelines is whether Division 34 rules are the most appropriate for achieving this aim. The Federal community is concerned that the present approach may impose an unnecessary regulatory overhead and cost on businesses. Previously, in 1992-93 budgets, it was announced that deductions for non-compulsory uniforms would not be allowed. At that time the objective was to ensure that the tax laws do not confer an unfair advantage on some employees by allowing deductions different from that worn to work by few other employees for whom no deductions were allowed. But then the government removed the changes made as at that time as the federal community was investing noticeable funds in helping the textile, clothing and footwear industry from fighting against the shocks from tariffs.
Now, the federal community is reviewing the rules and regulatory requirements in Division 34 of the Income Tax Assessment Act, which manages the tax deductions for expenses for non-compulsory uniforms. The Treasury paper gives many options for the change from amendments in the guidelines to full denial of all tax deductions. Organizations that employ staff who wear a non-compulsory uniform could be able to maintain a strategic distance from Fringe Benefits tax on any subsidies that they make towards the uniform. However, the Australian Taxation Office decides the level of assessment derivations.
At A One Accountants, we think that the proposed scrapping of non-compulsory work uniform does not actually affect the budget too much. $30 million may not be enough ticks to help fill up the large budget deficit we are facing at the moment. More notable changes such as changes to negative gearing would in fact bring about a paradigm shift to taxation as we know it.
Changes to land tax, stamp duty and negative gearing in it will have huge implications for taxpayers and have the potential to bring about a noticeable positive change to government treasury. Also cutting down expenditure on large scale government spending such as NBN etc. can affect government treasury.
So while scrapping down non-compulsory work uniform may bring in some inflows via reduced tax refunds, on the other hand it does not seem to be a notable move; however if this change is implemented it could reduce tax refunds to affected taxpayers by 100’s of dollars.