Australian Income Tax Law Reform on Education Expenses Report

Introduction

Each country across the world serves under certain rules and regulations that either proves significant and continue serving the nation or undergo constant reforms to replenish and improve their effectiveness in governance. Conventionally, laws normally undergo reforms regularly with mixed reactions from the affected population, and thus reforms may sometimes elicit sharp reactions from nationalists. The income tax law has been one of the laws that are integral to countries globally, with its significance affecting employment, domestic investment, and economic growth as it is one way of enhancing government revenues. Decades ago, the Australian federal government imposed the income tax law following its aim of increasing government funding. However, of late, the Australian constitution has been undergoing numerous reforms, especially in the income tax law that has resulted in endless controversies from the public. Based on such issues, this essay aims at exploring the proposed 1st July 2014 reforms on income tax law amendments on self-education expenses targeted by the Australian government.

Synopsis of self-education expenses

The existing income tax law appeared under the Income Tax Assessment Act 1936. According to the Commonwealth of Australia (2013), the provisions of income tax law stipulated in the Income Tax Assessment Act are beyond doubt the main sentiments of the Australian population over the proposed 1st July 2014 amendments that aim at changing policies covering annual self-education deduction. The existing income tax law has important provisions, and section 8 of the Income Tax Assessment Act 1936 (ITAA 1936) is quite imperative for this discussion. According to the Total Tax Assessment Act 1936 (ITAA), “income derived from a ‘scholarship, bursary or other educational allowance’ to full-time students shall be exempt from income tax” (Baxby & Brash 1994, p. 74). Under the prevailing Australian federal income tax law, stipulated in the provisions of the income tax law, section 8A of the Income Tax Assessment Tax 1936 refutes deductions exceeding $250 of expenses incurred on self-education.

Inclusivity of the deductions for self‐education expenses officially started in 1972, after numerous amendments in the tax legislation. Within the employment income, work-related deductibles, including travel, tools, uniform, occupational clothing, and educational expenses, exist within the income tax law. Currently, “the Australian federal income tax law demands the expense to be deductible and there must be a direct connection between production of the taxpayer’s assessable income and the incurring of the expense” (Commonwealth of Australia 2013, p. 6). Section 8-1 of the ITAA denies deductions where the education activity does not enable a taxpayer to acquire employment. Under section 82A, the Income Tax Assessment Act 1936, which denies deductions exceeding $250 of the expenses of self-education, the overall tax deductions remain limited to approximately $1,750 total tax on taxpayers. Prior to the proposals of increasing the annual self-education deduction limit of $2000, taxpayers claim it is unfair to retain section 82A.

Expected changes from the proposed amendments

The Australian federal government intends to pursue some changes in the income tax law that may change annual self-education deductions incurred by taxpayers, and this aspect has elicited debates over the taxpayers’ ability to support self-education expenses (Australian Physiotherapy Association 2013). The greatest changes that will probably affect the provisions of the income tax law articulated in the Income Tax Assessment Act 1936 will mainly involve changes in Section 8 of the ITAA. Initially, the income tax law never allowed expenses of self-education deductions to exceed $250 on taxpayers under the deductibility allowed in the general deduction section. On 31st May of 2013, the Treasury for public consultation released a report on proposals for amendment of the income law tax by the Australian federal government (Commonwealth of Australia 2013). Reform to a deduction for education expenses will include taxpayers being liable to paying approximately a total of up to $2,000 deductibility cap as the limit on the deductions of individual’s education expenses.

Implications of the proposed amendments

Despite focusing on amending the provisions of the income tax law, the federal government of Australia might be taking the most undesirable step in the tax legislation. Increment in the self-education deductions in the first place seem to affect lower-income earners and thus prove to be a discriminatory approach. A study done by the Australian Physiotherapy Association (2013) concerning the Australian public and private sector revealed a lot about the insufficiency of funds to support the self-education expenses even before the proposals. Within the public sector, very few taxpayers managed to pay $200 meant for staff educational expenses. In the private sector, members’ reports revealed that employers’ contributions have decreased to less than $250 annually per employer. As per the employees’ plight, the proposed amendments will have considerably high detrimental impacts on individuals who are still unemployed as there will be no option for the ones in self-employment to fund their educational activities in circumstances where the funding exceeds the $2000 cap.

Taxpayers reason that the proposed amendments have a greater possibility of affecting professional development and the entire Australian educational paradigm, as the act is incompatible with achieving better Australia based on the knowledge economy (Australian Physiotherapy Association 2013). The proposed amendments that will affect education achievement will “send the wrong message in respect of the importance of relevant taxpayers maintaining or improving their skill set so as to improve the quality and productivity of their activities in pursuing their chosen occupation” (BDO National Tax Counsel 2013). This assertion holds as the amendments will have detrimental effects on the financial capability of educational programs. A nation with low knowledge on economic matters has a less innovative population following the effects of the proposed amendments that hamper the achievement of further professional studies and development (Commonwealth of Australia 2013. This aspect will consequently affect the national economic situation as long term repercussions will include deterioration of the national economy and production following the high rates of under-qualified professionals or workforce within organisations.

Possible positive impacts of the proposal

Proposed reforms of the income law tax targeting at improving or hiking self-education deduction limit to a total of $2000 deductibility cap may have detrimental as well as significant impact on the Australian nation as a whole. Globally, income tax revenues have been declining over the last years, thus putting nations’ economic prospects at stake. Almost all nations across the world depend on tax revenues to maintain economic stability, and Australia is not exceptional in this case. Annual capping of self-sponsored work-based education expense deductions to the limit of $2000 principally targets at increasing tax revenues (BDO National Tax Counsel 2013). The Australian economy will probably stabilise following the increment of the taxation revenue. However, in the protection of national revenue, Charters Secretaries Australia (2013) argues that there is no considerable evidence linking the increment of self-education deductions and the improvement of the economy as a whole as it is currently uneasy to determine how the additional revenue will affect national revenue.

A big chunk of government tax revenue in the Australian government comes from numerous private sectors operating within the nation (Australian Council for Private Education and Training 2013). Since the proposed amendments of the income tax law, the Australian private sector may benefit. Prior to the amendment of the income tax law, which aims at increasing self-education deduction, employees stand a good chance of enjoying significant private benefits not only towards individual professional growth but also to their organisations and the wider Australian community. An educated community possesses a great knowledge economy. According to the Commonwealth of Australia (2013), “education also delivers significant private benefits to the employee. An individual who undertakes education is first and foremost investing in themselves and in their own earning capacity” (p. 1).

Conclusion

The federal government of Australia has recently been under great constitutional pressure after reports on the proposed constitutional amendments aiming at increasing the tax on work-related self-education expenses. The income tax law was under the provisions of section 82A of the Income Tax Assessment Act 1936 that denied deductions exceeding $250 of the total expenses incurred in the self-education. The reforms aim at pushing taxpayers to incur an annual self-education deduction limit of $2000, which may have negative implications, including deterioration of educational achievement and professional development. However, increased taxation may influence growth in national revenue, thus making Australia more economically stable.

Reference List

Australian Council for Private Education and Training: ACPET’s opposition to the cap on tax deductions for self-education expenses 2013. Web.

Australian Physiotherapy Association: Feedback on reforms to education expense deductions 2013. Web.

Baxby, D & Brash, D 1994, ‘Self Education Expenses and Receipts: Implications for Income Taxation and FB T in Light of FCT v MI Roberts’, Revenue Law Journal, vol. 4 no. 1, pp. 74-83.

BDO National Tax Counsel: Reform to Deductions for Education Expenses 2013. Web.

Charters Secretaries Australia: Reforms to self-education expense deductions: Discussion paper 2013.

Commonwealth of Australia: Reform to deductions for education expenses 2013. Web.