Deductions for work related expenses in Australia: an analysis of options for reform

This article is an analysis of reform options for work-related expense (WRE) deductions for individual taxpayers in Australia. We use an optimisation model to identify options for reform that reduce tax system complexity from an administrative and compliance perspective. The analysis sets out the estimated effects of various revenue-neutral reform options. The article is motivated by calls for reform to WRE deductions in Australia, which are often directed at reducing the complexity of the tax system. At present, a sizable number of individual taxpayers claim relatively small amounts of WRE deductions. A standard deduction has the potential to move Australia closer to a system in which some taxpayers may no longer be required to lodge a tax return, albeit at a cost to the revenue. This revenue cost can be entirely offset by implementing a cap on WRE deductions for taxpayers who continue to claim their actual deductions.