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Coalition reprieve on self-education tax break

The Abbott government has abandoned Labor’s plan for a A$2000 cap on the amount people can claim for self-education expenses…

Treasurer Joe Hockey will not go ahead with a cap on self-education expenses. AAP

The Abbott government has abandoned Labor’s plan for a A$2000 cap on the amount people can claim for self-education expenses.

As part of its review of 92 tax and superannuation announcements that have not been legislated, the government said it had been advised that there was no credible evidence this deduction is being substantially abused. But it said that if evidence emerged, it would revisit the matter.

The deduction covers training and educational courses, textbooks and other accreditation expenses.

The cutback was included in the last Labor budget, and announced with the university cuts. But it was then delayed for one year in the pre-election economic statement.

Some 80% of self-education claims for more than A$2000 come from people earning less than A$80,000 annually. The government said the economic cost of the cutback would be substantial – which had been recognised by Labor’s decision to delay the start of the cap.

Universities welcomed the move. Chief Executive of Universities Australia Belinda Robinson said the decision was “a victory for common sense.”

“The Government is to be commended for its swift response in addressing a policy that would have had profound negative consequences across the economy,” she said.

Higher education expert Andrew Dempster said the decision to introduce the cap “always lacked a coherent rationale.”

“It was never really anything more than a crude way of saving the government money [and] it did this by taking money out of the pockets of Australians looking to… improve their employability,” he said.

Treasurer Joe Hockey and assistant treasurer Arthur Sinodinos said the backlog of unlegislated measures has created “operational uncertainty for business and consumers”.

Of the 92 measures, the government will proceed with 18 while another three will be amended. It will not proceed with seven. It is still reviewing and consulting on the other 64, with a disposition not to proceed with them.

As it announced before the election, the government will not proceed with Labor’s A$1.8 billion fringe benefits tax crackdown on company and salary sacrificed cars. This was planned to help pay for Kevin Rudd’s intention to bring forward the start of emissions trading.

It also will not go ahead with the Labor tax on earnings on superannuation assets supporting retirement income streams. This would have taxed super earnings above $100,000 per year in the drawdown phase.

Not proceeding with these and other measures hits the budget bottom line by A$2.4 billion over the forward estimates.

The government will amend three measures, with a A$700 million cost to the budget. These include:

  • Thin capitalisation changes, which relate to tax structures that seek to shift profits through debt loading. The government said the measure Labor had proposed would put unreasonable compliance costs on Australian businesses; instead the government would introduce a targeted anti-avoidance provision after consultations with stakeholders.

  • Tightening of the Offshore banking unit regime. The government will not proceed with the part of this measure that excludes all related party transactions but have a targeted integrity measure to provide certainty for the industry.

The government is going ahead with 18 un-enacted measures that preserve close to $11 billion in revenue. These include the tobacco tax hikes Labor imposed. The Coalition in opposition said it was reluctantly taking over a number of Labor savings because of the needs of the budget bottom line.

The government’s changes will be included in the mid year fiscal outlook, out before Christmas. The aim is to have most of the legislation passed by July 1 next year.