Modern Australian
The Times

Worried you'll lodge a late tax return? At least 80,000 Australians can't afford tax advice

  • Written by Ann Kayis-Kumar, Associate Professor, UNSW Sydney
Worried you'll lodge a late tax return? At least 80,000 Australians can't afford tax advice

If you’re struggling to complete your tax return, you’re not alone. There are cases of Australians being years, even decades behind in their tax returns. And the poorer you are, the more likely you’ll need but can’t afford some professional help.

While tax debts and tax stress transcend socioeconomic boundaries, poorer people are more likely to be late on their tax returns – in some cases up to 30 years behind.

Our research shows about 37% of people in financial hardship seen by financial counsellors need tax help but are unable to afford it. That’s at least 80,000 Australians.

That’s a huge problem, because individuals and small businesses with outstanding returns are often ineligible for many types of government support. While the cost of tax advice is tax-deductible, you need to have the spare cash in the first place.

So if you’re worried about meeting this year’s tax return due date – or have a backlog of returns – here’s what you need to know about accessing free advice, and how we could help far more Australians, all year around.

Who can get free tax help now?

The Australian Tax Office offers a free Tax Help service to those with incomes of less than A$60,000.

This service is an important part of the landscape and assists about 30,000 people with simple tax affairs each year.

However, it is only offered between July and October. And the eligibility criteria exclude anyone working as a contractor (such as gig workers) or running a business, including as a sole trader.

This leaves a tax advice gap between those eligible for Tax Help and those who can afford professional advice to navigate the tax and transfer system.

So many people in hardship fall through the cracks – especially sole traders and micro-businesses in financial distress. For example, if your small business is cash-strapped and you’re already struggling financially and psychologically, you may not have the cash to pay for necessities, let alone an accountant.

There are other penalties as well. For example, you need to be up to date on your tax returns to claim Centrelink entitlements, or to access your superannuation early on “severe hardship grounds”.

Read more: myTax is fast and free – so why do 2 in 3 Australians still pay to lodge a tax return?

What financial counsellors told us

We quantified the need for tax help in Australia through a nationwide survey of financial counsellors. This survey, conducted in 2019, was the first of its kind in the world to identify and quantify the prevalence of tax issues faced by the financially disadvantaged.

Financial counsellors are different to financial planners or financial advisers. Their job is to help people in debt or financial difficulty.

As such, they are the front line in helping people experiencing hardship. Thanks to the support of Financial Counselling Australia, about 20% of the 890 financial counsellors in Australia responded to our survey.

We asked what specific type of tax advice was needed. About 93% of clients wanted advice on lodging tax returns, and 88% wanted advice about tax debts.

Financial counsellors based in lower socioeconomic communities were more likely to have clients with long-term overdue tax returns. This is particularly troubling, because it means the most disadvantaged people in hardship cannot navigate the system without professional advice, which they cannot afford.

About 75% of financial counsellors observed the unmet need for tax advice was increasing. Reasons given for this included declining levels of financial literacy, the increase in “gig economy” workers, and contractors with more complicated tax issues and compliance burdens, such as collecting the goods and services tax.

Survey respondents noted the increasing number of sole traders with little knowledge. Most clients needed help to lodge multiple years of outstanding tax returns and advice on tax debts.

Read more: Sometimes people can do with a break: 3 ways tax debt relief rules are too tough

Why we need free tax help all year around

While financial counsellors reported financial stress across different levels of income, those on low incomes are less likely to be able to afford independent tax help and face the most barriers to accessing free tax advice.

Financial counsellors are not able to complete or lodge tax returns. This presents a major gap in advice available to those in need.

Read more: Does paying for tax advice save money? Only if you’re wealthy

As well as the Australian Tax Office’s Tax Help service, the federal government provides funding for the National Tax Clinic Program, in which university students studying tax-related courses and qualified tax experts offer free tax advice and support to people in need. By 2025, this program is set to expand to 20 clinics across all states and territories.

But our research showed the need for free tax advice went well beyond what these tax clinics can support with current funding levels.

One largely untapped opportunity is for the tax accounting profession to emulate the law profession. Australia has almost 200 community legal centres, providing pro bono (free, for the public good) advice to those who cannot afford a lawyer.

We recommend federal funding for a nation-wide free tax clinic program so that existing clinics can operate full time, year-round – like that national network of community legal centres.

The effect could be life-changing. As noted by one client of the UNSW Tax and Business Advisory Clinic:

I really don’t think people understand the magnitude of offering this assistance to people in hardship & situations where financial abuse is a factor […] it really has made a difference to my life and my children’s lives.

For information about the Australian Taxation Office’s tax help program go here. To find a university tax clinic in your state or territory, go here.

Authors: Ann Kayis-Kumar, Associate Professor, UNSW Sydney

Read more https://theconversation.com/worried-youll-lodge-a-late-tax-return-at-least-80-000-australians-cant-afford-tax-advice-211267

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