Content uploaded by Brett Freudenberg
Author content
All content in this area was uploaded by Brett Freudenberg on Jul 07, 2016
Content may be subject to copyright.
321
Tax literacy in Australia:
not knowing your deduction
from your offset
Toni Chardon*
Brett Freudenberg**
and Mark Brimble***
Abstract
In times of global economic uncertainty and in a climate of increased consumer
responsibility for financial decisions, maintaining a financial environment where
consumers are protected from risk and continue to have opportunities to create
wealth should be critical for governments, business and administrators. The Australian
Government has recognised that, for those with the lowest levels of financial literacy,
specific financial literacy programs can equip them with the appropriate financial
skills and knowledge to ensure they can make well informed decisions and be less
vulnerable to scams and market risks.
One of the main aims of increasing the overall financial literacy of populations is
creating an environment where consumers have the knowledge, skills and confidence
to protect them from financial risk. It is argued that taxation consequences often
play an important role in investment decisions and are often the primary reason why
* University of Southern Queensland (email: toni.chardon@usq.edu.au; tel: +61 7 4631 5514).
** Department of Accounting, Finance and Economics, Grith Business School, Grith University.
*** Department of Accounting, Finance and Economics, Grith Business School, Grith University.
is article was accepted for publication on 14 March 2016.
04_ ATF 31-2_Chardon and Brimble_Print.indd 321 15/06/2016 11:39:15
322 (2016) 31 AUSTRALIAN TAX FORUM
people seek assistance and advice from professionals. It is also argued that making
poor taxation decisions through a lack of basic understanding can pose significant
risks to a person’s overall financial position and financial decision
‑
making. Indeed,
Chardon has argued that the notion of financial capability should include notions of
tax and superannuation. However, to what extent do Australians understand basic tax
concepts, that is — what is their “tax literacy”?
The current study is the first to empirically examine the tax literacy of Australians
and whether there are any correlations with certain demographical factors. The
study involved firstly a series of focus group interviews to determine what concepts
should form part of a tax literacy score (TLS). This was then followed by a survey
completed by over 600 Australians to determine their TLS. In measuring the levels of
tax literacy in Australia, it was found that approximately 81% of Australians have a
TLS at the “basic” or higher level. This, in turn, means that 19% of Australians have a
TLS classified as either “poor” or “low”. Also, it was found that similar demographic
groups for financial literacy were likely to have lower levels of tax literacy. It was also
found that higher levels of tax literacy were found in those groups having a greater
connection to employment.
The findings of this research have practical policy implications, in that the results can
assist policymakers and administrators in their understanding of what areas of tax
the general population needs assistance with and can help shape communication and
education strategies.
Keywords: tax literacy; nancial literacy; Australia.
04_ ATF 31-2_Chardon and Brimble_Print.indd 322 15/06/2016 11:39:15
323
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
1. Introduction
e complexity of Australia’s taxation system and taxpayer compliance are oen
researched in both the academic and professional literature.1 In the past, research
has attempted to determine whether complexity has an eect on the level of taxpayer
compliance.2 However, little of this research has considered to what extent the general
population understands the tax system that applies to them. is study explores levels
of Australians’ understandings of the tax system, that is, their tax literacy.
e term nancial literacy has been dened as “the ability to make informed
judgements and to make eective decisions regarding the use and management of
money”.3 It is argued that taxation issues have largely been excluded from nancial
literacy measurements and education programs to date both in Australia and overseas.
Indeed, Chardon formulated a cogent argument that tax and superannuation should
be incorporated into the broader notion of nancial literacy (also known as nancial
capability).4 is was in part based on arguments that tax can be a critical inuence on
investment options and returns, as well as the global trend in western countries toward
self‑funded retirement, which requires citizens to be more active and knowledgeable
1 C Evans and J Kerr, “Tax reform and ‘rough justice’: is it time for simplicity to shine?”, (2012)
27(2) Australian Tax Forum, 387–410; C Evans, K Ritchie, B Tran‑Nam and M Walpole,
A Report into taxpayer costs of compliance. Canberra: Australian Government Publishing
Service, (2007); C Evans and B Tran‑Nam, “Controlling tax complexity: rhetoric or reality?”,
in C Evans, RKrever and PMellor (eds), Australia’s future tax system: the prospects aer Henry,
(2010), Sydney, Australia, omson Reuters, pp. 439–463; P Lignier and C Evans, “e rise and
rise of tax compliance costs for the small business sector in Australia”, (2012) 27(3) Australian
Tax Forum 615.
2 V Braithwaite, M Reinhard, and M Smart, “Tax non‑compliance among the under‑30s: knowledge,
obligation or scepticism?”, in J Alm, J Martinez‑Vazquez and B Torgler (eds), Developing
alternative frameworks for explaining tax compliance. Milton Park, Routledge, Taylor & Francis
Group, 2010; M McKerchar, e impact of complexity upon unintentional non‑compliance for
Australian personal income taxpayers (2002), Doctoral Dissertation, University of New South
Wales; M McKerchar, H Hodgson and M Walpol, “Understanding Australian small businesses
and the drivers of compliance costs: a grounded theory approach”, (2009) 24(2) Australian Tax
Forum 151; A Sawyer, “Enhancing compliance through improved readability: evidence from
New Zealand’s rewrite ‘experiment’”, paper presented at the 2010 IRS Research Conference, June
2010, Washington, United States.
3 Australian Securities and Investments Commission, Report 230: Financial literacy and
behavioural change, March 2011. Available at www.nancialliteracy.gov.au/media/218309/
nancial‑literacy‑and‑behavioural‑change.pdf; Consumer and Financial Literacy Taskforce,
Preliminary recommendations to Government. 31 August 2004. Available at http://ctaskforce.
treasury.gov.au/content/home.asp.
4 T Chardon, “Weathering the storm: tax as a component of nancial capability”, (2011) 5(2)
Australasian Accounting Business and Finance Journal, 53–68. To be consistent as “literacy” is
used throughout the article.
04_ ATF 31-2_Chardon and Brimble_Print.indd 323 15/06/2016 11:39:15
324 (2016) 31 AUSTRALIAN TAX FORUM
about their retirement savings.5 If tax literacy is similar to nancial literacy, then
surveys measuring adult nancial literacy in Australia as well as other academic
research suggest that there are certain at‑risk groups which have low levels of literacy,
particularly in relation to nancial products and superannuation.6 For example, the
Australian and New Zealand Banking Group Ltd (ANZ) surveys of adult nancial
literacy in Australia have consistently reported people nd superannuation aspects
more dicult than basic banking.7 Worthington undertook more detailed research in
relation to ndings from the ANZ survey particularly in relation to superannuation.8
He argued that knowledge of superannuation in Australia was varied with good
understanding in some areas and poor understanding in others.9
Both in Australia and overseas, there is little academic research that focuses on what
elements should form part of measuring a person’s level of nancial literacy and which
of those are most critical to nancial success. e payment of taxation is something
that impacts on the majority of individuals and businesses and therefore can impact
on a person or business’s overall nancial position. is can include meeting tax
liabilities on time, preparing tax returns accurately, claiming all available entitlements
and communicating eectively with one’s nancial or tax advisers.
In formulating a tax literacy scale, as well as measuring it, this research is important
to the taxation discipline as it provides an alternative view about the issue of tax
complexity. Previous research in the tax discipline has suggested that non‑compliant
behaviour was not necessarily intentional and that taxpayers who completed their
own tax returns were the most likely to be unintentionally non‑compliant.10 Yet, at
the same time, this research found that there was “evidence of a high commitment to
compliance”.11 If individuals have low levels of tax literacy, there is little wonder they
may be more likely to unintentionally non‑comply.
5 S Kelly, Self provision in retirement? Forecasting future household wealth, National Centre for
Social and Economic Modelling, 2003. Available at www.natsem.canberra.edu.au/publications/
?publication=self‑provision‑in‑retirement‑forecasting‑future‑household‑wealth.
6 A Worthington, “Knowledge and perceptions of superannuation in Australia” (2008) 31(3)
Journal of Consumer Policy 349.
7 ANZ, Adult nancial literacy in Australia – full report of the results from the 2014 ANZ survey, May
2015. Available at www.nancialliteracy.gov.au/media/558752/research‑anz‑adultnanciallitera
cysurvey2014‑fullreport.pdf. Accessed 15 June 2015; ANZ, ANZ survey of adult nancial literacy
in Australia, October 2008. Available at www.anz.com/resources/5/4/54a7b400413360d8b5d8
bda2fd298cdf/Survey‑Adult‑Financial‑Literacy‑2008.pdf. Accessed 15 June 2015; ANZ, ANZ
survey of adult nancial literacy in Australia, November 2005. Available at www.nancialliteracy
.gov.au/media/465174/anz‑survey‑of‑nancial‑literacy‑in‑australia‑nov‑2005.pdf. Accessed 15
June 2015.
8 Worthington, above n 6.
9 Worthington, above n 6.
10 McKerchar, above n 2, at pp 284–285.
11 McKerchar, above n 2, at p 289.
04_ ATF 31-2_Chardon and Brimble_Print.indd 324 15/06/2016 11:39:15
325
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
To date, understandings about the tax system have largely fallen outside the nancial
literacy agenda. is is despite governments using the tax system to inuence
nancial and investment decisions and as a mechanism for wealth distribution. Basic
taxation concepts are not currently compulsorily taught as part of the primary or
high school curriculum in Australia. However, taxation is something which every
individual is assumed to understand when engaging in the workforce or making
nancial decisions. Given that nancial literacy research suggests a nancially capable
person is more likely to take an active and responsible role in the nancial arena, it is
argued that a more tax literate person is more likely to take an active and responsible
role in the taxation arena. is argument has potential benets for the consumer,
government and the wider economy.
e remainder of the article is organised as follows. e next section provides an
overview of the literature regarding nancial literacy and the demographics that are
seen at risk. is is then followed by a consideration of the importance of tax literacy
for modern taxpayers in Australia. is discussion is then followed by the outline of
the methods used in this study comprising of focus group discussions and surveys.
Next, the ndings of the study for both methods are provided. e subsequent section
provides a general discussion of the overall ndings. e nal section concludes the
article and provides suggestions for future research.
2. Importance of nance and tax literacy
e Australian Tax Oce (ATO) oen attempts to educate taxpayers in becoming
more aware of the risks associated with tax minimisation schemes and scams where
the potential tax benets are used as bait to entice investors. ere is a dedicated
section on the ATO website which warns taxpayers about potentially damaging
investment schemes and how to recognise them. Regular “Taxpayer Alerts” are issued
to inform taxpayers about ATO concerns in relation to high risk investments.12 Much
like the broader societal risks associated with poor nancial literacy, it is argued that
through poor taxation literacy, there are also risks to the taxation system through
investors making poor investment/nancial decisions.
Despite these eorts and systems, recent years have provided a number of examples
where investors nd themselves in diculty. For example, the collapse of Australia’s
largest agricultural managed investment scheme, Great Southern Group Ltd, in 2009
12 Australian Taxation Oce, Taxpayer alerts. Available at www.ato.gov.au/General/ATO‑advice
‑and‑guidance/ATO‑guidance‑products/Taxpayer‑alerts/.
04_ ATF 31-2_Chardon and Brimble_Print.indd 325 15/06/2016 11:39:15
326 (2016) 31 AUSTRALIAN TAX FORUM
saw more than 40,000 investors owed up to $4b and many purported tax savings
rendered unavailable or, at the very least, uncertain.13
It is not only the nancial and investment contexts that are becoming increasingly
more complex. In 2006, the Australian Bureau of Statistics (ABS) reported that
approximately half of Australians had prociency less than the minimum required for
individuals to “meet the complex demands of everyday life and work in the emerging
knowledge based economy”.14 is nding, together with ndings in relation to
levels of nancial literacy in Australia, suggest there is a need to improve standards
of literacy across the board to protect individuals from making poor nancial and
other decisions which may have signicant impacts on their lifestyle, both now and
into the future.
In 2004, the Australian Government tasked the Consumer and Financial Literacy
Taskforce (the Taskforce) with developing a National Strategy for Consumer and
Financial Literacy. e Taskforce modelled “bad” decision‑making and found that
over the course of a person’s life (whose salary was $36,000 per annum), up to $790,000
in wealth could be lost through making these “bad” nancial decisions.15 e strategy
states that “the more knowledgeable consumers are in the way they interact with
the nancial services sector, the more eective and ecient that sector will become,
creating savings (wealth) and ideally reducing the need for regulatory intervention”.16
e 2004 Taskforce discussion paper found that while there was a vast amount of
information available to consumers, a large proportion of that material was not
known, not properly targeted or not used by Australian consumers.17
e ANZ bank has funded a national ‘Survey of Adult Financial Literacy in Australia’
on a number of occasions and the results remain the most widely cited measures of
nancial literacy in Australia.18
13 Australian Taxation Oce, Collapse of agribusiness managed investment schemes, December 2013.
Available at www.ato.gov.au/General/Tax‑planning/In‑detail/Managed‑investment‑schemes/
Collapse‑and‑restructure‑of‑agribusiness‑managed‑investment‑schemes‑‑participant‑informa
tion/; S Farnsworth, “ousands sue over investment company collapse”, 29 October 2012, ABC
news online. Available at www.abc.net.au/news/2012‑10‑29/thousands‑sue‑over‑collapse‑of
‑investment‑company/4339210.
14 Australian Bureau of Statistics, Adult literacy and life skills survey: summary results, 2006.
Available at www.abs.gov.au/AUSSTATS/abs@.nsf/allprimarymainfeatures/FD8358D771B3C3
96CA257B12000F63A0?opendocument, at p 5.
15 Consumer and Financial Literacy Taskforce, above n 3.
16 Australian Securities and Investments Commission, above n 3, at pp 5 & 16.
17 Consumer and Financial Literacy Taskforce, Australian consumers and money – a discussion paper,
June 2004. Available at www.ctaskforce.treasury.gov.au/content/_download/DiscussionPaper/
Full_version_no_cover.pdf.
18 e surveys have been reported in 2003, 2005, 2008, 2011 and 2015.
04_ ATF 31-2_Chardon and Brimble_Print.indd 326 15/06/2016 11:39:16
327
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
It was found that Australian society is broadly nancially literate, but that certain
groups have particular challenges, and certain nancial skills, services and products
were not as well understood or utilised by these groups.19 It was found that lower
levels of nancial literacy were more likely to be found in the following groups:
those with lower levels of education; those not working; or in unskilled work, those
with lower incomes (< $20,000), those with lower savings levels (< $5,000), females,
single people, and at both the younger and older extremes of the age prole.20 ese
demographics have remained broadly consistent in all the surveys. Further, it was
found that all population groups found superannuation issues more dicult than
basic banking,21 while the 2014 survey concluded that one in ve people were poorly
equipped to make superannuation decisions.22
In terms of specic ndings in relation to levels of numeracy, in 2005, 50% of those
with the lowest level of nancial literacy were unable to calculate 50% of $1,400 (not
reported in future surveys).23 It is argued that many of the notions determined in
these nancial literacy scores can relate to or be impacted by the operation of the tax
system and/or superannuation. For example, if 50% of those with the lowest level of
nancial literacy were unable to calculate 50% of $1,400, then it is questionable as
to whether these same individuals would understand their basic tax liability (that is,
marginal rates of tax as opposed to average rates of tax).
It is argued that an understanding of basic taxation issues such as rights and
responsibilities of taxpayers and the basic framework of the Australian taxation
system could form part of three of the four components stated to be in the Australian
19 ANZ, ANZ survey of adult nancial literacy in Australia, October 2008. Available at
www.anz.com/resources/5/4/54a7b400413360d8b5d8bda2fd298cdf/Survey‑Adult‑Financial‑Li
teracy‑2008.pdf. Accessed 15 June 2015, at p 1.
20 ANZ, ANZ survey of adult nancial literacy in Australia, November 2005. Available at
www.financialliteracy.gov.au/media/465174/anz‑survey‑of‑financial‑literacy‑in‑australia
‑nov‑2005.pdf. Accessed 15 June 2015; ANZ, above n 19; ANZ, Adult nancial literacy in
Australia – full report of the results from the 2011 ANZ survey, December 2011. Available at www.
nancialliteracy.gov.au/media/465153/2011‑adult‑nancial‑literacy‑full.pdf.pdf. Accessed 15
june 2015; ANZ, Adult nancial literacy in Australia – full report of the results from the 2014 ANZ
surv ey, May 2015. Available at www.nancialliteracy.gov.au/media/558752/research‑anz‑adult
nancialliteracysurvey2014‑fullreport.pdf. Accessed 15 June 2015.
21 ANZ, ANZ survey of adult nancial literacy in Australia, November 2005. Available at
www.financialliteracy.gov.au/media/465174/anz‑survey‑of‑financial‑literacy‑in‑australia
‑nov‑2005.pdf. Accessed 15 June 2015, at p 2.
22 ANZ, Adult nancial literacy in Australia – full report of the results from the 2014 ANZ survey,
May 2015. Available at www.nancialliteracy.gov.au/media/558752/research‑anz‑adultnanciall
iteracysurvey2014‑fullreport.pdf. Accessed 15 June 2015.
23 ANZ, above n 21, at p 2.
04_ ATF 31-2_Chardon and Brimble_Print.indd 327 15/06/2016 11:39:16
328 (2016) 31 AUSTRALIAN TAX FORUM
framework for nancial literacy by Kempson.24 e four components of nancial
literacy being: day‑to‑day money management; nancial planning; the ability to
choose appropriate nancial products; and nancial knowledge and understanding.
Indeed, the report to the 2008 ANZ survey recognises the potential for tax to be a
component of a nancial literacy framework where it states:25
“Please note that other potential aspects of adult nancial literacy (e.g. taxation;
understanding of how and why government is nanced; awareness and
understanding of government benets; understanding of how fees are calculated
and how to minimise them) were agreed upon as being beyond the scope of the
current project, and therefore not included in the framework”.
All previous surveys have indicated that all population groups nd superannuation
issues more dicult than basic banking. is is supported by the fact that in 2014,
97% of respondents knew that their employers were required to make superannuation
contributions on their behalf; however, a smaller percentage (88%) understood that
they could make additional contributions (down from 92% in 2011).26
e specic tax question posed by the ANZ survey (in all surveys except in 2014) was
whether the respondent knew if superannuation was taxed at higher, lower or the same
rate as other investments. e result in 2011 was that 59% of respondents, who were
under 65 years of age, employed and with superannuation, knew that superannuation
was taxed at a lower rate than other investments (the same as in 2008).27 However, 3%
thought that superannuation was taxed at a higher rate, 11% thought the same rate of
taxation applied and 27% said that they did not know.28 ese were the ndings that
led to the assertion in the report that there is uncertainty about the tax treatment of
superannuation. e reason for the exclusion of this question from the most recent
2014 survey is unclear. ese ndings are particularly relevant given the government’s
preference for self‑funded retirement. Further, it is also relevant in a market where
24 E Kempson, S Collard and N Moore, Measuring nancial capability: an exploratory study,
University of Bristol Personal Finance Research Centre, June 2005.
25 ANZ, ANZ survey of adult nancial literacy in Australia – nal report, May 2003. Available from the
Financial Literacy website at www.nancialliteracy.gov.au/media/465156/anz‑survey‑of‑adult
‑nancial‑literacy‑2003.pdf. Accessed 15 June 2015, at p 18.
26 ANZ, above n 19, at p 59; ANZ, Adult nancial literacy in Australia – full report of the results from
the 2011 ANZ survey, December 2011. Available at www.nancialliteracy.gov.au/media/465153/
2011‑adult‑nancial‑literacy‑full.pdf.pdf. Accessed 15 June 2015, at p 54.
27 ANZ, above n 19, at p 59; ANZ, Adult nancial literacy in Australia – full report of the results from
the 2011 ANZ survey, December 2011. Available at www.nancialliteracy.gov.au/media/465153/
2011‑adult‑nancial‑literacy‑full.pdf.pdf. Accessed 15 June 2015, at p 54.
28 ANZ, Adult nancial literacy in Australia – full report of the results from the 2011 ANZ survey,
December 2011. Available at www.nancialliteracy.gov.au/media/465153/2011‑adult‑nancial
‑literacy‑full.pdf.pdf. Accessed 15 June 2015, at p 54.
04_ ATF 31-2_Chardon and Brimble_Print.indd 328 15/06/2016 11:39:16
329
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
many participants have the option of more control over their superannuation through
Super Choice and self‑managed superannuation funds.
e Australian National Financial Literacy Strategy recognises this potential risk to
consumers stating: “many retirees will need to rely more heavily on personal savings
and retirement income, and be more competent in a range of nancial management
strategies (such as asset management, tax and estate planning, and insurance) than
previous generations have had to”.29 is push toward self‑funded retirement is
coupled with more complex rules and legislation surrounding superannuation in
Australia. It has been found that even Australian tax advisers nd the tax treatment of
retirement funds one of the most complex areas to provide advice on.30 ese trends are
worrying given the results presented earlier as well as other academic research which
suggest there are certain groups which have low levels of nancial literacy particularly
in relation to more complex nancial products including superannuation.31
e 2005 ANZ survey found that 7% of respondents identied taxation as one of
the areas that they felt they needed further education.32 is was mirrored in 2008
where it was found that taxation information ranked as the most desired among those
types of information that participants stated they wanted further advice on from
government bodies.33
e 2005 ANZ survey report argued that three core factors emerged from the
study as causes of people suering nancial diculty: unhealthy ways of thinking
about nances, circumstances or events outside their control, and lack of skills
and knowledge.34 It was further asserted that this lack of skills and knowledge was
evidenced in people not understanding how products worked, not recognising when
they should seek advice, and being unable to identify a nancial scam.35 Seeking
advice and being able to identify scams are both practices that the ATO encourage.
From the above discussion, it has emerged that taxation and superannuation literacy
are areas where there are potentially low levels of understanding or a need for further
exploration and measurement. However, specic levels of taxation literacy need
to be explored in order to further develop this theory. Research in relation to tax
29 Australian Securities and Investments Commission, above n 3, at p 13.
30 B Freudenberg, B Tran‑Nam, S Karlinsky and R Gupta, “A comparative analysis of tax advisers
perception of small business tax law complexity: United States, Australia and New Zealand”,
(2012) 27(4) Australian Tax Forum 677.
31 A Worthington, “Predicting nancial literacy in Australia” (2006) 15(1) Financial Services
Review 59, at p 89.
32 ANZ, above n 21, at p 254.
33 ANZ, above n 19, at p 113.
34 ANZ, above n 21, at p 5.
35 ANZ, above n 21, at p 7.
04_ ATF 31-2_Chardon and Brimble_Print.indd 329 15/06/2016 11:39:16
330 (2016) 31 AUSTRALIAN TAX FORUM
compliance has suggested that personal taxpayers are not necessarily condent in the
accuracy of their returns, even when they used an agent, and that complexity may
cause misunderstandings between a taxpayer and their tax agent.36 So, in order to raise
this condence and limit miscommunications, it is important for tax administrators
and tax agents to know what their clients already understand, or alternatively to be
condent that taxpayers have a base knowledge that can be assumed.
A survey by the Financial Literacy Foundation which explored Australian’s attitudes
and behaviours to money found that people’s self‑assessed ability to protect income
was overstated therefore they may be at risk of being caught by these investment
scams.37 Purported tax advantages are oen used as incentives or sales tactics for
many investments (such as for share and rental property investments) and particularly
for risky investment scams.38 e ndings also support the argument that there may
be important taxation aspects of investing that need to be considered and measured
as part of nancial literacy in order to potentially prevent people being caught by
investment scams.
Similarly, to Australia, empirical UK research has found that nancial literacy was
weakest among younger age groups.39 e UK Financial Services Authority (FSA)
survey did include a small number of questions which were related (or alluded) to
taxation. ese included: budgeting questions which listed income and other taxes
as expenses which might need to be accounted for; reference to tax planning in a
question about seeking professional advice regarding nancial matters; two questions
regarding the application of capital gains tax; the tax rate applicable to the sale of main
residences; and reference to taxation issues in a question about seeking additional
information and keeping up to date.40 is highlights that nancial literacy models in
the UK have begun to recognise that taxation can inuence nance decisions.
e FSA argues that they will have less need to intervene because consumers will be
less vulnerable in the market.41 So, owing from this, the ATO could have less need to
intervene in tax matters if people are more capable in tax matters and therefore more
36 McKerchar, above n 2, at p 289.
37 Financial Literacy Foundation, Financial literacy–‑ Australians understanding money, September
2007. Available at www.nancialliteracy.gov.au/media/209293/australians‑understanding‑money
.pdf, at p 24.
38 Financial Literacy Foundation, above n 37, at p 24.
39 Financial Services Authority, Financial capabiliy in the UK: delivering change, March 2006.
Available at www.fsa.gov.uk/pubs/other/ncap_delivering.pdf, at p 3.
40 A Atkinson, S McKay, E Kempson, and S Collard, Levels of nancial capability baseline survey:
questionnaire, March 2006, London, Financial Services Authority, at pp 39, 57 & 118.
41 Financial Services Authority, above n 39, at p 4.
04_ ATF 31-2_Chardon and Brimble_Print.indd 330 15/06/2016 11:39:16
331
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
compliant, if the research nding by McKerchar holds true in relation to unintentional
non‑compliance.42
In terms of taxation and superannuation concepts tting within a framework of
nancial literacy, it is argued that taxation is something which impacts on each
individual or business and thereby on their overall nancial position. ere are many
aspects of taxation which require choices or decisions to be made which can ultimately
result in changes to nancial circumstances. ese factors include: choosing to meet
tax liabilities on time; preparing returns accurately; the choice of one’s adviser; the
decision to claim all available entitlements; and the ability to communicate eectively
with one’s nancial or tax advisers. ere are also potential problems investors face
if they do not fully understand tax consequences before entering into transactions
(for example, purchasing a rental property). Given that passive investment losses are
now added back to income for the purpose of determining entitlement to other tax
concessions, there is the potential for tax to have a large inuence on the ultimate
rental returns. Further, given that non‑payment of taxation obligations can result in
penalties, missed opportunities or be used to support otherwise dubious investments,
awareness of the consequences is certainly an issue.
To date, understanding taxation issues has never been measured in detail in any
Australian survey of nancial literacy. is means that currently there is no data to
determine whether this might be an area where people have low levels of literacy or
whether there are specic aspects of taxation which need to be focused on or targeted.
To address this, research into Australians’ tax literacy was undertaken.
3. Methodology
e study was conducted in two stages. Stage 1 involved focus group discussions
with both individuals and advisers to gather data around where individuals consider
taxation to t within a nancial literacy framework, as well as which knowledge, skills
and capabilities in relation to taxation should be included as a base for measuring
taxation literacy. e outcomes from the focus groups are used to develop the survey
questionnaire for stage 2.
Stage 2 involved a survey which gathered data that was analysed and synthesised
in order to create a tax literacy score for each survey participant. is enabled the
following research question to be addressed:
What is the level of tax literacy in Australia and are there demographics which
have particularly low levels of tax literacy?
42 McKerchar, above n 2.
04_ ATF 31-2_Chardon and Brimble_Print.indd 331 15/06/2016 11:39:16
332 (2016) 31 AUSTRALIAN TAX FORUM
e tax literacy score is used as the variable in order to determine whether there
is a relationship between the tax literacy score and specic demographics. Also, the
survey results are analysed in order to determine whether there are any aspects of
taxation which have particularly low levels of understanding.
Below are the methodological issues and the demographics for participants for stages
1 and 2.
3.1 Stage 1: Focus group discussions
In order to achieve reliability, focus groups were conducted until the data reached
saturation point. e focus groups were conducted among a sample of individuals
which was consistent with the representative sample used in the stage 2 survey. Also,
two of these focus groups were conducted with tax advisers or nancial advisers
due to the fact that many nancial literacy models identied in the literature have
highlighted that individuals oen rely on information obtained through third parties,
such as advisers.43
To provide structure for the focus groups, a “Focus Group Discussion Guide” was
developed. Focus group participants were recruited through email advertisements
and announcements to sta and students at the University of Southern Queensland
(USQ). Other participants were recruited by providing invitations to accounting
and nancial planning rms in the researcher’s local area of Toowoomba. Overall,
there were twenty‑ve participants in the focus groups. Table 1 provides a detailed
breakdown of the focus group participants by age, gender, level of education and
nancial experience.
Table 1: Focus group demographics
Age Gender Employment Education Experience
35 Female Full‑time University Limited nancial experience (LFE)
45 Female Full‑time Some university Limited nancial experience (LFE)
41 Female Full‑time Postgraduate Limited nancial experience (LFE)
34 Female Full‑time Postgraduate Limited nancial experience (LFE)
69 Female Part‑time Some postgraduate Limited nancial experience (LFE)
45 Female Full‑time Postgraduate Limited nancial experience (LFE)
31 Male Full‑time Postgraduate Limited nancial experience (LFE)
52 Female Part‑time Completed high
school
Limited nancial experience (LFE)
43 ANZ, above n 19.
04_ ATF 31-2_Chardon and Brimble_Print.indd 332 15/06/2016 11:39:16
333
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
Age Gender Employment Education Experience
54 Female Part‑time Some vocational Limited nancial experience (LFE)
55 Female Full‑time Completed high
school
Limited nancial experience (LFE)
51 Female Part‑time Completed high
school
Limited nancial experience (LFE)
41 Female Full‑time Postgraduate Accountant (ACC)
52 Male Full‑time Postgraduate Accountant (ACC)
23 Male Full‑time Some postgraduate Accountant (ACC)
21 Female Full‑time University Accountant (ACC)
21 Female Full‑time Some postgraduate Accountant (ACC)
33 Male Full‑time Some postgraduate Accountant (ACC)
44 Female Full‑time Postgraduate Accountant (ACC)
32 Male Full‑time Postgraduate Accountant (ACC)
45 Male Full‑time Postgraduate Accountant (ACC)
36 Female Full‑time Some postgraduate Accountant (ACC)
46 Male Full‑time Postgraduate Financial planner (FP)
31 Male Full‑time Postgraduate Financial planner (FP)
52 Male Full‑time Postgraduate Financial planner (FP)
42 Female Full‑time Postgraduate Financial planner (FP)
All focus group recordings were transcribed and recorded in Microso Word
documents. Transcriptions were coded using the Tree Node Coding structure within
the NVivo statistical soware. A casebook of participant demographic information
was also created as it allowed participant responses to be coded against their
participant number.
e ndings of the focus groups are presented later in this article.
3.2 Stage 2 survey
is process of utilising focus groups to develop the framework for a questionnaire is
consistent with the process used by the FSA in their 2005 baseline survey of nancial
literacy.44 In terms of the tax literacy score, a simple scoring system is utilised for
those questions which are knowledge‑based. is system was used in the UK Skills for
Life Survey undertaken in 2003 as well as in the ANZ Surveys of Financial Literacy in
44 Kempson, Collard and Moore, above n 21.
04_ ATF 31-2_Chardon and Brimble_Print.indd 333 15/06/2016 11:39:16
334 (2016) 31 AUSTRALIAN TAX FORUM
Australia and has also been suggested by Marcolin and Abraham as an appropriate way
of testing respondents’ level of understanding of a particular concept.45 is involves
allocating a score or rank for each question and then assigning each individual an
overall score so as to determine their overall tax literacy score (TLS).
e main body of the survey was designed around the results of the focus group
analysis. Apart from the initial demographic questions, the remainder of the survey
questions fell into one of three broad categories: condence questions, knowledge
questions and attitudinal questions.
e category of knowledge questions incorporated theoretical and practical questions
around the specic concepts. First, the survey asked about the tax equation, such
as on which basis tax is calculated, and questions about marginal rates of tax and
how to actually calculate tax payable given a simple scenario. Second, were a series
of questions about tax deductions. ese were combined with questions about the
deductibility of specic items and questions which explored whether participants
understood the dierence between deductions and tax osets. ere were also two
questions posed about understanding the actual dollar eect of receiving at tax
deduction as opposed to a tax oset, these two themes presented as particularly
important in the focus groups.
e survey was conducted via an online platform (Qualtrics) with web‑link invitations
sent to participants via email or advertised via radio and Facebook (see discussion
below). e sample was derived through convenience or “snowball” sampling until
a desired number of responses were achieved. e sample was achieved through
a number of means. In the rst instance, advertising was undertaken through
university‑wide email communication to students and sta at the University of
Southern QLD and Grith University. Second, advertising of the survey website
took place through a radio interview and newspaper articles. ird, advertising of the
survey website took place via social media.
It should be noted that a particular type of recruitment was employed in this research.
A Facebook page with accompanied advertising was used to recruit participants
for the survey. ough this may be considered a new or novel approach to survey
recruitment, it is becoming increasingly popular. In her paper, Brickman‑Bhutta
outlines the strengths and weaknesses of using Facebook as a sampling frame in a
particular study.46 e main strength was the ability to rapidly reach a vast audience
and gain survey completions in a relatively short period of time (compared to
45 S Marcolin and A Abraham, “Financial literacy research: current literature and future
opportunities”, paper presented at the 3rd International Conference on Contemporary Business,
21–22 September 2006, Leura NSW.
46 C Brickman‑Bhutta, “Not by the book: Facebook as sampling frame”, (2012) 41(1) Sociological
Methods and Research, 57–88.
04_ ATF 31-2_Chardon and Brimble_Print.indd 334 15/06/2016 11:39:16
335
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
traditional phone or post mail surveys). Although a small number of sample bias issues
were discovered (compared to a similar probability based sample), Brickman‑Bhutta
argued that the data still “preserved the statistical relationship between the variables
of interest”.47 One of the issues highlighted was the limitation that with web‑based
surveys, the population is limited to those who have access to the internet (which
excludes those with limited nancial resources, older people, some ethnic groups, and
the less well educated).48 However with increasing access to the internet worldwide,
it is argued web‑based samples are increasingly representative of the population.49 In
Australia, the most recent Australian Bureau of Statistics (ABS) data indicate that 83%
of persons in Australia were internet users.50
As a result of pilot testing, a number of changes were made to the survey instrument
to make the timeframe for completion shorter for the participant. Following pilot
testing, all of those questions which would be used to determine a participant’s overall
tax literacy score were identied and those correct options were entered into the
survey tool so that an overall tax literacy score would be automatically generated for
each participant on completion.
e nal version of the survey contained 65 questions, including ten demographic
questions. In total, 31 questions counted toward a participant’s overall tax literacy
score. e other questions represented demographic, condence or other questions.
Initially, 884 people commenced the survey. All responses where the participant did
not complete the survey and was logged in for less than ten minutes were excluded
from the results. is was done in order to remove any biases in the results where low
scores may have been attributable to participants not completing a majority of the
survey questions. Responses where a participant completed at least half of the survey
and was logged in for more than ten minutes were included in the results. Aer this
data checking and validation was completed, the nal analysis resulted in 604 useable
responses. is suggests the completion rate for the survey was 68%.
Table 2 details the descriptive information of the survey sample. e sample shows
the survey to have a higher proportion of “females” (68.9%) to “males” (31.1%).
ough ABS data indicates that there are slightly more females than males in the
adult population,51 the survey sample is higher again for females than the population
47 Brickman‑Bhutta, above n 46, at p 24.
48 Brickman‑Bhutta, above n 46, at p 4.
49 Brickman‑Bhutta, above n 46, at pp 4 & 5.
50 Australian Bureau of Statistics, 8146.0 – Household use of information technology, Australia,
2012–13, January 2016. Available at www.abs.gov.au/ausstats/abs@.nsf/Lookup/8146.0Chapter
32012‑13.
51 Australian Bureau of Statistics, Census quick stats. October 2012. Available at www.censusdata
.abs.gov.au/census_services/getproduct/census/2011/quickstat/0.
04_ ATF 31-2_Chardon and Brimble_Print.indd 335 15/06/2016 11:39:16
336 (2016) 31 AUSTRALIAN TAX FORUM
as a whole. is higher proportion of females to males should be taken into account
when interpreting the ndings of the survey. It is noted that the ANZ Surveys of Adult
Financial Literacy were post‑weighted to align the demographic survey data with ABS
Census distributions.52
In terms of employment hours, Table 2 shows 74.5% of the sample size as either in
full‑time or part‑time/casual work. While this appears to be a large portion of the
sample, it is consistent with ABS statistics which show 88.4% of persons aged 15 and
over in either full‑time or part‑time work.53 Notwithstanding this consistency, the
ndings from the survey need to be read in the context that the vast majority of the
sample was either in full‑time or part‑time employment.
It can be seen that the vast majority of participants (82.1%) are employees. ere were
5.6% of participants that were self‑employed. is means that aspects of the survey
which discuss the results specic to small business owners need to be read in the
context that they are a much smaller sample size than the rest of the survey sample.
Table 2: Demographics of stage 2 participants
NTotal Percentage
Gender Male 188 31.1%
Female 416 604 68.9%
Age bracket 18–29 190 31.5%
30–44 231 38.2%
45–54 118 19.5%
Over 55 65 604 10.8%
Employment hours Full‑time paid work 333 55.1%
Part‑time or casual paid work 117 19.4%
Full‑time student 75 12.4%
Full‑time student working >15
hours per week
58 9.6%
Other (including retired) 21 604 3.5%
Employment category Working for an employer 496 82.1%
Self‑employed/contractor/small
business operator
34 5.6%
Other 10 1.7%
I am not in paid work 64 604 10.6%
52 ANZ, above n 19, at p 2.
53 Australian Bureau of Statistics, above n 51.
04_ ATF 31-2_Chardon and Brimble_Print.indd 336 15/06/2016 11:39:16
337
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
NTotal Percentage
Education level Secondary Year 10 or less 18 3%
Secondary (to year 12) 89 14.7%
Trade, apprenticeship or other
TAFE
97 16.1%
Undergraduate degree (Bachelor) 164 27.2%
Postgraduate degree (Masters,
Doctorate, professional
qualication)
233 38.6%
Other (coded system missing) 3 604 0.5%
Total income $0 – $20,000 113 18.7%
$20,000 – $49,000 140 23.2%
$50,000 – $100,000 255 42.2%
$100,000 – $150,000 55 9.1%
> $150,000 20 3.3%
Prefer not to say (coded system
missing)
21 604 3.5%
Financial experience Ye s 112 18.5%
No 492 604 81.5%
Note: is table shows descriptive information for the variables that were used in the below statistical
analysis. Some variables had more categories in the original survey, however, due to low numbers in
some categories, some had to be recoded in order for valid analysis to occur.
e education level of participants was also gathered. As can be seen, 65.8% of the
sample has either a Bachelor or postgraduate qualication of some kind. ABS data
reports that as of May 2012, the proportion of the adult population (15–64) with a
non‑school qualication was 59%.54 ough these results are quite close, it may be
concluded that the sample is slightly biased toward the more educated. Based on other
surveys of adult nancial literacy both in Australia and overseas, this would tend to
indicate that levels of tax literacy might be overstated in the nal results (given that
nancial literacy tends to be lowest in those with lower general education levels).
Similarly, it is unlikely that any low levels of tax literacy found would be as a result of
sample bias towards those with lower levels of general education.
54 Australian Bureau of Statistics, 6227.0 – education and work, Australia, May 2012. Available at
www.abs.gov.au/ausstats/abs@.nsf/Products/6227.0~May+2012~Main+Features~Attainment?
OpenDocument.
04_ ATF 31-2_Chardon and Brimble_Print.indd 337 15/06/2016 11:39:16
338 (2016) 31 AUSTRALIAN TAX FORUM
Income levels of participants reveal that 84.1% of survey participants had taxable
incomes in the previous year of less than $100,000. As the question asked for
participants’ “taxable income”, it is preferable to compare the sample to taxation
statistics for consistency. Current Australian Tax Oce (ATO) statistics for the 2011
income year show the average taxable income for individuals was $51,342.55 Again,
this average is consistent with the survey sample. Also, it should be noted that there
were 18.7% of participants (113 respondents) that reported having a taxable income
of less than $20,000. is provides a sample size sucient enough for comparisons to
be made with other surveys of nancial literacy.
e nal piece of demographic information gathered was in relation to whether or
not the participant had any previous nancial experience. is was dened as the
participant having worked as an accountant, nancial planner, investment adviser,
or in the superannuation or nance eld. It can be seen that there were 18.5% of
survey participants identifying as having previous nancial experience. is means
that the vast majority (81.5%) of participants would be regarded as having no specic
nancial experience therefore, issues of sample bias are minimised.
4. Findings
e ndings for both the focus groups (stage 1) and the survey (stage 2) are presented
bel ow.
4.1 Focus groups
Below is a discussion about two themes emerging from the focus groups, being
taxpayers’ own understanding and important tax aspects.
4.1.1 Own tax understanding
In the focus groups, participants were asked to reect on both their own understanding
as well as their perception of the level of understanding of the general population
based on their experiences.
Some participants commented that their perceived level of understanding was less
than the general population’s in terms of detailed aspects, but more than the general
populations in terms of overall policy perspectives:
55 Australian Taxation Oce, Taxation statistics 2010–11, April 2013. Available at www.ato.gov.au/
About‑ATO/Research‑and‑statistics/Previous‑years/Tax‑statistics/Taxation‑statistics‑2010‑11/
?page=5#Chapter_downloads, at p 12.
04_ ATF 31-2_Chardon and Brimble_Print.indd 338 15/06/2016 11:39:17
339
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
“I’ve got a really conceptual understanding of what taxation is for, the kind of
things you can do with it, all that sort of stu. Operationally and practically,
mine’s pretty crappy I reckon, so I’ve got this weird thing where I understand
taxation as a concept and all that stu really well, I understand how it works in
terms of policy really well, so all that big picture stu, but would I actually know
how to claim for X, Y and Z? No because I’ve never really bothered to nd out.
I’d say the rest of the population probably operationally has more knowledge of
the nitty gritty than I do and maybe less conceptual understanding.” (F, 31, LFE)
Participants also indicated that their understanding might only be at the very basic
level or that they have had experiences which lead them to believe others have only a
very basic understanding:
“I actually think I’d be quite low but my understanding of what I can claim
and all that would be quite basic, probably below par really, which I’m possibly
ashamed to admit that but because of your denition of nancial capability it’s
about making informed judgments that are eective for me.” (F, 34, ACC)
“I did accounting and business principles and all that stu at school and we
never looked at a tax scale once.” (M, 31, FP)
4.1.2 Important tax aspects
Focus group participants were asked about which aspects of the tax system were
important if one were to be considered nancially literate. e question generated
a high level of discussions compared to other questions. e analysis here helps to
inform the design of specic questions to be measured in the survey. Aer the initial
coding was undertaken, responses fell under the themes presented in Table 3.
Table 3: Tax concepts important for nancial literacy
Tax equation Actual dollars tax payable Why we have tax
Deductions Marginal tax rates Superannuation
Investing Deductions vs offsets Record‑keeping
Investing – property Small businesses Medicare, medical
expenses rebate
In relation to the most common theme of understanding the tax equation, how tax is
calculated and how this aects one’s total tax payable, the following is an example of
why a nancial planner thought this concept was important:
“If I take on this second job it’s going to aect my tax this way and I know that
okay, here I’m paying there if I do that.” (M, 52, FP)
04_ ATF 31-2_Chardon and Brimble_Print.indd 339 15/06/2016 11:39:17
340 (2016) 31 AUSTRALIAN TAX FORUM
e equal second most common theme was about the importance of understanding
what was deductible (or not). Here, comments ranged from the importance of
generally understanding what one might be entitled to, through to understanding
whether a specic item might be deductible or not. e following comment provides
an example of the discussion around this theme:
“Generally assessable income, what is a straight out deduction, what needs to be
depreciated — general, you don’t need to know, you just need to know roughly,
what it is.” (M, 23, ACC)
e third most common theme was in relation to the importance of understanding
how marginal tax rates work. Here, the statements were most commonly from those
within the working age groups (26–55), nancial planners and those with limited
nancial or accounting experience. e theme of the discussions here was about
the importance of understanding the dierence between marginal tax rates and at
tax rates and how that impacts on one’s tax payable when they earn more income.
e discussions also reected the view that our marginal tax rate system may be
misunderstood by some. e comments included here reect the theme of those
discussions:
“For me, specically I would say you probably want to know about the tax
brackets for wages and things like that, like if you go up to the next wage, how
much tax will you be paying? Is it worth your while to go for that other job and
that sort of thing?” (F, 35, LFE)
e fourth most common theme was the distinction between deductions and osets,
as well as the entitlement to osets. As outlined earlier, comments here related to the
fact that there may be misunderstandings about the dierence and principally that
there may be a misunderstanding about the actual dollar eect of being able to claim a
deduction. e following comment illustrates why understanding this dierence was
seen as important in terms of its eect on nancial decision‑making:
“I had a business person tell me the other day, been in business for a long time,
and he said, I’m going to get 50 per cent of my car back with these new small
business concessions. I said, no, you only get a 50 per cent deduction of the car’s
value. Yeah, so I’m going to get 50 per cent back. No. I had to go through and say,
it’s really about 10 per cent. Oh, okay. People just don’t understand.” (M, 31, FP)
e h most common theme was the importance of understanding the tax eects
of property investments. e emergence of this theme as an important aspect of tax
to understand is supported by the fact that ABS research states that in 2011–12, just
under 20% of households owned property other than the dwelling in which they
04_ ATF 31-2_Chardon and Brimble_Print.indd 340 15/06/2016 11:39:17
341
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
lived.56 Although this includes both residential and non‑residential property for rent
as well as holiday homes, ATO statistics indicate that of the 12.6 million individual
returns lodged in 2011, 1.6 million (around 12.6%) of those had an interest in at least
one rental property. Further, of those declaring rental income, 67% reported a taxable
loss (meaning these were negatively geared).57 e theme of the discussions here were
around the importance of understanding the dierence between deductible items and
depreciable items for rental properties, the principles of negative gearing from a tax
perspective and broadly the eect of capital gains tax (CGT):
“… if you went and asked I reckon the average punter what negative gearing is
they’d say, oh it’s this great [perk] but if you say to and I’ve said this to clients, you
realise negative gearing means you’re losing money. But it’s a plus, I’m like, well
it can be a good thing but ...” (M, 52, FP)
Other less common themes that emerged were: the importance of understanding
the tax eects of investing in things other than property (for example, shares);
the fundamentals of tax for small business (for example, basic GST concepts as
well as the dierence between deductible and depreciable items); the importance
of record‑keeping; other state and federal tax obligations; key tax aspects of
superannuation; the Medicare levy and medical entitlements; and, nally, tax policy
issues, such as why we have tax.
Although not mentioned by any participants with limited nancial experience, a
theme emerged from accountants and nancial planners in relation to the importance
of understanding tax aspects of superannuation:
“e basics about super, like the level of taxation within super being a really
good environment to have an investment and the dierent types of contributions
maybe.” (M, 52, FP)
As discussed previously, superannuation aspects were found in Australian measures
of nancial literacy to be an area which people found more dicult than other
areas of nancial literacy. Both accountants and nancial planners highlighted
superannuation as an important aspect.
56 Australian Bureau of Statistics, Household wealth and wealth distribution, Australia, 2011–12.
Document no. 6554.0, November 2013. Available at www.abs.gov.au/ausstats/abs@.nsf/
Latestproducts/6554.0Main%20Features22011–12?opendocument&tabname=Summary&
prodno=6554.0&issue=2011–12&num=&view=.
57 Australian Taxation Oce, above n 55, at pp 12–15.
04_ ATF 31-2_Chardon and Brimble_Print.indd 341 15/06/2016 11:39:17
342 (2016) 31 AUSTRALIAN TAX FORUM
Another theme which emerged was the importance of understanding the Medicare
levy and other tax‑related medical entitlements. e specic themes here were
whether people were aware of all their entitlements, as shown by these comments:
“Just coming back on the pharmaceutical, it’s actually wise to buy your
pharmaceutical product from the same pharmacy because you can get a
statement at the end of the year. Well I buy whichever pharmacy I happen to be
passing in a rush …” (F, 41, LFE)
With these ndings from the focus groups and with particular attention to the
common themes in Table 3, the tax literacy survey was developed for stage 2.
4.2 Findings: survey
Below are the survey ndings from stage 2, in terms of the tax literacy score,
demographical analysis of this, and then areas of greatest dicultly.
4.2.1 Tax literacy score
As outlined earlier, 31 questions in the survey counted towards the participants
overall TLS. Mean TLS is therefore expressed as a score out of 31. For the purpose of
categorical analysis, the TLS was also categorised from “poor” through to “high” tax
literacy. ese categories were determined according to the scale presented in Table 4.
Table 4: Tax literacy score categories
Score range Category
0 – 3.9 Poor
4.0 – 10.4 Low
10.5 – 16.9 Basic
17.0 – 23.4 Medium
23.5 – 31.0 High
A summary of overall TLS by mean, category and demographic is presented in
Table 5. It can be seen that overall, the mean TLS (maximum score 31) of the sample
was 16.21 (52%) and the mode score was 14 (45%). From the breakdown of these
categories presented by demographic, it can be seen that 19.2% (116) of participants
had either “poor” or “low” tax literacy. As the questions in the survey were derived
from the focus group ndings as to what represented “basic” areas of tax that a
nancially literate person should understand, it is argued therefore that “basic” is the
threshold at which we determine whether a person understands those concepts of
taxation and superannuation. It can therefore be argued that only 42% of the sample
had knowledge above a basic level.
04_ ATF 31-2_Chardon and Brimble_Print.indd 342 15/06/2016 11:39:17
343
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
Table 5: Summary of overall tax literacy scores
N
Mean tax
literacy
score
(max 31)
Tax literacy score category
Poor Low Basic Medium High
Gender Male 188 17.6 11 16 66 48 47
Female 416 15.58 30 59 165 110 52
604 16.21 41
6.7%
75
12.41%
231
38.24%
158
26.1%
99
16.3%
Age bracket 18–29 190 15.14 15 29 79 41 26
30–44 231 16.58 11 29 91 60 40
45–54 118 16.71 8 14 42 32 22
Over 55 65 17.09 7 3 19 25 11
604 16.21 41
6.7%
75
12.41%
231
38.24%
158
26.1%
99
16.3%
Employment
hours
Full‑time paid
work 333 17.19 17 35 119 95 67
Part‑time or
casual paid
work
117 16.09 11 10 50 24 22
Other
(including
retired)
21 16.67 0 4 6 9 2
Full‑time
student 75 13.37 9 18 28 15 5
Full‑time
student
working >15
hours per
week
58 14.29 4 8 28 15 3
604 16.21 41
6.7%
75
12.41%
231
38.24%
158
26.1%
99
16.3%
Employment
category
Working for an
employer 496 16.3 33 53 199 131 80
Self‑employed/
contractor/
small business
operator
34 18.56 3 3 8 8 12
Other 10 13.9 2 1 3 3 1
I am not in
paid work 64 14.61 3 18 21 16 6
04_ ATF 31-2_Chardon and Brimble_Print.indd 343 15/06/2016 11:39:17
344 (2016) 31 AUSTRALIAN TAX FORUM
N
Mean tax
literacy
score
(max 31)
Tax literacy score category
Poor Low Basic Medium High
604 16.21 41
6.7%
75
12.41%
231
38.24%
158
26.1%
99
16.3%
Education
level
Secondary (to
year 10)
or less
18 14.28 3 2 6 6 1
Secondary
(to year 12) 89 15.1 6 16 37 18 12
Trade,
apprenticeship
or other TAFE
completed
97 15.57 7 12 37 33 8
Undergraduate
degree
(Bachelor)
164 16.05 12 16 72 40 24
Postgraduate
degree
(Masters,
Doctorate,
professional
qualication)
233 17.14 13 29 78 59 54
601 16.21 41
6.8%
75
12.48%
230
38.27%
156
25.96%
99
16.5%
Total income $0 – $20,000 113 15.29 7 17 47 30 12
$20,000 –
$49,000 140 14.61 15 24 54 30 17
$50,000 –
$100,000 255 16.38 14 27 105 72 37
$100,000 –
$150,000 55 19.33 2 2 16 18 17
> $150,000 20 20.65 2 1 2 5 10
583 16.21 40
6.9%
71
12.2%
224
38.4%
155
26.6%
93
16%
Notes: is table shows the aggregate tax literacy scores for those questions in the survey that counted
toward this score. e maximum sore was 31 and the mean score for each category of dependant
variable is shown in Column 4. Column 4 shows the mean tax literacy score (max 31 correct) for each
dependant variable. Columns 5–9 show the number and overall % of participants in binned categories
of overall tax literacy.
Table 5 (continued...)
04_ ATF 31-2_Chardon and Brimble_Print.indd 344 15/06/2016 11:39:17
345
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
It should be recalled that the 2008 ANZ Survey of Adult Financial Literacy found a
mean nancial literacy score (FLS) of 71.3%. Consequently, it is argued that the overall
level of tax literacy in Australia appears to be substantially less than that of overall
nancial literacy. It is acknowledged that the tax literacy survey in this project focused
mainly on basic taxation concepts with only some superannuation questions. e
ANZ survey incorporated questions more specic to superannuation alone and the
taxation of superannuation, therefore, a direct comparison of results is problematic.
However, it should be noted that the 2008 ANZ Survey of Adult Financial Literacy
Summary Report stated that all population groups found superannuation issues more
dicult than basic banking. Further, the 2008 ANZ survey found that superannuation
and taxation were both areas where participants identied they would like further
education or information. e ndings here that overall tax literacy is less than overall
nancial literacy are therefore consistent with the tenor of the ANZ survey ndings.
4.2.2 Demographics and TLS
e discussions and data analysis in this section refer mainly to Table 5, which
summarises the overall mean tax literacy scores and scores by category for each of the
demographic groups. e section concludes by summarising the demographics that
have low levels of tax literacy in Australia and noting which of those have also been
found to have low levels of nancial literacy.
Gender
Table 5 demonstrates that the mean TLS of “females” is slightly lower (15.58) than
that of “males” (17.6). A Pearson chi‑squared test was performed with the categorised
results. is showed a signicant relationship between overall score category and
gender: c² (4, N = 604) = 16.80, p = .002. e conclusion in relation to greater TLS for
males is also supported through the independent samples t‑test conducted for mean
overall TLS: t(602) = 3.47, p = .001. is result shows a signicant relationship (at
1%) that “males” have a higher TLS than “females”. It is also supported by nancial
literacy ndings which have demonstrated that males have a slightly higher average
FLS (85.9) than females (80.5) (ANZ, 2008, p 10).
Age
Table 5 shows those participants in the “18–29” category had the lowest overall TLS
(mean score 15.14) and those in the “over 55” category had the highest overall TLS
(mean score 17.09). Overall, the results indicate that basic tax and superannuation
literacy generally increases as age increases. is nding is consistent with the 2008
ANZ survey which determined that nancial literacy was lower than the overall mean
for those in the “18–24” category.58 e age group “18–29” having the lowest levels of
58 ANZ, above n 21, at p 4.
04_ ATF 31-2_Chardon and Brimble_Print.indd 345 15/06/2016 11:39:17
346 (2016) 31 AUSTRALIAN TAX FORUM
taxation literacy is in line with previous nancial literacy literature which generally
shows that the younger age groups are more at risk of having lower nancial capability
and lower condence in understanding nancial matters.
A Pearson chi‑squared test was performed to explore the categorised results. is
did not show a signicant relationship between tax literacy score and age category.
However, in relation to mean TLS, the ANOVA test showed a signicant relationship
(at 10%), though this was not as strongly signicant as was observed in other variables:
(3,603) = 2.497, = .059. From Table 6, it can be seen that the largest mean dierence
and signicance is between those in the “18–29” category and those in the “over 55”
category, with the older age group scoring nearly two full points on average more than
those in the younger category. Table 6 also shows that the mean dierence in TLS
score increases as the age category increases. is allows the conclusion to be drawn
that as age increases, TLS also appears to increase.
Table 6: Tax literacy score – age (comparison of mean variances)
18–29 years 30–44 years 45–54 years Over 55 years
18–29 years –1.443** –1.575** –1.955**
30–44 years 1.443** –0.132 –0.512
45–54 years 1.575** 0.132 –0.380
Over 55 years 1.955** 0.512 0.380
Notes: * = < 0.10, ** = < 0.05 where the test is a one‑way ANOVA and the LSD results have been
reported.
Employment hours
From Table 5, it is reported that the category with the lowest overall TLS was
“full‑time students” (mean score 13.37). ose with the highest overall TLS were
those in “full‑time work” (mean score 17.19). “Full‑time students working greater
than 15hours per week” had a slightly higher TLS than those “full‑time students” who
were not working greater than 15 hours per week (mean score 14.29). is nding
appears to indicate that TLS increases as the number of employment hours increases.
A Pearson chi‑squared test showed a signicant relationship between overall score
category and employment hours: c² (16, N = 604) = 39.63, p = .001. It was observed
that in all categories of employment hours which include some type of paid work,
the percentage count of participants per category was ranked as follows (highest % to
lowest %): “basic”, “medium”, “high”, “low”, “poor”. ese results support the argument
that there appears to be an association between employment hours and TLS, which
makes it likely that as employment hours increase, TLS will also increase.
04_ ATF 31-2_Chardon and Brimble_Print.indd 346 15/06/2016 11:39:18
347
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
In relation to the mean TLS, this relationship is supported through the ANOVA
result: F(6,599) = 6.66, p = .000. From Table 7, it is observed that the largest mean
dierence and largest signicance is between those in “full‑time paid work” and
“full‑time students” (3.816***). is dierence with “full‑time students” was also
observed when compared against both the “part‑time/casual” category (2.721**) and
the “other” category (3.293**). e ndings in relation to TLS and employment hours
are broadly in line with the ANZ survey (2008) which found that FLS was highest for
those in paid work (89.8), followed by those in home duties (76.7), students (73.6),
retirees (72.6) and unemployed (66.7). Finally, it can also be concluded that, in line
with nancial literacy results, TLS is generally lower for those “full‑time students”
compared to those in paid work (either full‑time or part‑time).
Table 7: Tax literacy score – employment hours (comparison of mean
variances)
Full‑time
paid work
Part‑time
or casual
Other
(including
retired)
Full‑time
student
Full‑time
student
working >15
hours per
week
Full‑time paid work 1.095 0.523 3.816*** 2.896**
Part‑time or casual –1.095 –0.573 2.721** 1.801
Other (including
retired)
–0.523 0.573 3.293** 2.374
Full‑time student –3.816*** –2.721** –3.293** 0.920
Full‑time student
working >15 hours
per week
–2.896** –1.801 –2.374 0.920
Notes: * = p < 0.10, ** = p < 0.05, *** = p < 0.001 where the test is a one‑way ANOVA and the LSD
results have been reported.
ese ndings support concerns raised that there are risks in not teaching basic tax
or superannuation concepts in the primary and secondary education systems. ese
basic concepts must then be acquired when people commence paid work for the rst
time. e adequacy of this understanding may then be impacted by where people
obtain the necessary information and what the source of the information is.
Employment category
From Table 5, it can be seen that those “not in paid work” and in the “other” categories
had the lowest TLS (mean scores 14.61 and 13.9, respectively). ose who identied
04_ ATF 31-2_Chardon and Brimble_Print.indd 347 15/06/2016 11:39:18
348 (2016) 31 AUSTRALIAN TAX FORUM
as “self‑employed” had the highest TLS (mean score 18.56) followed by those
“working for an employer” (mean score 16.3). is is consistent with the ANZ survey
which found (as stated earlier) that those in paid work and those whose income came
from salary, wages or businesses had higher FLS scores than the overall mean.59
Interestingly, around 17% of the “working for an employer” category were categorised
as having “poor” or “low” tax literacy.
A Pearson chi‑squared test showed a signicant relationship between tax literacy
category and employment category, c² (8, N = 594) = 27.12, p = .001. ese results
indicate that there is an association between paid work and TLS and that TLS category
generally increases for those either in paid work or those who are self‑employed.
In relation to mean TLS, this relationship between TLS and employment category
(at5%) is supported through the ANOVA result: F(3,600) = 3.095, p = .026. From
Table8, it can be seen that the most signicant mean dierence comes when comparing
those in the “self‑employed/small business” category and those “not in paid work”
(3.949***). ere is also a dierence between those “working for an employer” and
those “not in paid work” (1.689*), though this is signicant only at 10%.
Table 8: Tax literacy score – employment category (comparison of mean
variances)
Working
for an
employer
Self‑employed/
contractor/small
business operator
Other I am not in
paid work
Working for an employer –2.260* 2.398 1.689*
Self‑employed/
contractor/small business
operator
2.260* 4.659* 3.949**
Other –2.398 –4.659* –0.709
I am not in paid work –1.689* –3.949** 0.709
Notes: * = p < 0.10, ** = p < 0.05 where the test is a one‑way ANOVA and the LSD results have been
reported.
e results reinforce the earlier nding that TLS increases as the association with
paid work increases. is was also consistent with the ANZ survey ndings. It is also
possible to assert that TLS generally increases for those that are self‑employed or
operate small businesses. From these results, an argument can be made that tax literacy
increases when comparing small business operators to those “not in paid work”. is
nding is unable to be compared to the ANZ FLS results as the demographic data
reported did not identify these categories.
59 ANZ, above n 21, at p 11.
04_ ATF 31-2_Chardon and Brimble_Print.indd 348 15/06/2016 11:39:18
349
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
Education
Table 5 reports that those with “postgraduate” education had the highest mean TLS
(mean score 17.14). TLS generally increases as education levels increase. ere are
many arguments that as general educational qualications increase, it would be
expected that nancial literacy levels would increase. e 2008 ANZ survey also found
that mean FLS increased as the highest level of education completed increased.60
However, there is some literature to support the view that increased literacy and
numeracy does not always align with increased nancial literacy.61
A Pearson chi‑squared test showed a relationship (at 10%) between TLS category and
education level, c² (16, N = 601) = 26.04, p = .053. Consequently, while there is a
correlation between TLS and education, this relationship is not as strong as for the
employment‑related categories where the signicance was at 1%.
Table 9: Tax literacy score – education (comparison of mean variances)
Secondary
year 10
or less
Secondary
to year 12
Trade,
apprenticeship
or other TAFE
Under‑
graduate
degree
(Bachelor)
Post‑
graduate
degree
(Masters,
Doctorate,
professional
qualication)
Secondary year
10 or less –0.823 –1.289 –1.771 –2.860*
Secondary to
year 12 0.823 –0.466 –0.948 –2.036**
Trade,
apprenticeship
or other TAFE
1.289 0.466 –0.482 –1.570*
Undergraduate
degree
(Bachelor)
1.771 0.948 0.482 –1.089
Postgraduate
degree (Masters,
Doctorate,
professional
qualication)
2.860* 2.036** 1.570* 1.089
Notes: * = p < 0.10, ** = p < 0.05, where the test is a one‑way ANOVA and the LSD results have been
reported.
60 ANZ, above n 21, at p 10.
61 D Coben, M Dawes and N Lee, Financial literacy education and skills for life, 2005, National
Research and Development Centre for Adult Literacy and Numeracy, at p 6.
04_ ATF 31-2_Chardon and Brimble_Print.indd 349 15/06/2016 11:39:18
350 (2016) 31 AUSTRALIAN TAX FORUM
In relation to mean TLS, this relationship (at 10%) is supported through the ANOVA
result: F(4,596) = 2.379, p = .051. Table 9 shows the largest mean dierence is between
those with “postgraduate” education and those with the lowest category of education
(2.860*). ere is also likely to be an increase in TLS among those with “postgraduate”
education compared to those with “secondary to year 12” levels of education. Again,
this is consistent with the 2008 ANZ Survey of Financial Literacy which found that
those “whose education did not extend beyond year 10 had lower FLSs (mean of 70.7)
than those who had completed either a university degree or other post‑secondary
education (88.2)”, even when controlled for age.62
Income
From Table 5, it can be seen that, generally, tax literacy increases as income increases
with the exception that those in the “$0 – $20,000” bracket scored slightly higher
(15.29) than those in the “$20,000 – $49,000” category (14.61). is is consistent
with the 2008 ANZ survey which found that mean FLSs increased as gross annual
household income increased.63 However, it was noted that, although this was a general
nding, there remained 6% of participants in the highest income bracket that had low
nancial literacy scores.64 In the current survey, it can also be seen that those in the
“$50,000 – $100,000” bracket, which had the highest number of participants, had 16%
of persons scoring in the “poor” or “low” categories.
A Pearson chi‑squared test demonstrated a signicant relationship (at 1%) between
TLS category and total income category: c² (16, N = 583) = 47.77, p = .000. In relation
to mean TLS, a significant relationship was also found and is supported through the
ANOVA result: F(4,578) = 8.286, p = .000. Table 10 demonstrates that the largest
and most signicant mean dierences are when comparing those in the greater than
$100,000 categories and those in the less than $50,000 categories.
62 ANZ, above n 21, at p 4.
63 ANZ, above n 21, at p 11.
64 ANZ, above n 21, at p 2.
04_ ATF 31-2_Chardon and Brimble_Print.indd 350 15/06/2016 11:39:18
351
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
Table 10: Tax literacy score – total income (comparison of mean variances)
$0 –
$20,000
$20,000 –
$49,000
$50,000 –
$100,000
$100,000 –
$150,000 > $150,000
$0 – $20,000 0.678 –1.092 –4.035*** –5.358***
$20,000 – $49,000 –0.678 –1.770** –4.713*** –6.036***
$50,000 – $100,000 1.092 1.770** –2.943** –4.266**
$100,000 – $150,000 4.035*** 4.713*** 2.943** –1.323
> $150,000 5.358*** 6.036*** 4.266** 1.323
Notes: * = p < 0.10, ** = p < 0.05, *** = p < 0.001 where the test is a one‑way ANOVA and the LSD
results have been reported.
Overall
Overall, the survey results show that 81% of Australians have a TLS at the “basic”
or higher level. is, in turn, means that 19% of Australians have a TLS classied as
either “poor” or “low”. However, when taking the mean TLS as a percentage of the
maximum score, it can be seen that the mean score falls at 52% of the maximum
score. When comparing against the 2008 ANZ survey, the mean FLS as a percentage
of the maximum score was 71.3%. So, although it can be concluded that, much like
nancial literacy, Australians are broadly tax literate, they are less literate when it
comes to specic tax and superannuation issues than nancial issues more broadly.
As discussed below, there are demographics which are at risk of low tax and
superannuation literacy, as was found with nancial literacy.
e survey found a relationship between TLS and all demographics tested. is
relationship was strongest in those categories which related to the workplace and
income (employment hours, employment category and total income). ese results
were found to be broadly in line with the results of the ANZ Survey of Adult Financial
Literacy, which found that FLS tended to increase with age, education, occupation and
income. e most interesting results from this survey were that those relationships
with TLS to age and education were less signicant than those relationships to
employment hours and employment category. It is argued, therefore, that it is
exposure to the workforce and employment which has a more strongly signicant
impact on increased tax literacy than gender, age or general education level. is is
an important nding in the context of measures to increase tax literacy and nancial
literacy more broadly.
e following section explores the results of specic tax aspects of the survey and
their reported levels of understanding.
04_ ATF 31-2_Chardon and Brimble_Print.indd 351 15/06/2016 11:39:18
352 (2016) 31 AUSTRALIAN TAX FORUM
4.2.3 Areas of tax understanding
is section follows on from the previous discussion on overall TLSs from the survey.
e following paragraphs relate to Table 11, which presents the percentage of correct
answers to all the specic tax and superannuation questions asked in the survey.
Questions where there was a less than 50% correct response rate are highlighted in
the table and these are discussed in further detail below.
Table 11: Tax literacy survey correct response rates by question
Question Number
correct
% Total
participants
Number
not
answered
Calculating taxable income 302 50%* 0
Calculating assessable income 321 53.1% 0
Calculating tax payable using marginal rates of
tax
432 71.5% 19 n/a
Applying marginal tax rates to an extra $1 of
income
448 74.2% 19 n/a
Applying the effect of deductions 263 43.5%* 29 n/a
Determine deductibility of transaction
Travel home – work 474 78.5% 50 n/a
Travel – separate places employment 302 50%* 50 n/a
Clothing – retail worker 153 25.3%* 50 n/a
Clothing – corporate uniform 498 82.5% 50 n/a
Lunch – while at work 534 88.4% 50 n/a
Lunch – at offsite meeting 175 29%* 50 n/a
Newspaper – owns minimum shares Y 220
N 199
36.4%
32.9%
50 n/a
Interest – loan on investment property 39 65.2% 50 n/a
Medical expenses out of pocket 256 42.4%* 50 n/a
Applying the effect of offsets 274 45.4%* 29 n/a
Classify spouse rebate – offset/deduction 342 56.6% 33 n/a
Classify rental interest – offset/deduction 315 52.2% 33 n/a
Classify super co‑cont – offset/deduction 138 22.8%* 33 n/a
Classify work clothing – offset/deduction 500 82.8% 33 n/a
Classify ed’n tax refund – offset/deduction 190 31.5%* 33 n/a
Classify travel expenses – offset/deduction 474 78.5% 33 n/a
04_ ATF 31-2_Chardon and Brimble_Print.indd 352 15/06/2016 11:39:18
353
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
Question Number
correct
% Total
participants
Number
not
answered
Knowledge of current rate of compulsory
employer superannuation
344 57% 62 n/a
Awareness of superannuation being taxed at a
lower rate than other investments
346 57.3% 62 n/a
Understanding tax on capital gains (taxed at
marginal rates with 50% discount sometimes
applying)**
169
tax rate
160
50%
discount
28% *
26.5%*
61 n/a
Understanding the meaning of negative gearing 327 54.1% 61 n/a
Understanding the rate of Medicare levy 281 46.5%* 62 n/a
Understanding how Medicare levy is calculated 282 46.7%* 62 n/a
Awareness of ability to claim medical tax offsets 319 52.8% 62 n/a
Understanding the threshold for medical tax
offset
147 24.3%* 285 n/a***
Notes: is table shows the number and % correct responses for each of the questions that counted
toward the overall tax literacy score. e total number of questions counted toward the score was 31.
* Number of correct responses <50%.
** Two marks available for this question.
*** Flow‑on question, so some participants not asked.
e question which tested whether participants could calculate taxable income from
a simplied set of facts and was posed as follows:
If a person has total employment income of $70,000, interest from a bank
account of $100, gross income from a rental property of $16,000, $4,000 in
deductible salary expenses and deductions (including interest) relating to their
rental property of $14,000, what is their total taxable income?
e total percentage of correct responses was 50%. ere was a slightly higher
percentage (52.3%) of participants who understood the meaning of taxable income in
a theoretical sense (that is, assessable income less deductions = taxable income). is
slightly lower percentage when the factual scenario was given could be attributed to
a calculation error in completing the question or an inability to determine amounts
which are assessable income or deductions from the factual scenario. Given that the
results for the question which asked for a calculation of assessable income only (from
the same factual scenario) were higher (53.1%), it could be argued that this lower
04_ ATF 31-2_Chardon and Brimble_Print.indd 353 15/06/2016 11:39:18
354 (2016) 31 AUSTRALIAN TAX FORUM
result came from an inability to determine which amounts were deductible from the
given facts.
A question which explored the eect of deductions arose directly from the results
of the focus groups. e focus group ndings were that there may be some
misunderstandings regarding the actual dollar eect of claiming an expense as a tax
deduction. e question measuring this understanding was posed as follows:
If the person is entitled to claim a tax deduction of $1,000 for the purchase of
work related items, taking into account the tax saving, what will be the actual
cost of those items to the person aer they have lodged their tax return and
claimed the deduction?
Prior to this question, participants were provided with the person’s total taxable
income of $60,000 and a current year tax table which showed that for taxable incomes
in the range $37,001 – $80,000, the tax amount is $4,650 plus 30c for each dollar over
$37,000 (2011 income tax rates). is gave a correct answer of $700. e percentage of
correct responses was 43.5%, which indicates that over half of the participants do not
understand the dollar eect of claiming an expense as a tax deduction. e next most
popular answer was “not sure” (21.7%) followed by $300 (12.3%). e ndings here
support the focus group ndings in that there appears to be some misunderstandings
regarding the eect of deductions as well as some uncertainty. However, further
research would be required to determine whether any of the results were attributed to
poor mathematical skills.
ere were two questions posed in the survey that explored whether participants
understood deductibility of travel expenses. e two questions were posed from the
focus group results where participants indicated the deductibility of travel as being
an important aspect to understand as part of overall nancial literacy. e rst basic
question was whether “travel expenses from home to work by an employee” were
deductible or non‑deductible. e result was that 78.5% of participants answered
correctly that these expenses were non‑deductible, which is positive. However, when
posed the further question whether “travel expenses between two separate places of
employment stopping at home on the way” were deductible or non‑deductible, the
correct answer percentage fell substantially to 50%. is indicated there is some level
of overall understanding of the basic concept of deductibility of home to work travel,
but where circumstances are outside the basic concept, the level of tax literacy falls
substantially.
Deductibility of clothing expenses was also tested in two questions. e rst question
asked about the deductibility of “clothes purchased by a retail assistant from the retail
chain where they work (company policy states that employees must only wear that
brand at work)”. e result was that only 25.3% of participants correctly identied
thatthis item was non‑deductible. ere were 55.8% of participants who answered that
04_ ATF 31-2_Chardon and Brimble_Print.indd 354 15/06/2016 11:39:18
355
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
these items of clothing were deductible. is is a concerning result when combined
with the earlier result that lower participation in the workforce and less hours in the
workplace resulted in overall lower tax literacy scores. Given that there is a large
portion of casual and younger employees in the retail workforce, there is scope here
for substantial education and training in this particular area.65 A misunderstanding of
this concept may have a detrimental nancial eect to a retail worker who purchases
clothing with the incorrect understanding that the items are deductible. A further
detrimental eect might be at risk of occurring should the worker then submit their
own tax return claiming the item in error.
In relation to the tax consequences of incurring medical expenses, participants
were asked whether “the out‑of‑pocket cost of a surgical operation aer taking into
account the Medicare rebate and private health fund contribution” were deductible
or non‑deductible. e result was that 42.4% of participants correctly answered that
this expense was non‑deductible. is specic question as well as others in relation to
the medical expenses tax oset were asked as a result of the focus groups which found
that understanding tax entitlements in relation to medical expenses was something
not only important, but lacking in participant’s current understanding. e survey
results support this where it appears less than half of participants understood these
items are not tax deductible.
In relation to measuring the level of understanding (or misunderstanding) regarding
the nature of osets, participants were provided the same factual scenario as in
relation to deductions, but asked:
If the same person is entitled to a tax oset of $1,000 for caring for their
dependant spouse, what will be the actual dollar benet to them of receiving
that tax oset?
Less than half (45.4%) of participants understood that for a tax oset, the eect
was a refund of the whole amount. at is, a $1,000 oset gives a corresponding
$1,000 actual refund. Again, similar to the corresponding deduction question, the
next most popular response was “not sure” (32.5%). When read in conjunction with
the results for the eect of claiming a tax deduction, we can see the results support
the themes that emerged from the focus groups. It appears there is a widespread
misunderstanding of the dierent eects of deductions as compared to osets. It
also appears that this is attributed to uncertainty in a practical sense rather than a
theoretical misunderstanding.
65 Australian Workforce and Productivity Agency, Retail workforce issues paper, July 2013. Available at
www.awpa.gov.au/publications/Documents/Retail%20workforce%20issues%20paper%20‑%20
FINAL.pdf.
04_ ATF 31-2_Chardon and Brimble_Print.indd 355 15/06/2016 11:39:18
356 (2016) 31 AUSTRALIAN TAX FORUM
Questions posed about capital gains tax had some of the lowest levels of understanding
of all the knowledge questions. e questions were designed in the context of
understanding negative gearing and tax on property transactions. During the focus
groups, these topics were highlighted as areas participants believed were important
to overall nancial literacy and could have an impact on a person’s overall nancial
position and or ability to make appropriate nancial decisions. e question asked
participants to choose which statements about capital gains tax were true from
a list. Only 28% of participants correctly identied that capital gains are taxed at a
person’s own marginal income tax rate. Additionally, only 26.5% correctly identied
that the 50% discount applies to capital gains when the asset is held for greater than
one year. Interestingly, 14.7% of participants thought that capital gains were taxed
at a rate of 50%, and 15.1% of participants thought that a private residence would
always be exempt from capital gains tax even if it was rented out for periods of time.
e question regarding negative gearing asked participants to choose the meaning of
negative gearing from a list of options. Only 54.1% of participants correctly identied
that negative gearing means: “interest on the loan is greater than the income received
from the investment”. However, 19.7% of participants selected that they were not sure
what negative gearing means. In terms of overall tax literacy and overall nancial
literacy, this is an important nding as it suggests there are opportunities to educate
the population on the basic concepts of capital gains and negative gearing. is may
assist in avoiding potentially poor investment decisions, or passing up potentially
positive opportunities due to misunderstandings of the eect of capital gains tax and
negative gearing.
For the question about the Medicare levy, participants were specically asked to
choose the current rate of Medicare levy from a list of options (0.5%, 1%, 1.5%, 2%,
not sure). Only 46.5% of participants correctly identied the rate of Medicare as
being 1.5% (at the relevant time). e next most popular response was 1% at 11.6%
of participants. Interestingly, 26% of participants answered “not sure”. is nding
is particularly interesting given that the Medicare levy had at the time of the survey
been static at 1.5% for 18 years.66 Given that special government policies in the past
have been funded through increased Medicare levy and that debate and discussion
around these policies are oen forefront in the media, it is surprising that less than
half of participants knew the correct rate of Medicare levy. It may be the case that
participants (and therefore the population) confuse the standard Medicare levy with
the Medicare levy surcharge (at 1%) as the surcharge is oen more prominent in the
media through advertisements for health funds. erefore, this nding is something
that should be explored further through additional research to determine whether the
results are replicated in other studies.
66 A Biggs, A short history of increases to the Medicare levy (3 May 2013), http://parliamentag
post.blogspot.com.au/2013/05/a‑short‑history‑of‑increases‑to.html.
04_ ATF 31-2_Chardon and Brimble_Print.indd 356 15/06/2016 11:39:18
357
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
ere were two questions posed in the survey in relation to superannuation. e rst
of these was whether participants knew the current rate of compulsory employer
superannuation. Participants were asked to choose the correct rate from a list:
6%, 7%, 9%, 10%, 11%, not sure. Overall, the total percentage of correct responses
was comparatively high at 57%. However, it nevertheless indicates that 43% of
participants were not aware that the rate of compulsory employer superannuation
was 9%. It should be noted that this survey was conducted before the recent changes
to compulsory superannuation were announced, therefore, at the time of the survey,
the rate of compulsory superannuation had remained consistent at 9% since 2002.
e question posed regarding compulsory superannuation in the ANZ surveys was
more generic in that it simply asked whether respondents knew that employers were
required to make contributions on behalf of employees. e result in the ANZ survey
was more positive in that 98% of respondents knew that employers were required to
make superannuation contributions on their behalf.67
e second question posed was in relation to whether participants understood that
superannuation was taxed at a lower rate than other investments. e question was
worded as follows:
As far as you are aware, is superannuation generally taxed at a lower, higher or
the same rate as other investments (such as interest earned on investments or
dividends from shares)?
‑ Lower rate
‑ Higher rate
‑ Same rate
‑ Not sure
Only marginally more participants (57.3%) answered correctly that superannuation
was taxed at a lower rate than other investments. is result is consistent with the ANZ
survey results which found that 59% of respondents, who were under 65 years of age,
employed and with superannuation, knew that superannuation was taxed at a lower
rate than other investments.68 e ndings here support the ANZ surveys which have
consistently stated Australians nd superannuation issues more dicult than basic
nancial concepts and there remains uncertainty about its tax treatment. However,
given that the responses to the superannuation questions here had much higher
results than the general tax questions, there is a further argument that Australians
may nd general taxation issues more dicult than superannuation issues.
67 ANZ, above n 21, at p 59; ANZ, above n 30, at p 54.
68 ANZ, above n 21, at p 59; ANZ, above n 30, at p 54.
04_ ATF 31-2_Chardon and Brimble_Print.indd 357 15/06/2016 11:39:18
358 (2016) 31 AUSTRALIAN TAX FORUM
5. Recommendations
Overall, the results of the current study were broadly in line with the results of the
ANZ Surveys of Adult Financial Literacy, which found that FLS tended to increase
with age, education, occupation and income. However, it was additionally found that
those relationships with TLS to age and education were less signicant than those
relationships to employment hours and employment category. ese particular
ndings in relation to the connection to employment are new in the context of
Australian nancial literacy research.
ese results are important as they provide new empirical support for the theory
that some demographical groups are likely to have lower levels of tax literacy than
others. It also provides further support for the overall theory developed through the
research that tax and superannuation issues should be included in future measures
of nancial literacy, because these areas are potentially less understood than others.
It is recommended that in future iterations of the ANZ national survey, aspects of
taxation be included in nancial knowledge measurements as well as incorporated
in measuring behavioural outcomes, such as planning ahead, choosing products
and staying informed. is would mean that further evidence could be gathered to
determine the extent to which poor tax literacy impacts on behavioural outcomes and
vice versa.
It is recommended that in terms of designing nancial literacy education and
information programs, the critical time is just before the person begins their working
career (and then ongoing) as it appears that those who have not yet entered the
workforce (or who have less time spent in the workforce) have the lowest levels of
tax literacy. In terms of government policy, it is therefore recommended to not only
teach nancial (and tax) literacy in the school system, but to also continue this in
adult education contexts when people are more likely to be engaged with the system.
Specically, this means the funding of nancial literacy education programs (through
the Financial Literacy Australia Grants program) should continue with a focus on
adult education programs for those in the workforce. It is recommended that a
taxation and superannuation literacy education program for workplaces be developed
and trialled. Evidence should be gathered as to the impacts on positive nancial
literacy behavioural outcomes as a result of undertaking such a program. Further,
these education programs need to reect the circumstances that are likely to impact
participants most signicantly and use real life examples to improve engagement. As
highlighted in the literature, these low levels of tax literacy in those groups mean that
they may be more likely to make poor tax decisions, be vulnerable to scams or less
likely to seek appropriate advice.
Previous results in the ANZ surveys had found that generally people found
superannuation issues more dicult than basic nancial concepts. It is noted that the
same superannuation questions asked in the ANZ survey were asked in the current
survey to allow comparison. Since none of the superannuation questions were found to
04_ ATF 31-2_Chardon and Brimble_Print.indd 358 15/06/2016 11:39:19
359
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
have lower levels of understanding in the current survey (compared to the tax‑specic
questions), it is argued that Australians nd general taxation issues more dicult than
superannuation concepts. is is an important policy implication in the context where
self‑funded retirement is preferred by government. It is therefore recommended that
education programs be designed which specically target improved understandings
of basic tax and superannuation issues. It is also recommended that the specic
superannuation knowledge and behaviour questions previously asked in the national
ANZ Surveys of Adult Financial Literacy be reintroduced as a matter of priority.
e specic areas in the survey which were found to have the lowest levels of
understanding were: calculating taxable income; identifying the eect of deductions;
classifying expenses correctly as deductible; osets and the dierence between osets
and deductions; capital gains tax; and the Medicare levy. It was found that overall,
“females” were less likely to understand all of the knowledge questions tested (apart
from the rate of Medicare levy). It was also found that overall, those on lower incomes
were less likely to understand all of the knowledge questions tested (apart from the
rate of capital gains tax). Again, these results provide new empirical data that have
important policy implications for those tasked with designing and implementing
nancial literacy education programs. It is therefore recommended that when
designing nancial literacy education programs, careful attention be paid to including
those aspects identied in the survey as having the lowest levels of understanding.
Specically, for nancial advisers, nancial counsellors, nancial planners and tax
advisers providing advice, the results of this research can provide areas on which
internal training can be designed for sta that regularly interact with clients. Specic
client education programs should be designed which focus on nancial knowledge
(including tax and superannuation knowledge) and its importance in inuencing
positive nancial behaviour. ese client education programs should be targeted at
those demographic groups that have been found to have lower levels of tax and general
nancial literacy. Further research could then be undertaken as to the impacts of these
education programs not only on future nancial behaviour, but on future adviser/client
relationships and client base expansion. In terms of ATO policy, it is recommended
that the results of this research be considered in designing and developing more
targeted and specic education campaigns and a platform on which sta training is
developed. Specically, it is recommended that the ATO develop consumer tax and
superannuation literacy education products, programs and packages aimed at not
only improving those areas with low levels of understanding, but also focusing on the
importance of those aspects of nancial literacy (such as staying informed, choosing
products and planning ahead) in a tax‑specic context, which can having positive
impacts on overall nancial behaviour. It is also recommended that the ATO consider
the results of this research in exploring the extent to which those demographics
identied with lower tax literacy may also have lower compliance.
In terms of broader government policy, this research provides evidence for the
emerging theory that tax and superannuation concepts should be incorporated in
future nancial literacy and capability education models. It is recommended that the
04_ ATF 31-2_Chardon and Brimble_Print.indd 359 15/06/2016 11:39:19
360 (2016) 31 AUSTRALIAN TAX FORUM
Australian Securities and Investments Commission (ASIC) consider the results of this
research in its national nancial literacy agenda moving forward. Specically, it is
recommended that ASIC consider the levels of tax and superannuation literacy found
and specic areas of tax and superannuation which have low levels of understanding
in implementing specic aspects of the National Financial Literacy Strategy for
2014–17. In particular, this research should be incorporated in ASIC’s national school
curriculum project. Also, aspects of taxation and superannuation literacy should be
incorporated in those funded projects that target disadvantaged community groups
(such as Micronance projects and Commonwealth funded nancial counselling). e
results of this research could also make an important contribution to a revised strategy
in terms of rening denitions and terminology, identifying strategic priorities and
identifying gaps and opportunities.69 It is also recommended that tax experts and/or
tax academics be included in any nancial literacy panels or committees under the
auspices of ASIC. is would assist in the “strengthen co‑ordination and eective
partnerships” and “improve research, measurement and evaluation” goals of the
National Strategy. It is argued that nancial literacy education packages, tools and
information for the public will be more eective with the use of a more robust and
complete nancial literacy model that is based in academic research.
6. Limitations and future research
e study has a number of limitations that should be considered when evaluating
the ndings of the research. For example, the ndings in relation to the focus groups
are limited by the sample and demographic characteristics of the participants.
ese limitations were mitigated by following an academically sound process and
procedure for the design, conduct and analysis of the focus group data. All these steps
aimed to ensure that data gathered from the focus groups was as valid as possible,
notwithstanding the limitations of sample size and demographics.
e conclusions drawn from the survey conducted in the nal stages of the research
are also limited by the sample size and characteristics of those participants in the
survey. However, a number of processes and procedures with instrument design,
testing, validation and analysis were implemented with the aim of ensuring that
the data gathered was valid, notwithstanding those limitations of sample size. e
main two sample limitations were a larger percentage of females and a slightly higher
average education than ABS data. It was argued that any ndings from the research
should be read in that context and in the context of the broader research that females
and those with lower education tend to have lower nancial literacy.
69 Australian Securities and Investments Commission, National nancial literacy strategy –
about the strategy, February 2013. Available from the website at www.nancialliteracy.gov.au/
about‑the‑strategy.
04_ ATF 31-2_Chardon and Brimble_Print.indd 360 15/06/2016 11:39:19
361
TAX LITERACY IN AUSTRALIA: NOT KNOWING
YOUR DEDUCTION FROM YOUR OFFSET
e questions posed in the survey that measured tax literacy were based on the data
gathered through the focus groups. To this end, they are not a denitive model of basic
tax literacy, although they provide a foundation for further research to explore. While
sound academic processes were used to design, develop and test these questions,
there will always be scope to rene and develop these questions further. e survey
specically measured tax and superannuation literacy as part of rening and further
developing the theories which emerged from the research.
Specically, future research could explore whether there is a link between levels of tax
literacy and wealth creation. Also, the research highlighted the potential for further
exploration of the dierence between nancial literacy components that include a
penalty component (if wrong), like tax and others where such penalties do not exist.
In relation to specic areas of the survey which could be explored further, it emerged
there may be areas of basic taxation and superannuation which are poorly understood
by the general population. ere is, therefore, scope to further rene the questions
posed and test other areas such as superannuation and self‑managed superannuation
in more depth. Due to small numbers of participants over the age of 65, there is
opportunity for future research to specically explore levels of tax and superannuation
literacy in the older age brackets.
It is suggested that further research could explore the extent to which it is increased
income that aects tax literacy, rather than exposure to work. e nding about
gender and TLS may be explored further in future research as it may add to the already
growing body of literature from a variety of disciplines which attempt to explain the
reasons why females take a lesser role in household nances than males and oen
have less superannuation on average at retirement than males.
7. Conclusion
is article has explored, through empirical data, the theory that there may be certain
demographics that have particularly low levels of tax literacy and that there is a base
level of tax and superannuation understanding that is necessary in order to be more
nancially literate. e results demonstrated that there are areas of basic tax and
superannuation which have the potential to impact on nancial decision‑making.
e article provides a detailed breakdown of the levels of tax literacy in the population
as well as within specic demographic groups. When providing advice to clients,
whether that is in the capacity of an accountant, lawyer, nancial planner or nancial
counsellor, understanding the level of knowledge the client brings is important to both
eective communication and providing high quality advice. is article, therefore,
provides these key stakeholders with exploratory data not only about the levels of
tax literacy in a broad sense, but also in relation to specic areas of tax (for example,
04_ ATF 31-2_Chardon and Brimble_Print.indd 361 15/06/2016 11:39:19
362 (2016) 31 AUSTRALIAN TAX FORUM
understanding of broad aspects of tax, deductions, superannuation, negative gearing).
If an adviser, planner or counsellor already knows the likelihood that a person from
a specic demographic will or won’t understand a particular concept, they can tailor
their communication with that information in mind.
e results presented in the article also indicate that, in line with previous broader
nancial literacy research, there are some specic areas of basic tax and superannuation
which may be poorly understood or misunderstood. is information may be useful
and relevant for those designing nancial literacy education programs and materials,
including tax advisers, nancial planners, nancial counsellors, the ATO and the
government. In terms of broader policy implications, it is important that the ndings
presented in this article are used in the government’s National Financial Literacy
Strategy moving forward as they provide new evidence as to the importance of basic
tax and superannuation literacy as part of the broader nancial literacy agenda.
04_ ATF 31-2_Chardon and Brimble_Print.indd 362 15/06/2016 11:39:19
