Up to 1.4 million taxpayers will be freed from the hassle of completing a tax return and will receive a "thank you" receipt from the Treasurer for paying their taxes from July 1 this year.
The May budget is expected to include Treasurer Joe Hockey's plans to send each taxpayer a personalised receipt from the Australian Taxation Office showing where their tax dollars were spent.
And a move to "tick and flick" tax returns from July 1, 2014 will be sold as a red tape reduction measure, delivering the Abbott government's commitment to reducing red tape by $1 billion a year.
Taxpayers spend 4.6 hours on average filling in their tax returns, or $371 on average to get someone else to do it, according to the latest Tax Statistics released on Tuesday.
More than 6 million taxpayers claimed a tax deduction in 2011-12 for the cost of managing their tax affairs.
The ATO and Treasury have been working on the technical details of delivering the Abbott government's new tax receipt which will show in dollar terms how much of a person's tax bill was spent on welfare, health, education, defence and other spending. Mr Hockey promised during the 2013 election that the receipt would be one of his first acts as Treasurer.
Tax industry groups support the plan to streamline tax reporting for the majority of taxpayers.
"We support anything that makes compliance easier for taxpayers with simple tax affairs," Institute of Chartered Accountants Australia head of tax policy Michael Croker said.
Mr Croker said while some tax agents might lose low-margin business from taxpayers with simple tax affairs, most accountants realised there was more future in offering targeted advice to taxpayers with complex affairs.
'TICK AND FLICK'
Retail tax agents, such as the United States-listed accounting franchise H&R Block, have downplayed the impact on their earnings because the "tick and flick" returns would target mainly DIY tax lodgers.
Wage and salary earners with bank interest, dividends and straightforward tax deductions will be able to "pull" their tax return – already filled in by the ATO's systems – by July 1 this year.
The trial will be expanded to 4.5 million taxpayers between 2015 and 2016, and Treasury is considering using third-party information from real estate agents and stockbrokers to track taxpayers' capital gains, with the long-term goal of offering "no touch" tax returns.
This would mean taxpayers with simple affairs could accept the ATO's assessed tax refund without having to take any action. Under current rules, taxpayers have to declare pre-filled information is accurate and complete.
The biggest difficulty for the Abbott government and the ATO's push to cut red tape for individuals is how to deal with work-related deductions.
Individuals claimed more than $19 billion in work expenses, worth on average $226 each.
Former treasurer Wayne Swan's attempt to eliminate tax returns by introducing a standard deduction cost of $2 billion failed because the mining tax failed to produce the billions to pay for it. In addition, the option for a $500 or $1000 standard deduction meant some taxpayers would be overcompensated while others would be short-changed.
University of NSW tax expert Professor Neil Warren said the ATO's e-tax software cost millions to deliver but was now old-fashioned.
E-tax software will eventually be replaced by a web portal so individuals can log on to the myGov website to deal with their tax affairs.