- Australians are fudging their tax returns to the tune of $8.7 billion a year a year.
- This is bigger than large corporates who are underpaying by an estimated $2.5 billion.
- Common mistakes include claiming deductions where there is no connection to income or saying a private expenses is work-related.
The Australian Taxation Office (ATO) says some individual taxpayers are fudging their annual returns, sometimes helped by their tax agents, including claiming for expenses that have nothing to do with work, to the tune of $8.7 billion a year.
Most (93%) of the 9.6 million Australians who file an individual return get it about right but the other 6% to 7% or so are a problem.
These are sucking more cash out of the tax system than large corporates. These are estimated to be underpaying by a combined $2.5 billion.
The ATO says the bigger $8.7 billion tax gap for individuals not in business is mainly driven by incorrectly claimed work-related expenses.
Common mistakes include claiming deductions where there is no connection to income, claims for private expenses, or no records to show that an expense was incurred.
Other areas of concern include high rates of incorrect claims for rental property expenses and non-reporting of cash wages.
“Seven out of ten returns randomly selected for review had one or more errors,” says Deputy Commissioner Alison Lendon.
“What we have seen is that most people make small, but avoidable, errors so we will ramp up our assistance to help these people understand their obligations and get things right.
“A smaller number of people are deliberately doing the wrong thing — that has a significant impact on revenue. These people can expect closer attention from us, especially this tax time.”
The ATO is increasingly using data and technology to identify dodgers.
And it finds that the error rate in agent-prepared returns is higher than for those self-prepared.
“While the majority of mistakes made by agents are avoidable, we are concerned to see a minority of tax agents exaggerating or falsifying claims to attract clients or retain their market share,” she says.
However, the Institute of Public Accountants says the are many aspects to the problem, including complacency and people who simply flaunt the system, including individuals and rogue agents.
“The complexity of the tax system also makes it easy to make errors,” says institute chief executive officer Andrew Conway.
“For example, the substantiation rules for work related deductions up to $300 have inappropriately driven the perception of getting a ‘free kick’.
“It should be noted that often the work of the Tax Agent is only as good as assertions made by their client. The Tax Agent is not required to validate all client assertions.
“It is also human nature for individuals to want to maximise refunds and in doing so may mislead their Agent in the course of preparing their return.”
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