Earlier this week, I reported on some data that came from the Australian Taxation Office (ATO) suggesting tax payers are skipping out on paying almost $9 billion through dodgy claims on tax returns.
The ATO has responded saying the methodology used in coming up with that estimate is sound and that the problems stem from a lack of thoroughness, sometimes as the result of tax agents as well as poor record keeping.
A spokesperson from the ATO told us the tax gap wasn't calculated solely by extrapolating the results of our random enquiry program. It drew on operational data for specific compliance risk areas. For example, failure by employers to withhold, non‑lodgment of tax returns and non-payment of debts. This was then combined with findings from the random enquiry program.
The Australian Taxation Office (ATO) says that almost $9 billion are lost through people making what it considers to be dodgy claims on their personal tax returns. According to the ATO, 93% of the 9.6 million Australians who file an individual return get it about right but the rest are a problem.
Methodology Is 'Best Practice'
The spokesperson said the ATO consulted with other tax administrations and worked with the independent expert panel, industry and government stakeholders. The expert panel endorsed the ATO’s methodology, including the statistical validity of the ATO’s estimate. The spokesperson noted that a random enquiry program involves reviewing a sample of tax returns lodged by individuals for a particular year and applying the results to the broader population and that this method is considered best practice for a group of this size.
The sample set of returns used by the ATO was stratified based on income and the proportion of agent-prepared returns was representative of the total individuals not in business population. The sample size of Australia’s random enquiry program is proportionally similar or greater, than other comparable countries like the United Kingdom and the USA.
Many Tax Agents Make 'Avoidable Mistakes'
Looking at tax agents, a group that felt they had been maligned by the ATO's analysis, the ATO said they are seeing broadly three categories of tax agents:
- Tax agents that apply best practice and have the right processes and checks in place
- By far the largest group are tax agents who are making avoidable mistakes such as not checking records thoroughly enough, not keeping up-to-date with the law, using record keeping exceptions as standard deductions or are the subject of pressure from their clients to generate larger refunds
- a small number of 500 tax agents who fail to meet their obligations. The third group, which is the smallest group, of around 500 higher risk agents. These agents will be an ATO priority over the next four years
Don't BS The Tax Office
When it comes to work-related expenses the ATO said around half of the adjustments it makes are because the taxpayer had no records, or the records were poor quality and they could not demonstrate how they had worked out their claim.
The ATO spokesperson said you should report all your income including cash wages and to follow the three 'golden rules' for work related expenses
- you must have spent the money yourself and not have been reimbursed
- it must be directly related to earning your income, not a personal expense
- you must have a record to prove it