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.
ATO Deputy Commissioner Alison Lendon said that in a recent review that common mistakes like claiming deductions where there is no connection to income or not having records to show that an expense was incurred affected seven out of ten returns the ATO randomly selected for review. Are that many of us trying to dodge our obligations or is the ATO trying to scare us just as we’re getting our tax returns ready?
Andrew Gardiner, senior taxation manager from the National Tax and Accountants Association says the ATO is pulling to wool over our eyes. He told the ABC “They [the ATO] are basing that number on after reviewing 858 returns in relation to a taxpayer community of 9.6 million. Or, to put that into percentage terms, on 0.0089%”.
It would be like making assumptions about the taxes of the entire crowd at the AFL grand final based on just nine people, he added.
However, the Institute of Public Accountants told Business Insider that there are many aspects to the problem, including complacency and the nature of the tax system.
“The complexity of the tax system also makes it easy to make errors,” says institute chief executive officer Andrew Conway.
One of the observations made by the ATO, said Gardiner, was that half of the erroneous returns were prepared by tax agents, seemingly trying to discredit parts for that industry. But Conway said “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.”
London’s comments on this paint a different picture;
“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.”
Looking at the ATO’s extrapolation that led to the $9b claim, Gardiner said we aren’t looking at a “king’s ransom” with the majority of the errors being in the order of $500 or less. And the figure might even be a misrepresentation he said.
In many cases, during routine reviews of tax returns, including those prepared by tax agents, the ATO might identify anomalies and make its own adjustments. The value of the adjustment often means it’s not worth fighting the ATO.
For example, Gardiner said that if the ATO makes an adjustment of $200, the cost of getting your tax agent to respond and appeal exceeds the extra tax you might have to pay. So, the ATO potentially gets a free kick – which is exactly what they are suggesting many tax payers are scoring.
Lets call this latest message from the ATO what it is. It’s an attempt to get us to become more conservative in making claims against our tax obligations. I have no objection against paying the taxes I’m expected to pay. But the ATO is playing the scare card pretty hard. They are trading on the emotional response illicit when we hear about multi-national companies that shift their income globally in order to minimise their tax obligations and using the data of a small survey that represents fewer than one in a 100,000 people to tell us we are fleecing the government on federal income tax.