The Australian Tax Office (ATO) is perpetually dissatisfied with the tax payments made by individuals, prompting the need for proficient accountants in Sydney to ensure compliance and optimise financial obligations.
A recent ATO announcement may support this theory and is probably sufficient evidence to support their latest crackdown, where there will be increased scrutiny of expenses claimed in individual income tax returns for the 2018 tax year.
The ATO has just released the results of a study they conducted, which shows that the estimated “tax gap” for individuals not in business (i.e., salary and wage earners and investors) is approximately $ 8.7 billion.
This “tax gap” is the discrepancy between the revenue the ATO collects and the amount that would be collected if all taxpayers were fully compliant.
In comparison, the “tax gap” for large corporates is approx—$ 2.4 billion.
The ATO analysis states that this $8.7 billion is due to individuals who:
- over claim deductions for work-related expenses
- incorrectly claim deductions for rental property expenses
- omit income, particularly with undeclared cash (approx. $1.4 billion)
This ATO compliance crackdown is being funded by an additional $138 million in the 2018 Federal Budget.
This additional funding will result in more vigorous regulatory and legislative enforcement by the ATO. As a result, we may have additional communications with you, especially during the preparation of your individual returns, to ensure that you comply with what the ATO expect. This is to ensure that there will be no surprises if they do investigate your claims further.
So for the preparation of the 2018 individual income tax returns, like always, we will need to ensure that you:
- Have spent the indicated money on a claimed item, can show how you incurred the cost and how you worked out the claim
- only claim items that are directly related to earning your income and show a sufficient connection between the claim and the income earned
- claim only work-related expenses and correctly apportion claims between private and work use
The ATO also announced that a random sample of income tax returns they reviewed found an error rate of 72%. While most of these mistakes were avoidable, they are concerned with exaggerated or falsified claims. They also said their research revealed that approximately 20 per cent of tax agents had an exemplary record.
We would expect that we are within this 20%. However, an unfortunate consequence of this increased ATO compliance and renewed interest in this area is the need to spend the time to ensure your affairs will withstand closer scrutiny.
If you have any concerns or wish to discuss how your particular affairs are affected by this, don’t hesitate to contact us to discuss.
Kreston Stanley Williamson Team
*Correct as of July 2018
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
