It seems the Australian Tax Office (ATO) are never happy with the amount of tax we pay.
A recent ATO announcement may actually support this theory and is probably sufficient evidence to support their latest crackdown, where there will be an increased scrutiny of expenses claimed in individual income tax returns for the 2018 tax year.
The ATO has just released results of a study they conducted which shows the estimated “tax gap” for individuals not in business (ie. salary and wage earners and investors) is approx. $8.7 billion.
This “tax gap” is the discrepancy between the revenue the ATO actually 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 in relation to undeclared cash (approx. $1.4 billion)
This ATO compliance crackdown is being funded by an additional $138 million allocated to them in the 2018 Federal Budget.
This additional funding will result in stronger 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, if they do investigate your claims further, there will be no surprises.
So for the preparation of the 2018 individual income tax returns, like always, we will need to ensure that you:
- have actually 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 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 percent and, while the majority of these mistakes were avoidable, they are concerned with exaggerated or falsified claims. They also said that 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 the 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 – this article has been produced by Kreston Stanley Williamson as a service to 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 contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.