In a speech delivered in March 2018, the Commissioner of Taxation Chris Jordan highlighting a number of concerns about over-claiming of deductions and the higher rate of adjustments made to tax agent prepared returns, compared to those that were self-prepared.
“The incorrect claiming … is actually worse in agent prepared returns. It would seem complacency has crept in and the three golden rules of deductions are not being observed,” Jordan said. “That is, you must have spent the money and not been reimbursed, it must relate to your work (not private expenditure), and you must be able to prove your expenditure if asked.” (You can read the full speech here, but for more of the above scroll to the sub-head ‘To be known for integrity’.)
A month later, in a statement just issued, the ATO clarified the Commissioner’s observations and said that its inquiries have revealed errors across many tax returns, with most adjustments relating to deductions, particularly for work-related expenses. “The majority of errors relate to mistakes or carelessness, however we also have seen instances of deliberate over-claiming,” Assistant Commissioner Adam Kendrick says.
“Most commonly, we see claims where there is no connection to income earned or no substantiation to show an expense was incurred. We see claims for private expenses or incorrect apportionment between private and work use. We also see substantiation exceptions used as ‘standard deductions’, regardless of whether the taxpayer has actually spent the money.”
The ATO’s inquiries have found these errors occurring in both self-prepared and agent-prepared tax returns. “For self-preparers, our inquiries indicate a lack of knowledge or misunderstanding about what is claimable,” Kendrick says. “For tax professionals, contributing factors include a lack of care, time pressures, outdated knowledge and pressure to accommodate clients’ expectations of a refund.”
It is important to note however that the ATO indicates that proportionally it is a small number of agents who seek to deliberately undermine or abuse the system. “We have strategies in place to identify and monitor these agents. Our interventions include audits of their clients, the practice and the tax agent’s own affairs, as well as referrals to the TPB.” Kendrick says the ATO has referred more than 20 agents to the TPB this year for questionable practices involving false work related expense claims.
The ATO says it will scrutinise every tax return, regardless of the lodgment channel. Use is made of analytical models to compare claims, anomalies are flagged and taxpayers are prompted to check their claims (for agent-prepared returns the prompt is included in its prefill service).
“In fairness to those who do the right thing, we take action against those whose claims are incorrect or who intentionally falsify information on their tax return, including penalties or prosecution in serious cases,” Kendrick says. “Our aim is to facilitate willing participation in the tax system and to support individual taxpayers and their agents to report correctly.”
To help do this, the ATO says it will continue to work with professional associations such as Tax & Super Australia over the coming weeks to develop strategies to address areas of concern identified to date. “We will communicate the outcomes more broadly as we finalise the gap estimate for this segment,” Kendrick says.
Returns lodged by agents found to need more adjustments than self-preparers, says ATO Returns lodged by agents found to need more adjustments than self-preparers, says ATO Returns lodged by agents found to need more adjustments than self-preparers, says ATO Returns lodged by agents found to need more adjustments than self-preparers, says ATO