Today, the tax office released its Individuals not in business tax gap report, identifying that 72 per cent of the 868 cases in its random sample contained errors, contributing to the individual tax gap being over three times the amount of the reported $2.5 billion corporate tax gap.
According to the report, there was a 6.4 per cent gap for individuals, compared to the 5.8 per cent gap associated with large corporate groups.
Of the 614 tax returns prepared by a tax agent, the ATO made adjustments to 78 per cent, compared to 57 per cent of the 244 returns for self-preparers.
Speaking to Accountants Daily, CPA Australia head of policy, Paul Drum said the higher adjustment rate for agent prepared returns, particularly for work-related expenses, was “alarming and disturbing.” Mr Drum was also concerned about the impact of these findings on the public perception of the profession.
“This raises questions about the integrity of the line of questioning that tax agents are using when they are rushing through this low value work, the amount of time they spend on it," he said.
“It is also disturbing that the ATO is saying some of it is about agents requiring education, that they don't understand the law and in the most egregious cases, they are intentionally disregarding the law.”
The Tax Institute’s senior tax counsel, Professor Robert Deutsch, also pointed out that while there was only a half percentage point difference between tax gap of individuals and large corporates, the tax revenue from individuals accounted for more.
“This figure suggests that the extent of non-compliance among individuals is substantially higher in macro terms than for large corporate groups,” said Professor Deutsch.
“Individuals contribute roughly 40 per cent of the tax revenue and large corporate groups only contribute about 12 per cent," he said.
“Complacency in the deduction claiming process is no longer an option," he added.
Mr Drum believes the report will be used to validate the $130.8 million funding boost to the ATO, as announced in the federal budget, to increase compliance activities around individual taxpayers and tax agents.
“We’re certainly going to see greater activity both on education and compliance and enforcement and perhaps even referrals to the TPB and the courts in the worst cases,” said Mr Drum.
“The broader risk is if there is no change in behaviour, after their 4 year analysis, this could be another step towards the fact that a legislative response is required because as commissioner [Chris] Jordan has said on the public record, we can't audit our way out of this, so it seems to me this could strike at the heart of an individual’s long term ability to be able to claim legitimately incurred work-related expenses because of the behaviour of those who have been found to be doing the wrong thing.”
These findings follow ongoing warnings from ATO boss Chris Jordan about a crackdown on work-related expenses this tax time, with a particular focus on tax agents.
Although the findings are a concerning reflection of some practices, professional associations have been quick to point out the data is not conclusive or representative of the entire tax agent population.
The Institute of Public Accountants chief executive, Andrew Conway, said while the findings are concerning, the tax gap is a “guestimate at best."
“The report which spans a two year time frame is acknowledged by the ATO as not being adequate to define a trend," Mr 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," he said.
“It is also important not to tar those agents doing the right thing with the one ATO brush. If a tax agent deliberately flaunts the law, we will work with the ATO and weed them out," he added.
Mr Drum also pointed to the severity of mistakes made by tax agents versus individuals.
“It's worth noting that based on the ATO data, the self-preparers seem to be making mistakes on the omission of income whereas for the tax agent prepared returns, the errors are being made where taxpayers are claiming for work-related expenses that are either private in nature and didn’t relate to their work, that they can’t substantiate, or maybe they didn’t even incur them at all,” he added.