In July last year, the ATO released its first individuals not in business tax gap report, detailing an $8.7 billion gap which it contends is mainly driven by incorrect claims for deductions for work-related expenses and omitted income such as undeclared cash wages.
The report was released based off just over 800 reviews over two income years, because the ATO was confident of the results ahead of its targeted four-year, 2,000 sample review.
The findings were exacerbated by news that tax agent prepared returns required more adjustments as compared to self-prepared returns – 78 per cent, compared to 57 per cent, respectively.
ATO commissioner Chris Jordan had also drawn the ire of tax practitioners after accusing some of “deliberately scamming or cheating the system”.
Speaking to Accountants Daily, H&R Block director of tax communications, Mark Chapman, believes the ATO would need to tread lightly on the issue this year.
“By combining a steady stream of PR messaging, psychological ‘push’ factors, such as alert messages in myTax and warning letters and good, old fashioned audit action, the ATO has raised the profile of their crackdown on work expenses higher than it has ever been and taxpayers have noticed, with early evidence indicating a fall in the overall size of claims for many items such as work-related clothing,” said Mr Chapman.
“But has the ATO overdone it? Anecdotally, we hear that many taxpayers are nervous about making justified claims because of the potential pushback from the taxman.
“The ATO needs to be careful to maintain a sense of balance in how they treat this issue [this] year.”
Mr Chapman, a former senior director at the ATO, had earlier come out in defence of the profession, noting that the tax gap report would not stand up to scrutiny.
“Tax agents would be rightly extremely annoyed by the suggestion that three out of every four tax returns that they lodge are wrong, it’s just not correct,” said Mr Chapman.
“We know the vast majority of tax agents are acknowledged by the ATO to be low risk so I’m not sure what the ATO is stating in relation to that on one hand tallies with the idea that 78 per cent of agent returns are incorrect.”