Last year, the ATO released its first ever Individuals not in business tax gap report, revealing an $8.7 billion gap caused primarily by incorrect claims for deductions for work-related expenses and omitted income.
With that in mind, the Tax Office has sounded a warning that it will be taking a closer focus on such deductions this year, particularly clothing and motor vehicle expenses.
“There is around $8.7 billion worth of tax gap there, which means we can’t turn a blind eye. That’s a lot of community services, hospitals, schools etc.,” said ATO assistant commissioner Karen Foat.
“What’s probably important for you when you’re dealing with your clients is that we are indeed watching this, and our sophisticated analytics is getting better every year, so we can spot where claims are kind of out of pattern with people’s peers, so people of the same occupation, at the same income level.”
However, Ms Foat said the ATO does not expect tax agents to audit every claim but instead apply a judicious approach to handling claims.
“We don’t expect agents to be auditors and to sight every single thing,” Ms Foat said.
“But it’s on balance, too, so making sure that you are giving your clients the right advice about what can and can’t be claimed and asking a few probing questions.
“If something does not look quite right, if an office worker is claiming for a compulsory uniform and their employer doesn’t have a compulsory uniform, it is probably worth asking a couple of questions about that. Simple things like that.”
Apart from work-related expenses, the Tax Office will also take a tougher stance around over-claiming of rental deductions and the non-declaration of rental income.
“Another big thing we would say, and it is important particularly this year, because we are getting more and more information in our data collection, and that includes information on rental income from accommodation and sharing platforms. So some people may not realise that renting out a room in their home, or renting out a unit on a part-time basis or even renting out their holiday home and they are not using it themselves,” Ms Foat said.
“That income is all assessable income and people may not sometimes think to tell their agents about that income, so that might be worth asking some extra questions on, particularly because we are starting to get more and more information. It will raise a red flag if that income is missed out.”