The Tax Office has updated its individuals not in business tax gap report with 2015–16 figures, building on its previous 2013–14 and 2014–15 data set.
The new estimates show a net tax gap of $8.4 billion or 6.4 per cent.
The gap was established using 1,403 reviews over the three-year period, revealing that 80 per cent of agent-prepared income tax returns required adjustments, compared with 61 per cent for self-preparers.
The previous two-year figures showed that 78 per cent of agent-prepared returns required adjustments while 57 per cent of self-prepared returns were adjusted.
According to the ATO, rental expenses, work-related expenses, gifts and donations and other deductions were more commonly adjusted in agent-prepared returns, while there were more adjustments to income items in the self-prepared returns.
The Institute of Public Accountants believes these latest figures, publicly available on the ATO’s website, need to be unpacked to show that agents are not consistently making mistakes.
“The picture it paints is not completely true,” IPA general manager of technical policy Tony Greco told Accountants Daily.
“We challenge that data on the premise that the agent community that prepares those returns are obviously dealing with a more complex subset of taxpayers who don’t self-lodge.
“If the client provides information to that agent and those assumptions that he has based the return on are incorrect, it will go in as an agent error when it is not — it’s the client who has misrepresented the factual circumstances.
“The agent can’t audit everything that comes out of their client’s mouth — the yardstick is what we call reasonable care.
“How much of that is a result of clients not being truthful?”
‘The ATO is part of the problem’
According to the Tax Office, work-related expenses are a key component in the tax gap, contributing an estimated $4 billion.
“WREs have year-on-year had almost double-digit growth and we’re trying to turn the Titanic, so we’re changing behaviours and that takes time. So, the current results might not reflect all the recent activity that the ATO has put in this year and last year,” Mr Greco said.
“The ATO is as much at fault as everyone else — they’ve allowed this to happen. It’s been happening for almost 20 years unabated.
“We point the finger back at the ATO and say you’re part of the problem just as much as the community and tax agents because everyone expects their agent to maximise their deductions and it has created an expectation in their client base that they should be able to claim things because everyone else is. We’re trying to unwind that in-built behaviour that’s been allowed to develop.”
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.