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Data analytics have empowered the Tax Office and so it’s time Australians change the way they do returns.
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Why taxpayers should aim to beat ATO at its own game
07 July 2023
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11 minute read
For many Australians, the passing of June 30 will be their signal to kickstart their annual tax return scramble. Rather than feeling confident in what they can claim and how much will be returned or owed to the Tax Office, the vast majority will find this process stressful and simply hope for the best.
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For years, Australians have been conditioned to accept this situation. Meanwhile, the ATO’s powers and level of scrutiny have gradually increased. More than ever, a watchful eye is being kept over tax return documents and financial transactions. Many taxpayers fail to realise just how detailed the ATO analysis is getting or to understand the ramifications of getting the figures wrong.
As the ATO has changed its approach, it is only reasonable that taxpayers also change how they manage their taxes. But most have been following the same processes throughout their working lives.
Accountants can play a key role in enabling a transition to a more accurate, sustainable and stress-free process for taxpayers when lodging their tax returns, and savvy accounting firms will leverage digital technologies quickly to ensure a win-win for them and their clients.
Increased ATO pressure requires increased preparedness
Many taxpayers and accountants will recognise the recurring annual process of Australians compiling their physical or digital receipts once a year and handing them over for analysis. In most cases, this form of sharing data and information with the ATO through tax returns aims to complete the process smoothly and accurately.
However, taking property investors as one example, the ATO believes nine out of 10 property schedules contain errors which lead to inaccurate tax returns. Consequently, the ATO recently announced it will be monitoring and treating property investors more strictly. Banks will be forced to hand over information about 1.7 million property investors for the ATO’s data-matching program.
For investors, this means the ATO will be able to scroll through their bank account details and transactional data, decide without their input, then give them 28 days to prove their innocence if an inaccuracy is found.
This level of investigation and scrutiny comes despite an enquiry into 1,090 cases from 2017–19 which showed – with an undefined number of property investors involved – 40 per cent of adjustments were $150 or less, 14 per cent were in favour of the taxpayer, and only 24 per cent were over $1,000.
Rather than finding ways to simplify the tax returns process through digital solutions or educating taxpayers about online tools to improve the accuracy of their returns, the ATO has not made public the datasets nor specifics about the sampled property investors’ returns. This makes it challenging for taxpayers and accountants alike to understand what is going wrong and how to rectify their mistakes.
These measures are just one example of the increasing crackdown on side-hustles, Airbnb owners, cryptocurrency investors, sportspeople, celebrities, influencers and more.
Taxpayers could be forgiven for learning of these kinds of changes and feeling there is little they can do. But the reality is that a simple shift in how they manage their taxes could make a significant difference to their bottom line.
It comes down to being prepared for any scenario – whether it is the ATO looking into your financial transactions, wanting to make a smart tax choice when selling a property, or needing to understand the tax implications of selling shares or cryptocurrency.
Embrace the digital tax world
Australians are now comfortable with managing many aspects of their lives digitally, with a few clicks on their laptop or taps on their mobile phone. Taxes should be no different.
As accounting firms continue to look for ways to shift from being purely administrative professionals and into more value-adding consultants, digital technology tailored for individual taxpayers can transform how they collaborate with and deliver services to clients.
Our recent research showed 71 per cent of property investors would be willing to pay for an online platform that helped them manage taxes to claim every possible deduction while also futureproofing themselves against unnecessary audit adjustments.
With a digital-first approach to viewing and calculating their tax position throughout the year, accounting firms can say goodbye to the time-consuming and often resource-intensive rush of tax returns to manage every EOFY season.
Instead, they can welcome a consistent process where clients can accurately update and stay informed of their tax position on a 24/7 basis in real-time. Digitising these processes increases value, control and visibility for the client, while reducing excess admin and resources required by accountants.
As accountants restart their annual conversation with clients about their EOFY tax returns, now is the time to start conversations about how this process could be improved. Starting immediately, clients could go from guessing their tax position to understanding and taking control of their finances.
For accountants, this means less menial back and forth about minor details, without compromising accuracy or increasing the risk of ATO audits and fines. It’s time taxpayers catch up with the way their taxes are being watched and regulated and get on the front foot in controlling their own financial outcomes.
Nicole Kelly is founder of TaxTank.
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