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Errors and over-claiming for work related expenses and the Tax Gap (Part 1)

Commissioner Chris Jordan AO

Address to the National Press Club, Canberra

5 July 2017

The ATO has expressed concerns about the numbers of incorrect work-related expense claims and the tax gap. Below is the key points extracted from the address of Commissioner Chris Jordan AO in early July at the NPA.

The Tax Gap:

  • The ATO will also continue with administrative reforms under our Reinvention Program, such as: earlier engagement, greater transparency and cooperation with clients and partners prevention and early warning, rather than correction and ‘gotcha’ more sophisticated use of data for both service and compliance purposes increased digital service offerings and streamlined interactions.
  • Now, let me share with you ‘what next’; the next big challenges we are facing: Influencing community perceptions and attitudes about tax; and, minimising tax gaps.
  • I want instead, to support mindsets where people feel more positive about their total tax experience – satisfied with their interactions and confident that the ATO is taking action against those who are not paying what they should. Let me turn to that now – paying the right amount and minimising tax gaps.
  • The tax gap is approximately $2.5 billion.

Errors and over-claiming for work related expenses:

  • And lastly, but definitely not least, I will talk about the Individuals market. You and me. The risks of non-compliance highlighted by our gap research so far in this market are mainly around deductions, particularly work related expenses. The results of our random audits and risk-based audits are showing many errors and over-claiming for work related expenses – from legitimate mistakes and carelessness through to recklessness and fraud.
  • In 2014–15, more than $22 billion was claimed for work-related expenses. While each of the individual amounts over-claimed is relatively small, the sum and overall revenue impact for the population involved could be significant – in the vicinity of, or even higher than the large market tax gap of $2.5 billion – and that’s just for this category of deductions, work-related expenses. We are concerned about the large number of incorrect claims being made where record keeping requirements have been simplified (for example $150 for clothing and laundry expenses and cents per kilometre method for car expenses).
  • In 2014–15, around 6.3 million people made claims against clothing expenses totalling almost $1.8 billion. That would mean that almost half of the individual taxpayer population was required to wear a uniform or protective clothing or had some special requirements for things like sunglasses and hats. While many of these claims would be legitimate, I wonder how many people have assumed that they can just claim $150 regardless of whether or not they have spent that amount on the required items?

Advice:

  • Don’t claim a deduction when you didn’t spend the money
  • Don’t claim a deduction for private expenses, and
  • Keep records to prove your claims.