If you've ever exaggerated your work expenses to get a bigger income tax return, then you might have contributed to the Federal Government's $8.7 billion loss in 2014-15.
- Tax Office calculates that $8.7 billion in government revenue was lost from income tax alone
- Accountants believe it's a "wake-up call" and is down to hidden income, false deductions and errors
- ATO pledges to increase audits targeting those who deliberately fudge their returns
The Tax Office (ATO) has calculated what's known as "the tax gap" for individual taxpayers, which is the discrepancy between the amount of tax that should have been paid and what was actually paid.
The $8.7 billion figure has surprised many tax professionals, who believe it reveals the hidden cost of people hiding their cash incomes, fudging their expenses or lying about rental income.
The Institute of Public Accountants believes the figure is "a wake-up call" and the peak body CPA Australia says the amount of lost revenue is "enormous".
"When you compare it to multinational tax avoidance, where the figure is about $2.5 billion, it's some three times larger … that was really a surprise," CPA Australia's head of tax policy Paul Drum said.
The ATO's deputy commissioner, Alison Lendon, says the multi-billion-dollar loss is primarily due to people making simple and avoidable mistakes in their tax returns.
About 9.3 million Australians lodged a personal income tax return in 2014-15 and Ms Lendon says many small mistakes made can quickly add up to billions of dollars in lost revenue.
Almost three-quarters of the 858 cases examined in the ATO's audit contained errors or deductions people were not entitled to.
While some of $8.7 billion loss can be dismissed as simple errors, Ms Lendon says some people are deliberately committing fraud to ensure they get a better tax return.
"There is evidence in the community of people obviously wanting to get a big refund and a way to do that is looking at what expenses they can claim," Ms Lendon said.
"There is also a group that we have seen through our random audit work that are more deliberate in their overclaiming and quite aggressive."
Tax agents more likely to make errors
Mr Drum said he was also surprised that professional accountants were more likely to have made errors than people submitting returns themselves.
The ATO is worried that some agents may be deliberately falsifying documents to ensure their clients get larger returns, and to continue to do business with them.
Handy tips to avoid unwanted ATO attention:
- Don't claim unless you're out of pocket — so if you've already been reimbursed by your work, you can't claim again
- Anything you claim as a work deduction must directly relate to earning your income — just because you wear a suit to work doesn't mean that counts as a uniform
- Keep a record of work expenses — receipts, bank statements or diary entries
- Check out the ATO's income tax guide if you're unsure about any of your deductions
Ms Lenson said the Tax Office would take harsh action against accountants found to be negligent.
"Particularly when we look at those we consider high risk, that is where they are deliberately overclaiming and sometimes falsifying documents," Ms Lendon said.
"We take a harsh view on them, as the community expects."
CPA Australia's Paul Drum said people expect integrity from tax agents and often paid them because they wanted to make sure they were complying with the law.
"It raises the question whether [tax agents] are asking all the relevant questions of the client in the first place and whether more work should be done there," Mr Drum said.
But Tony Greco from the Institute of Public Accountants said tax agents often rely on incorrect information provided by their clients.
"Sometimes agent prepared returns are based on client assertions and agents are not required to audit all of their assertions," he told the ABC.
Mr Wood said the $8.7 billion was an estimate at best and not a surprise, given so many people lodged tax returns.
"The surprising aspect is the fact it is much larger than the corporate [tax gap]," he said.
ATO pledges to increase audits
Ms Lendon has also issued a warning to those who may deliberately fudge their returns, foreshadowing more audits and preventative action.
The revenue office has recently received a $130 million funding boost, which Ms Lendon says will help the agency address compliance issues and tackle fraud.
At the moment, the Tax Office recoups about $500 million a year in lost revenue. It expects to increase that to about $750 million a year over the next four years.
"We will be doing more audits so our actual coverage and interaction across the whole individual system is going to increase quite considerably this year," Ms Lendon said.
"We are expecting to touch at least 1 million people through the work we are doing."