How the Australian Tax Office will cut your tax fiddles

Australian Tax Office ATO audit automatic check deductions

Enjoy this year’s annual game of hide and seek with the Australian Tax Office because it is going to be one of the last times you get to do it.

And even then the risk of getting pinged and paying significant penalties is probably higher than it has ever been before.

The reason was made abundantly clear when the ATO released its calculation that A$8.7 billion was being lost in income tax alone in 2014-15.

The main reasons for that loss were hidden income, false deductions for rental properties and errors and the reason the tax office knows this figure with high precision is because it is based on detailed audits.

Automatic checks on all deductions

Those audits are now almost automatic and automated – claims outside the “usual’’ deductions for people in your occupation and you can expect a computer to pore over your return and find out the reason.

Followed by a review and perhaps a “please explain’’ letter or worse.

In simple terms, PAYG taxpayers who fudge their numbers don’t stand much of a chance against the data matching capabilities of the ATO, which has been closing off loopholes rapidly in recent years, staring with the largest.

And before you complain about big businesses rorting the system, the estimate of multinational tax avoidance is around A$2.5 billion – significantly less than individuals.

The ATO’s deputy commissioner, Alison Lendon, said the multi-billion-dollar loss is primarily due to people making simple and avoidable mistakes in their tax returns.

With about 9.3 million Australians lodging personal income tax returns in 2014-15, those many small errors quickly add up to billions of dollars in lost revenue.

Audits show errors and inflated deductions

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 the A$8.7 billion loss can be dismissed as simple errors, Ms Lendon said some taxpayers were deliberately committing fraud to ensure they got a bigger tax refund – or lower tax bill.

“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,” said Ms Lendon.

“There is also a group that we have seen through our random audit work that are more deliberate in their over-claiming and quite aggressive.”

Tax agents and accountants in ATO’s sights

One of the ways the ATO aims to close the tax gap is to crack down hard on tax agents and accountants who are involved in fraudulent large claims such as rental property deductions.

Those agents will now face disqualification or prosecution in the most serious cases of tax avoidance, such as falsifying documents.

Around 500 tax agents were in the ATO’s sights, with 150 of those expected to be closely scrutinised.

Some of the biggest costs to government revenues had come from workers mistakenly claiming work expenses such as uniforms and cars or rental expenses on properties.

At the moment, the Tax Office recoups about A$500 million a year in lost revenue and is aiming to increase that to about A$750 million a year over the next four years.

Ms Lendon said the Tax Office would be greatly expanding its audits this year and would give greater attention to about a million taxpayers.

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.