That’s according to Mark Chapman, the director of tax communications at H&R Block. Commenting on the figures released by the Australian Taxation Office (ATO) this morning, Mr Chapman said the fact that 70 per cent of income tax returns have errors is more surprising than the $8.7 billion tax gap those errors form.
However, given the numbers are based on only two years’ (2013-14 and 2014-15) worth of data, it’s difficult to completely rely on the “surprisingly high” figures.
The ATO also noted the $8.7 billion tax gap equates to 6.4 per cent of revenue in that stream and that the corporate tax gap in 2014-15 was $2.5 billion, or 5.8 per cent.
“They’ve made some controversial claims,” Mr Chapman said on the comparison.
“Unfortunately, a large element of the tax avoidance that goes on around large businesses relates to deficiencies in the law, so a lot of the tax gap there is never measured in any ATO tax gap analysis.”
He said the analysis is only based on the current law, which allows some large corporates to aggressively avoid tax while remaining within the law.
“They do things that are technically within the law but are clearly not within the spirit of what people expect and that's never measured in any tax gap analysis. So, to say that individuals are ripping off the system more than large businesses is a claim that some people would want to challenge ... I don't think it stands up to close scrutiny,” Mr Chapman said.
Income tax gap mainly incorrectly claimed work expenses
Most of the $8.7 billion tax gap comes down to incorrectly claimed work expenses, but a smaller portion of taxpayers are deliberately rorting the system, the ATO said.
“What we have seen is that most people make small, but avoidable, errors so we will ramp up our assistance to help these people understand their obligations and get things right,” deputy commissioner Alison Lendon said, while calling for taxpayers to shoulder more personal responsibility.
“A smaller number of people are deliberately doing the wrong thing – that has a significant impact on revenue. These people can expect closer attention from us, especially this tax time.”
She said the ATO will use technology to tailor advice, identify problems and auto-correct mistakes, while extra government funding outlined in the 2018 budget will be put towards streamlining the lodgement process.
“It will also see us ramp up our focus on higher-risk behaviours such as repeated and intentional non-compliance, fraud and deliberately taking positions contrary to law,” Ms Lendon said.
In addition to work-related expenses, the ATO said undeclared income like cash wages and deductions for rental property expenses contributed to the tax gap.
The ATO ‘needs to come to the party as well’
Mr Chapman said he doesn’t believe 70 per cent of taxpayers are deliberately attempting to rort the system, and will have misinterpreted the law and ATO guidance. This can often be complex, he added.
“In some cases, you can look at the ATO’s own guidance and you can say, well it actually is clear enough,” he said.
“[However], there are areas around mobile phone claims, watches and expenses where the guidance is actually pretty complicated and it is easy to make mistakes. So maybe there is need for more clarity there.
“This isn't a case of taxpayers need to do the right thing, they need to make sure they're doing things correctly.
“Maybe the ATO needs to come to the party as well and actually provide some better quality guidance to the taxpayers so that they can do the right thing.”
Self-prepared returns more accurate
Taxpayers who filed their return through an agent have a higher error rate, the ATO said.
Again, the majority of errors are avoidable but a portion feature exaggerated or completely falsified claims “to attract clients or retain their market share”, Ms Lendon said, warning the ATO will also be cracking down on tax practitioners.