The individual tax gap of $8.7 billion represents the amount of tax that should be in the government’s pocket if individual taxpayers had correctly claimed and paid their taxes.
The ATO is actively clamping down on individual expenses as a result, but this hasn’t stopped some Australians getting creative with their claims.
Speaking with Nest Egg, HLB Mann Judd’s director of tax consulting, Daryl Jones, explained what taxpayers can and cannot claim and where some Australians have pushed the limits too far.
The ATO has a rule where individuals can claim up to $300 dollars without a receipt if they have incurred a tax deductible expense.
However, this does not mean a taxpayer can claim for expenses not incurred, which is sometimes the case. A taxpayer must have paid for what they are claiming, and the claim must be eligible.
With this, the ATO has announced a crackdown on the $300 dollars without a receipt.
“A lot of people tend to claim $295 just below. But the claim must be based on expenditure incurred. It is not a free ticket for $300 even though a lot of people try to do that to stay under the ATO’s radar,” said Mr Jones.
The ATO is keeping an eye on whether taxpayers were eligible for the below popular claims:
- Uniforms: The laundry on uniforms is tax deductible for up to $150 if the employee has a legitimate expense. Many individuals try to claim otherwise.
- Overseas travel treated as deductible: Travelling for work is a tax write-off if an expense is incurred. However, Mr Jones warned that only the part for work is a tax deduction; investors cannot travel go on a family holiday, which many try to claim.
- Mobile devices: A mobile phone that is used for work can be a tax deduction. However, many try to claim the expense without using the phone for work purposes.
- Motor vehicles: Businesses can claim a rebate for fuel. However, a vehicle must be used to get a claim, with taxpayers trying to claim the first 5,000km deduction.
- Exorbitant expenses: Many are claiming low incomes but appearing to have expensive purchases that do not match their income. These purchases are often made through cash, which the ATO is cracking down on. Mr Jones warned that the tax man might check this through data matching technology and social media.
Is the ATO getting better at catching taxpayers?
Absolutely. Through its new sophisticated matching technology, they are able to predict what your tax return would roughly be. If a person’s lifestyle doesn’t match the return, they can investigate.
The ATO can estimate your refunds
The ATO already knows salary, interest claimed by the bank and dividends from shares, warned Mr Jones. With this, the ATO has a fair indication of what your tax return should be.
The cash economy is a huge cost to the budget. With this, the ATO is investing heavily into trying to getting cash businesses.
Lowering the bill legitimately
HLB Mann Judd suggested the following tax-effective strategy to lower the bill the ATO asks for come 30 June.
- Interest deductions
- Pre-pay bills
- Donate to a charity
- Make a contribution to your super