The Commissioner has started to release “Tax Gaps”. He says a “Tax Gap” is:
The tax gap is an estimate of the difference between the amounts the ATO collects and what we would have collected if every taxpayer was fully compliant. Tax gaps exist in all countries to some extent. The gaps are driven by cultural and human factors, global forces, complexity in business and legal systems, those who take aggressive tax positions, and genuine errors.
In the Australian today (behind a paywall) the Commissioner announces that the tax gap from salary and wage earners is much higher than the tax gap for the large corporate sector. Actually he says it is multiples of the $2.5 billion tax gap in the large corporate sector.
Next year he will release the tax gap for salary and wage earners and to get this number the commissioner randomly did full audits on 900 salary and wage returns. Most of these were done by tax agents, and the tax agents return were worse than the returns done by the taxpayer themselves.
The worst returns were done by tax agents who specialise in certain industries like nurses, teachers or police officers. So what are these tax agents doing wrong. Two things:
- Claiming deductions for things the taxpayers did not buy. “Teachers can claim the cost of sunglasses each year because they work outside”… BUT ONLY IF THEY ACTUALLY BUY A PAIR OF SUNGLASSES IN THE YEAR. “Nurses can claim the cost of the equipment they use”… BUT NOT IF THEIR EMPLOYER GIVES IT TO THEM. I can’t believe I have to say this…
- Claiming standard deductions. See following…
Let me be clear – there are no standard deductions at all in the Australian Tax Law.
- There is no $300 standard deduction, rather, if you have work related expenses under $300 then you don’t have to meet the detailed record keeping requirements BUT YOU STILL HAVE TO SPEND THE AMOUNTS TO CLAIM A DEDUCTION.
- There is no standard deduction of $150 for laundry, rather, if you have compulsory, safety or registered uniforms you can only claim the laundry cost you actually incur but if the amount is less than $150 you don’t need to hold receipts BUT YOU STILL HAVE TO SPEND THE AMOUNTS TO CLAIM A DEDUCTION.
- There is no standard deduction of 5,000km x 66 cents for work related travel, rather, you need to have undertaken work related travel and record the kilometres.
- There is no standard deduction for work travel costs, rather, if you travel for work and your costs are not paid or reimbursed by your employer but you are paid a travel allowance, you don’t need to hold a tax invoice for every cost BUT YOU STILL HAVE TO HAVE SPENT THE AMOUNTS TO GET A DEDUCTION.
The Commissioner says that these tax agents say that they can get better tax refunds for those who are in either the nurse, police or teaching profession. I can get an even better tax refund for these taxpayers than other tax agents if I can claim tax deductions for amounts a taxpayer did not spend.
Next year the Commissioner could be coming for tax agents who have work papers that say “standard deduction” or that have all their clients claiming these standard amounts (all your client have compulsory work uniforms and spend $150 on laundry and all your clients have more than 5,000 work related kilometres… Amazing!)