Dodgy workers (and their agents) cost us $8 billion every year

Do you know those evil multinational and large companies with all their high paid tax agents incorrectly avoid about $2.5 billion a year in tax. How evil are they, huh? Picking on the little, hard working guy, huh?

Let’s just end that argument now as the Commissioner, the same guy who gave us the $2.5 billion figure, has now worked out what those little, hard working guys are either not declaring as income, or just making up deductions for. And their dodgy claims, with a lot of help from tax agents, means they don’t pay $8.7 billion every year.

And to make it worse, this figure excludes individuals classified as high-wealth who control a net wealth of $5 million or more – this is just your average individual tax returns.

How did the Commissioner get this number? They took a totally random sample of 858 individual tax returns and found that 72% had errors which, when applied across the 13 million individual tax returns, gives $8.7 billion of wrongly avoided tax by these individuals.

But here is the real annoying part of the findings… “agent-prepared returns had a 78 per cent error rate compared to 57 per cent of self-prepared returns.”!!!

Agent prepared returns are wrong 78% of the time and wrong substantially more often than self preparers. Think about what this means. It won’t be that agents make technical breaches as they know this stuff. It will be real mistakes they make… So what are these mistakes?

Of this $8.7 billion, only $1.4 billion relates to unreported income, which is normally due to the client not telling the agent about the income. But the rest of this lost income (over $7 billion) will be incorrectly claimed deductions.

… I’ll just add in $150 for clothing (even though the client does not have eligible work related clothing), $300 for work related expenses (even though the $150 of clothing just reduced this to $150 and they did not have any other expenses), 5,000 x 66 cents for your car (even though they have no record of any work related travel), I won’t ask if you stayed in your rental property (even though they stayed in it for 2 month last year), your a teacher so you can claim sunglasses so I will add them in (even though you did not buy any sunglasses this year), you travelled for work so I will claim a deduction for the reasonable allowances (even though the employer reimbursed all the costs)…

And it is not a surprise how the Commissioner ends his analysis of this information… “500 tax agents were in the ATO’s sights, with 150 of those expected to be closely scrutinised.” I doubt those 500 agents are responsible for $6 billion of dodgy claims…

So who is the biggest tax cheats in this country? Is it the multinationals and the large companies? Even with their high paid tax lawyers they can’t even get close to the dodgy tax agent who makes up deductions for their individual clients or just don’t ask about what they wear to work, what travel they do for work, what they actually purchased, how they used their rental property.

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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