ATO to crack down on over 1 million taxpayers after finding $8.7 billion tax gap

Although the end of the financial year has been and gone, headaches for millions of Australians look set to continue with the Australian Taxation Office this week announcing a widespread random crackdown on millions of Australian taxpayers after a tax gap of over $8.7 billion was uncovered.

But for once, business owners and operators can breathe a sigh of relief, as the focus this time is on taxpaying individuals ‘not in business’, which the tax office estimates to be around 9.6 million Australians.

While 93% of these individuals pay tax with “little intervention” from the ATO, the tax gap — the additional amount the ATO would receive if all taxpayers were fully compliant— for the 2014-15 financial year has been calculated by the tax office to be 6.4%, or about $8.7 billion.

This tax gap was larger than the tax gap for corporates over the same period, which came to $2.5 billion.

For the most part, this amount has been pinned on incorrectly claimed work-related expenses, a common pain point for business owners as well. Further, the tax office says many errors in tax returns are related to over claims of rental property expenses, and unreported cash wages.

“Seven out of ten returns randomly selected for review had one or more errors. 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 in a statement.

“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.”

That “smaller number” will equate to over 1 million, which is the number of “interactions with taxpayers and tax agents” the ATO will undertake around the issue of work-related expenses. Not all will be audits, however, with the ATO also looking to issue some reminders and reviews of taxpayers and tax agents.

“We are also taking further steps to address the error rate in agent-prepared returns, which is currently higher than the error rate for self-prepared returns,” Lendon said.

“While the majority of mistakes made by agents are avoidable, we are concerned to see a minority of tax agents exaggerating or falsifying claims to attract clients or retain their market share.”

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