27th July 2017
“Everyone cheats a bit on their taxes. No one will notice if I claim a bit more.” For some Australians and taxpayers around the world, this is a common mindset. But when it comes to citizens not paying their fair share of taxes, it is usually big businesses who often get the blame. Taxation Commissioner Chris Jordan is looking to change that.
In Jordan’s speech to the National Press Club in Canberra, his focus was to highlight that small businesses and individuals are claiming more deductions than they are legally entitled to, and the ATO can come after them. Jordan aims to reduce the tax gap to the best of the ATO’s ability.
When a taxpayer fails to pay all of his or her taxes, it has a direct impact on the tax gap. The tax gap is the estimated difference between how much the ATO can legally collect from taxpayers, and the actual amount they do collect. When citizens overclaim on their tax deductions, it makes it more difficult for the ATO to collect what they are legally entitled to.
Of course, people like to point fingers at big businesses for dodging taxes, and most people would think the largest tax gap would come from bigger companies. However, Jordan argues that the tax gap among small businesses and individuals is substantial enough for the ATO to take action.
"There are likely to be bigger gaps in each of those markets [small businesses and individuals] than in the large market," Jordan told reporters.
In other words, while the amount a single individual overclaims may be small, when thousands of individuals and small businesses overclaim, the total amount is substantially large.
It is worth noting that not all individuals and small businesses are overclaiming intentionally. While, of course, some of the incidents do involve fraud, many of them are simply because of a legitimate mistake.
According to the ATO’s risked base and random audits, many people overclaim for work related expenses. Jordan said, "In 2014-15, more than $22 billion was claimed for work related expenses." Other common areas where Australians overclaim include rental deductions (totaling 44 billion in deductions) and, surprisingly, laundry expenses. Approximately 6.3 million people claim laundry expenses.
This new focus on individuals and small businesses does not mean that the ATO will relax their efforts on big businesses. "We feel like we have done a lot of work in the last three years in that space,” Jordan said.
Instead the ATO simply wants to ensure they’re not solely focusing on one sector. Individuals, small businesses and “cash only” shops also have a tendency to overclaim. And the tax gap is larger than most people think.
Considering the ATO has a strong focus on meticulously reviewing lodged returns, even compliant and accurate returns can receive scrutiny.