Crackdown looms for work-related tax deductions
THE government is plotting a crackdown on "creative" accountants who inflate work-related personal tax deductions.
Currently workers can claim a broad range of deductions including self-education, vehicle and travel, clothing, laundry and home office expenses.
With the cost to the budget bottom line hitting $6 billion, an inquiry into tax deductibility is mulling whether Australia should follow New Zealand's lead and scrap work-related tax deductions altogether, or the UK's and limit what workers can claim.
But the Courier-Mail reports Treasurer Scott Morrison favours a compliance crackdown targeting accountants and workers, who will face tougher scrutiny and be required to justify their expenses. The Australian Taxation Office is already working on a compliance plan, the paper reports.
A Treasury submission to a now-lapsed parliamentary inquiry into tax deductibility argued Australia's system for work-related deductions is "relatively generous" compared with comparable countries, which were "more proscriptive or limited".
"United Kingdom specifies a tighter nexus on work-related expenses. Work-related claimants in the UK are given an option of claiming a standard deduction based on their occupation, without having to substantiate their claim with records.
"Alternatively, employees may make a claim for the amount actually spent on eligible items, however, this requires substantiation and must satisfy the test of being incurred 'wholly, exclusively and necessarily in the performance of an employee's duties'.
"By contrast, New Zealand does not allow any work-related deductions for employees.
"The abolition of work-related deductions occurred in the late 1980s and was accompanied by income tax cuts. This has been a major driver of compliance savings by reducing the number of people required to file a tax return - in the 2012 tax year, around 1.25 million individual tax returns were filed out of an estimated 3.3 million individual taxpayers.
"By contrast, in Australia, in the 2012-13 income year, 12.8 million individuals lodged tax returns out of 14.6 million working-age individuals."
Last year, the ATO announced it was cracking down on dodgy work deductions. In 2015, the taxman conducted around 450,000 reviews and audits of individual taxpayers leading to adjustments of $1.1 billion, including omitted income or over-claimed deductions.
"Australians claim over $21 billion in work-related expenses each year, and we want to support taxpayers to claim what they are entitled to - no more, no less," ATO assistant commissioner Graham Whyte said at the time.
"Most Australians want to do the right thing, but we are seeing mistakes, and while the amounts at an individual level are relatively small, collectively the overall impact is significant. That's why, it is important for people to get their deductions right.
"From time to time we see people deliberately making incorrect claims. We've seen claims for car expenses where log books have been made up and claims for self-education expenses where invoices were supplied for conferences that the taxpayer never attended.
"Deliberately making incorrect claims is an easy way to get into some serious trouble. It's just not worth it."
If you get caught making incorrect claims you'll have to pay back the amount you shouldn't have claimed, plus a fine. The fine will depend on how serious the erroneous claim was.
For example, for "failure to take reasonable care", the base penalty is 25 per cent. "Generally, you fail to take reasonable care if you have not done what a reasonable person in the same circumstances would have done," an ATO spokeswoman said.
This means if you didn't take "reasonable care" and wrongly claimed $100, you would have to pay $125 back to the ATO.
"Recklessness" will cost you a base penalty of 50 per cent. "You are reckless if a reasonable person in your circumstances would have been aware that there was a real risk of a shortfall amount arising and you disregarded, or showed indifference to, that risk," she said.
And for "intentional disregard", the base penalty is 75 per cent. "You intentionally disregard the law if you are fully aware of a clear tax obligation and you disregard the obligation with the intention of bringing about certain results - underpaying tax or over-claiming an entitlement," she said.
The base penalty amount can be increased or reduced if there are aggravating or mitigating circumstances.