The estimated net tax gap for individuals in 2014/15 was approximately 6.4%, or A$8.7bn ($6.4bn, €5.5bn, £4.8bn), the Australian taxman revealed recently.
Over 93% of income tax – from those who earn their income from salary and wages and investments – is received with little intervention from the ATO.
The gap is an estimate of the difference between the tax the ATO collects and the amount that would have been collected if every one of the 9.6 million taxpayers was fully compliant.
The ATO did not provide more recent data.
Expense mistakes and exaggerations
According to the tax office, the gap is “driven by incorrectly claimed work-related expenses”.
Common mistakes include claiming deductions where there is no connection to income, claims for private expenses, or no records to show that an expense was incurred.
Other areas of concern include high rates of incorrect claims for rental property expenses and non-reporting of cash wages.
“Seven out of 10 returns randomly selected for review had one or more errors,” said deputy commissioner Alison Lendon.
“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.
“But we are also asking people to take just a little extra care with what they claim, because all of those little amounts add up.
“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.
The ATO has been promised extra funding to develop tools including data technology to identify outliers. It could look to HM Revenue & Customs, which uses the Connect system to search for income anomalies especially when individuals can make large sums on the side, such as through Air BnB.
Professionals in the crosshairs
The ATO is also unhappy with the quality of returns from professional tax filers.
“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,” added Lendon.
“The ATO works alongside the Tax Practitioners Board to identify and closely monitor these agents. Where we see evidence of unprofessional conduct, we will take action to protect the community and the integrity of the tax system.”
By comparison the tax gap for corporates was estimated at 5.8% or $2.5bn in 2014–15, the most recent published gap.
