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ATO tax deduction warning for small businesses and individuals

ATO tax deduction warning for small businesses and individuals

CANBERRA: Too many individuals and small businesses are making excessive tax deductions and the Tax Office is threatening to come after them. The ATO particularly wants to target taxpayers with attitudes like: “Everyone cheats a bit, so I can too”; “others won’t care if I cheat”; and, “I claim deductions (legit or not) to make sure I get a refund”. That was the message conveyed by Taxation Commissioner Chris Jordan in his speech to the National Press Club in Canberra. He is determined to minimise “the tax gap” as much as possible.

The tax gap is an estimate of the difference between how much tax the ATO collects, and what it would have collected if every taxpayer paid all their taxes in compliance with the law. While many people say big businesses do not pay their fair share of taxes, the Commissioner’s view is that there are significant gaps in policing the smaller players. “There are likely to be bigger gaps in each of those markets [individuals and small businesses] than in the large market,” he told the gathered reporters. He explained the overclaiming can be due to legitimate mistakes, carelessness, recklessness and fraud. “In 2014-15, more than $22 billion was claimed for work related expenses,” he said. “While each of the individual amounts over-claimed is relatively small, the sum and overall revenue impact for the population involved could be significant. “In the vicinity of, or even higher than, the large market tax gap of $2.5 billion – and that’s just for this category of deductions, work-related expenses”.