On Wednesday the 5th of July the Commissioner of Taxation Mr Chris Jordan addressed the National Press Club in Canberra. Of particular interest to clients of ARGO Business Solutions was the Commissioner's comments regarding deductions claimed by individual taxpayers for work related expenses and investment properties.
Mr Jordan detailed that a tax gap is an estimate of the difference between the amounts of tax the Australian Taxation Office (ATO) collects and what the ATO would have collected if every taxpayer was fully compliant with existing tax law. Mr Jordan acknowledged that no tax system will ever have zero tax gaps, however the ATO challenge is to reduce or minimize them. Mr Jordan stated that in the coming year the ATO will published tax gap estimates for a range of market segments including corporate tax and income tax segments. Mr Jordan provided tax gap estimates for the large corporate market based on 2014-2015 tax data. The resulting estimates indicated that 94% of all large corporate entities and multi-nationals are paying their fair share of tax; this collection rate is in line with global best practice. Mr Jordan is satisfied that the ATO has the law, the funding, capability and strategy to reduce the large corporate tax gap estimate over time.
Early analysis of tax gap estimates for small business and individual tax payers indicates the gaps are likely to be much bigger than the large corporate group. Mr Jordan stated that the results of the ATO's random audits and risk-based audits showed many errors and much over-claiming for work-related expenses. Tax data for the 2014-2015 tax year reflected more than $22 billion was claimed for work-related expenses and that the tax gap for this category could be in the vicinity of $2.5 billion. Mr Jordan further stated that half of all individual taxpayers claimed clothing expenses totaling $1.8 billion in deductions. The total value of all forms of deductions claimed by individuals was $36 billion. In addition to these expenses individuals claimed a total $44 billion in investment property expenses against a reported $40 billion in rental income. Based on this analysis Mr Jordan stated that the ATO will focus on the $22 billion claimed in work-related expenses and the $44 billion in investment property rental-related expenses.
Mr Jordan indicated that whilst the gap analysis is ongoing the ATO will be lifting their education, support, attention, scrutiny and enforcement in these areas. Mr Jordan's key message to taxpayers is declare all your income, don't claim for a deduction if you didn't spend the money; don't claim a deduction for private expenses and keep all records & receipts.
The Commissioner' speech is a timely reminder to clients to claim only those deductions that are legitimate and that can be supported with evidence of expenditure. As your Business Advisor and Tax Agent ARGO Business Solutions will continue to apply professional judgment to deductions claimed by clients and adopt a reasonable argument position for claiming such deductions. Not withstanding this where ARGO Business Solutions believes that certain areas of deduction could attract ATO interest we will discuss these observations with you to make a judgment decision. ARGO Business Solutions holds a professional obligation to adhere & administer the tax law and must demonstrate appropriate professional conduct on behalf of clients.
With the conclusion of the 2017 Financial Year last week, the month of July is now the time to commence to gather your taxation information. For our business clients who we have direct access to your accounting & business information we have already commenced to review and analyze your 2017 information. For all clients we will be sending out over the month of July your 2017 Tax Checklist as a guide to the information you should compile and gather. For those registered with our Client Portal we encourage you to upload your electronic documents via this platform for ease and efficiency. For client's possessing hard-copy documents we again encourage you to download the ARGO Business Solutions App and utilize the "Quick Scan" function to send key documents to us; please remember to register once you have downloaded the App.
Go to our Facebook page to download the APP; https://www.facebook.com/ARGOBusinessSolutions/
Should you wish to view the Commissioner's full speech, please click on the following link: http://iview.abc.net.au/programs/national-press-club-address/NC1706C024S00
In conclusion, the ATO's focus on work-related deductions and investment property rent-related expenses may have an impact on client deductions for the 2017 tax year. However, ARGO Business Solutions is confident that with effective tax planning for the 2018 tax year clients can maintain (or increase) their deduction levels by utilizing deductible personal superannuation contributions where prudent and effective in line with their retirement goals.
In you would like to discuss any of the information contained in this email please don't hesitate to contact us.