Arthur Athanasiou

Tax Agent Tsunami Warning!

Arthur Athanasiou

September 6, 2018

ATO Tax Agents

A recent newspaper article caught my eye. Apparently, the ATO, working together with a federal government specialist team in behavioural economics targeted 2,000 tax agents, sending them a letter that specifically named taxpayers who were lodging tax returns claiming higher than expected work-related expense claims.

This seems to be more of an experiment more than a campaign, and the results from the 2,000 agents were compared to the rest of the tax agent population. The results were impressive to say the least: affected taxpayers of the 2,000 clients reduced their work-related expense claims by $191, and led to an increase in the average total tax paid per client of $76. Although it doesn’t seem like much on the face of it, the numbers do add-up when spread across the entire taxpayer population.

There was also an ominous tone by the ATO in the article’s conclusion, promising that a small group of “deliberate and aggressive” over-claimers could expect to receive much “closer attention” at tax time over the next few years.

Clearly this has ramifications for the tax agents involved, and will no doubt attract the attention and intrusive intervention of the Tax Practitioners Board in addition to the ATO.

On average, I attend around 3 tax discussion groups per month, and talk to tax agents about their day-to-day tribulations. Anecdotally, it is my belief that nearly every agent is now acutely aware of this issue, and all are generally taking a much stricter line with clients and their work-related expense claims. The way it’s put to me is that unless a tax agent can now be satisfied that a prospective claim for a work-related expense can be proven to a high standard, the claim will not find its way into a tax return.

Some tax agents are taking the view that they will no longer focus on I-Returns going forward, unless they’re necessary, such as being part of a larger group of business entities, but stand-alone tax returns are likely to be flat-out refused. The consensus seems to be that the risk and cost of dealing with ATO and TPB intervention is just not worth it, and this consensus seems to be gathering momentum.

This will, no doubt, force individuals in preparing their returns to either go it alone and deal with the ATO via the internet in preparing and lodging their own returns, or approach those tax agents that are still prepared to assist them. What will the cost be? It would have to, I think, increase on a simple “supply and demand” basis, where there are likely to be fewer tax agents providing stand-alone services.

But the fact remains that tax agents that continue to prepare and lodge I Returns claiming work-related expense deductions will inevitably face an ATO/TPB tsunami for simply being in that space. And this is my point: this issue is now as much a political one as it is an economic one. A tax-gap which I’ve recently written about, has not only been identified, but also quantified.  Government now expects both a response and a return.

Unfortunately, the quandry for tax agents, whose primary obligation is to advise their clients of their rightful entitlement to work-related deductions and lodge returns with such claims, is that they will be followed up by the ATO/TPB, regardless of the materiality of the claims involved. The stress, time and cost of dealing with those claims are unlikely to be appreciated by either the tax agent or the client.

Am I the only one who can see the tsunami coming?