Small business owners are nation’s biggest tax rorters, says taxman

Think big corporations are the biggest tax dodgers going around? Think again. New figures from the taxman show who’s really rorting the system in Australia, and the numbers are startling.

SMALL business owners — not major multinationals — are Australia’s biggest tax rorters, the nation’s top tax collector has signalled.

Australian Taxation Office commissioner Chris Jordan says latest estimates show the small end of town is dodging a whopping $10 billion a year in tax, a gap far larger than those for big businesses or wage earners.

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Speaking at a tax conference today, Mr Jordan also said that following a crackdown on dodgy work-related expense claims, the average amount claimed in personal tax returns had fallen for the first time in almost 25 years.

The average work expense claim has fallen by $130 over the past two years, netting the government an extra $600 million.

Australian Taxation Office commissioner Chris Jordan. Picture: Kym Smith

The ATO is now taking the blowtorch to rental income deductions claimed by property investors after an audit of more than 300 returns found errors in almost nine out of 10.

“We’re seeing incorrect interest claims for the entire investment loan where it has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent,” Mr Jordan said.

“And when you consider that rentals include over 2.1 million taxpayers claiming $47.4 billion in deductions against $44.1 billion in reported income, you can get a sense of the potential revenue at risk.”

Speaking at The Tax Institute’s national convention in Hobart, Mr Jordan said the first analysis of the “tax gap” for the small business sector was expected to show it was running at $10 billion a year.

Taxpayers are deliberately omitting income and over-claiming expenses.

The gap is the difference between what the ATO estimates taxpayers owe and what taxpayers end up paying.

For small businesses, the gap is running at 10 to 15 per cent — higher than for any other sector in the economy.

“The size of the small business income tax gap is much larger in percentage terms than in other market segments,” Mr Jordan said.

“We have identified that over 60 per cent of the gap is made up of black-economy behaviour, meaning taxpayers are deliberately omitting income and over-claiming expenses.”

The ATO has previously put the tax gap for big businesses at 4.4 per cent, totalling $1.8 billion in the 2016 financial year.

For wage earners, the gap was 6.4 per cent, or $8.76 billion, in the 2015 financial year — before there was a crackdown on work-related tax claims that were a key source of missing tax revenue.

Tradespeople who charge less for cash are part of the black economy.

Mr Jordan said the tax office worked “very hard” to hold big taxpayers to account and noted 29 per cent of all corporate income tax was paid by 10 companies while the 100 biggest accounted for 42 per cent.

He also warned that a government funding boost to tackle the black economy would result in more surprise visits to businesses operating on a cash-only basis.

“It will become much harder to operate outside the system, or to report income below what your lifestyle suggests,” Mr Jordan said.

“I firmly believe the system should serve the many — the good, the earnest and the hardworking, the compliant citizens who abide by the law and deserve to have its institutions live up to the standards they themselves have set by their goodness and hard work.”

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