‘Criminal offence’: ATO’s tax return warning for 2 million Aussies

More than two million Aussies are being given an urgent warning ahead of tax time, as the ATO cracks down on this common $8.4 billion act.

More than two million Australians are being warned not to lie on their tax return this year or they could face hefty fines, as the ATO seeks to close the $8.4 billion “tax gap” with a crackdown on dodgy work-related deductions.

Some 12 per cent of Aussies, equivalent to 2.4 million people, admit they have previously lied on their tax return, according to new research by financial comparison website Finder.

“Lodging inaccurate information with the tax office is a criminal offence which can, in extreme cases, call for up to 10 years imprisonment or hefty fines,” said Alison Banney, money expert at Finder.

“While most people aren’t intentionally dishonest when submitting their return, it’s important to be diligent in double checking you’re not making a costly mistake.”

The survey of more than 1000 respondents revealed 4 per cent “constantly” lie on their tax return, while another 4 per cent only lie occasionally.

Younger generations were the worst, with 16 per cent of Gen Z and 15 per cent of Gen Y admitting to being untruthful, compared with 10 per cent each for Gen X and Baby Boomers.

Those earning above $100,000 were more tempted to lie at 14 per cent, compared with 12 per cent of those earning below $100,000.

Seven per cent said they don’t report additional income made through side hustles, while 4 per cent admitted they are not truthful about their investments.

Ms Banney said doing your own taxes could seem “complex and overwhelming with many unsure of what deductions to claim for and how to go about reporting on financial gains and losses”.

“Add cost of living to the mix and many will be attempting to find ways to lower the amount they have to pay this year,” she said.

But she warned while it might seem tempting to lie on your tax return, it was not worth it.

“The risks and consequences far outweigh any short-term gains made,” she said.

Work-related deductions are the biggest contributor to the ‘tax gap’. Picture: iStock

$8.4 billion tax gap

An ATO spokeswoman said the current “tax gap” for individuals, which is the estimated difference between the amount of tax it collects “and what we would have collected if every taxpayer was fully compliant with tax law”, was currently $8.4 billion.

“Incorrect claiming of work-related expenses was the single largest contributor, accounting for $3.7 billon or 44 per cent of the tax gap,” she said. “The most common reasons for adjustments for deductions were where taxpayers had spent the money but their claims were not directly related to earning income and were private in nature, apportioned between business and private use, [or] supported by records to prove the claim.”

Common claims that are removed or adjusted include claims for travel between home and work.

“Taxpayers can’t claim trips between their home and place or work except in limited circumstances, like from home to an alternative place of work that isn’t a regular place of work to perform their duties, and then directly home (this doesn’t apply if the alternative place of work has become a regular workplace),” she said.

“If taxpayers do itinerant work (they have shifting places of work), they may be able to claim transport expenses incurred for trips between work and their home.”

Employees are also often caught out trying to claim for expenses paid by an employer — taxpayers must have spent the money themselves and weren’t reimbursed.

A third common mistake is claiming an immediate deduction for tools and equipment over $300, instead of “claiming a deduction for the cost over a number of years (decline in value)”.

The spokeswoman said most Australians “do the right thing and pay their fair share of tax”.

“The ATO’s objective is to help taxpayers get their income tax returns right the first time,” she said.

“One of the ways we do this is to ‘pre-fill’ information we have collected from third parties such as employers, banks and other government departments into tax returns. Most pre-fill data is available by late July. This helps make it easier and faster for taxpayers to complete their tax return.”

Workers in the Sydney CBD. Picture: Damian Shaw/NCA NewsWire

Steep penalties

Some mistakes occur when people lodge too quickly, before their pre-fill information is ready, and don’t remember to include all their income.

“Where we discover a discrepancy or error, our preferred approach is to correct this before the tax return is processed, rather than conducting audits for minor discrepancies,” she said.

The ATO also uses “number of tactics to support taxpayers to get their tax return correct”.

“We may provide the taxpayer with a ‘pop-up’ message in our online lodgement service myTax if their deductions are unusually high, suggesting that the taxpayer reviews the deductions,” she said.

“We may correct an income tax return using data we have collected from employers, banks, super funds and other government agencies automatically before finalising the assessment. Where a tax return has claims that are out of pattern, or that don’t align with other data we hold, we may also stop the return from processing to ask the client to substantiate their claims which can slow their return down.”

If the ATO discovers a discrepancy after tax return has been processed, the taxpayer may receive a letter asking them to “review and, where appropriate, amend their return through our voluntary disclosure process either in ATO online services or through a registered tax professional”.

The ATO may also seek some additional information from taxpayers or their registered tax professional.

“This will include requesting things like receipts and other records to substantiate claims,” she said.

“We generally find that providing this kind of information isn’t too onerous for taxpayers or their registered tax professional, and doesn’t take too much time or effort because they should already have these records when they lodge their return. In the ATO app, myDeductions is a free to record-keeping tool that makes it easier to keep records in one place.”

If all that fails, taxpayers can face steep penalties.

Penalties are calculated using a statutory formula, based on the behaviour, the amount of tax avoided and multiples of a penalty unit. One penalty unit is $275.

“The ATO considers range of factors when it comes to penalties,” the spokeswoman said.

“While sometimes there are deliberate attempts to inflate deductions or omit income, a lot of the time there are honest mistakes. In those instances, we would work with taxpayers to make sure they get their lodgement right.”