Think twice this tax time - the Tax Office has AI watching

If the incessant barrage of sales ads hadn’t already given you the heads-up, the end of financial year is well and truly upon us.

While it’s usually about this time of year we dust off the shoebox stuffed full of receipts and cross fingers and toes for a healthy return from the Australian Taxation Office, another consideration should be front of mind before you lodge your return this time around: artificial intelligence.

If you’re someone who has historically been lax with record keeping, you can expect an audit from the Tax Office’s new AI-powered systems.Credit: Dionne Gain

Each year, the ATO outlines a handful of areas they’ll be paying closer attention to than usual. In particular for the 2023-24 financial year, they’ll be aiming to address capital gains from cryptocurrency and other major assets, undeclared or under-declared gains from the sharing economy (think Uber, Airbnb, Stayz, and Airtasker), rental property deductions, claims for work-related clothing, claims relating to the $300 receipt-free threshold and record-keeping more generally.

But perhaps even more so than the aforementioned, the focus this year will be addressing an $8.7 billion elephant in the room, which is the shortfall between what Australian individuals are expected to pay in tax and the tax we’re actually paying.

According to the ATO, the lion’s share of these billions relates to work-related expenses claims, which understandably ballooned during the height of COVID-19 as many of us worked from home full-time for long stretches. Despite more Australians returning to the office either part-time or permanently, the claims have continued to roll in.

Last financial year, the ATO introduced a fixed rate of 67¢ an hour for working from home deductions, designed to act as a catch-all and simplify claims in this area.

If you’ve been prone to grandiose expense claims in the past, you might want to think twice this time around.

This year, it’s important to note that if your working from home claims are hefty (ie 100 per cent of your home internet or mobile phone bill as well as the 67¢-an-hour rate), you might be asked to provide a verified record of your hours at home through timesheets, rosters or a diary.

This is also where the ATO’s focus on record-keeping comes in. Some of us have become much more lax with this (hello, shoebox packed full of crumpled receipts) of late, but this year there will be a focus on providing proof for the purchases you’re claiming.

The good news is you’re now allowed to submit a photograph of a receipt in lieu of the receipt itself, and if you use the ATO app, you can upload receipts and claims throughout the year, in real time, meaning you don’t have to try to remember what that $8.62 expense relates to 11 months after the fact.

With a lot more companies offering email receipts, too, the crumpled up piece of paper at the bottom of your bag is, thankfully, becoming a thing of the past.

The bad news, though, as I mentioned earlier, is AI.

If you’re someone who has historically fallen into that category of being lax with record-keeping, or claiming 100 per cent of your home internet bill, or 100 per cent of a holiday despite only working for 40 per cent of the time, you could be among the estimated 2 million people set to be audited by the ATO.

Over the past few years, the ATO has ramped up its use of AI to spot anomalies and discrepancies in claims and filings, scanning huge data sets to notice things that might slip through the cracks otherwise.

This includes things such as, for example, comparing Airbnb’s annual report with individual tax return data and spotting if you haven’t claimed what you should have, or spotting that you haven’t declared income from Airbnb, despite payments from the company appearing in your bank account.

In the process, this modelling has collected hundreds of billions of owed tax dollars and identified where fraud (or attempted fraud) is occurring, and also found unpaid superannuation that’s owed to people who had the misfortune of working for dodgy employers who tried to avoid paying what is rightfully and legally owed.

In 2022, for example, with the help of AI scanning large data sets, the ATO was able to take compliance action against more than 53,000 people and prevented about $2.5 billion in fraudulent GST returns being paid. That same year, uncollected and undisputed tax debt hit $44.8 billion, rising from $26.5 billion in 2019.

In 2023, the same AI tools successfully identified more than $530 million of unpaid tax bills.

Using the 11.5 million files from the leaked Panama Papers in 2016, the ATO’s AI tools were able to analyse the documents and find liabilities and owed debts from Australians who had been using the Panamanian law firm, Mossack Fonseca, to avoid tax.

As of the end of last year, the ATO had collected more than $60 million of owed taxes, completed more than 535 audits relating solely to Mossack Fonseca clients, and raised more than $242 million in liabilities — money that wouldn’t be in our economy and put towards public services if it wasn’t for large-scale data models that were able to scan and spot anomalies that would take human auditors decades.

If you’re worried that this all sounds a bit Black Mirror and dystopian government overreach, rest assured there are many checks and balances in place and a healthy amount of human staff in the building.

It does mean, though, that if you’ve been prone to grandiose expense claims in the past, you might want to think twice this time around. And please, for everyone’s sake, hold onto the receipt.

Victoria Devine is an award-winning retired financial adviser, best-selling author and host of Australia’s No.1 finance podcast, She’s on the Money. Victoria is also the founder and director of Zella Money.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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