Dodgy work-expense claims and the cash economy are a far greater threats to Australia’s revenue base than profit shifting by multinationals, Tax Commissioner Chris Jordan says, ordinary workers claiming expenses are the biggest problem.
In a departure from the pervading political and societal narrative, Mr Jordan said ordinary wage and salary earners over-claiming for work-related expenses were responsible for the most significant revenue leakage.
He said the next biggest problem came in the form of a willingness on the part of ordinary Australians to ignore the tax evasion implicit in paying cash for a kitchen renovation or cheap meal.
“Everyone is focusing on the large multinationals and the large corporates,” Mr Jordan told a Tax Institute conference in Adelaide on Thursday.
“Well I can tell you the total corporate tax base is something like $67 billion and the gap at that level is relatively modest because of the concentration of the companies in Australia and our assurance over that.”
What he means is that the ATO knows precisely who these taxpayers are and keeps a very close eye on them. But it was a different story with the 20 million or so individual taxpayers, he said.
“The big dollars are with us claiming work-related expenses,” Mr Jordan said.
“The biggest gap we’ve got in the system is us, not them.”
The tax system allows work and investment-related expenses to be deducted against salary income.
Personal income tax deductions totalled $31.4 billion in 2012-13. Of that, $19.7 billion was for work-related deductions and the remainder for investment-related category, mostly for negatively geared rental properties.
The ATO is working on a “tax gap analysis” for large corporates, which could be as low as $2 billion a year. It was due last year but has been delayed.
“Getting every single dollar out of multinationals and large corporates is not going to make a dent,” Mr Jordan said.
“The biggest of all is individuals, wage and salary earners, claiming work-related expenses. So that’s what’s we’ve actually got to focus on to make a real dent across this area.”
Mr Jordan was quick to add that the ATO should – and did – go after multinationals, private companies and wealthy individuals for unpaid tax. And people needed to know the ATO had those groups under control so they could have confidence in the system, he said. But they were not the full story.
In late 2015, Treasurer Scott Morrison gave the go-ahead for the House Economics Committee, which was then chaired by Liberal MP and successful businessman Craig Laundy, to examine deductions by individuals and companies. No report was produced.
In a submission to the inquiry, the Parliamentary Budget Office said the average work expense claim was $3000, and work-related expenses made up two-thirds of total deductions claimed in 2013, or $19.7 billion.
The most common claims were for car, home office and travel expenses. Taxpayers in the highest tax bracket claimed 12 per cent of the total value of deductions, and men claimed more than women at all levels of income.
The federal government is already planning a major crackdown on the cash economy.
As part of that, a working group headed by Board of Tax chairman Michael Andrew is examining options for change and will provide a report to governing within weeks.
Mr Jordan said it would be good if Australia could get to the same point as Scandinavian countries, were using cash to avoid paying tax was frowned upon.
“Ha ha I got $200 off a plumber, I’m great [is the attitude here],” he said.
“It’s not actually, if you multiply that out.
“Never can we audit our way out but it’s a very long program of education and changing social attitudes so it’s no longer okay to cheat a bit.”
The ATO has forecast tax assessments totaling $2 billion will be issued to seven global businesses in June, arising out of audits of multinationals.
While the tech companies have never been identified, they are believed to include Apple and Google.
This article first appeared on AFR.com.
Carmen Du is a Chartered Accountant in the Brisbane office, delivering tailored financial advice with expertise in consolidation and reporting to support business growth.
