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One big four firm is calling on both the government and the ATO to consider options of how to combat the huge number of Australians claiming larger than average work-related expense deductions in their tax returns.
Big 4 firm calls on govt, ATO to crack down on expense claims
08 September 2017
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7 minute read
KPMG yesterday reported that ATO data reveals 8.6 million Australians claimed work-related expense deductions to an aggregate value of $22 billion on their tax returns, resulting in a reduction in the ATO’s tax take of between $7 billion and $10 billion.
According to KPMG, the average expenses claim was for $2,500, however half of the workers who claimed had expenses of around $1,000 or less, meaning the average claim across the remaining half was significantly higher than the overall $2,500 average.
Speaking to Accountants Daily, KPMG tax director Andy Hutt, called on the ATO and the government to up the ante on the issue.
“The ATO has the opportunity to do more, using the full range of media channels, to educate taxpayers on what ‘doing the right thing’ looks like in this regard. It cannot just audit its way to the right outcome on this issue,” he said.
“A recent Parliamentary Inquiry into work-related deductions did not recommend any specific changes to the law. However, it would be a surprise if the government did not take further action to mitigate this tax leakage in future.”
KPMG partner Hayley Lock said that given the lack of legislation around the issue the responsibility falls on the ATO to ensure all claims are legitimate, however the time and resources needed to do so are huge.
Ms Lock suggested several options that the government could pursue, including an individual cap on work-related expenses, A “phase out” of work-related expenses depending on the taxpayer’s gross income, or a universal standard deduction.
Mr Hutt also said that accountants have a duty to ensure that their clients’ are making correct and fair claims.
“Accountants should ideally take time to understand the nature of the client’s job, in order to best assess whether the client’s expenses were genuinely incurred in earning his/her income,” Mr Hutt told Accountants Daily.
“It should be made clear to clients that certain expenses, such as entertainment, are just not deductible, full stop.”
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- Maybe KPMG should really check how well their juniors (who are usually left to completing the little tax returns) are doing with their client's tax returns. As a small firm, I often enjoy pinching their clients huge businesses simply due to how poorly the big firms disregard the personal tax returns and the potential to claim legitimate work related deductions for the individuals. Carry on KPMG.0
- How totally out of touch are the so called "big 4" firms to be even suggesting "lets phase out work related deductions" for taxpayers.
0 - The ATO Monitor Accounting firms who have claims outside normal industry KPI's and are subjected to regular audits by the ATO. In the main most firms pass these audits and have ligitimate explanations for their clients expense claims. It's not in our experience that claims are out of control as suggested by this article. The ATO is very vigilant in their policing and doing a good job in educating and taking preventive measures. If deductions are deemed too high than they should change the legislation to limit them but as long as it's currently legal and deductible, and incurred in producing assessable income, accountants should not be made out to look like they are contributing to leakage of the commonwealths revenue.0
- The 4 Big firms need to get their own house in order0
- Probably annoyed at the growing cost of outsourcing/AI implementation of their I returns.0
- Interesting comment from KPMG partner Hayley Lock on a suggestion as to how the ATO could gather more taxation revenue with a focus on WRE claims. Are the Big 4 including KPMG also prepared to assist the ATO collect more revenue from their ultra wealthy tax clients who use off shore tax shelters to escape paying any where near the marginal rates the taxpayers who KPMG partner Hayley Lock is targeting?0
- Take into account all the taxpayers who didn't make a claim, and I'd suggest the average drops right down to bugger all. That's the way averages work.
The whole basis of self-assessment is the taxpayer makes a claim and the ATO has the option to audit that claim to prove its legitimacy. Simply suggesting that those who claimed "higher than the average" are cheating the system is outrageous and, dare I say it, unsubstantiated.
Also outrageous is the call for phasing out of all work-related deductions. Why don't we just give 100% of our income to the ATO and have them graciously extend us a monthly living allowance to help pay the bills?!0 - What absolute rubbish. Chris Jordans crusade on work related deductions( in particular the $150 humble deduction as per a recent speech) is a rather dubious. Especially when remarked that the $150 deduction was more of a risk than tax avoidance by multinationals. Really? Lets not forget that Multinationals are almost always looked after by the big 4 accouting firms and the fact that Chris Jordan was a partner at KPMG. Surely i am not the only person that can see the inherent risk of independence/ familiarity with this. Ethics 101 right ?0
- Since ever the ATO is promoting self preparation of tax returns these problems have increased. If KPMG is calling on the ATO to crack down on over claims of WRE they should also encourage the ATO to refer tax payers with WRE to tax agents to have a proper return prepared for them. Tax agents are always last on the ATO's option list. The FC of T seems oblivions to how much we, the tax agents, help in lodging correct and complete returns. He mainly concentrates of the few bad eggs in our profession.0
- Has KPMG ever considered that some of the work related expenses that they are looking to curtail could actually be legitimate?
For example, what if an employee works from home and travels to their employers office, which is interstate, a couple of times a month. Should such an employee - who does not receive a reimbursement or additional allowance for power, heating and cooling from the employer - not be able to claim the 45 cents per hour that they are working in their home office? Should such a deduction - which the ATO is comfortable with - really be removed?
As remote working is becoming more and more acceptable and used, I'd suggest Mr Hutt and Ms Lock are simply looking to take the 'heat' off their corporate client base, or perhaps, consider that there might just be more forward thinking businesses in existence than that in the sheltered confines of the Big Four environment...0 - Once again we have a knee-jerk reaction to an issue that has been around since 1987 when they introduced the substantiation provisions. Some years the ATO took a baseball bat to tax agents and visited many practices to scare them into reducing the claims made. Our practice made sure that in the year of review, we claimed a higher level of deductions just to show the ATO that our clients were underclaiming in prior years. They were also thrown out of my office when they initially approached us and accused us of false claims. No evidence, just speculation - same thing now. If you have a set of rules, then enforce them!0
