KPMG referred to ATO data that revealed 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 taxpayers claimed had expenses of around $1,000 or less, meaning the average claim across the remaining half were significantly higher than the overall $2,500 average.
Speaking to My Business’ sister publication 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 said.
“It should be made clear to clients that certain expenses, such as entertainment, are just not deductible, full stop.”