IPA highlights ’serious’ tax gap issue for accountants
The Institute of Public Accountants has referred to a Tax Office report estimating the tax gap for individuals not in business at $8.7 billion as a serious wake-up call for all taxpayers, regulators, government and tax practitioners.
According the ATO’s ‘Individuals not in business tax gap’ report, the random enquiry programs (REPs) for 2013-14 and 2014-15 found that 72 per cent of the 858 tax returns in its random sample contained errors.
It found 78 per cent of agent-prepared returns contained errors, compared to 57 per cent of self-prepared returns.
An REP involves reviewing the returns of a sample of taxpayers and applying them to the broader population.
The Institute of Public Accountants chief executive Andrew Conway called it a worrying statistic, given the size of the gap and considering Australia’s current fiscal position.
He conceded that the ‘tax gap’ is a guestimate at best but, even if the methodology behind the report is questions, it is undeniable that the report “points to a serious issue”.
“There are many aspects to the problem, including complacency and people who simply flaunt the system, including individuals and rogue agents,” Mr Conway said.
“The complexity of the tax system also makes it easy to make errors. For example, the substantiation rules for work-related deductions up to $300 have inappropriately driven the perception of getting a ‘free kick’.
Mr Conway said the report which spans a two-year time frame is acknowledged by the ATO as not being adequate to define a trend, therefore it is a timely reminder that individuals and tax agents must commit to raising the bar.
“It should be noted that often the work of the tax agent is only as good as assertions made by their client. The tax agent is not required to validate all client assertions,” he said.
“It is also human nature for individuals to want to maximise refunds and in doing so may mislead their agent in the course of preparing their return.”
Mr Conway said the IPA continues to carry out quality assurance of its members and actively seeks to weed out unprofessional behaviour and reduce error rates.
He also added that it is also important not to tar those agents doing the right thing “with the one ATO brush”.
“If a tax agent deliberately flaunts the law, we will work with the ATO and weed them out,” Mr Conway said.
"We must keep in mind that a vast number of tax agents are highly professional and endeavour every day to comply with their legal and ethical obligations in an increasingly complex tax system.”