Why ATO should stop the guilt trip and empower taxpayers

With the tax return season around the corner, the ATO announced its latest crackdown will focus on rental property deductions, work-related expenses and CGT. In the recent budget, the ATO received $89.6 million to help and expects to reduce the volume of incorrectly-claimed expenses and increase the intake from more accurate tax returns.

While the industry is being warned about how this increase in scrutiny will impact accountants’ obligations and their clients, it is important to also recognise the impact on firms and advisers, creating both challenges and opportunities for accountants to adapt their practices and provide value-added services.

Admin and resourcing pressures

In recent years, the industry has seen taxpayers become increasingly nervous about their tax returns alongside a growing confusion around how the system works and whether they are actually getting fair returns at the end of the financial year.

For firms, the growing powers of the ATO place additional responsibilities and workloads on accountants to comply with the heightened security. Accounting firms need to be more vigilant in managing the risk associated with their clients’ tax affairs. They may need to implement more robust internal controls, conduct enhanced due diligence, and develop stricter client acceptance procedures to mitigate potential risks of non-compliance.

For taxpayers, increased ATO scrutiny will ultimately mean losing out on certain tax benefits or deductions if they are unable to substantiate their claims or meet the stringent requirements. This could lead to higher tax liabilities and reduced tax refunds, which again places more pressure on firms to manage both outcomes and client expectations.

The end-of-year onslaught of spreadsheets, shoeboxes and emails is simply inefficient to cope with the ATO’s increasing power. Not only is it an unfair and unconstructive burden upon taxpayers to treat them as guilty until proven innocent, but it also disincentivises firms to take on individual clients. This could leave everyday Australians even further in the dark as tax regulations are becoming more complex to navigate on their own.

From finger-pointing to a leg-up

Instead of increased scrutiny on property investors, side hustlers, gig economy workers and anyone who works from home – which includes millions of Australians – it is time the ATO and the accounting industry as a whole worked together to support taxpayers to take control of their finances.

The latest stick method aims to promote compliance with a deterrent but if the ATO shifted its focus from crackdowns to educating individuals on how to properly prepare for their tax returns, we might see long-term sustainable improvements and potentially a reduction in the ATO’s overall $24.8 billion expense budget.

Most individual taxpayers and property investors want to do the right thing but often lack the industry expertise to understand how the latest requirements and regulatory changes impact them or their tax returns. And while clients turning to accountants for guidance represents an opportunity for firms to provide specialised consulting services, the reality is that most don’t have the funds to pay for consultation multiple times through the year in the traditional sense.

But it doesn’t need to be this way. Accountants can play a critical role here in adopting digital processes and services that help taxpayers of all types feel empowered at tax time and throughout the year. By leveraging technology, firms can streamline processes and improve efficiency to manage more work while speeding up compliance tasks and even effectively responding to ATO inquiries without burdening clients with unnecessary fees.

Tax-tech pays dividends

No individual or industry has been untouched by rising inflation or the cost of living crisis. Through these uncertain economic times, Australians have relied heavily on financial institutions and digital financial services to access minute-by-minute analysis of their own finances, as well as insights into their financial options. This digitally led approach to financial management is now a part of our day-to-day operations, and Australians are overdue for the same level of visibility and control into their taxes.

Just as everyday Australians are now used to viewing all of their expenses and financial activities 24/7 on the go, there is software available today that allows taxpayers to view and manage their receipts, financial documents and other tax-related information any time and anywhere.

Accountants have historically not been known for their cutting-edge technology advice, but this can and should change. Businesses, from SMEs to enterprises, have had the benefits of cloud-based technology for years to enable real time information and advice, and it’s time this was made accessible to individual taxpayers as well.

With the EOFY tax return rush only weeks away, now is the time for accountants to be talking to clients about how simple low-cost digital processes, such as keeping an online log of receipts for work, properties, side hustles and even shares and cryptocurrencies, can be incorporated into their day-to-day operations throughout the year.

Rather than stalling on tax return submissions for an annual stress-induced consultation, an open-minded approach to digitally empowered tax management can help both accountants and their clients make better financial decisions regardless of the time of year.

Nicole Kelly is founder of TaxTank.

This article was first published at Accountants Daily.