THERE'S nowhere left to hide.
Tax dodgers, expense fudgers and cash operators can no longer escape the ATO's all-seeing eye, as industry associations warn their members of a quantum leap in sophistication and data sharing this year.
"If you're doing the right thing you've got nothing to be worried about," said Andrew Gardiner, spokesman for the National Tax and Accountants Association, which has been running a series of seminars on Tax Hot Spots for 2017.
"But the systems have become much more sophisticated with data analysis - information sharing within government departments is broadly available. They are able to isolate data, target people more accurately. It's like anything - the systems you're using now, you would have dreamt of three years ago."
Professor Bob Deutsch, senior tax counsel with The Tax Institute, said many people were surprised to find out just how much the ATO knew about them. "There is a degree of surprise with some taxpayers," he said.
"The tax return is pre-filled with information the tax office has - dividends and interest payments, ABN income - and agents are often confronted by the taxpayer saying, 'How did they know that?' Taxpayers need to be aware that it is already being reported to the ATO through different channels.
"They know more about your bank accounts, dividends and interest than you probably do, to put it lightly."
According to Mr Gardiner, up until a few years ago, the ATO would target particular occupations for work-related expenses.
"One year it would be teachers, then doctors, nurses, they were doing it on an occupation basis," he said.
"But their audit case selection has become far more sophisticated. They're now looking at average claims. Where the claim is abnormal relative to the industry average, they will then seek information as to why the claim is anomalous."
While the number of audits has not increased substantially, the targeting has become much better, meaning "when they're selecting taxpayers, the likelihood that there's an issue or an error is much greater".
Mr Gardiner said one of the biggest mistakes people made, which was called out by ATO Assistant Commissioner Kath Anderson last week, was thinking they could make a "standard" deduction without having actually incurred the expense.
"The way the rules work at the moment, if I claim up to the ATO's 'reasonable amount', technically I don't need receipts," he said. "Some people think, 'I don't need a receipt, therefore I'm going to claim up the reasonable amount.'
"But the ATO has started sending out questionnaires. You don't need a receipt but you do need to demonstrate you've spent the money. People are now being caught out, having audit adjustments, penalties levied, that is an enormous area."
Prof. Deutsch said some tax agents had "unfortunately" been putting in standard claims.
"The ATO can come after you, I've seen them do this, and say, 'We don't believe you incurred this expense.' They can't insist on a tax invoice, but they can say, 'Show us the bank debit, or if you paid in cash, we want the name of the person you paid the cash to and we'll talk to them.'"
He said other problem areas were self-education expenses and clothing.
"There are a lot of claims made for self-eduction expenses that are looked at and often knocked back," Prof. Deutsch said. "The ATO is quite strict as to what type of self-education expenses can be deducted. You can't claim for a course that does not have 'a sufficient connection to your current employment'.
"A lot of people also claim what they call work clothes. That's also a fairly difficult area often knocked back, because your work clothes need to be distinctive, [like] a uniform. If it's a suit then it can be worn to any function."
He added that people on low incomes shouldn't feel as if they were too small to escape the notice of the ATO. "If you're earning $30,000 a year, there would be no reason to assume that the tax office would never take an interest in you," he said.
"If they felt there was something untoward going on, for example a substantial deduction being claimed such as to push you back under the tax-free threshold, they would probably take a look at that.
"It might cost the ATO more to pursue you than the tax they're going to collect, but the ATO would not want it to be generally seen that those sorts of people are not being considered, so they would have to wear any compliance costs they would incur."
In 2015, 8.6 million Australians claimed work-related expense deductions worth $22 billion, reducing the overall tax take by between $7 billion and $10 billion. Hayley Lock, tax partner at accounting firm KPMG, said it was time for the system to get "fair dinkum".
"The average claim was for $2500 of expenses, which had presumably not been reimbursed by the employer," Ms Lock said.
"Importantly, half of the workers who claimed had expenses of around $1000 or less, meaning that the average claim across the remaining 4.3 million claimants was significantly higher than the overall $2500 average.
"Maybe the conduct of some of these individual taxpayers would not fare so well in the 'pub test' that Australians so often like to apply to political and corporate behaviour."
She said the "principles based" approach to tax deductibility, which requires the expense to be "incurred in gaining or producing assessable income", allowed "plenty of scope for interpretation" and "some experienced observers might say imagination".
"No matter how much the ATO deploys the latest data analytics technology, the considerable time it would spend on collecting the additional tax from the work-related expenses claims it adjusts is unlikely to represent an optimal allocation of its resources," she said.
Prof. Deutsch said apart from work expenses, rental property owners were always a significant area of focus for the ATO. "The reason is that there are fairly large tax deductions claimed in relation to rental properties, and lots of errors that are made pretty well on a year-by-year basis," he said.
"Those include people claiming for properties where there's a significant degree of personal usage, and lots of people claiming capital items as repairs, which you're not meant to do."
And with the government's war on cash heating up, the so-called "black economy" is also facing a hi-tech crackdown. According to Mr Gardiner, similar to tax returns, at ATO used to focus on particular industries for compliance.
"But now again with the data available, they're doing it in a far more sophisticated fashion," he said. "They've developed what we call a benchmark for many kinds of industries that are associated with the cash economy - butchers, bakeries, hairdressers, tradies, convenience store owners, takeaway shops.
"What they do is look at typically what amount they will spend on buying supplies - in the case of a pizza shop, how many boxes they've bought for the purpose of delivering pizzas - then work out relative to business inputs and expenses what revenue they should be generating.
"If that business has an income level outside what would be expected, they would target that business. It doesn't automatically mean they're cheating, but if there's a discrepancy there needs to be a reason why."
The bottom line, according to Mr Gardiner, is that if businesses or taxpayers are cheating and not paying their share, "the increasing sophistication of the tax office now means these people will be caught, prosecuted and face penalties and interest on the unpaid tax".
THINGS YOU PROBABLY CAN'T CLAIM
- Trips between home and work - unless carrying bulky work-related goods
- Car expenses that have been salary sacrificed
- Meal expenses for travel unless you were required to work away from home overnight.
- Private travel or private transport of bulky goods or equipment
- Everyday clothes to wear to work - such as a suit or black pants - even if your employer requires you to wear them
- Deductions for cleaning eligible work clothes without showing how you calculated the cost
- Higher education contributions charged through the HELP scheme
- Self-education expenses if the study is not connected with your current job
- Private use of phone or internet
- Upfront deductions for tools and equipment costing more than $300 each. These must be depreciated over time
Source: Australian Taxation Office