The Australian Taxation Office’s systems are becoming more sophisticated in detecting incorrectly claimed tax deductions. Moreover, the ATO will impose penalties for incorrect claims and in some cases is prosecuting people in Court leading to the possibility of a jail term. This is demonstrated in the recent case below.
Helen Feulufai was convicted in the Brisbane Magistrates Court for fraudulently claiming tax deductions for travel, clothing and charity donations in her income tax returns for the years ended 30 June 2016 to 2018. The incorrect deductions resulted in Ms Feulufai receiving refunds from the ATO of more than $45,000.
Ms Feulufai was a chef at a Queensland Hospital and was supplied with a full work uniform and was not required to travel or use her own motor vehicle in relation to her employment.
Ms Feulufai also claimed charitable donations to an organisation not registered as a Deductible Gift Recipient (DGR). For donations in excess of $2 to be tax deductible, the gift must be made to a DGR without “strings attached”
Seemingly, Ms Feulufai claimed similar deductions in her income tax returns for the 2012 and 2014 years.
The Court required Ms Feulufai to repay the refunds received, to pay a fine of $3,000 and an additional $20,000 payment to the ATO plus Court costs.
Assistant Commissioner of Taxation Peter Vujanic reminded taxpayers to ensure that documentary evidence is available to verify tax deductions claimed; under the substantiation rules in the income tax law, this evidence may be retained in hard or soft copy. Under the tax law, the burden of proving tax deductions rests squarely with the taxpayer – the ATO is not obliged to verify any deduction claimed. If documentary evidence is not available, the ATO is permitted under the law to disallow the deductions claimed and impose penalties plus interest.
The ATO advises that for the year ended 30 June 2018, over 3.6 million taxpayers claimed work-related car deductions totaling more than $7.2 billion. Around 6 million people claimed work-related clothing and laundry expenses totaling nearly $1.5 billion.
According to the ATO, incorrectly claimed work-related expenses by individual taxpayers cost the Government Revenue approximately $8+ billion per year. Surprisingly, seven out of ten randomly selected tax returns had one or more errors after an ATO review.