Funding, resource shortages threaten TPB oversight

REGULATION

A growing workload from new obligations and the PwC probe strains the small regulator’s limited resources.

By Christine Chen • 21 August 2024 

The Tax Practitioners Board is facing the prospect of budget constraints and stretched resources that could jeopardise its oversight of the country’s 80,000 tax practitioners.

The regulator’s latest corporate plan said inadequate “resources, including funding, capability, tools and systems” was a “key risk” as it implemented the government’s reform agenda and enforced an ever-expanding list of code items.

Chairman Peter de Cure said the intense public scrutiny of the tax profession challenged the TPB to “review, reset and improve our performance” in 2024-25.

“This year will bring continued improvements to professional standards arising from government reforms designed to strengthen the integrity of the profession,” he said.

“We are aware of the need to communicate and explain the changes and what they mean for the profession and the public, and we keep ourselves and our systems ready for the important changes.”

The sweeping reforms affecting the TPB stem from the government’s commitment to deliver “the biggest crackdown on tax adviser misconduct in Australian history” in response to the PwC tax leaks scandal.

The reforms would “further contribute to levelling the playing field for all tax practitioners and build public confidence and trust in the tax profession as well as the tax and regulatory systems”, de Cure said.

But the TPB’s corporate plan also noted there was a risk of the regulator being ill-prepared due to an increased workload but insufficient resources and funds.

As part of the government’s PwC response, the TPB received beefed-up sanction powers and its own budget, on top of an additional $30 million allocated in 2022–23.

The government also made a raft of changes to the Tax Agent Services Act 2009 that the TPB oversees.

These included new breach reporting (“dob-in”) obligations, banning the use of disqualified entities and making tax agent registration an annual requirement to ensure improved visibility and oversight of the profession.

A further eight obligations affecting practitioner’s client disclosure, reporting and record-keeping obligations were added in July by Assistant Treasurer Stephen Jones.

Experts have said increased TPB probes would be an “inevitable” outcome of the changes, with the prospect of a wave of “vexatious” breach reports another concern for the TPB.

The TPB has also faced criticism for failing to release guidance before new code items come into effect, with only a draft information sheet available to practitioners despite new dob-in obligations starting on 1 July.

It is still also investigating the PwC matter, with nine separate probes ongoing. De Cure has previously said these investigations, expected to continue into 2025, are consuming about a third of the board’s resources.

“We have a significant case load with PwC … we have a separate group working on the PwC matter,” de Cure told senators in October.

The TPB said the risk of inadequate resourcing would be managed “having regard to prioritisation, improving services and strategies targeting highest risks and opportunities”.

Other risks identified included “failing to implement legislative measures, including in a timely manner”, limited collaboration with co-regulators like the ATO, inadequate data management, cyber breaches and the risk of practitioner misconduct undermining public confidence.

Weird tax deduction temptation is up but ATO data matching is too

Taxpayers turn up their creativity when financial times are tough, but the ATO is watching. See the list of 10 weird claims.

ANTHONY KEANE

Attempts at bizarre tax deductions are growing as the cost of living continues squeezing households, but it’s never been tougher to sneak a dodgy refund past the Australian Taxation Office.

Breast enhancements, poodle “guard dogs” and groceries are among some of the odd deductions people have tried and been denied by the ATO, and tax specialists say it may know more about your money today than you do.

H&R Block director of tax communications Mark Chapman said unusual and incorrect tax deductions were more likely when people were hit hard by other household costs.

“If people are really struggling, they will embellish deductions and claim for things that they are not entitled to,” he said.

“But some people will simply try to game the system anyway.”

Mr Chapman said H&R Block dealt with 750,000 taxpayers each year so “it’s fair to say we’ve seen our fair share of strange claims”.

One of the weirdest was from a television personality who bought a new suit each time he appeared on screen. He tried to claim the suits – which are conventional clothing and not deductible – and also tried to claim a deduction for donations as he gave each single-use suite to charities. 

“Without a receipt, there is no possible deduction,” Mr Chapman said.

Mr Chapman said people had tried to claim for cosmetic surgery, but the ATO disallowed medical procedures, which meant while adult entertainers could claim for things such as dance lessons and lingerie, breast enhancements were of the table.

“A lady – with no known connection to the adult industry – who tried to claim that her enhancements were necessary for work was facing even more of an uphill battle,” he said.

Chartered Accountants Australia and New Zealand tax leader Susan Franks said “being creative over being realistic comes with a risk”.

“The ATO has sophisticated data analytics which it uses to benchmark expenses between people in a particular industry,” she said.

“Any claims outside the norm will be questioned.

“Some creative deductions include claiming the cost of your family dog as a guard dog, dental and manicure costs by ordinary workers, or your kids’ crayons as work-related expenses.

“In prior years the ATO has denied tax deductions for a wedding, gifts of Lego and a car to family members, childcare costs, private school fees and health insurance.”

Ms Franks said the ATO focused heavily on amounts claimed under “other expenses” because a high percentage of those deductions were often incorrect.

She said it was tempting to try for larger tax deductions in tough times but claims must be legitimate, and as more people used side hustle platforms for extra income this money was “often ‘forgotten’ when tax returns are being completed”.

However, the ATO tracked transactions on ride sharing, taxi travel and accommodation platforms, and was widening its data matching this year to include food delivery, e-books, podcasts, and hiring assets from handbags to parking spaces, Ms Franks said.

Mr Chapman said “the ATO’s data matching capability is now huge”.

“The ATO knows so much about you that you don’t necessarily know,” he said.

This includes employment records, bank records, government agency data and property transfers.

DENIED TAX DEDUCTIONS

• A pet poodle as a guard dog

• Car costs for carrying hairdressing scissors and clippers

• A new suit for a TV appearance

• Breast enhancements

• Martial arts training for a nightclub bouncer

• Dental work

• A wedding

• Children’s crayons

• Donating second-hand clothes

• Grocery purchases

Source: H&R Block, CA ANZ