She warned that a smaller group of “deliberate and aggressive” over-claimers could expect to receive much “closer attention from us this tax time and over the next few years”.
Random audits have found more than 70 per cent of returns include at least one error.
The most common mistakes related to rental properties included incorrect or missing expense apportionment, deductions when the property was available for only part of the year or claims for interest expenses where the loan was used for private purposes.
Tax agents responsible
Other mistakes related to capital works and capital allowance deductions.
ATO analysis also found adjustments to work expense claims were required in 78 per cent of all agent-prepared returns, compared with 57 per cent of taxpayer-prepared returns.
A quarter of all adjustments were for values of more than $1000, the majority made on agent-prepared tax returns.
“What we’ve seen in those audits is that there are a lot of small, avoidable mistakes,” Ms Lendon said.
She said the ATO would better tailor advice and assistance tools, improve data quality and pursue penalties and prosecutions.
Time to abolish work claims
Panel member and former International Monetary Fund tax professional Richard Highfield said a major legislative response was needed.
“The idea of a standard deduction has been around for a long time, where wage earners claim a certain level of deductions based on their income, without itemising individual claims in their returns.
“There are other people who have advocated total abolition of work-related expenses,” he said.
“What we have at the moment is the worst of both worlds: a massive number of deduction claims, very high incidence of errors, all for relatively small amounts individually but very significant when added up.”
Institute of Public Accountants technical policy manager Tony Greco said the ATO needed to change individual behaviour and crack down on agents flouting rules.
“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. 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,” he said.