#274 2017 · Behavioural Economics Team of the Australian Government (BETA) / Australian Taxation Office · Tax administrationwrong-door
Australia's tax office cut inflated deduction claims by writing to the accountant, not the taxpayer
the problem
Work-related-expense claims ran high across thousands of tax returns
background
Most tax-compliance nudges target the taxpayer directly — reminder letters, simplified forms, 'most people pay on time' social-proof messages. Australia's tax office had reason to think that approach was hitting a ceiling for work-related-expense deductions specifically, since most individual taxpayers don't actually calculate these claims themselves: a tax agent does, often applying the same template across dozens of similar clients.
BETA, the Australian Government's behavioural-insights unit, and the ATO targeted the professional filling in the number instead of the person whose name was on the return.
the move
In a trial starting March 2017, the ATO sent letters not to taxpayers but to roughly 1,150 of their tax agents, informing each agent that their clients' work-related-expense claims collectively ranked among the riskiest percentage band compared with other agents' client books, and noting that the ATO's data-analytics systems flag larger-than-expected claims. No taxpayer received anything; the accountant preparing the numbers did.
the payoff
Agents who received the letter saw their clients' claims fall by $2.2 million and tax paid rise by $0.9 million relative to a similarly sized control group of agents. The ATO projected that scaling the letter to its full at-risk agent population would cut claims by about $4.4 million and lift tax paid by about $1.7 million.
what came after
Published by BETA as 'Improving tax compliance for income tax returns filed through tax agents,' completed August 2018, the trial is cited in tax-administration behavioral research as evidence that redirecting a compliance nudge to the intermediary who prepares the numbers can outperform nudging the end taxpayer directly. Trade press later reported the ATO's broader work-related-expense nudge messaging (of which this agent-letter trial was one strand) retained close to $70 million in revenue across 2017–18 — a larger, program-wide figure distinct from this specific trial's own $2.2 million result, cited here separately rather than merged with it.
filed under
references
- [1]Australian Government BETA — Improving tax compliance for income tax returns filed through tax agentsBehavioural Economics Team of the Australian Government, 2018pmc.gov.au
- [2]Accountants Daily — Accounting network spots shifting behaviour towards work-related expenses claimsAccountants Daily, 2019accountantsdaily.com.au