Improving tax compliance: deductions for work related expenses in income tax returns filed through tax agents

Authored on
6 years 9 months ago
Complete
Project Type
Evaluation report
Policy Area
Financial
Partner agencies
Australian Taxation Office
Registration date
Friday, 10 March 2017

BETA partnered with the Australian Tax Office to design and test whether behaviourally informed letters sent to tax agents could reduce erroneous claims for work-related expense deductions.

The findings indicate low-cost, well-targeted and well-designed communications incorporating behavioural insights are effective in reducing erroneous work-related expense claims.

Using social comparisons, agents were ranked against other agents and informed their clients’ collective claims were in a top percentage of ‘higher risk’ claims.

The letter reduced work-related expense claims by $2.2 million and increased tax paid by $0.9 million. If the letter had been sent to all agents in the trial, it is expected the letter would have cut work-related expense claims by about $4.4 million and increased tax paid by about $1.7 million.

Intervention start and end date: Friday, 10 March 2017

BETA ethics pre-registration number: BETA ETH 2017 - 004

Experimental design: Treatment will be clustered at the agent level. Agents will be randomized by first stratifying by agent type, and then pair matching based on past claims. There will be one treatment group of approximately 1150 tax agents and one control group of a similar size.

Intervention(s): Tax agents in the treatment group will receive a letter aimed at improving tax compliance amongst their individual clients by reminding them the ATO has a data analytics system that identifies larger-than-expected claims and encouraging them to review their clients’ claims.

Control condition: Tax agents in the control group will continue to receive necessary communications as per usual processes. 

Outcome(s):

Primary: (1) Average work related expense claim (2) Amendments to past returns (3) Amendments to past returns of attached clients.

Secondary: (1) Total deductions (2) Net tax (3) Proportion of attached clients who amend past returns (4) Average work related expense claim for subsequent tax year.

Outcomes will be evaluated at the agent level and the individual level.

Expected sample size: 2,300 tax agents

Other:

Hiscox, Michael. 2017. Improving tax compliance: deductions for work related expenses in income tax returns filed through tax agents. AEA RCT Registry. March 24.