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Tax performance

Our tax performance research program monitors the health of the system and our performance in managing it. We use a suite of measures that provide insights into the operation of the tax and superannuation systems – including tax gap estimates, and tax assured, which estimates the amount of tax that we are highly confident has been reported correctly.

We engage with taxpayers to ensure they are complying with all of their tax obligations. While addressing non-compliance through audits and other correction activities will always be an important part of our compliance approach, our real success lies in ensuring taxpayers get things right from the start. It also means locking in future compliance after we have made a correction and maintaining confidence that the right amount of taxes continues to be paid.

Where we have influenced taxpayers to now voluntarily pay the right amount of tax, we describe those revenue gains as wider revenue effects, and these represent an essential part of the total revenue effects. Total revenue effects measures are important in understanding how and where we are sustainably reducing the tax gap.

Tax gap estimates

Tax gaps estimate the difference between what the ATO collects and the amount that would have been collected if every taxpayer was fully compliant with the law. We publish tax gap estimates for all 15 income and transactional-based taxes, enabling us to report the total estimated tax gap for the Australian tax and superannuation system.

The tax gap prior to the impact of our engagement is referred to as the gross gap. More information about our engagement strategies and the gross gap is available on our website. The tax gap estimates shown in the following tables are net gaps; this shows the final amount that remains uncollected after ATO action.

For 2018–19, we estimate the overall net tax gap to be 7.3%, or $33.5 billion, meaning the ATO received close to 93% of tax revenue we expected to collect, the bulk of which was collected voluntarily. The four-year trend is published as a part of our ongoing commitment to provide more transparency into the operation of the tax and superannuation systems. The net tax gap as a percentage has shown an overall declining trend since 2015–16, despite the slight increase in 2018–‍19.

Tax gap is a ‘lag indicator’ that tells us our tax performance in earlier years. The majority of our tax gap estimates are for 2018–19. As such, the impacts of COVID-19 will not be observed in these gaps until we can produce estimates for the 2019–20 year. Four of our tax gaps (GST, fuel excise, product stewardship for oil, and tobacco duty) are estimated for the 2019–20 year and give us the first insights into the impact of COVID-19. More detail on these insights is provided in the tax gap related trends and latest findings available at ato.gov.au/taxgap.

Net tax gap estimate – all federal taxes, 2015–16 to 2019–20(a)(b)(c)(d)

All taxes

Reliability assessment

2015–16

2016–17

2017–18

2018–19

2019–20

Tax gap %

n/a (e)

8.0

7.5

7.1

7.3

Tax gap $m

n/a (e)

32,178

31,501

32,024

33,509

– = Results are not available for the given year.

Notes

(a) All estimates are rounded to the nearest $1 million.

(b) Due to data lags, the estimate for 2019–20 is not available.

(c) Changes from previously published estimates occur for a variety of reasons, including improvements to methods, revisions to data and additional information becoming available.

(d) This estimate covers all transactional-based and income-based taxes estimated, as outlined in the tables below.

(e) Reliability is assessed separately for all estimates, as outlined below.

We group our gap estimates into three main categories: transaction-based taxes, income-based taxes and administered programs (see Net tax gap estimates – Transaction-based taxes, 2015–16 to 2019–20(a)(b)(c), Net tax gap estimates – Income-based taxes, 2015–16 to 2019–20(a)(b)(c) and Net gap estimates – Programs we administer, 2015–16 to 2019–20(a)(b)(c)). We aim to identify, manage and sustainably reduce tax gaps over time and maximise voluntary compliance, engaging with a range of stakeholders to understand the risks and drivers and how we can collaboratively address the issues.

Recognising the importance of having reliable and credible tax gap estimates, we continue to engage with independent experts to provide advice on our estimation approaches.

An explanation of our methods and an analysis of each of the gaps are available at ato.gov.au/taxgap.

Net tax gap estimates – Transaction-based taxes, 2015–16 to 2019–20(a)(b)(c)

Tax type

Reliability assessment

2015–16

2016–17

2017–18

2018–19

2019–20

Taxes on goods and services

GST %

Medium

10.2

8.4

7.8

7.8

7.8

GST $m

Medium

6,493

5,527

5,316

5,442

5,267

Luxury car tax %

Medium

10.1

5.8

7.8

9.0

Luxury car tax $m

Medium

69

42

58

66

Wine equalisation tax %

Medium

2.8

2.7

3.2

2.9

Wine equalisation tax $m

Medium

23

22

28

29

Excise and customs duties

Alcohol excise %

Medium

9.0

9.1

9.1

9.0

Alcohol excise $m

Medium

529

536

562

582

Fuel excise %

Medium

1.9

1.8

1.4

0.5

2.0

Fuel excise $m

Medium

325

315

260

85

375

Tobacco duty

Medium

4.9

5.4

6.3

6.3

6.2

Tobacco duty

Medium

520

621

834

860

909

– = Results are not available for the given year.

Notes

(a) All estimates are rounded to the nearest $1 million.

(b) Due to data lags, only limited estimates are available for 2019–20.

(c) Changes from previously published estimates occur for a variety of reasons, including improvements to methods, revisions to data and additional information becoming available.

Net tax gap estimates – Income-based taxes, 2015–16 to 2019–20(a)(b)(c)

Tax on income

Reliability assessment

2015–16

2016–17

2017–18

2018–19

2019–20

Fringe benefits tax %

Medium

26.7

22.0

22.4

22.6

Fringe benefits tax $m

Medium

1,577

1,175

1,107

1,134

High wealth %

High

6.6

6.8

7.1

6.9

High wealth $m

High

660

727

846

760

Individuals not in business %

High

6.2

6.1

5.9

5.6

Individuals not in business $m

High

8,274

8,360

8,708

8,428

Large corporate groups %

High

4.0

3.6

3.8

4.3

Large corporate groups $m

High

1,697

1,794

2,104

2,631

Large superannuation funds %

High

2.5

2.2

1.3

1.3

Large superannuation funds $m

High

217

251

160

113

Medium business %

Medium

6.2

6.3

6.0

6.2

Medium business $m

Medium

716

784

834

814

Small superannuation funds %

Low

2.4

2.6

2.9

2.8

Small superannuation funds $m

Low

32

39

51

43

Small business %

Medium

12.5

12.5

11.7

12.7(d)

Small business $m

Medium

11,027

11,292

11,135

12,500

Petroleum resource rent tax %

Very High

1.7

1.7

1.9

2.2

Petroleum resource rent tax $m

Very High

17

18

23

24

– = Results are not available for the given year.

Notes

(a) All estimates are rounded to the nearest $1 million.

(b) Due to data lags, estimates for 2019–20 are not available.

(c) Changes from previously published estimates occur for a variety of reasons, including improvements in methodology, revisions to data and additional information becoming available.

(d) The small business income tax gap estimate is based on a random enquiry program. The preliminary estimate was prepared from a smaller sample size due to the impacts of COVID-19 on our audit program leading to lower confidence. As such, this is a preliminary estimate that will be updated in 2021–22 and calculated from a larger sample size.

Net gap estimates – Programs we administer, 2015–16 to 2019–20(a)(b)(c)

Administered programs

Reliability assessment

2015–16

2016–17

2017–18

2018–19

2019–20

Superannuation guarantee %

Medium

4.7

3.6

4.0

3.8

Superannuation guarantee $m

Medium

2,692

2,141

2,449

2,453

Pay as you go (PAYG) withholding %

Low

2.4

1.7

1.8

1.6

Pay as you go (PAYG) withholding $m

Low

4,186

3,068

3,431

3,377

Product Stewardship for oil %

High

1.3

1.1

1.3

1.0

0.6

Product Stewardship for oil $m

High

1.3

1.3

1.6

1.2

0.9

Fuel tax credits %

Medium

−0.2

−0.1

0.0

−0.1

Fuel tax credits $m

Medium

−10

−4

3

−7

– = Results are not available for the given year.

Notes

(a) All estimates are rounded to the nearest $1 million.

(b) Due to data lags, only limited estimates for 2019–20 are available.

(c) Changes from previously published estimates occur for a variety of reasons, including improvements in methodology, revisions to data and additional information becoming available.

Tax assured

Tax assured is an estimate of the proportion of tax that we are highly confident is correctly reported.

This measure is based on the concept of ‘justified trust’. We achieve justified trust and consider tax to be assured when we have high quality positive evidence that the reporting of taxable income, deductions and offsets is complete and accurate.

We collect evidence to assure tax from a range of sources, including third parties to match against information reported to us, or directly from businesses we engage with to review and conclude they have paid the right amount of tax.

For individuals, our primary approach is to assure tax by matching information on taxpayers’ income tax returns with third-party data, such as:

  • salary and wage information received from employers through the PAYG withholding system
  • interest and dividend data from financial institutions and public companies
  • pensions and allowances from government departments.

For businesses, particularly larger businesses, we primarily assure tax by reviewing objective evidence obtained through one-to-one engagements with them.

Under our justified trust program, we undertake specific tax assurance engagements with:

  • the top 100 and next 1,000 public and multinational businesses
  • the top 500 private groups.

We also assure indirect tax through our ongoing relationships with large excise clients.

At 30 June 2021, we estimated that 45.5% of total tax reported for the 2018–19 tax year could be assured3. During 2019–20, we also assured an additional 2.0% for the 2017–18 tax year, bringing the total tax assured estimate for that year to 49.6%.

In practice, we cannot gather third-party data or other evidence to compare against all tax returns. As such, our tax assured estimates will always be lower than the actual amount of tax that is correctly reported.

Where we cannot gather evidence to assure tax, we rely on our broader risk management approaches to provide us with confidence in tax reporting. Our risk management approaches help us identify and deal with non-compliance through real-time analytics, benchmarking and sophisticated risk-detection algorithms. This is supported by various administrative systems and tools, including the taxable payments reporting system.

When considered together with our total revenue effects measure and tax gap estimates, tax assured gives us confidence and valuable insight into the integrity of the revenue system.

For more information, refer to ato.gov.au/taxassured.

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Footnote

3 We have applied an improved method to assure the GST reported for the large market that leads to a more accurate quantification of the tax assured, albeit, this year, a reduction in the amount of GST assured for this market. Using the previous method would have resulted in us assuring 46.6% of the 2018–19 tax base.