How the ATO will close the tax gap?
The ATO has started a program of work around ‘tax gaps’ and has been working to estimate tax gaps for particular tax types and segments of the Australian tax and superannuation systems.
The tax gap project arose from our desire to build a broad suite of effectiveness measures to assess our performance as the administrator of the taxation and superannuation system in Australia. The purpose of a tax gap is to get an estimate of the difference between the amount the ATO collects and what we would have collected if every taxpayer was fully compliant.
We use the tax gap estimates and their trends over time to provide useful insights into the longer-term operation of the tax and superannuation systems. It helps us to:
- understand the performance and integrity of the tax system;
- gain insights into compliance behaviour; and
- identify priority risks and opportunities.
In July, we released the gap for individuals not in business and it showed that over 93 per cent of income tax received from individuals not in business is paid voluntarily or with little intervention from the ATO. The estimated net tax gap for individuals not in business in 2014-15 is $8.7 billion. This gap is primarily driven by incorrectly claimed work-related expenses.
For our small business income tax gap, we have been undertaking a random enquiry program. The results of which, we are currently analysing to be able to estimate the gap. This program will give us significant insights on what to focus on in terms of improving compliance with small businesses.
We are working to finalise the small business income tax gap and will publish the gap once we are confident that we have a reliable, credible and meaningful estimate of that gap.
Already from the random enquiry program, we can see that there is a great opportunity to work with the accounting profession, industry and small businesses to avoid unnecessary errors and get clients’ tax right up front.
What we can say from what we have seen so far is that when we see businesses operating well, we see they have the basics right. They:
- keep good records;
- seek advice when they need it; and
- use technology to help them run their business – from point of sale software, to cloud-based accounting systems to mobile apps.
Our early insights indicate that the income tax gap for small business is influenced both by those who make mistakes and those who deliberately hide income to avoid paying tax.
For those who make mistakes, we are seeking to provide support and guidance and to identify areas where we can reduce complexity in the system, including pre-fill or other options.
However, we do hold those deliberately avoiding tax to account and use the full extent of our powers, including prosecution and application of penalties.
Deborah Jenkins, deputy commissioner, Australian Taxation Office. This is an excerpt from a speech made that the Institute of Public Accountants 2018 National Congress in Sydney on 2 November