The tax gap is an estimate of the difference between the amount of tax the ATO collects and what we would have collected if every taxpayer was fully compliant with tax law.
Our latest tax gap estimates show that for 2019–20, we received $446.4 billion or 93% of the $479.8 billion we would collect if everyone was fully compliant with tax law.
We collect most of this tax voluntarily, reflecting a system that is operating well. This means that the overall tax gap for 2019–20 is estimated to be $33.4 billion, or 7% of the tax that should have been reported.
We have a strong governance framework and assurance process over our estimation methods. This includes external review by subject matter experts to ensure we have high confidence in our tax gap estimates, as well as in our other metrics that measure tax system performance which we report in our Commissioner of Taxation Annual Report.
Tax gap estimates are lagged indicators. They measure the performance of the tax system in the past.
Tax gaps are about measuring what is not directly observable – what people have not told us.
Taxpayers may not have reported their true tax position:
- due to a misunderstanding of their obligations
- by choice
- by taking a tax position that differs from our view of the law.
All tax gap estimates are subject to a degree of error. They can change from year-to-year due to the availability of data, improvements in the methods we use to measure them and revisions to previous years' data, for example tax paid after a review.
The major changes to the tax gap program this year are:
- The publication of "once-off' payment gaps for the JobKeeper and cash flow boost stimulus measures. Payment gap estimates are for programs where the government is distributing payments or credits to taxpayers.
- A reduction in the reliability rating of the small business income tax gap estimate. This reliability rating reduction is because we shifted resources to support small business during the pandemic. This meant that the random enquiry program used for estimating the 2019–20 gap was not undertaken to the size of previous gap estimates, with some cases still being reviewed. The estimate will be revised next year to reflect the completed program.
- An upward revision of the shadow economy estimate of hidden wages. This means that the pay as you go (PAYG) withholding and superannuation guarantee gap estimates are higher than previous years as it now reflects the uplift of hidden wages.
Tax gap estimates and trends over time:
- provide useful insights into the longer-term operation of the tax and superannuation systems
- tell us a story about the performance and integrity of the system, along with other performance measures, including
- levels of willing participation and significant shifts in compliance
- can guide us in determining priority risks and opportunities to better inform where we need to focus to
- lock in improvements in compliance
- prevent behaviours and activities that might increase the tax gap
- sustainably reduce the overall tax gap.
Rapid changes in the economy, society and technology mean the issues driving tax gaps continue to evolve. No tax system can eliminate tax gaps, as the cost of doing so would be excessive. Instead, we aim to sustainably reduce tax gaps over time.
Effective tax gap management requires engagement with a range of stakeholders. Our work goes beyond estimating the tax gap. We want to understand the size of the gaps, the risks and drivers, and how we can work together to address these issues.
In this overview of tax gaps in Australia, we explain why we measure tax gaps, our approach to ensure credibility and a summary of the latest available data.
You can find out more about our research methodology, data sources and analysis used for our tax gap estimates in Principles and approaches to measuring gaps.
Tax gaps in categories
These are the different tax gaps we measure. They are grouped into 3 categories:
- transaction based
- income based
- administered programs
Transaction-based tax gaps:
Income-based tax gaps:
Administered program gaps: