Show download pdf controls
  • Tax gap program summary findings

    Here we summarise the most recent findings from the overall tax gaps, look at the performance of the tax system, and provide detail on the tax effect of the shadow economy.

    Find out about:

    Annual refresh findings

    In October 2019, we updated our previously published estimates. The tables below have been updated to include the release of the high wealth income tax gap..

    We continue working towards developing tax gap estimates for all of the taxes and programs we administer as part of the full tax gap program.

    The following summaries provide the latest year estimates and a brief summary of findings, for each of the three gap categories.

    Find out about:

    Transaction-based taxes summary

    Our latest net gap estimates (both as a dollar value and percentage) for the transaction-based tax gaps are shown in Table 1. The tax reported and the reliability assessment of each estimate are also shown.

    Table 1: Net tax gap – transaction-based taxes, latest available data

    Tax gap estimate

    Reliability assessment

    Financial year

    Tax paid
    ($m)

    Net gap
    ($m)

    Net gap
    (%)

    Fuel excise

    Medium

    2017–18

    18,457

    239

    1.3

    Goods and services tax

    Medium

    2017–18

    63,560

    4,995

    7.3

    Tobacco

    Medium

    2017–18

    12,361

    647

    5.0

    Wine equalisation tax

    Medium

    2016–17

    817

    21

    2.5

    The following is a summary of our transaction-based tax gap estimates in alphabetical order (note that the latest data varies depending on the particular gap).

    • Fuel excise gap – the net fuel excise gap is estimated to be $239 million (1.3%) for 2017–18. The excise products covered in this estimation are concentrated in an industry with a small number of large taxpayers who we have generally observed to be highly compliant.
    • GST gap – the net GST gap estimate for 2017–18 is $5.0 billion (7.3%). Australia ranks relatively well among similar nations that have estimated GST/VAT gaps.
    • Tobacco tax gap – for 2017–18, the net tobacco tax gap is estimated to be $647 million (5.0%). Our analysis indicates that sea and air cargo is the most significant source of detected illicit tobacco entering Australia.
    • Wine equalisation tax gap – The 2016–17 WET estimate includes the payable and refundable WET amounts to generate a net WET gap estimate. The net WET gap estimate for 2016–17 is $21 million (2.5%). This is consistent with our observations of compliance within the WET system.

    Income-based taxes summary

    Our latest net gap estimates (both as a dollar value and percentage) for the income-based taxes are shown in the following table 2. The tax reported and the reliability assessment of each estimate are also shown.

    Table 2: Net tax gap – income-based taxes, latest available data

    Tax gap estimate

    Reliability assessment

    Financial year

    Tax paid
    ($m)

    Net gap
    ($m)

    Net gap
    (%)

    High wealth income tax

    High

    2016–17

    9,282

    772

    7.7

    Individuals not in business income tax

    High

    2015–16

    124,067

    8,444

    6.4

    Large corporate groups income tax

    High

    2016–17

    47,047

    1,977

    4.0

    Large superannuation funds income tax

    Medium

    2016–17

    11,069

    182

    1.6

    Petroleum resource rent tax

    High

    2016–17

    1,008

    22

    2.1

    Small business income tax

    Medium

    2015–16

    77,398

    11,087

    12.5

    Small superannuation funds income tax

    Low

    2016–17

    1,375

    28

    2.0

    The following is a summary of our income-based tax gap estimates in alphabetical order (note that the latest data varies depending on the particular gap).

    • High wealth income tax gap – for 2016–17, we estimate a net income tax gap of $772 million (7.7%). The most common issues we have observed in this population are incorrect recording of transactions, not reporting transactions that were outside of the normal course of business, not accounting for the private use of business assets or funds, and not reporting all domestic or foreign income. A very small number seek to evade their obligations through artificial and non-commercial arrangements.
    • Individuals not in business income tax gap – for 2015–16, we estimate a net tax gap of $8.4 billion (6.4%). Analysis shows the main components driving the gap include incorrect claims for deductions for work-related expenses and omitted income particularly in relation to undeclared cash wages. Another contributor is deductions for rental property expenses.
    • Large corporate groups income tax gap – for 2016–17, the net large corporate income tax gap is estimated to be $2.0 billion (4.0%). This gap mainly arises as a result of differences in the interpretation of complex areas of tax law. The gap has been decreasing over recent years, which coincides with a suite of legislative reforms and changes that have occurred over the same period.
    • Large super funds income tax gap – for 2016–17, the net large super fund gap is estimated to be $182 million (1.6%). Analysis shows the main drivers of this gap are overclaiming of the foreign income tax offset, incorrect application of CGT provisions and overclaiming of franking credits.
    • Petroleum resource rent tax gap – for 2016–17, the net PRRT gap is estimated to be $22 million (2.1%). The main drivers of this gap relate to the inherent complexities of the law that underpins the PRRT system, including complicated areas of the law concerning the calculation of assessable receipts, and the deductibility and classification of expenditures.
    • Small business income tax gap – for 2015–16, we estimate the net gap to be $11.1 billion (12.5%). The main drivers of the small business income tax gap related to three main areas: not declaring all income, failing to account for the private use of business assets or funds and not sufficiently understanding small business tax obligations.
    • Small super funds income tax gap – for 2016–17, we estimate the small super fund net tax gap to be $28 million (2.0%). The gap is the result of errors mostly due to reporting contributions, net capital gains, trust distributions, and exempt current pension income.

    Administered programs summary

    The administered programs summary is for programs administered by us on behalf of the community. Table 3 shows the net gap, as a dollar value and percentage, for each of our gap estimates for selected administered programs, for the latest year of available data.

    Table 3: Net gap – administered programs, latest available data

    Gap estimate  

    Reliability assessment

    Financial year

    Amount reported
    ($m)

    Net gap
    ($m)

    Net gap
    (%)

    Fuel tax credits

    Medium

    2017–18

    6,929

    −6

    −0.1

    PAYG withholding

    Medium

    2016–17

    178,084

    3,046

    1.7

    Superannuation guarantee

    Medium

    2016–17

    56,461

    2,298

    3.9

    The following is a summary of our administered program gap estimates in alphabetical order (note that the latest data varies depending on the particular gap).

    • Fuel tax credits gap – the net fuel tax credits gap for 2017–18 is estimated to be –$6 million (−0.1%). The gap is very small and suggests that, overall most clients are claiming their full entitlements. In general, the strategies adopted to help clients claim the correct amount have been effective in containing the potential leakage of revenue through inappropriate or excessive claiming.
    • PAYG withholding gap – the net PAYG withholding gap estimate for 2016–17 is $3.0 billion (1.7%). This suggests that employers are generally compliant with their withholding obligations. We estimate that employers are paying about 97% of the PAYG withholding they are required to without intervention from us.
    • Super guarantee gap – for 2016–17, we estimate the super guarantee gap to be $2.3 billion (3.9%) of the total estimated $58.8 billion in super guarantee employers were required to pay. In 2016–17, superannuation funds reported to us that employers paid $56.5 billion in super guarantee. This represents 95% of our adjusted theoretical super guarantee amount.

    Overall tax performance

    We now have over 94% of the tax paid in the system covered by tax gap estimates. This allows us to align the published amounts with a single income year, being 2015–16 at this stage. Future releases will start to show a trend over time.

    Administered programs are not taxes and are therefore excluded from this estimate. This ensures only taxes are recognised and to avoid double-counting.

    The tax gaps not yet published (alcohol, luxury car tax, fringe benefits tax and medium business income tax) represent less than 6% of the overall tax base. These estimates are under development and will be released once they are endorsed by the expert panel, and are seen to be credible, reliable and meaningful. If the results for the gaps not yet published are similar to the gaps we have published, then the potential tax gap would be between $1.1 billion to $2.4 billion. This would then mean that the total tax gap estimate for 2015–16 would be somewhere between $29 billion and $31 billion. This indicates that for the 2015–16 year, we expect to receive $397 billion to $399 billion, with the vast bulk ($368 billion) received voluntarily.

    Figure 5 shows the overall tax gap, included the indicative unpublished gaps. The latest year that we are able to provide an aggregate figure is for the 2015-16 year. Over time, this will include later years are they become available.

    Figure 5: Estimated total tax gap for 2015–16

    Figure 5: Overall tax gap $29b to $31b (or 7% to 8%) comprising: small business $11.1b, individuals not in business $8.4b, goods and services tax $5.2b, large corporate groups $2b, high wealth $0.7b, other published tax gaps $1.1b, unpublished tax gaps $1.1b to $2.4b.

    Note: Some amounts may differ as more data becomes available over time. As we move towards publishing the full tax gap program on an annual basis, the results will be further refined.

    The results listed below for the transaction and income-based tax gaps. The most common year for these gaps is the 2015-16 year. We also provide indicative estimates for those gaps not yet published.

    Table 4a: Published transaction-based tax gap estimates, 2015–16

    Transaction-based gap

    Tax paid
    ($m)

    Net gap
    ($m)

    Theoretical tax liability
    ($m)

    Net gap
    (%)

    Fuel excise

    16,891

    325

    17,216

    1.9

    Goods and services tax

    57,511

    5,156

    62,667

    8.2

    Tobacco

    10,063

    585

    10,648

    5.5

    Wine equalisation tax

    816

    22

    839

    2.6

    Total

    85,281

    6,088

    91,370

    6.7

    Table 4b: Published income-based tax gap estimates, 2015–16

    Income-based gap

    Tax paid
    ($m)

    Net gap
    ($m)

    Theoretical tax liability
    ($m)

    Net gap
    (%)

    High wealth

    8,968

    703

    9,670

    7.3

    Individuals

    124,067

    8,444

    132,511

    6.4

    Large corporate groups

    39,764

    1,958

    41,722

    4.7

    Large superannuation funds

    8,555

    136

    8,691

    1.6

    Petroleum resource rent tax

    944

    20

    964

    2.1

    Small business

    77,398

    11,087

    88,485

    12.5

    Small superannuation funds

    1,315

    20

    1,335

    1.5

    Total

    261,011

    22,368

    283,378

    7.9

    Table 4c: Estimated range for unpublished tax gap estimates, 2015–16

    Tax gap (unpublished)

    Tax paid
    ($m)

    Net gap
    ($m)

    Theoretical tax liability
    ($m)

    Net gap
    (%)

    Alcohol

    5,356

    na

    na

    na

    Luxury car tax

    618

    na

    na

    na

    Fringe benefits tax

    4,320

    na

    na

    na

    Medium business

    11,416

    na

    na

    na

    Total unpublished

    21,710

    1,143 to 2,412

    22,853 to 24,122

    5 to 10

    Note: Alcohol and luxury car tax are transaction-based tax gaps. Fringe benefits tax and medium business are income-based tax gaps.

    Table 4d: Tax gap program – Indicative total tax gap estimates, 2015–16

    Tax gap (indicative total)

    Tax paid
    ($m)

    Net gap
    ($m)

    Theoretical tax liability
    ($m)

    Net gap
    (%)

    Published transaction-based gaps

    85,281

    6,088

    91,370

    6.7

    Published income-based gaps

    261,225

    22,368

    283,446

    7.9

    Total published tax gaps

    346,506

    28,456

    374,816

    7.6

    Total unpublished gaps

    21,710

    1,143 to 2,412

    22,853 to 24,122

    5 to 10

    Indicative total tax gap estimate

    368,002

    29,599 to 30,868

    397,601 to 398,870

    7.4 to 7.7

    Tax gap views

    After the eventual full release of tax gaps, we intend to publish the gap from multiple perspectives – for example, by tax types, client experience and behavioural views. For the current incomplete program, we only have preliminary views for the first aspect – tax gap by personal income tax and tax gap by corporate income tax. Both estimates are incomplete at this stage but at a level where we can start to calculate how they may resolve as we move towards full release.

    Personal income tax

    The personal income tax (PIT) gap consolidates all the income tax gaps relating to individual income tax returns. It includes the income tax gaps for:

    • high wealth individuals
    • individuals not in business
    • individuals in small business.

    For the personal income tax gap we have over 97% of the overall tax base covered by tax gap estimates, representing 99.9% of the population. Overall, the remaining 0.1% of the population are few in number but pay a significant amount of tax at the personal level.

    Allowing for a margin of error on the unpublished gap estimates, we expect the final personal income tax gap estimate for 2015–16 to be around 8.6% (or $18.1 billion to $18.3 billion) against a tax paid amount of $194.2 billion.

    Table 5a: Personal income tax gap – published estimates, 2015–16

    Tax gap (published)

    Population
    (no.)

    Tax paid
    ($m)

    Net gap
    ($m)

    Theoretical tax liability
    ($m)

    Net gap
    (%)

    High wealth individuals

    9,503

    4,424

    370

    4,794

    7.7

    Individuals not in business

    10,458,500

    124,067

    8,444

    132,511

    6.4

    Individuals in small business

    3,717,900

    64,502

    9,309

    73,811

    12.6

    Total PIT gaps published

    14,185,903

    192,993

    18,123

    211,116

    8.6

    Table 5b: Personal income tax gap – unpublished estimates (indicative), 2015–16

    Tax gap (unpublished)

    Population
    (no.)

    Tax paid
    ($m)

    Net gap
    ($m)

    Theoretical tax liability
    ($m)

    Net gap
    (%)

    Individuals in medium business

    6,700

    1,178

    na

    na

    na

    Total unpublished

    6,700

    1,178

    62 to 131

    1,240 to 1,309

    5 to 10

    Table 5c: Personal income tax gap – indicative total gap estimates, 2015–16

    Tax gap (indicative total)

    Population
    (no.)

    Tax paid
    ($m)

    Net gap
    ($m)

    Theoretical tax liability
    ($m)

    Net gap
    (%)

    Total PIT gaps published

    14,185,903

    192,993

    18,123

    211,116

    8.6

    Total unpublished

    6,700

    1,178

    62 to 131

    1,240 to 1,309

    5 to 10

    Indicative total PIT gap estimate

    14,192,603

    194,171

    18,185 to 18,253

    212,356 to 212,424

    ~8.6

    Corporate income tax

    Unlike the personal income tax gap population, only 78% of the tax base for corporate income tax is covered by tax gap estimates. The main missing element here is the medium companies. Again, allowing for a margin of error, early indications suggest the overall CIT gap estimate for 2015–16 to be around 6.3% to 7.4% or $4.5 billion to $5.4 billion, against a tax paid amount of $67.4 billion.

    Table 6a: Corporate income tax gap – published estimates, 2015–16

    Tax gap (published)

    Population
    (no.)

    Tax paid
    ($m)

    Net gap
    ($m)

    Theoretical tax liability
    ($m)

    Net gap
    (%)

    Large corporates

    5,400

    39,764

    1,958

    41,722

    4.7

    Small companies

    958,000

    12,896

    1,778

    14,674

    12.1

    High wealth companies

    17,987

    4,544

    332

    4,876

    6.8

    Total published CIT gaps

    981,387

    57,204

    4,068

    61,272

    6.6

    Table 6b: Corporate income tax gap – unpublished estimates (indicative), 2015–16

    Tax gap (unpublished)

    Population
    (no.)

    Tax paid
    ($m)

    Net gap
    ($m)

    Theoretical tax liability
    ($m)

    Net gap
    (%)

    Medium companies

    28,600

    10,238

    na

    na

    na

    Total unpublished

    28,600

    10,238

    539 to 1,138

    10,777 to 11,376

    5 to 10

    Table 6c: Corporate income tax gap – indicative total gap estimate, 2015–16

    Tax gap (indicative total)

    Population
    (no.)

    Tax paid
    ($m)

    Net gap
    ($m)

    Theoretical tax liability
    ($m)

    Net gap
    (%)

    Total published CIT gaps

    981,387

    57,204

    4,068

    61,272

    6.6

    Total unpublished

    28,600

    10,238

    539 to 1,138

    10,777 to 11,376

    5 to 10

    Indicative total CIT gap estimate

    1,009,987

    67,442

    4,606 to 5,205

    72,048 to 72,647

    6.4 to 7.2

    Shadow economy findings

    In our previous releases, we provided tax gap estimates for 'the black economy'. For tax gap purposes, we now refer to this as the 'shadow economy', in line with other jurisdictions internationally. Although these terms are often used interchangeably, the term 'shadow economy' is more commonly recognised when referring to tax.

    The Black Economy Taskforce final report examines the economic impact of underground production and illegal activity. The OECD definition of underground production covers economic activities that are productive and legal but are deliberately concealed to avoid payment of taxes and/or compliance with regulations.

    For tax gap purposes, we focus on the tax effect of underground production. This means economic activities (whether legal or illegal), which are required by law to be fully reported to the tax administration but are not reported and therefore go untaxed. Internationally, these amounts are more broadly referred to as estimates of the shadow economy.

    Shadow economy estimates do not form a part of the aggregate $50 billion economic effect estimate by the taskforce for 2015–16. They more correctly represent taxes missing as a result of this unreported economic activity.

    The total amounts for transactional-based taxes or income-based taxes cannot be aggregated then compared to the economic estimate. They must be held apart. The most complete and aligned estimate for the shadow economy is the 2015–16 income-based estimates. This amount is around $9 billion.

    Overall, across the whole tax system, we see over $11 billion in missing taxes as a result of the shadow economy per year. Additionally, hidden wages account for over $3 billion in employer obligations not accounted for in any one year.

    Table 7a: Shadow economy latest findings (Transaction-based taxes)

    Transaction-based program

    Shadow economy estimation

    Tax effect in most recent year estimated ($m)

    Alcohol excise

    Not yet estimated

    Not yet estimated

    Tobacco excise

    1,236 tonnes

    1,094

    GST

    1.5% of theoretical liability

    1,013

    Total transaction-based

    Various

    2,107

    Table 7b: Shadow economy latest findings (Income-based taxes)

    Income-based program

    Shadow economy estimation

    Tax effect in most recent year estimated ($m)

    Small business

    Estimated using sample

    7,697

    Individuals not in business

    Estimated using sample

    1,473

    Total income-based

    Estimated using sample

    9,170

    Table 7c: Shadow economy latest findings (Administered programs)

    Administered program

    Shadow economy estimation

    Tax effect in most recent year estimated ($m)

    Superannuation guarantee

    1.2% uplift to wages

    817

    PAYG withholding

    1.2% uplift to wages

    2,231

    Total administered programs

    1.2% uplift to wages

    3,048

    Table 7d: Shadow economy latest findings (total published program)

    Tax gap program

    Shadow economy estimation

    Tax effect in most recent year estimated ($m)

    Transaction-based

    Various

    2,107

    Income-based

    Estimated using sample

    9,170

    Administered programs

    1.2% uplift to wages

    3,048

    Total published tax gap program

    Various

    14,325

    See also:

    Return to:

      Last modified: 12 Mar 2020QC 53161