Tax gap program summary findings

The 2019–20 financial year is the most recent year with all tax gap estimates produced.

On this page

• 2019–20 overall tax gap
• Tax views
• Personal income tax gap
• Corporate income tax gap
• Shadow economy findings

2019–20 overall tax gap

The overall tax gap for 2019–20 is $33.4 billion against the total theoretical liability of $479.8 billion, representing a net tax gap of 7%.

Figure 6 shows the overall tax gap. The largest contributors (in dollar value) to the overall tax gap remain the same as last year.

Figure 6: Estimated total tax gap for 2019–20

Tax views

We now have tax gaps across the program aligned to the 5 years from 2015–16 to 2019–20. This allows us to view the trends relating to specific types of tax. We continue to refine our estimates and will look to examining alternative views, such as by behavioural drivers, in the future.

Personal income tax gap

The personal income tax gap consolidates all the income tax gaps relating to individual tax returns.

It includes the income tax gaps for:

• High wealth individuals
• Individuals not in business
• Individuals in small business
• Individuals in medium business.

Overall, there is a downward trend in personal income tax gap percentage estimates over the 5 years from 2015–16 to 2019–20, with the decrease primarily driven by individuals not in business and high wealth individuals.

Figure 7: Personal income tax gap trend

Corporate income tax gap

The corporate income tax gap consolidates all the income tax gaps relating to corporate tax returns.

It includes the income tax gaps for:

• high wealth income tax gap
• large corporate groups income tax gap
• small business income tax gap
• medium business income tax gap.

The overall corporate income tax gap estimate has trended downward over the 5-year period between 2015–16 and 2019–20, which suggests an improvement in the overall performance of the corporate income tax system. While 2019–20 corporate income tax performance has improved, this improvement is largely driven by small businesses, but we note that the smaller random enquiry program means we have less reliability over this year's published estimate.

Figure 8: Corporate income tax gap trend

Income-based tax gaps:

• High wealth income tax gap
• Large corporate groups income tax gap
• Medium business income tax gap
• Small business income tax gap

Goods and services tax gap

The goods and services tax (GST) gap is our longest published estimate and a critical part of our tax system. The current analysis continues to use a top-down estimate derived from the Australian Bureau of Statistics (ABS) National Accounts data. It provides a credible estimate but does not allow for more granular analysis of the drivers of tax gaps as it would using a bottom-up approach. We will continue to expand on our insights into this tax in future releases through our random enquiry program and other work.

Over the same 5-year trend period, the GST gap has declined from 8.8% to 6.3%. Our published GST gap document provides the expanded analysis, including the 2019–20 year, as well as long-term trends.

Figure 9: Goods and services tax gap trend

Excise and other taxes gap

The last 9 tax gaps incorporate excise taxes and several smaller transactional and income-based taxes. While overall we are seeing an increase in the tax gap related to excise and other gaps, the increase in 2019–20 is being driven by the rise in the tobacco duty gap.

After estimating the alcohol excise gap, we have become aware of subsequent compliance activity. This suggests that the published estimate may understate the true gap. We have lowered our reliability rating to reflect this. As we prepare our alcohol gap for 2020–21, we will have more information. The results for 2019-20 and earlier may be revised with corresponding increases in the reliability of this estimate

Figure 10: Excise and other taxes gap trend

Shadow economy findings

For tax gap purposes, we focus on the tax effect of unreported or dishonest economic activity deliberately concealed to avoid payment of taxes or compliance with regulations (or both). Internationally, these activities are more broadly referred to as the shadow economy.

In the past, there have been various estimates of the economic impact and the size of shadow economy in Australia by organisations such as the Black Economy TaskforceExternal Link and the Australian Bureau of Statistics (ABS). Our estimates of the tax effect of the shadow economy are not directly derived from those estimates, but largely based on our internal tax gap analysis. You can download the Shining light on the shadow economy reportExternal Link from the OECD.

Our latest estimates for the tax effect of shadow economy are for the 2019–20 tax year. In aggregate, it is around $12.4 billion across the income-based and transaction-based taxes (administered programs are not included), or 30.6% of the total gross tax gap amount in the system.

Overall, the estimates as a proportion of the sum of theoretical tax liabilities of those affected gaps have ranged between 3.2% and 3.5% over the past 5 years (see Table 4d below). The increase in 2019–20 is largely being driven by increases in shadow economy estimates within small business income tax and tobacco excise for that year.

Our analysis shows the following.

• Amongst the transaction-based gaps, the growing trend, both in dollar value and percentage, over time is largely driven by the increases in tobacco duty. The tax gap for tobacco duty is all included within the shadow economy as it represents importation or growth of illicit tobacco. As a share of theoretical tax liabilities, the estimates have increased from 1.7% in 2015–16 to 2.5% in 2019–20. See Table 4a below.
• For income-based taxes, shadow economy as a share of the sum of theoretical tax liability has remained relatively steady over the past 5 years, fluctuating between 3.6% and 3.9%. Shadow economy behaviour manifests mostly in the small business income tax gap. See Table 4b below.
• For employer obligations of Superannuation Guarantee and PAYG withholding, hidden wages are the only source of shadow economy amounts. Shadow economy impacts on employer obligation liabilities have remained steady over the past 5 years at 1.6%. As the PAYG withholding gap and income tax gaps are estimated separately, missing income tax that should have been withheld by employers is captured in both gap estimates. To avoid double counting, we capture the tax effect of shadow economy only once across the PAYG withholding and income tax gaps. As a result, some of the tax impact of hidden wages estimated for the PAYG withholding gap is said to have been 'passed-through' to be reflected in income tax gaps (see Table 4c below). After accounting for the pass-through tax effects of hidden wages in PAYG withholding to the income tax gaps of small business and individuals not in business, the residual total shadow economy estimate for employer obligations is about $4.5 billion for 2019–20.

Our estimates this year incorporate the effects of some method changes in our estimation approaches.

Firstly, we have increased our hidden wages uplift from 1.2% to 2.3%. This is a correction to ensure unobservable cash wages behaviours that take place between employers and employees or contractors are appropriately accounted for. The change has had notable impacts on our employer obligations gaps, increasing our estimates for PAYG withholding and Superannuation Guarantee relative to published estimates in previous years.

Secondly, we have changed the way we estimate the shadow economy impact on the GST. Our method now fully aligns with the adjustments that the ABS makes to components of GDP which overlap with the GST tax base – mainly household final consumption expenditure (HFCE). The ABS has provided more detailed data in relation to HFCE, which enables a more targeted estimate of the shadow economy relevant to GST.