Tax gaps estimate the difference between what the ATO expects to collect and the amount that would have been collected if every taxpayer was fully compliant with the law.
All of our tax gaps are estimated and published for 6 years up to 2020–21 to allow us to generate a headline tax gap estimate for the tax and superannuation system. For excises and goods and services tax (GST), we have also estimated and published estimates for 2021–22 this year due to the availability of more contemporaneous data.
Our latest tax gap estimates show that for 2020–21, we received $496 billion or 93% of the $533 billion we would collect if everyone was fully compliant with tax law.
Based on the estimate of the tax that we should collect versus what we estimate we will collect the overall net tax gap is estimated to be $37.5 billion or 7%. This reflects a system that is operating well with most taxpayers aware of and meeting their obligations.
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 a lag indicator. 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:
- ceasing to estimate the '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.
- the significant growth in the tobacco gap estimates for 2021–22 (gross gap of 29.1% and net gap of 13.1%) from 2020–21 (gross gap 21.9% and net gap of 10.4%), reflecting a notable increase in the estimated value of illicit tobacco smuggled into Australia.
- increase in the fringe benefits tax (FBT) gap estimates for 2020-21 (gross gap of 28.9% and net gap of 28.2%) from 2019–20 (gross gap of 20.6% and net gap of 20.1%) as a result of a significant fall in tax voluntarily reported. The decline reflects some of the impact from COVID-19 as economic disruptions and changes in employees’ work patterns resulted in less fringe benefits being offered by employers during the pandemic-affected years. At the same time, we expect that there has been an increase in FBT underreporting by employers as some of them face greater financial hardships as their businesses were affected by lockdowns and reduced consumer spending.
- revisions in our historical gap estimates to include a more complete set of motor vehicles sales data which has resulted in more accurate price distributions of new cars sold for estimate years of 2017–18 to 2019–20 in the model.
- a change in how undeclared income (hidden wages) are reflected in the individuals tax gap estimate. Undeclared income is now the second largest component of the individuals not in business tax gap estimate.
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:
- Alcohol tax gap
- Fuel excise tax gap
- Goods and services tax gap
- Luxury car tax
- Tobacco tax gap
- Wine equalisation tax gap
Income-based tax gaps:
- Fringe benefits tax gap
- High wealth income tax gap
- Individuals not in business income tax gap
- Large corporate groups income tax gap
- Large super funds income tax gap
- Medium business income tax gap
- Petroleum resource rent tax gap
- Small business income tax gap
- Small super funds income tax gap
Administered program gaps: