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  • Methodology

    The fringe benefits tax (FBT) gap estimate is derived through applying a model-based bottom-up methodology.

    We selected this method as it draws on our ongoing engagement activities and operational intelligence. The three steps to our approach are explained below, followed by a summary of the overall estimate.

    In the section

    Step 1: Identify the population and summarise the engagement activities

    We identify the employment population through PAYGW records and segment it to align with our engagement activities. Key to this is the identification of FBT registered employers and those not registered for FBT.

    Step 2: Estimate the gap components and adjust for deductibility

    For each subpopulation, we take the average adjustment sourced from non-compliant case and extrapolate to the population. A discount factor is used to compensate for selection bias inherent in the audit data.

    A non-detection factor is applied to the unreported tax liability amount based on appropriate rates from our wider program. Finally, we account for non-pursuable debt consistent with the wider tax gap program approaches.

    We assume that the fringe benefits shortfall corresponding to the FBT gap has been deducted by employers when reporting their income tax. We determine the size of the income tax deduction that has been forgone as a result of fringe benefits not being reported. We then adjust by the relevant income tax rate and subtract from the amounts above in order to produce the net revenue effect amounts.

    Step 3: Estimate the theoretical liability

    The amounts from Step 2 are combined to determine the gross gap. To derive the net gap, the amendments (compliance results) are subtracted from the gross gap. The gross gap is then added to the tax voluntarily paid amount in order to estimate the theoretical tax liability.

    Summary of estimation process

    The steps for the estimation process and the results for each year as a dollar amount and percentage are shown in Table 2.

    Table 2: Applying the methodology, FBT gap, 2014–15 to 2018–19

    Step

    Description

    2014–15

    2015–16

    2016–17

    2017–18

    2018-19

    1.1

    Population

    832,574

    824,595

    847,118

    848,839

    844,691

    1.2

    Amendments

    19

    24

    28

    24

    24

    2.1

    Total unreported amounts

    1,574

    1,740

    1,275

    1,202

    1,231

    2.2

    Non-pursuable debt

    6

    6

    6

    6

    6

    2.3

    Non-detection

    418

    463

    344

    322

    330

    3.1

    Gross gap ($m)

    1,417

    1,601

    1,203

    1,131

    1,157

    3.2

    Theoretical tax liability ($m)

    6,162

    6,542

    5,780

    5,374

    5,448

    3.3

    Net gap ($m)

    1,398

    1,577

    1,175

    1,107

    1,134

    3.4

    Gross gap (%)

    25.5%

    27.1%

    22.6%

    22.9%

    23.1%

    3.5

    Net gap (%)

    25.1%

    26.7%

    22.0%

    22.4%

    22.6%

    Limitations

    The following caveats and limitations apply when interpreting this tax gap estimate:

    • There is no independent data source which can provide a credible or reliable macroeconomic-based estimate (unlike transaction-based taxes).
    • The data available does not indicate whether the amendments processed were due to our action or taxpayers correcting their own errors.
    • There is a high level of uncertainty around the level of non-detection. The current factor used to account for non-detection is based on factors used in other gaps, and other jurisdictions.
    • Compliance results are focused on establishing a case record for aggregate non-compliance. This causes multiple years to be present in each result requiring high level assumptions around aggregation for use in this estimate.

    Updates and revisions to previous estimates

    Each year we refresh our estimates in line with the annual report. Changes from previously published estimates occur for a variety of reasons, including:

    • improvements in methodology
    • revisions to data
    • additional information becoming available.

    This gap was first published in October 2020 and has been revised for the 2021 Annual Report. The impact of these revisions is a slight increase to the 2017–18 net revenue effect net gap as shown in the figure below.

    Figure 2: Current and previous net revenue effect net gap estimates, 2014–15 to 2018–19

    Figure 2 is a graphical representation of the previously published estimates as outlined in table 4.

    This data is present in Table 4 as a percentage

    Table 4: Current and previous fringe benefits tax gap estimates, 2014–15 to 2018-19

    Year

    2014–15

    2015–16

    2016–17

    2017–18

    2018–19

    2020

    25.2%

    26.8%

    22.0%

    21.2%

    n/a

    2021

    25.1%

    26.7%

    22.0%

    22.4%

    22.6%

      Last modified: 19 Oct 2021QC 64017