Show download pdf controls
  • 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.

    On this page:

    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 2017–18

    Step

    Description

    2014–15

    2015–16

    2016–17

    2017–18

    1.1

    Population

    832,330

    823,851

    845,328

    841,546

    1.2

    Amendments

    23

    23

    25

    23

    2.1

    Total unreported amounts

    1,001

    1,136

    846

    749

    2.2

    Non-pursuable debt

    7

    7

    7

    7

    2.3

    Non-detection

    421

    464

    341

    302

    3.1

    Gross gap ($m)

    1,429

    1,607

    1,194

    1,058

    3.2

    Theoretical tax liability ($m)

    5,569

    5,915

    5,319

    4,876

    3.3

    Net gap ($m)

    1,406

    1,584

    1,169

    1,035

    3.4

    Gross gap (%)

    25.7%

    27.2%

    22.5%

    21.7%

    3.5

    Net gap (%)

    25.2%

    26.8%

    22.0%

    21.2%

    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.

    Reliability

    Our estimate of the fringe benefits tax (FBT) gap has been assessed by an independent expert panel. Based on advice from the panel, the reliability rating for gap estimate is medium (with a score of 16).

    Figure 2: This image is a graphical representation of the reliability rating for the current fringe benefits tax gap estimate. It graphically represents a rating of medium, which is a score between 16 and 20. The maximum score is 30.

    Return to:

      Last modified: 19 Oct 2020QC 64017