For 2019–20, we estimate a net income tax gap for high wealth individuals of $737 million or 6.7%. This means more than 93% of the total theoretical tax was paid.
High wealth individuals population
High wealth individuals and their associated private groups are Australian resident individuals who, together with their associates, control wealth of more than $50 million. To estimate the gap, we include:
- registered individuals linked to a high wealth private group
- companies where ownership by the head individual is 40% or more.
Companies with total business income greater than $250 million annually are included in the large corporate groups income tax gap.
Where income earned from trusts and partnerships is distributed to companies or individuals in the high wealth private groups population we recognise the tax effect here.
The high wealth income tax gap forms a part of our overall tax performance program. Find out more about the concept of tax gaps and the latest gaps available.
Overview of the latest estimates
The net tax gap estimates have remained relatively steady as shown in Table 1, against a backdrop of strong population growth from 2017–18 onwards.
At this stage, it is difficult to reliably quantify the impact of COVID-19 on the 2019–20 financial year gap estimate. This is due in part to our approach of slowing compliance activity to assist the community with stimulus packages and hardship support. We expect to see the full impact in future years.
Table 1: Income tax gap – high wealth private groups 2014–15to 2019–20
Element |
2014–15 |
2015–16 |
2016–17* |
2017–18* |
2018–19* |
2019–20* |
|---|---|---|---|---|---|---|
Population (groups) |
4,254 |
4,158 |
4,160 |
4,289 |
5,284 |
5,869 |
Gross gap ($m) |
783 |
657 |
654 |
719 |
763 |
812 |
Amendments ($m) |
280 |
113 |
64 |
97 |
75 |
75 |
Net gap ($m) |
503 |
544 |
590 |
622 |
687 |
737 |
Tax paid ($m) |
7,312 |
6,809 |
7,013 |
8,508 |
9,112 |
10,281 |
Theoretical liability ($m) |
7,815 |
7,352 |
7,602 |
9,131 |
9,799 |
11,018 |
Gross gap (%) |
10.0 |
8.9 |
8.6 |
7.9 |
7.8 |
7.4 |
Net gap (%) |
6.4 |
7.4 |
7.8 |
6.8 |
7.0 |
6.7 |
*Projected years
Figure 1 shows the gross and net gap as a percentage over the same period. The trend shows an improvement in gross tax gap, a measure of voluntary compliance, as more high wealth private groups are correctly reporting their tax at lodgment.
Figure 1: Gross and net tax gap (percentage) – high wealth private groups, 2014–15 to 2019–20
What is driving the gap
When business owners and wealthy individuals make mistakes, it is usually in how they interpret tax law or because they don't understand their tax obligations.
The most common issues we see from taxpayers include:
- lack of documented governance processes and procedures
- incorrectly recording or not reporting transactions outside the normal course of business
Issues with the reporting of treatment of:
- loans or payments to shareholders, directors and associates
- tax deductions and tax losses
- trust distributions
- tax treatment of property disposals
- not accounting for private use of business funds or assets
- omitting domestic or foreign-sourced income.
A very small number of high wealth individuals seek to evade paying the right amount of tax. They take advantage of closely-held structures and use artificial and non-commercial arrangements intentionally designed to evade tax. Where we detect deliberate tax evasion, we apply correction strategies such as penalties and prosecutions.