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  • Measuring the gap

    We use a top-down approach to estimate the PAYG withholding gap, using data from the Australian Bureau of Statistics (ABS), Treasury and the ATO. This approach compares the following for a financial year:

    • total individuals income tax withholding minus non-salary and wages withholding, as reported to us on an accruals basis
    • theoretical PAYG withholding from salary and wages calculated using external economic data.

    External data is used to estimate total salary and wages paid. We then apply an average rate of withholding to determine the total theoretical liability.

    We use ATO data to determine the total PAYG withholding revenue, both voluntarily and as a result of direct ATO intervention.

    The difference between the theoretical liability and actual ATO collections gives us the estimate for the PAYG withholding gap.

    Not all the PAYG withholding gap is lost revenue. While an employer may not deduct the correct amount, affected employee taxpayers will be required to pay additional tax upon lodging their income tax return and correctly reporting their income.

    Black economy

    There are elements of the black economy in the PAYG withholding gap. Some employers may not be registered, employees may be incorrectly treated as contractors and not all payments may be reported. We have included an uplift factor of 1.2% to the ABS Compensation of Employees data to account for salary and wages not reported due to the black economy.

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      Last modified: 17 Oct 2019QC 57198