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  • Definitions

    Top-down approach

    Top-down approaches use externally-provided aggregated data sources to estimate the size of the tax base, from which we estimate theoretical tax liability. The difference between the theoretical tax liability and the amount we receive is the estimated tax gap. A top-down approach is typically used for indirect taxes.

    Bottom-up approach

    Bottom-up approaches involve a detailed examination of data sources, such as tax returns, audit results (including random enquiry programs), risk registers or third-party data-matching information. We then extrapolate the results to determine the extent of non-compliance across the whole population, from which we estimate the tax gap. A bottom-up approach is typically used for direct taxes.

    Compensation of Employees

    ABS Series 524 Australian System of National Accounts is used to calculate salary and wages amounts. Compensation of employees is defined by 2008 System of National Accounts as '... the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period'.

    The Compensation of Employees data set consists of two main components:

    • wages and salaries (including paid in cash and in kind)
    • employer social contributions.

    The ABS produces a Salary and wages (cash or in kind) series and an Employer social contributions series as a part of the Compensation of Employees (National Accounts). Salary and wages include:

    • all cash payments (including penalty payments), all leave payments, supplementary allowances, bonuses, commissions, tips and gratuities, and payments remitted to a third party (such as income taxes)
    • the cost of goods and services provided by the employer to the employee or household (fringe benefits)
    • fringe benefits taxes
    • payments to defence force personnel, including the value of food, clothing and travel
    • changes in provisions for future entitlements, such as long service leave
    • payments to non-residents.

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      Last modified: 17 Oct 2019QC 57198