Fringe benefits tax gap 2018-19
This information is for historical purposes only. If you require previously published content for past estimates, please email taxgap@ato.gov.au.
This estimate for the fringe benefits tax (FBT) gap relates to the 2018-19 financial year
On this page
This gap forms a part of our overall tax performance program.
FBT is a deductable business expense for employers. In estimating this tax gap, we needed to account for this deduction and calculate the revenue effect of this on the net gap estimate.
For 2018–19, the net FBT gap estimate was around $1.13 billion or 22.6%. In other words, we estimate overall that those with an FBT liability paid around 77% of the total theoretical tax payable by them in 2018–19. This is similar to the results for the previous two years.
Note: a purpose of the FBT system is to inhibit non-taxed employee remuneration and FBT might be considered a component of the broader Pay As You Go Withholding (PAYGW) / income tax on salary and wages regime. On this basis, noting that in 2018-19 the net PAYGW gap was 1.6% the overall gap for the taxation of employee remuneration is significantly lower in percentage terms than the FBT gap on its own. With FBT and PAYGW viewed together, the integrated gap is approximately 2.1% in 2018-19. That is, employers are voluntarily paying nearly 98% of the taxes related to their employees' remuneration.
See more about:
Trends and latest findings
As shown in Table 1 below, the net gap has ranged between 22.0% and 26.7% over the five-year period between 2014–15 and 2018–19. The latest estimate is closer to the lower end of that range which tells us there was no significant change in the overall compliance with FBT. The table shows the net revenue effect gap which accounts for the inherent deductibility of FBT by business.
Table 1: Fringe benefits tax gap – 2014–15 to 2018–19
Element
|
2014–15
|
2015–16
|
2016–17
|
2017–18
|
2018-19
|
Population
|
832,574
|
824,595,
|
847,118
|
848,839
|
844,691
|
Net revenue effect gross gap ($m)
|
1,417
|
1,601
|
1,203
|
1,131
|
1,157
|
Amendments ($m)
|
19
|
24
|
28
|
24
|
24
|
Net revenue effect net gap ($m)
|
1,398
|
1,577
|
1,175
|
1,107
|
1,134
|
Tax paid ($m)
|
4,164
|
4,333
|
4,155
|
3,844
|
3,880
|
Theoretical liability ($m)
|
5,563
|
5,911
|
5,330
|
4,951
|
5,014
|
Net revenue gross gap (%)
|
25.6
|
27.1
|
22.6
|
22.9
|
23.1
|
Net revenue net gap (%)
|
25.1
|
26.7
|
22.0
|
22.4
|
22.6
|
Figure 1 displays the trend in the gross and net income tax gap over the same period as a percentage.
Figure 1: FBT net revenue effect gap summary diagram 2014–15 to 2018–19 (percentage)
What's driving the gap
Overall, our estimate shows that the primary driver of gap estimate is employers not participating in the FBT system where they are providing benefits to employees.
We estimate almost a third of FBT adjustments result from a lack of awareness by either the employer or the tax agent.
This indicates that employers and tax agents experience significant issues around understanding FBT law, and the relevant rules around calculating, reporting and paying FBT on benefits provided, as well as claiming concessions and exemptions.
Our engagement insights further support this. We found that contact between tax agents and their clients in relation to FBT matters was often on an ad hoc basis. This is in comparison to the strong focus and regular communications around income tax and GST. Some employers appear to be reluctant to engage a tax agent to undertake work in relation to FBT, as they do not want to incur the additional cost of doing so.
We also found common errors that were made by employers, for example, in relation to car fringe benefits, and which vehicles are exempt.
ATO action to reduce the gap
Our overarching focus is on help and education and ensuring that our public advice and guidance assists employers to comply. We also conduct targeted risk-based reviews and audits.
We recognise that complexity in the FBT law can hamper employers' engagement with the system.
Industry engagement
We will continue our work with industry groups to:
- resolve common issues
- promote education strategies
- gather industry insights to inform our areas of focus.
We will leverage our treatments in conjunction with the tax profession and industry associations.
Population strategies
We recognise there are significant differences and drivers of behaviour in identifiable employer populations, as well as compliance with, and access to, exemptions and concessions. We are implementing a differentiated approach to cover the FBT needs of all these populations.
Small business employers
With a significant population size, one-to-many treatments are more effective than case-by-case engagements, reviews or audits targeting small business employers.
FBT small business education program
We will continue to focus on our educational products designed specifically for employers in this market segment. We will use marketing and communications to encourage participation by small businesses.
We have developed a series of educational products which we began rolling out in early July 2020.
Car Fringe Benefits education
The most common fringe benefit is the provision of the use of a car. We regularly run a webinar, Employers: an introduction to car fringe benefits. This webinar leads employers through various scenarios, and educates people on:
- what car fringe benefits are
- methods to value benefits
- records to keep
- how to lodge and pay.
Since July 2020, we delivered a number of webinars to small business employers. The feedback from participants has indicated that 98% would recommend the webinar to other small business employers.
We have also produced videos which will soon be published on atoTV on Calculating car fringe benefits tax. These work through how to calculate car fringe benefits using our online calculator, and how to complete the fringe benefits tax return.
See also:
Expense payments Fringe Benefits Education
Expense payments are the second most common fringe benefit. We regularly run a webinar: Employer: Expense payment fringe benefits. The webinar leads employers through
- What an expense payment fringe benefit is
- How to identify if expense payments are being provided
- What records will need to be kept
See also:
Compliance engagements
Using data and analytics, we will undertake targeted compliance engagements for high-risk employers. Our focus is on helping employers resolve issues and comply into the future.
Large employers
We are engaging with the largest FBT employers to confirm their level of compliance. We assist them to self-assess their compliance and review their systems, processes, policies governance and record keeping, while focusing on tailored help, education and issues management.
See more in our fringe benefits tax – a guide for employers (the guide) on our Legal database.
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:
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
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%
|
Reliability
We seek feedback and advice about the methods we use to estimate the gap from our external and internal subject matter experts. Based on the advice and assessment, the reliability rating for this estimate is medium (with a score of 16).
Figure 3: Reliability rating scale from very low to very high – fringe benefits tax gap.
This estimate for the fringe benefits tax (FBT) gap relates to the 2018-19 financial year.