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  • ATO action to reduce the gap

    The key to an effective tax system is a high level of willing participation. The level of willing participation depends on the extent to which the community values the system and has trust and confidence in us as administrators.

    Individuals who are not in business are the largest community segment interacting with the tax and superannuation system in Australia. We talk about their contribution to our economy by paying tax voluntarily and their key features in Tax and individuals – not in business. In this document, we discuss the challenges we face, and how we are improving the system for people who want to do the right thing, while taking firm action with those who don't.

    While the vast majority of tax collected is paid voluntarily through the pay as you go (PAYG) withholding system, we are concerned with how many taxpayers are over-claiming deductions. We commonly, see errors relating to work-related expenses, rental properties and omission of income, particularly where wages are paid in cash. There are a range of factors contributing to why some people misreport this information.

    Our strategies to reduce the individuals not in business gap, based on the principle of willing participation, include:

    • improving and tailoring our public advice and guidance material, tools and services (including advice on emerging risks such as the sharing economy and cryptocurrencies)
    • increasing the quantity and quality of the data we collect
    • adopting new ways of using data and technology to make lodging tax returns and substantiating deductions simpler for taxpayers and their tax agents (includes streamlining reporting processes and pre-filling more information in tax returns)
    • helping taxpayers and their tax agents report correctly, using 'nudge' messages and other correspondence to alert them where we see something unusual
    • better understanding the circumstances of debt, doing what we can to prevent it and offering practical repayment options
    • taking firmer action to address non-compliance among higher-risk taxpayers and tax agents, including additional audits, particularly in areas driving the tax gap
    • pursuing penalties or prosecution – or referring tax agents to the Tax Practitioners Board in the most serious of cases.

    We also provide insights to government, through the Treasury, about potential opportunities for statutory law reform to improve the tax and superannuation system. We do this where we see the law is difficult for both taxpayers and ourselves to apply, and may increase compliance costs. In addition, we suggest where the law can be strengthened to allow us to more effectively deal with compliance risks.

    We seek to administer the tax and superannuation system in a way that is fair and consistent. We design our interactions with taxpayers and their tax agents to be professional, contemporary and tailored to individual circumstances, making it easy to comply and hard not to.

    While we focus on preventing non-compliance, to reduce the gap we will take action to protect the integrity of the tax and superannuation system and ensure that everyone – from each individual taxpayer through to the largest corporate group – pays the right amount of tax.

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      Last modified: 11 May 2022QC 69535