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  • Small business income tax gap

    The small business income tax gap is the difference between the total amount of income tax collected from small businesses and the amount we estimate we would have collected if every one of these taxpayers was fully compliant with tax law.

    There are over four million small businesses in Australia. They contribute 30% of income tax paid. The small business population comprises a diverse range of structures and operations. It covers businesses with a turnover of up to $10 million.

    Small business operating structures can include:

    • companies
    • sole traders
    • small business proprietors
    • trusts
    • partnerships.

    The taxation of small business income differs depending on the structure of the business, and the company's turnover and relevant tax rates for the income year.

    Around 96% of small businesses seek advice and services from a tax practitioner to help operate their businesses. This may be an accountant, tax agent or bookkeeper.

    Estimate of the tax gap

    Our estimate for the small business income tax gap covers a single income year. For 2015–16 we estimate the net income tax gap for the small business population to be $11.1 billion or 12.5%. In other words, we estimate that small business paid more than 87% of the total theoretical tax payable in 2015–16.

    We estimated a significant portion of the gap from the results of our random enquiry program. This approach is considered best practice for large populations. We also measured the effects of the black economy in the small business population, which contributed to the estimate.

    The main issues we saw driving the gap were businesses:

    • not declaring all income
    • failing to account for private use of business assets or funds
    • not understanding their tax obligations.

    This is our first income tax gap estimate for the small business population. Consequently we have not drawn conclusions around long-term trends of the net gap. We will look to provide trends in future years as additional estimates are released.

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      Last modified: 03 Oct 2019QC 59986