Methodology
We use a 3-step bottom-up illustrative method to estimate the small super funds income tax gap.
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Step 1: Estimate unreported tax
Unreported tax consists of the additional tax expected to be raised if we undertook compliance activity on the portion of the tax base not covered. It arises from incorrectly reported tax returns and has 2 components:
- unreported tax from the lodged population
- unreported tax from the non-lodged population.
We apply factors over the base to estimate the amount of expected amendments if we had not undertaken compliance activity for the whole tax base and funds that are registered but have not yet lodged.
Step 2: Estimate non-detection
We take the estimated unreported tax from Step 1 and uplift it to account for amounts that are not detected.
Step 3: Calculate the gross gap and net gap
We combine the amounts determined above for amendments, unreported tax, and non-detection with non-pursuable debt to obtain the gross and net tax gaps. The net gap is equal to the gross gap less amendments.
We then add the gross gap to the tax voluntarily paid amount to estimate the theoretical tax liability. We calculate the gap percentages by dividing the gap estimate by the theoretical tax liability.
Summary of the estimation process
Table 3 provides the results at each step of the estimation process for each year from 2014–15 to 2019–20.
Table 3: Applying the methodology – small super funds income tax gap
Step
|
Description
|
2014–15
|
2015–16
|
2016–17
|
2017–18
|
2018–19
|
2019–20
|
1.1
|
Lodged population
|
521,959
|
534,766
|
547,023
|
549,772
|
543,633
|
525,544
|
1.2
|
Registered population
|
533,716
|
549,620
|
564,898
|
565,280
|
568,115
|
573,051
|
1.3
|
Tax paid voluntarily ($m)
|
1,477
|
1,323
|
1,430
|
1,697
|
1,552
|
1,694
|
2.1
|
Amendments ($m)
|
16
|
19
|
23
|
19
|
19
|
19
|
2.2
|
Tax paid ($m)
|
1,493
|
1,342
|
1,453
|
1,716
|
1,571
|
1,713
|
3.1
|
Unreported tax: lodged ($m)
|
7
|
8
|
10
|
8
|
8
|
8
|
3.2
|
Unreported tax: not lodged ($m)
|
<1
|
<1
|
<1
|
<1
|
<1
|
<1
|
4
|
Non-detection ($m)
|
21
|
25
|
30
|
25
|
25
|
25
|
5.1
|
Non-pursuable debt ($m)
|
4
|
3
|
3
|
3
|
3
|
3
|
5.2
|
Gross gap ($m)
|
49
|
55
|
66
|
55
|
55
|
56
|
5.3
|
Net gap ($m)
|
33
|
36
|
43
|
36
|
36
|
37
|
6.1
|
Theoretical liability ($m)
|
1,525
|
1,379
|
1,497
|
1,752
|
1,608
|
1,750
|
6.2
|
Gross gap (%)
|
3.2
|
4.0
|
4.4
|
3.2
|
3.4
|
3.2
|
6.3
|
Net gap (%)
|
2.1
|
2.6
|
2.9
|
2.1
|
2.3
|
2.1
|
Find out more about our overall methodology, data sources and analysis used for creating our tax gap estimates.
Limitations
Estimating the tax gap for small super funds is difficult, with inherent uncertainty. Tax issues and the tax law are complex and contestable.
Also, our estimates do not account for differences where there are alternative views on tax law interpretation. In these circumstances, differences can exist between reasonably arguable positions presented by us and taxpayers. Non-detection estimates are also extremely challenging to measure.
The current methodology provides an aggregated estimate of the small super funds tax gap. This may allow generalised comparisons with other taxes.
The gap estimate is a lagging measure, as compliance results take several years to flow through. This is due to the complexity of the market and the elapsed time associated with finalising our compliance activities.
The assumptions we use to construct our estimate are informed by actual data and expert opinion. The insights from the aged random enquiry program are less relevant in the current period and require extensive review.
The following caveats and limitations apply when interpreting this tax gap estimate.
- For funds that we don't audit or review, we assume
- a certain degree of non-compliance with tax law occurs
- the degree of non-compliance in these groups is less than those we do audit or review due to our risk-based approaches to engagement.
- For funds that we do audit or review, we assume
- adjustments to their tax liabilities are representative of the value of non-compliance with tax law
- we don't detect all instances of non-compliance
- adjustments to their tax liabilities from completed audits and reviews are correct at law, at the time of estimation.
Accounting for non-detection in the gap
We account for non-detection by applying an uplift factor to the amendments amount. The uplift factor is based on international rates. The impact of non-detection on the small super funds income tax gap is $25 million in 2019–20.
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.
The intelligence that we base our levels of non-compliance is now dated. New work is underway. Until this is completed our gap estimates have taken a conservative approach.
This year we updated all data this is reported and known. This includes the registered population, lodged population, amendments and tax paid.
We held other data steady with last year, as that year it was assessed as reliable. This is the date underlying our assumptions about movements in compliance behaviour.
These limitations are reflected in this year's low reliability rating.
Figure 3: Current and previous small super funds net tax gap estimates, 2014–15 to 2019–20 (Rollover component distinguished)
This data is set out in Table 4 as a percentage.
Table 4: Current and previous small super funds net tax gap estimates (percentage), 2014–15 to 2019–20
Year published
|
2014–15
|
2015–16
|
2016–17
|
2017–18
|
2018–19
|
2019–20
|
2022
|
2.1%
|
2.6%
|
2.9%
|
2.1%
|
2.3%
|
2.1%
|
2021
|
1.9%
|
2.4%
|
2.6%
|
2.9%
|
2.8%
|
n/a
|
2020
|
1.6%
|
1.8%
|
2.4%
|
2.5%
|
n/a
|
n/a
|
2019
|
1.1%
|
1.5%
|
2.0%
|
n/a
|
n/a
|
n/a
|
2018
|
3.2%
|
n/a
|
n/a
|
n/a
|
n/a
|
n/a
|