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  • Behaviours that contribute to the tax gap

    Measuring the small business income tax gap is showing us that the small business population can be broken into three groups:

    • those inside the tax system
    • those outside the tax system
    • those inside the tax system some of the time.

    Results from our random enquiry program show that most small businesses are paying the right amount of tax – but some are making mistakes, and some are avoiding paying the right tax.

    Some businesses make the odd mistake, but only a small percentage deliberately avoid paying the right tax. It’s this smaller group that contributes most significantly to the tax gap.

    We estimate that $6.3 billion (or around 47% of the total gap) can be attributed to shadow economy (formerly known as black economy) behaviour.

    This includes small business taxpayers who may:

    • deliberately under-report their income
    • exaggerate business expenses
    • operate completely outside the tax system.

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    Last modified: 20 Oct 2021QC 59957