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  • Australian tax gaps – overview

    Our latest work shows that for 2018-19, we received $428 billion or 92.7% of the total amount of tax we would collect if everyone was fully compliant with tax law. We collect most of this tax voluntarily, reflecting a system that is operating well. This means that the overall tax gap for 2018–19 is estimated to be $33.5 billion, or 7.3% of the tax that should have been reported.

    Our estimates are backed by methods we have confidence in, as well as other metrics of the tax system that we have measured and reported in our Commissioner of Taxation annual report 2020–21.

    The tax gap is an estimate of the difference between the amount of tax the ATO collects and what we would have collected if every taxpayer was fully compliant with tax law.

    Tax gap estimates are what is known as lag indicators. They measure the performance of the tax system in the past. Most of the latest tax gap estimates are for the 2018–19 financial year and do not reflect the impact of the COVID-19 pandemic which emerged in 2019–20. Four of our transaction tax estimates are for 2019-20 and any impacts from COVID-19 have been outlined in their individual narrative where appropriate.

    Tax gaps are, in effect, about measuring what is not visible – what people have not told us.

    Taxpayers may not have reported their true tax position:

    • due to a misunderstanding
    • by choice
    • by taking a tax position that differs from our view of the law.

    All tax gap estimates are subject to a degree of error. They can change from year-to-year due to availability of data, improvements in the methods we use to measure them and revisions to previous years data, for example tax paid after a review.

    Tax gap estimates and their trends over time:

    • provide useful insights into the longer-term operation of the tax and superannuation systems
    • tell us a story about the performance and integrity of the system, along with other performance measures. This includes
      • levels of willing participation and significant shifts in compliance.
       
    • can guide us in determining priority risks and opportunities to better inform where we need to focus to
      • lock in improvements in compliance
      • prevent behaviours and activities that might increase the tax gap
      • sustainably reduce the overall tax gap.
       

    Rapid changes in the economy, society and technology mean the issues driving tax gaps continue to evolve. No tax system can fully eliminate tax gaps, as the cost of doing so would be excessive. Instead, we aim to sustainably reduce tax gaps over time.

    Effective tax gap management requires engagement with a range of stakeholders. Our work goes beyond estimating the tax gap. We want to understand the size of the gaps, the risks and drivers, and how we can work together to address these issues.

    In this overview of tax gaps in Australia, we explain how and why we measure tax gaps, our approach and a summary of the latest available data.

    Find out about:

    See also:

    Transaction-based tax gaps:

    Income-based tax gaps:

    Administered program gaps:

      Last modified: 19 Oct 2021QC 53161