Show download pdf controls
  • Why we measure the tax gap

    Australians all benefit from healthy tax and super systems that support our society and economy. We contribute to this by fostering willing participation in the tax and super systems. Some of the ways we achieve this is through the eight strategic initiatives that are outlined in our ATO corporate plan 2021–22.

    One of our objectives is to build community confidence by sustainably reducing the tax gap and providing assurance across the tax and superannuation systems. Tax gap estimates allow us to better understand levels of compliance and risk in the tax and superannuation systems.

    The insights gained from this work can guide us in determining priority risks and developing strategies (including administrative design, help and education, and audit), which aim to sustainably reduce the tax gap.

    Our gap measurement methods draw on the experience of other contemporary tax administrations. This ensures our estimates are best practice. We share our tax gap information with our counterparts who also publish an annual tax gap program, such as Her Majesty's Revenue and Customs (HMRC) in the United Kingdom.

    We also participate in international forums and communities of practice, such as the OECD Advanced Tax Gap Analysis Community of Practice. This was established in March 2019 for OECD member countries that have significant experience in tax gap estimation.

    Addressing the gap

    Our primary strategy is to make it as easy as possible for Australians to comply with their tax and super obligations.

    We approach this from many perspectives, including:

    • enhancing our digital services
    • improving our processes and technology, including our data-matching capability
    • providing advice to government, via the Treasury, where we see law reform options
    • working with partner agencies and stakeholders to improve the tax and superannuation systems
    • providing guidance and advice to clarify areas of uncertainty, including issuing taxpayer alerts if we see potential risks
    • dealing with non-compliance, including investigating aggressive tax planning.

    These types of approaches help us achieve our desired future state. This is where the community is confident that our administration of the tax and super systems supports collection of the right tax, at the right time for the wellbeing of all Australians.

    Return to:

    Engagement, advice and assurance

    To develop our tax gap methods, we engage key stakeholders and subject matter experts within the ATO and the community.

    This includes:

    • tax gap experts
    • researchers
    • academics
    • government agencies
    • taxpayer representative groups.

    This engagement is important is establishing rigorous and robust methods for estimating tax gaps and it does not end once we develop a method. A feature of this program is the continuous improvement based on feedback received and global developments in the use of tax gap methods and practices.

    When models are significantly changed, we engage with relevant experts to review the methods to give us confidence that each method delivers its intended outcome of providing a robust estimate.

    Holistic view of the tax gap program

    There are three main outcome principles to our tax gap program.

    Our estimates need to be:

    • reliable
    • credible
    • meaningful.

    Each of these principles provides us with a framework (Figure 5), which is reflected through the whole program including in the reliability assessments for each estimate.

    Figure 5: Holistic view of the tax gap program

    Figure 5: Circular diagram. In the middle, we have the holistic view of the tax gap program. On the outer rings, we have: Credible - believable and complete, Reliable - dependable and trustworthy, and Meaningful - explained and communicated. In the middle ring, we have what these measures are, as explained in the following content.

    Reliable

    For the 'reliable' principle, we assess ourselves against two outcomes – trustworthy and dependable.

    For an outcome to be trustworthy, the outcome needs to be transparent, concise and open to evaluation and critique. To achieve a dependable outcome, the estimate needs to use the best practice methods available. The results from those methods need to be repeatable, and the method must be critiqued by experts.

    Credible

    For the 'credible' principle, we assess ourselves against two outcomes – believable and complete.

    For the credible principle, an outcome is believable when it explains why the gap is the size it is, and what the wider issues and impacts are. To be complete, the outcome needs to cover all the bases, including where applicable, associated issues and the shadow economy.

    Meaningful

    For the 'meaningful' principle, we assess ourselves against two outcomes – explained and communicated.

    This principle ensures that outcomes obtained through our estimates are more than just numbers on a page. It means that business, government and the wider community can understand the analysis. This helps them to engage with us in an informed conversation about the tax and superannuation systems. An outcome is explained if it answers the 'why' questions. It identifies the contributing factors of a gap, the key risks and drivers. It also acknowledges the caveats and limitations of our estimate.

    We engage experts to achieve reliable and credible outcome principles of the tax gap program.

    The 'meaningful' principle is assessed internally to ensure the 'reliable' and 'credible' outcomes are given appropriate context. This ensures the information is meaningful for the intended audience.

    Return to:

      Last modified: 19 Oct 2021QC 53161