Components that generate the gap
Table 2 summarises the components that generate the Individuals in small business percentage net gap. Details on the derivations are outlined further on this page.
|
Element |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|
|
Population (m) |
3.79 |
3.83 |
3.90 |
4.01 |
4.09 |
4.29 |
4.48 |
4.55 |
4.67 |
|
Theoretical liability ($m) |
75,259 |
77,672 |
81,830 |
87,462 |
88,622 |
102,497 |
118,655 |
130,971 |
146,395 |
|
Voluntarily reported ($m) |
65,477 |
66,562 |
70,528 |
72,969 |
75,146 |
85,573 |
98,234 |
104,162 |
115,639 |
|
Add amendments ($m) |
859 |
931 |
760 |
789 |
684 |
774 |
744 |
787 |
744 |
|
Total reported ($m) |
66,335 |
67,493 |
71,288 |
73,758 |
75,830 |
86,347 |
98,978 |
104,948 |
116,383 |
|
Subtract long-term non-payment ($m) |
658 |
751 |
449 |
673 |
503 |
1,029 |
777 |
890 |
945 |
|
Expected collections ($m) |
65,677 |
66,742 |
70,839 |
73,084 |
75,327 |
85,318 |
98,201 |
104,059 |
115,438 |
|
Net gap ($m) |
9,582 |
10,929 |
10,991 |
14,378 |
13,295 |
17,179 |
20,454 |
26,912 |
30,957 |
|
Net gap (% of theoretical liability) |
12.7% |
14.1% |
13.4% |
16.4% |
15.0% |
16.8% |
17.2% |
20.5% |
21.1% |
|
Assessment gap ($m) |
8,924 |
10,178 |
10,542 |
13,704 |
12,792 |
16,150 |
19,677 |
26,022 |
30,012 |
|
Assessment gap (% of theoretical liability) |
11.8% |
13.1% |
12.9% |
15.6% |
14.4% |
15.8% |
16.5% |
19.8% |
20.5% |
|
Payment gap ($m) |
658 |
751 |
449 |
673 |
503 |
1,029 |
777 |
890 |
945 |
|
Payment gap (% of theoretical liability) |
0.9% |
1.0% |
0.5% |
0.8% |
0.6% |
1.0% |
0.7% |
0.7% |
0.6% |
|
Gross gap ($m) |
10,441 |
11,861 |
11,751 |
15,166 |
13,980 |
17,953 |
21,198 |
27,699 |
31,701 |
|
Gross gap (% of theoretical liability) |
13.9% |
15.3% |
14.4% |
17.3% |
15.8% |
17.5% |
17.9% |
21.1% |
21.7% |
Note: Values presented are rounded. Totals are calculated from unrounded values and may therefore differ from the sum of displayed component values.
Figure 3 displays the gross and net gap percentages for individuals in small businesses.
Figure 3: Individuals in small business gross and net tax gap percentages, 2015–16 to 2023–24
Note: The estimates for all years are subject to revision.
Figure 4: Individuals in small business gross gap components, 2023–24
In the Individuals in small business population, omitted income is the largest contributor to the 2023–24 gross gap (74%). The remaining components are overclaimed deductions (10%), people operating outside the tax system (9%), hidden wages (4%), and long-term non-payment (3%).
Non-detection
Within the individuals in business population, the following 3 areas require an estimate to account for non-detection:
- business income
- deductions
- hidden wages.
The uplift for business income forms the largest component of non-detection. This recognises the limitations in detecting omitted income where little or no third-party reporting systems are available. Uplifts are based on the midpoint of international ranges.
Non-detection of deductions treated differently. Since there is no incentive for taxpayers to underclaim deductions on their tax return, deductions non-detection uplifts are confined to tax returns where deductions have been claimed.
Actual wages received by individuals in business can be difficult to validate in a random enquiry program. We used a macro estimate based on the hidden wages element used in the pay as you go (PAYG) withholding and super guarantee gap estimates.
An estimate for wages not detected in the random enquiry program. People operating outside the system was reconciled to the hidden wages analysis undertaken in the PAYG withholding gap estimate. The result provides an estimate for hidden wages in the individuals in small business population.
Table 3 shows the dollar value (in millions) at steps 1 to 6.2 for the individuals in business element. Steps 6.3 and 6.4 show percentage figures for the gross and net gaps.
Further detail on the steps used is at Methodology for estimating small business income gap.
|
Step |
Description |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
2023–24 |
|---|---|---|---|---|---|---|---|---|---|---|
|
1.1 |
Estimate unreported amounts for sample and extrapolate to population ($m) |
4,944 |
5,653 |
5,472 |
7,202 |
6,647 |
8,831 |
10,414 |
13,607 |
15,303 |
|
1.2 |
Apply estimate for people outside the system ($m) |
1,019 |
1,172 |
1,431 |
1,830 |
1,684 |
1,697 |
1,832 |
2,546 |
2,942 |
|
2.1 |
Apply estimate for non-detection (excluding hidden wages) ($m) |
3,262 |
3,720 |
3,792 |
4,854 |
4,453 |
5,615 |
7,286 |
9,672 |
11,360 |
|
2.2 |
Apply estimate for hidden wages ($m) |
558 |
565 |
606 |
607 |
691 |
781 |
889 |
984 |
1,151 |
|
3 |
Add long-term non-payment ($m) |
658 |
751 |
449 |
673 |
503 |
1,029 |
777 |
890 |
945 |
|
4 |
Equals gross gap ($m) |
10,441 |
11,861 |
11,751 |
15,166 |
13,980 |
17,953 |
21,198 |
27,699 |
31,701 |
|
5.1 |
Subtract amendments ($m) |
859 |
931 |
760 |
789 |
684 |
774 |
744 |
787 |
744 |
|
5.2 |
Equals net gap ($m) |
9,582 |
10,929 |
10,991 |
14,378 |
13,295 |
17,179 |
20,454 |
26,912 |
30,957 |
|
6.1 |
Add expected collections ($m) |
65,677 |
66,742 |
70,839 |
73,084 |
75,327 |
85,318 |
98,201 |
104,059 |
115,438 |
|
6.2 |
Equals theoretical tax liability ($m) |
75,259 |
77,672 |
81,830 |
87,462 |
88,622 |
102,497 |
118,655 |
130,971 |
146,395 |
|
6.3 |
Gross gap (%) |
13.9% |
15.3% |
14.4% |
17.3% |
15.8% |
17.5% |
17.9% |
21.1% |
21.7% |
|
6.4 |
Net gap (%) |
12.7% |
14.1% |
13.4% |
16.4% |
15.0% |
16.8% |
17.2% |
20.5% |
21.1% |
Note: Values presented are rounded. Totals are calculated from unrounded values and may therefore differ from the sum of displayed component values.