The PAYG withholding gap is an estimate of the difference between the tax that should have been withheld by employers from salary and wages paid to employees according to the law (theoretical PAYG withholding), and the actual amounts of income tax withholding from salary and wages received by us for a defined period, typically a financial year.
Our broad approach to estimating the gap
We use a top-down methodology to estimate the PAYG withholding gap. This compares the following for a financial year:
- total individuals income tax withholding minus non salary and wages withholding, as reported to us on an accruals basis
- theoretical PAYG withholding from salary and wages calculated using external economic data.
We use external data on compensation of employees – salary and wages published by the ABS in its quarterly and annual National Accounts. Applying an average tax rate to the ABS salary and wages data gives us a theoretical PAYG withholding tax amount. The difference in percentage terms is assumed to represent the PAYG withholding gap.
The PAYG withholding gap conceptual framework is represented below. It shows the PAYG withholding gap against the revenue base, as well as taxpayer behaviours associated with voluntary compliance, enforced compliance and PAYG withholding not remitted.
PAYG withholding gap conceptual framework