Correctly registering in the system
We are confident that individuals who should be registered are registered. There are strong incentives for people to obtain a tax file number (TFN) and register in the system because:
- under the PAYG withholding system, taxpayers who choose not to quote their TFN to employers and other payers may have tax deducted from their income at the highest marginal rate
- most Australian Government assistance payments require people to quote their TFN.
Registration trends for individuals are closely aligned with trends in Australia’s estimated resident population published by the Australian Bureau of Statistics (ABS). Our latest analysis indicates that the number of individuals aged between 15 to 64 years old with an individual TFN represents 105.9%Footnote2 of Australia’s estimated resident population for the same age group.
Lodging tax on time
Not all individuals registered for a TFN have an obligation to lodge a return. Some are newly registered, others are age pensioners and some have permanently left Australia.
Other taxpayers are not required to lodge for a particular year. They may have earned income below the tax-free threshold or have only received welfare income.
However, there are also people who do have an obligation to lodge, but do not. We risk assess individuals who fail to meet their lodgment obligations and follow up on those who present a risk to tax revenue. These people, coupled with those who do lodge, form part of our lodgment population.
There has been a gradual improvement in the on-time lodgment of tax returns for individuals over the past five years. This indicates the compliance strategies used to influence lodgment behaviour have been successful if only incrementally.
|
Lodgment |
2014–15 |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
|---|---|---|---|---|---|
|
Lodged on time |
82.7 |
83.0 |
84.1 |
84.3 |
84.7 |
|
Lodged by 30 June of following year |
87.8 |
88.0 |
88.7 |
88.9 |
89.2 |
Late or incorrect lodgments delay the collection of revenue or the payment of tax refunds. They can also affect other whole-of-government obligations that rely on income tax assessments, such as Higher Education Loan Payment (HELP) compulsory repayments and child support payments.
Some people, including those who are due a refund, are not meeting their obligation to lodge a tax return. We use data-matching evidence to identify taxpayers with a requirement to lodge because we can see they have received income. For people who don’t lodge on time, we make early contact by sending a letter or SMS text message to remind them of key dates and encourage them to lodge without further delay.
Where we see taxpayers with more than one lodgment outstanding, we make contact in person, tailoring our conversations to guide them back on track. For people who continue not to lodge we take firmer action, which may include default assessments, failure to lodge penalties or referral for prosecution.
We work with Services Australia to pursue outstanding tax returns of child support scheme clients. These lodgments provide a determination of income for child support payment purposes. Where the taxpayer may be entitled to a refund, this can (in the most serious of cases) be garnisheed to meet any outstanding child support debts.
Reporting complete and accurate information
We undertake a range of activities aimed at preventing non-compliance. We do this across the individuals population generally, and through direct action with people we consider higher risk.
While our emphasis is on helping people willingly comply, we also act to protect the integrity of the tax system and ensure everyone pays the right amount of tax.
All tax returns are subject to systematic validation checks. The information reported is matched with third-party data and compared against various risk indicators. This is to identify errors and irregularities for specific groups, such as occupations and industries, the workforces of specific employers, and some types of investors. We also support tax agents by providing them with a work-related expenses ‘risk picture’ customised to their client base.
Our approaches range from low-touch interactions like providing advice and guidance products, through to tailored correspondence such as prompter letters and nudges, increasing to more intense interventions like audits and prosecutions.
Range of our interactions from low to high intensity
In areas where we can rely on complete and accurate third-party data to pre-fill returns and verify claims, the instance of non-compliance is reduced. Where there are discrepancies, they are usually quick, simple and inexpensive to correct. In these areas (such as for many income items), compliance functions can be largely automated.
In areas where third-party data is unavailable or incomplete, the cost of compliance increases. In these areas (such as for most deduction items) the inability to pre-fill or automatically verify claims means the cost of compliance is higher, both for us as administrators and for the taxpayer involved.
These factors are reflected in our compliance results. In 2018–19, we undertook around 220,000 compliance interactions to ensure the correct reporting of income. These activities ranged from prompter letters through to audits and resulted in around $280 million in tax liabilities. Additionally, a further $238 million was collected through our non-lodgment work, to bring people back in to the tax system.
For deductions, to complement our help and guidance approaches, we undertook over 171,000 compliance interactions, ranging from prompter letters through to audits. This work resulted in over $111 million in tax liabilities and additional revenue captured as part of wider revenue effects.
We also undertook compliance work relating to a range of other risk areas across the return, including credits and offsets and refund integrity. This included over 16,000 compliance interactions with tax agents (regarding the returns of their clients), resulting in around $31 million in tax liabilities.
In addition, we conducted an additional 260,000 automated adjustments to individual income tax returns, where income had been omitted or other mistakes made on the return. This resulted in over $136 million in additional tax liabilities.
Findings from our compliance activities indicate most individuals report the right amount of income. But many, including those who use tax agents, are making errors when claiming deductions.
Most errors we see relate to mistakes or a lack of care in preparing the return, but we do see examples of recklessness and fraud. While the amounts involved at an individual level are relatively small, they are significant when added across the population.
As we work towards reducing the tax gap for individuals, we will continue to evaluate our investment in the individuals segment, in light of advances in data and technology, changes in the employment market, emerging risks and shifts in compliance behaviour.
The following table illustrates the collective liabilities raised from our compliance activities, across all areas of the individual taxpayer return.
|
Liabilities raised |
2014–15 |
2015–16 |
2016–17 (see note 1) |
2017–18 |
2018–19 |
|---|---|---|---|---|---|
|
Total |
1,851 |
1,861 |
894 |
753 |
848 |
Liabilities raised in a year may cover multiple assessments and include interest and penalties.
Sometimes we settle disputes for a lesser amount than originally assessed. This means the additional cash we collect from an audit doesn’t always equal the amount of additional tax liabilities raised under the amended assessment.
See also:
Paying tax on time
Most of the income tax payable by individuals is collected during the year under the PAYG withholding system, and 84% of individuals received a refund when they lodged their 2017–18 return. Around 11% of individuals received a debit assessment and had a 2017–18 return tax liability.
In 2018–19, 64% of income tax liabilities raised were paid on time, with 84% paid within 90 days of the due date. 76% of PAYG instalment liabilities were paid on time, with 91% paid within 90 days of the due date.
While the on-time payment performance rate (by value) for individuals has improved marginally over the past five years, it is below our overall target of 88%Footnote3 for all client segments. The proportion of individuals who pay their income tax return debit assessment liabilities on time has been variable over the period.
|
Proportion paid on time |
2014–15 |
2015–16 |
2016–17 (see note 1) |
2017–18 |
2018–19 |
|---|---|---|---|---|---|
|
Debit assessment liabilities (value) |
60.6 |
61.5 |
62.6 |
59.6 |
63.8 |
|
Debit assessment liabilities (count) |
59.3 |
65.8 |
58.6 |
59.8 |
64.1 |
|
PAYG instalment liabilities (value) |
76.4 |
75.3 |
78.4 |
77.0 |
78.1 |
|
PAYG instalment liabilities (count) |
74.6 |
73.7 |
75.2 |
75.2 |
75.9 |
At 30 June 2019, the total collectable ATO debt was $26.5 billion. Individuals not in business owed $2.9 billion in total collectable tax debt, accounting for 11% of the ATO’s total collectable debtFootnote4. This represents a relatively small proportion (2.3%) of the 2017–18 return net income tax for individuals ($125.4 billion). Most of the debts owed by individuals are less than $2,500. While the level of debt for individuals is relatively small, it is higher than we would like.
|
Total collectable tax debt |
<$2,500 |
$2,500 to <$7,500 |
$7,500 to <$25,000 |
$25,000 to <$50,000 |
$50,000 or more |
|---|---|---|---|---|---|
|
Collectable income tax debt (across debt levels) (%) |
68 |
20 |
8 |
2 |
1 |
|
Collectable income tax debt accounts (number) |
290,192 |
85,589 |
34,145 |
7,879 |
5,436 |
|
Value of collectable income tax debt (%) |
9 |
15 |
19 |
11 |
46 |
|
Collectable PAYG instalment debt (across debt levels) (%) |
58 |
20 |
13 |
5 |
4 |
|
Collectable PAYG instalment debts (number) |
31,444 |
10,694 |
7,020 |
2,563 |
2,212 |
|
Value of collectable PAYG instalment debt (%) |
6 |
10 |
20 |
18 |
47 |
Tax debt
We are conducting research to better understand why people get into tax debt, how we can support them and what we can do to prevent it. Anecdotal evidence suggests there are four key drivers of tax debt for individuals:
- prioritising tax debts below more critical living expenses
- fluctuations in income and unexpected tax liabilities
- the time lag between accruing a liability and when payment is due
- limited awareness of tax debts and/or payment options.
We aim to help individuals manage and pay their debts by sending SMS text reminders, letters or phoning them. People that have difficulty paying their tax debt can enter into a payment arrangement. Where debt is an issue, we encourage people to contact us early to find a solution that is workable for all involved.
To reduce the number of interactions people have with us, we have started to include a discussion about debt payments when finalising a review or audit. Where debts remain unpaid, we take firmer action to prevent those taxpayers gaining an unfair financial advantage over the majority that pay on time.
Over the past three years, the amount of income tax debt owed by individuals has increased. The number of accounts have also increased over the period.
|
Income tax debt |
2016–17 |
2017–18 |
2018–19 |
|---|---|---|---|
|
Insolvent ($m) |
434 |
285 |
326 |
|
Disputed ($m) |
201 |
148 |
214 |
|
Collectable ($m) |
1,955 |
2,263 |
2,397 |
|
Total IT debt ($m) |
2,590 |
2,696 |
2,937 |
|
Number of accounts |
386,825 |
413,293 |
434,216 |
|
Activity statement debt |
2016–17 |
2017–18 |
2018–19 |
|---|---|---|---|
|
Insolvent ($m) |
142 |
101 |
110 |
|
Disputed ($m) |
69 |
10 |
13 |
|
Collectable ($m) |
433 |
417 |
491 |
|
Total activity statement debts ($m) |
643 |
527 |
614 |
|
Number of accounts |
62,838 |
53,935 |
56,034 |
- Footnote 2
- Commissioner of Taxation annual report 2018–19, Table 2.1: Performance results, 2016–17 to 2018–19
- Footnote 3
- Commissioner of Taxation annual report 2018–19, Table 2.1: Performance results, 2016-17 to 2018-19
- Footnote 4
- Commissioner of Taxation annual report 2018–19, Table 6.12: Value of debt holdings by client experience, 2016-17 to 2018-19