Tax gaps estimate the difference between the estimate of what the ATO expects to collect and the estimate of the amount that would have been collected if every taxpayer was fully compliant with the law.
All our tax gaps are estimated and published for 6 years up to 2021–22 to allow us to generate a headline tax gap estimate for the tax and super system. For excises and goods and services tax (GST), we have also estimated and published estimates for 2022–23 this year due to the availability of more contemporaneous data.
Our latest tax gap estimates show that for 2021–22, we estimate that we will receive $545.8 billion or 92% of the $590.3 billion we estimate we would collect if everyone was fully compliant with tax law.
Based on the estimate of the tax we should collect versus what we estimate we will collect the overall net tax gap is estimated to be $44.5 billion or 7.5%. This reflects a system that is operating well with most taxpayers aware of and meeting their obligations.
2021–22 key findings:
- Across the largest gaps we saw a reduction in the net gap of 0.1 percentage points for individuals, and a 2 percentage point reduction in the net gap for small business. The reduction for the small business gap partly reflects the recovery from earlier economic disruptions of COVID-19. This is accompanied by increased domestic spending resulting in strong growth in voluntary reported income tax liabilities.
- For the GST 2021–22 gap estimate, we saw an increase of 1.2 percentage points. The GST gap is one of the few gaps where we've also estimated the gap for 2022–23 which was a further increase of 3.5 percentage points. The increase in 2021–22 and more significant increase in 2022–23 reflects slower growth in GST reported compared with the growth in theoretical GST and also high (non-pursuable) debt in both years.
- This year, the large corporate group net tax gap increased by 0.4 percentage points from last year. The majority of this uplift reflects an increase in the estimate of tax not detected as our assurance program coverage takes time to complete. The 2020–21 net tax gap has been revised from 4.2% as published last year to 3.7% as we get more complete information on the outcomes of our actions.
The major challenges to the tax gap program this year is as follows:
- COVID impacted financial years saw significant changes in taxpayer circumstances creating unpredictable patterns in behaviour and a change in how people are transacting in the non-observed economy (shadow economy). Due to timing issues, we have concerns around how this change in behaviour is reflected in certain point-in-time economic data used in our top-down methods. While these concerns will disappear over time as data is revised, estimates published today may be subject to change when these revisions occur.
To account for these issues, this year we have made the following changes to the tax gap program:
- Using a random enquiry program on employer obligations to publish bottom-up estimates for PAYGW and Superannuation Guarantee.
- Applying an uplift of the non-observed economy to our GST gap estimate to reflect a more contemporary estimate of the size of the shadow economy. This revised uplift is applied to current and prior years and results in an increase in the estimate of the GST gap. Making this change improves the reliability and accuracy of this estimate. We have been developing a new bottom-up version of the GST model which we expect to be ready for publication shortly.
We have a strong governance framework and assurance process over our estimation methods. This includes external review by subject matter experts to ensure we have high confidence in our tax gap estimates, as well as in our other metrics that measure tax system performance which we report in our Commissioner of Taxation Annual Report.
Tax gap estimates are a lag indicator. They measure the performance of the tax system in the past.
Tax gaps are about measuring what isn't directly observable – what people have not told us.
Taxpayers may not have reported their true tax position:
- due to a misunderstanding of their obligations
- 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 the 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 trends over time:
- provide useful insights into the longer-term operation of the tax and super systems
- tell us a story about the performance and integrity of the system, along with other performance measures, including 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 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 why we measure tax gaps, our approach to ensure credibility and a summary of the latest available data.
You can find out more about our research methodology, data sources and analysis used for our tax gap estimates in Principles and approaches to measuring gaps.
Tax gaps in categories
These are the different tax gaps we measure. They are grouped into 3 categories:
- transaction-based
- income-based
- administered programs.
Transaction-based tax gaps:
- Alcohol tax gap
- Fuel excise tax gap
- Goods and services tax gap
- Luxury car tax
- Tobacco tax gap
- Wine equalisation tax gap.
Income-based tax gaps:
- Fringe benefits tax gap
- High wealth income tax gap
- Individuals not in business income tax gap
- Large corporate groups income tax gap
- Large super funds income tax gap
- Medium business income tax gap
- Petroleum resource rent tax gap
- Small business income tax gap
- Small super funds income tax gap.
Administered program and PAYG withholding gaps: