To estimate the fringe benefits tax (FBT) gap, we use the a bottom-up methodology. We selected this method as it draws on our ongoing engagement activities and operational intelligence.
Step 1: Identify the population and summarise the engagement activities
We identify the employer population through PAYG withholding records. We put these into subpopulations that align to our engagement activities. Key to this is the identification of FBT registered employers and those not registered for FBT. Those employers not registered for FBT include:
- employers that declare employee contributions and/or had reportable fringe benefits amounts in their employees’ PAYG withholding records, but do not lodge an FBT return
- employers that do not lodge an FBT return or report employee contributions/reportable fringe benefits, but claim motor vehicle expenses in their income tax return
- all other employers that do not lodge an FBT return but do not fit into the previous categories.
Step 2: Estimate the gap components and adjust for deductibility
We use our case data to estimate the average amount of non-compliance for each of our subpopulations. As we don't look at every taxpayer, we use the data we have and extrapolate that to the whole population.
We realise the following:
- We select cases based on the risks they present – not all taxpayers will have the same level of non-compliance as those that we have adjusted, so we account for this selection bias in our estimate.
- We may not find every issue or every dollar when we are looking for non-compliance
- we apply a non-detection factor to the unreported tax liability to account for this.
- There is debt that we will not be able to pursue due to being irrecoverable at law or uneconomical to pursue
- we account for this through our non-pursuable debt factor.
- Employers can claim an income tax deduction for the fringe benefits they provide
- we determine the size of the forgone income tax deduction that would have been realised if FBT were correctly reported.
- we then adjust by the relevant income tax rate and subtract from the sum of unreported tax, non-detection and non-pursuable debt amounts to produce the net revenue effect amounts.
Step 3: Estimate the theoretical liability
The amounts from step 2 are combined to determine the gross gap. To derive the net gap, amendments (compliance results) are subtracted from the gross gap.
The gross gap is then added to the tax voluntarily paid amount to estimate the theoretical tax liability. The theoretical tax liability represents the amount of revenue that we would expect with full compliance in the FBT system.
Summary of estimation process
The steps for the estimation process and the results for each year as a dollar amount and percentage are shown in Table 2.
|
Step |
Description |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
|---|---|---|---|---|---|---|---|
|
1.1 |
Population |
825,499 |
848,613 |
852,408 |
855,047 |
896,528 |
927,831 |
|
1.2 |
Amendments ($m) |
24 |
31 |
29 |
23 |
25 |
34 |
|
2.1 |
add estimated unreported amounts ($m) |
1,886 |
1,383 |
1,480 |
1,349 |
1,065 |
1,358 |
|
2.2 |
add Non-pursuable debt ($m) |
5 |
5 |
5 |
5 |
5 |
5 |
|
2.3 |
add Non-detection ($m) |
501 |
372 |
396 |
358 |
286 |
365 |
|
3.1 |
equals Gross gap ($m) |
2,416 |
1,790 |
1,910 |
1,734 |
1,381 |
1,761 |
|
3.2 |
subtract estimated impact of income tax deductions ($m) |
684 |
487 |
520 |
471 |
374 |
452 |
|
3.3 |
equals Net revenue effect gross gap ($m) |
1,732 |
1,303 |
1,390 |
1,263 |
1,007 |
1,308 |
|
3.4 |
subtract amendments ($m) |
24 |
31 |
29 |
23 |
25 |
34 |
|
3.5 |
equals Net revenue effect net gap ($m) |
1,708 |
1,272 |
1,361 |
1,240 |
982 |
1,275 |
|
3.6 |
add Expected collections ($m) |
4,333 |
4,160 |
3,858 |
3,906 |
3,904 |
3,246 |
|
3.7 |
equals Theoretical tax liability ($m) |
6,041 |
5,432 |
5,219 |
5,147 |
4,886 |
4,521 |
|
3.5 |
Net revenue gross gap (%) |
28.7 |
24.0 |
26.6 |
24.5 |
20.6 |
28.9 |
|
3.6 |
Net revenue net gap (%) |
28.3 |
23.4 |
26.1 |
24.1 |
20.1 |
28.2 |
Find out more about our overall research methodology, data sources and analysis for creating our tax gap estimates.
Limitations
The following caveats and limitations apply when interpreting this tax gap release:
- There is no independent data source which can provide a credible or reliable macroeconomic-based estimate (unlike transaction-based taxes).
- The data available does not indicate whether the amendments processed were due to our action or taxpayers correcting their own errors.
- There is a high level of uncertainty around the level of non-detection – the current factor used to account for non-detection is based on factors used in other gaps, and other jurisdictions.
- Compliance results are focused on establishing a case record for aggregate non-compliance – this causes multiple years to be present in each result requiring high-level assumptions around aggregation for use in this estimate.
Updates and revisions to previous estimates
Each year we refresh our estimates in line with the annual report. Changes from previously published estimates occur for a variety of reasons, including:
- improvements in methodology
- revisions to data
- additional information becoming available.
This gap was first published in October 2020 and has been revised for the 2022–23 Annual Report. The impact of these revisions is shown in the figure below.
Figure 2: Current and previous net revenue effect net gap estimates, 2014–15 to 2020–21
This data is present in Table 3 as a percentage.
|
Year |
2014–15 |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
|---|---|---|---|---|---|---|---|
|
2023 program |
n/a |
28.3% |
23.4% |
26.1% |
24.1% |
20.1% |
28.2% |
|
2022 program |
26.7% |
28.4% |
21.1% |
22.1% |
22.0% |
20.3% |
n/a |
|
2021 program |
25.1% |
26.7% |
22.0% |
22.4% |
22.6% |
n/a |
n/a |
|
2020 program |
25.2% |
26.8% |
22.0% |
21.2% |
n/a |
n/a |
n/a |