In its first estimate of tax gap for individuals, the Australian Taxation Office has published the key findings on ‘Estimating the tax gap for individuals not in business’, informed by operational programs for specific types of risk and by findings from a random enquiry program.

Individual taxpayers

The publication focuses on individuals who are not in business. That is, people who earn income from salary or wages, investments, superannuation or Australian Government assistance payments, and do not have links to a business.

Individuals are the largest community segment that interact with the tax system. In 2016–17, Australia had 9.6 million individual taxpayers who were not in business and lodged tax returns, contributing around 47% of all tax collected. The ATO notes that over 93% of the income tax collected from individuals who are not in business is paid voluntarily or with little intervention, and that the majority of individuals who are not in business and are required to lodge, do so on time.

Key findings

The ATO finds that its best estimate of the net income tax gap for individuals in 2014–15 is 6.4%, or $8.7 billion. In other words, for this fiscal year, it is estimated that individual taxpayers have contributed 93% of the estimated tax payable.

REPs & returns adjustments

The random enquiry programs (REPs) for 2013–14 and 2014–15 saw 858 reviews undertaken across a representative sample of the individuals not in business population: 614 tax returns prepared by a tax agent (agent-prepared), and 244 returns prepared by a person themselves (self-prepared). Overall, the incidence of adjustment of tax returns was 72%. ATO adjusted 78% of agent-prepared returns, compared to 57% for self-preparers.

On average, three items were adjusted in a return. Adjustments tended to fall between $100 and $1,000 – of these, 37% of adjustments were $150 or less and 25% were over $1,000. Across the random enquiries conducted to date, adjustments to income items are more prevalent in self-prepared returns. Adjustments to deduction items (including rental expenses, work-related expenses, gifts and donations and other deductions) are higher for agent-prepared returns. Of the 2,388 adjustments made in these cases, almost 70% relate to deductions, with 51% (or 1,212) of those for work-related expenses. Around 363 adjustments were made to rental items of which around 13% (or 318) relate to rental property expenses. While the amounts can be small, they add up when viewed across the whole population.

The ATO aims to reduce the individuals tax gap through a twofold approach of supporting compliance and deterring non-compliance.

(Source: Australian Taxation Office | Key findings)


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