The Tax Gap is the difference between the amount that would have been collected by the ATO had there been full compliance and the amount that was in fact collected.
The most recently available tax gap figures for either 2015-16 or 2016-17 are as follows:
CATEGORY $ M % GAP
Small business 11087 12.5
Individuals (not in business) 8444 6.4
Small Superannuation Funds 28 2.0
This means that in the case of small business, 87.5% of all the tax that could have been collected was, OR 12.5% of what could have been collected was not. In the individual (not in business) category the figures were better for the revenue with 93.4% collected and only 6.6% missing. What this means is that overall $20 billion more could have been collected if full compliance was in place.
Further analysis within each category reveals that the largest contributor to the small business tax gap is failing to declare all income and to the individual tax gap is deductions for work related expenses.
What does all this have to do with agents?
The ATO will use these figures to determine the audit areas to target and the two main areas that have come to light are the cash economy and work-related expenses (WREs), which are said to have been major contributors or a large part of the results in the small business and individuals categories.
The important point to take away from this? Having regard to the above and other matters the ATO have mentioned in the past, it is only common sense to assume the following areas will be targeted:
- Work related expense claims;
- Rental property expense claims;
- Low levels of revenue relative to the size of the business measured by assets employed/expenses incurred/number of employees etc.
- Clients with lifestyle profiles that do not match their levels of returned income;