The Australian income tax gap for individuals not in business was approximately 6.4 percent (AUS $8.7 billion) in 2014-15.
The Australian Taxation Office (ATO) published the income tax gap, which is an estimate of the difference between the tax collected and the amount that would have been collected if every one of these taxpayers was fully compliant with the law.
Over 93 per cent of income tax received from individuals not in business is paid voluntarily or with little intervention from the ATO, which compares with an estimated 5.8 percent (AUS $2.5 billion) gap for large corporates.
The tax gap for individuals not in business is driven by incorrectly claimed work-related expenses. In fact, 70 percent of tax returns randomly selected for review contained at least one error. The ATO plans to use data and technology to identify outliers, and to tailor advice and guidance products, auto-correct mistakes, streamline reporting and substantiation processes, access third party data to verify claims and provide pre-fill information in tax returns.
Deputy commissioner Alison Lendon said: “What we have seen is that most people make small, but avoidable, errors so we will ramp up our assistance to help these people understand their obligations and get things right. But we are also asking people to take just a little extra care with what they claim, because all of those little amounts add up.”
“We are also taking further steps to address the error rate in agent-prepared returns, which is currently higher than the error rate for self-prepared returns. While the majority of mistakes made by agents are avoidable, we are concerned to see a minority of tax agents exaggerating or falsifying claims to attract clients or retain their market share.”
The ATO expects to undertake over one million interactions with taxpayers and tax agents claiming expenses this year. These will range from help and education to reviews and audits, with the ATO hoping that that appropriate action like this to close the gap will increase the public’s trust in the tax system.
However the ATO remains focused on increasing compliance by large corporations operating within Australia.
Ms Lendon commented: “We are better equipped than ever before to fulfil this commitment through increases in resources and stronger laws, especially the establishment of the tax avoidance taskforce, and the introduction of new laws such as the multinational anti-avoidance law, the diverted profits tax and country-by-country reporting.”
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