A performance audit of the Australian Taxation Office’s (ATO) arrangements for identifying and reducing the income tax gap for individuals has found the Office was largely effective.
In his report Identifying and Reducing the Tax Gap for Individuals Not in Business, Auditor-General Grant Hehir found that in its 2021–22 annual report, the ATO estimated the overall net tax gap for the Australian tax and superannuation system as $33.4 billion for 2019–20.
Mr Hehir said that within this total, the estimated net tax gap for ‘individuals not in business’ was the second largest gap in dollar terms — $9 billion for 2019–20, “meaning that for this gap, the ATO collected around 94.4 per cent of the tax revenue it would have collected if all taxpayers were fully compliant with tax law.”
“The ATO is largely effective at identifying and reducing the tax gap for individuals not in business,” Mr Hehir said.
“The ATO is largely effective at developing, implementing, and communicating the tax gap methodology for individuals not in business,” he said.
“The ATO undertook an appropriate process to develop a fit-for-purpose methodology, though it did not fully integrate expert advice on sample size and does not have a mechanism to review whether the sample size remains sufficient over time.”
Mr Hehir said the ATO had sound processes for identifying and developing compliance strategies to address risks to the individuals not in business tax gap.
However, he said the inconsistent application of ATO guidance undermined the effective implementation of these strategies.
“ATO guidance to implement compliance strategies is applied inconsistently, and as compliance strategies do not contain specific targets, the ATO is unable to determine the extent to which compliance strategies contribute to reducing the tax gap for individuals not in business,” the Auditor-General said.
He said the ATO was largely effective in assessing compliance strategies for reducing the tax gap.
Mr Hehir made three recommendations to the ATO related to transparency of its tax gap methodology, transparency and confidence in reliability assessments, and the use of targets and benchmarks to better understand the performance of compliance strategies.
The Auditor-General’s report can be accessed at this PS News link and a 79-page pdf version at this link.
The audit team was Shane Armstrong; Connor McGlynn; Ella Young; Ben Thomson; Amanda Reynolds; Molly Wu; Nathan Singlachar; and David Tellis.
