Small businesses are paying 87 cents for every dollar owed in tax
Small businesses are paying the tax office 87 cents for every dollar they theoretically owe in tax, which represents an improvement on recent years.
Small businesses are paying the tax office 87 cents for every dollar they theoretically owe in tax, which represents an improvement on recent years.
However, the latest figures show unpaid small business liabilities remain a significant problem for the Australian Taxation Office (ATO).
A new transparency report, released Friday, addresses the small business tax gap — the difference between how much tax small businesses theoretically owed the ATO, versus the amount they actually paid.
In the 2021-2022 financial year, the most recent period covered by the report, small businesses theoretically owed the ATO $139.9 billion, up from $121.1 billion the year prior.
The net tax gap was $17.7 billion, or 12.6% of the theoretical total, meaning small businesses handed over 87 cents for every dollar owed in 2021-2022.
That marks the lowest net tax gap percentage recorded since 2017-2018.
The percentage shrank in 2021-2022 because the theoretical tax liability grew faster than the net tax gap in pure dollar terms.
Changing economic conditions and ATO compliance activities may have contributed to that result, the ATO said in the report.
While the headline percentage is down, the $17.7 billion owed by small businesses is the single largest line item in the overall $44.5 billion tax gap in 2021-2022.
By comparison, individuals not in business accounted for $10.6 billion of the total gap, while large corporates were on the hook for $3.6 billion.
The overall net tax gap estimate was just 7.5%.
“The overall corporate income tax gap estimate is now trending upwards, with an increase in both the gross and net tax gap in each of the past two years,” the ATO said.
“Most of this increase is from the small companies component of the small business income tax gap population and large corporate groups.”
Shadow economy activities contribute to small business tax gap
The report also detailed where small businesses are falling short.
For combined small businesses — which includes small companies and individuals in business — the bulk of the tax gap came from omitted income, followed by over-claimed deductions.
Much of the omitted income was the result of shadow economy activities or deliberate attempts to conceal liabilities from the ATO.
“While the impacts of shadow economy behaviour are significant, the taxpayers observed to be deliberately engaging in this behaviour through the random enquiry program are in the minority,” the ATO clarified.
“Approximately 5% of taxpayers in the sample made clear and deliberate attempts to avoid paying the right tax.”
The ATO’s full estimate of small business tax performance is available here.
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