While the ATO have yet to release the official figures for the small business income tax gap, Tax Commissioner Chris Jordan said early indication shows the gap to be between 10 to 15 per cent at around $10 billion.
The figure is significantly larger than the corporate tax gap at $1.8 billion, or 4.4 per cent, and the individuals not in business tax gap at $8.7 billion, or 6.4 per cent.
ATO deputy commissioner Deborah Jenkins said early analysis of the tax gap data showed three groups of small business taxpayers in the tax system.
“We find there are those who are in the system and they are registered and lodging their returns, and there is a second bucket of people who are completely outside the system and they are much harder for me to understand and to track as you can appreciate,” said Ms Jenkins at the Tax Institute’s National Convention.
“But there is a third bucket that has been emerging through our work and those are the people who I describe as being in the system from Monday to Friday but on the weekends and after hours, they are outside the system.
“It might be your tradie, who thinks nothing of doing cash jobs on the weekends or after hours and doesn’t report that income but from Monday to Friday, they are recording that information and it is lodged in the system,” she added.
“We can spot that when we look at lifestyle models and when we look at how much we expect them to be getting; we find that it is just not matching.”
Ms Jenkins said she estimates that 60 per cent of the tax gap to be driven primarily by black economy behaviour.
As such, small businesses can expect more frequent visits from the ATO’s mobile strike force.
“You will see an increased focus in this area through both physical visits to “cash only” businesses and better use of data analytics. It will become much harder to operate outside the system, or to report income below what your lifestyle suggests,” said Mr Jordan.
“Although our small business population is very diverse, the tax gap program has highlighted some common issues, like not declaring all income or failing to account for private use of business assets or funds.
“But, when we see businesses operating well, we see that they get the basics right. They keep good records, they run their business with the help of technology, such as point of sale software and accounting systems, and they seek advice from a tax professional when they need it.”