Australia is now the first jurisdiction to release a tax gap in relation to the high-wealth market, with the ATO revealing that these 5,000 high-wealth private groups, comprising 9,000 individuals and 18,000 companies, had a $772 million shortfall in expected taxes in 2016–17.
Large corporates currently have the smallest tax gap in terms of percentage figures at 4 per cent but account for $1.8 billion in unpaid tax liabilities.
The ATO’s latest tax gap, revealed by ATO commissioner Chris Jordan at the Tax Institute’s Tax Summit, shows that high-wealth private groups contributed over $9 billion in income tax and employed around 780,000 people.
The high wealth tax gap population includes individuals and companies linked to a high-wealth private group with group net wealth greater than $50 million and ownership greater than 40 per cent.
ATO deputy commissioner Tim Dyce said that while over 90 per cent of tax liabilities were paid voluntarily, the tax gap was made up of genuine errors, miscalculations and misunderstanding of the tax law.
However, Mr Dyce also said there were those who were deliberately avoiding their tax liabilities by engaging tax advisers who were promoting “aggressive tax arrangements”.
“We recognise the important role that tax professionals have in helping high-wealth private groups get their tax right. In addition to seeking qualified advice from a registered tax professional, we know that high-wealth private groups who invest in robust tax governance practices are more likely to get their tax right,” Mr Dyce said.
“However, we know a small number of tax advisers intentionally do the wrong thing by placing their high-wealth private groups’ clients into risky and even illegal tax avoidance arrangements.
“These tax advisers and others who promote aggressive tax arrangements risk being subject to significant financial penalties and face the prospect of prosecution.”
In a bid to shrink the tax gap, the ATO will expand its tax avoidance taskforce from 1 July, introducing a new program focusing on high-wealth private groups.
“Access to sophisticated data and analytical tools has increased our ability to match data from Australian and offshore institutions and regulators and means that those engaging in tax avoidance activities will be caught out. It is not a matter of if but when,” Mr Dyce said.
“The mums and dads of Australia want confidence that wealthy Australians are paying the right amount of tax and that we are doing our job and dealing with those who are deliberately avoiding paying tax.”
CPA Australia’s general manager of external affairs, Paul Drum, said the ATO’s latest tax gap analysis would “go to the very heart” of ensuring public confidence in the tax system.
“There are a number of areas identified as driving the tax gap in this segment, and while some is deliberate, much of the gap comes from misunderstanding or misapplication of what are often complex and ambiguous tax laws,” Mr Drum said.
“It is important that there is greater tax law clarity for all taxpayers regardless of size.
“Today’s small business can quickly become tomorrow’s high-wealth group, and keeping on top of tax is part of successful growth.”
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Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.