New figures released by the ATO estimate that almost 90% of income tax from small businesses is paid voluntarily or with little intervention from the ATO. 

"This shows that the vast majority of small businesses in the tax system are trying to do the right thing," Deputy Commissioner Deborah Jenkins said. "Considering how much small businesses have on their plate, we're grateful for the level of work they put in to get their tax right."

The ATO has estimated the 2015–2016 income tax gap for the small business sector to be approximately 12.5%, or $11.1 billion, with over $7 billion (or over 64% of the total value of the gap) being attributed to black economy behaviour. To measure this income tax gap, the ATO used findings from its random enquiry program to estimate the difference between what the ATO expected to collect, and what was actually collected for the given year. The ATO's research program measures tax performance across all market segments, which helps to measure the effectiveness of the tax system.

Tax gap estimates are an important feature of the performance and accountability story of any modern tax authority. Small business tax gaps that have been released overseas range from 9% to 30%.

The ATO says that around 90% of small businesses use a registered tax professional to help them comply with their income tax obligations. "We recognise the important role that tax professionals have in helping small businesses get their tax right and we would not have been able to achieve this result without the support of our tax professionals", Ms Jenkins said.

The ATO's research shows a small percentage of businesses are deliberately avoiding their tax obligations, but by dollar value this adds up to a significant portion of the gap. This behaviour could be motivated by a desire to avoid tax, limit impacts on welfare payments, or to avoid law enforcement.

The black economy

Since 1 July 2018, the ATO has coordinated an extensive program of work to tackle the black economy. This program of work includes a multi-faceted approach, addressing issues such as:

  • deliberate under-reporting income and over-claiming expenses;
  • ensuring businesses meet their employer obligations – so they don't pay employees or contractors cash in hand, underpay wages, fail to withhold tax or fail to contribute to superannuation;
  • addressing illegal phoenixing (deliberate liquidation and reforming of businesses to avoid obligations);
  • preventing tax fraud;
  • dealing with illicit tobacco, duty and excise evasion; and
  • targeting intermediaries and agents who enable black economy behaviour.