Colmar Brunton Social Research (CBSR) was commissioned by the Inspector-General of Taxation to conduct research into the impact of perceptions of non-lodgement on individuals' lodgement behaviour. This report presents the findings of this research.
The primary objectives of the research were to:
- Deliver an estimate of the level of non-lodgement of individual income tax returns that exists in the community;
- Provide information around the level of individual non-lodgement which would change participants' own lodgement behaviour;
- Provide details of the level that the community expects the Tax Office to keep non-lodgement at;
- Determine whether the community accepts a regime where non-lodgers had their refunds docked or forfeited; and
- For required non-lodgers:
- how many returns have they not lodged (1, 2, 3 or more than 3 years);
- the main reason they have not lodged; and
- whether they feel at risk of Tax Office compliance action.
The research consisted of 800 Computer Assisted Telephone Interviews (CATI) with members of the Australian public aged 16 years and older (Stage 1), followed by an online survey of 317 taxpayers who were required to submit a tax return for the 2006/07 financial year but failed to lodge (Stage 2). Stage 1 was designed to inform IGT of the lodgement attitudes and behaviours of the general Australian population. Stage 2 was designed to capture a greater level of detail about the attitudes and behaviours of those required to submit a return but who failed to do so (referred to throughout this report as 'required non-lodgers').
Deliver an estimate of the level of non-lodgement of individual income tax returns that exists in the community.
Including those persons both required and not required to submit a return, it was determined that over the last three years tax return lodgement has remained at a consistent level of around 80% (and thus non-lodgement has remained around 20%). Intention to lodge a tax return next financial year is slightly higher at 85%1.
For the 2006/07 financial year, 7.94% of the total community surveyed were required to submit a tax return but failed to do so. This equates to 9.35% of those actually required.
Provide information around the level of individual non-lodgement which would change participants' own lodgement behaviour.
Prior to the research it was hypothesised that if people became aware of the current level of non-lodgement within Australia it may affect their likelihood to lodge a tax return.
The majority of the general community surveyed (90%) perceive the current level of non-lodgement within Australia to be 8% or higher. Perceptions of non-lodgement are very similar among required lodgers and required non-lodgers suggesting that these perceptions do not explain their different lodgement behaviour.
However there does appear to be a relationship between the perceived likelihood of the Tax Office taking action and reported lodgement behaviour. Amongst the general community surveyed, the perceived risk of the Tax Office taking action if someone failed to submit a return is only moderate - 52% believe this to be likely2 while 20% believe this to be unlikely3. However, required non-lodgers are significantly more likely to believe the Tax Office would not take action than required lodgers (37% believe this to be unlikely4).
Provide details of the level at which the community expects the Tax Office to keep non-lodgement.
Four in ten (40%) of the compliant community5 surveyed expects the Tax Office to keep the level of non-lodgement within the community at 0% - that is, they believe that everyone who is required should submit a tax return. Just under two-thirds (61%) expect the Tax Office to keep non-lodgement at or below 8%. The remainder would accept higher levels of non-lodgement, particularly required non-lodgers.
This suggests that the majority of the community would find the actual level of non-lodgement as measured in this survey unacceptable as it is higher than what they expect the Tax Office to keep it at (9.35% of those required failed to do so).
Interesting is a comparison of the surveyed community's estimation of the level of non-lodgement and the level they expect the Tax Office to keep non-lodgement. The surveyed community's estimation of the level of non-lodgement is higher than what they expect the Tax Office to keep it at. Two-thirds (66%) perceive non-lodgement to be higher than 8%, while 61% expect the Tax Office to keep non-lodgement at 8% or less.
Determine whether the community accepts a regime where non-lodgers had their refunds docked or forfeited.
Overall, there is moderate compliant community support for a regime where the Tax Office docks or forfeits the returns of those who fail to lodge a tax return. Just over half (57%) of the compliant community surveyed agreed with this. One quarter (24%) disagreed.
Perhaps unsurprisingly, required non-lodgers are significantly more likely than required lodgers to slightly (7%) or strongly (32%) disagree that non-lodgers should have their refunds docked or forfeited as a punishment for not lodging.
For required non-lodgers: how many returns have they not lodged; the main reason they have not lodged; and, whether they feel at risk of Tax Office compliance action.
Almost two thirds (62%) of required non-lodgers identified in 2006/07 also failed to submit their returns in both the preceding two financial years. These taxpayers could be considered 'serial non-lodgers'. On average, each required non-lodger has 2.4 returns outstanding.
The reasons for not lodging a tax return remain relatively consistent from year to year. The findings suggest that one of the key reasons for not lodging, even among those who are required to lodge is the belief they are not required to. There appears to be some confusion in the community about whether or not one is required to submit a return, also emphasised by the 4.51% of the community who submitted a return when not required. For example, the most common reasons mentioned for not lodging a tax return in any of the past three financial years amongst the required non-lodger group include:
- Believing they didn't earn enough or were below the income threshold (20%);
- Being unemployed and not working and therefore believing there was no requirement to submit a return (19%); and
- Being on a pension or receiving Centrelink payments and therefore believing there was no requirement to submit a return (18%).
Other less mentioned reasons included laziness or being too busy, documents (e.g. group certificates) not being prepared in time and other unique personal circumstances.
Compared to required lodgers, required non-lodgers have a tendency to:
- have significantly lower intentions to lodge next financial year;
- be older and more likely to be around the retirement age (e.g. 61 - 70 years);
- have lower levels of household income (e.g. less than $50,000 per annum); and
- are less likely to have a postgraduate education.
Though required non-lodgers have lower levels of income compared to required lodgers, 35% of required non-lodgers have medium or high6 incomes. However, medium7 to high8 income required non-lodgers are more likely to have lodged their tax return in the past and more likely to do so in the future compared to their low9 income counterparts.
1 The proportion of total survey respondents who indicated they were likely to submit a tax return in 2007/08 (i.e. rated 7-10 at Q2).
2 Rated 7 - 10 at Q6.
3 Rated 1 - 4 at Q6.
4 Rated 1 - 4 at Q6.
5 The 'compliant community' includes the views of all survey respondents except required non-lodgers. In some instances in this report the views of required non-lodgers have been removed in order to prevent any distortion of the overall perception of the total community surveyed.
6 Household income of more than $50,001 per annum
7 Household income of $50,0001 - $80,000 per annum
8 Household income of more than $80,001 per annum
9 Household income of less than $50,000 per annum