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13 All individual income tax statistics are provided to the ABS by the ATO in aggregated form only, at the SLA level. Information about individual taxpayers has not been released to the ABS.
14 Prior to being provided to the ABS, the statistics have also been subjected to a confidentiality process that randomly adjusts table cells with small values. This includes altering some small cells to zero. Caution should therefore be exercised in deducing that there are no people in an area with certain types of income and, in general, no reliance should be placed on table cells with small values. The confidentiality process prevents the risk of inadvertently releasing any information that may identify an individual while preserving the overall information value of the statistics.
SCOPE AND COVERAGE
15 The main functions and responsibilities of the ATO are to administer taxation legislation and to collect a wide variety of taxes. The ATO therefore collects data from its reporting population as part of its processes to calculate income tax liability for those persons who are required to lodge an income tax return.
16 The ATO database covers all individuals who submit an individual income tax return and includes persons with income from one or more of a range of sources, such as wages and salaries, own business, superannuation and annuities, investments and Government pensions, benefits or allowances. The scope of the ATO statistics presented in this release are data items relating to income standards the ABS uses for its income surveys. However the scope of the ATO statistics presented in this release exclude Government pensions, benefits or allowances.
Wage and salary income
17 Wages and salaries are the main forms of payments made to employees for their work or services. Wage and salary income, as reported on the income tax return, includes:
Own unincorporated business income
18 Own unincorporated business income includes the following data items on the individual income tax return:
19 The data excludes distributions from trusts for non-primary production activities as this mainly includes income from a range of other activities (mainly investments). It also excludes the income of working directors/owners of incorporated businesses who are classified as employees and consequently their income is included under wage and salary income.
20 Investment income includes:
Superannuation and annuity income
21 Superannuation and annuity income includes superannuation and similar pensions and annuities paid by an Australian superannuation fund, a retirement saving account provider, a registered organisation or life assurance company and pensions paid by a fund established for the benefit of Commonwealth, State or Territory employees and their dependants. Also included in this category are bonuses from life insurance companies and friendly societies.
22 A change to legislation relating to superannuation, taking effect from 1 July 2007, means that people aged 60 years and over who receive superannuation income in the form of a lump sum or income stream (such as a pension) from a taxed source, will now receive that income tax free. Therefore, if a person has no other income, or their total income is below the tax-free threshold, or any tax payable is mitigated by a tax offset (such as Senior Australian Tax Offset), then this person will not be required to lodge a tax return. This change to legislation has resulted in a break in the income series for superannuation and annuities with fewer persons reporting income from this income source for the 2007-08 income year onwards.
Other income (excluding Government pensions and allowances)
23 Other income (excluding Government pensions and allowances) is made up of selected sources of other income reported on the individual income tax return that were not allocated to one of the above categories. In the main these include attributed foreign income and all other income as reported in question 24 (supplementary section) of the 2007-08 income tax return.
24 Government pensions, benefits or allowances are excluded from the data and are therefore not included in this source of income category. Estimates from the ABS Survey of Income and Housing (SIH) of the amount of income Australians received from Government pensions and allowances was $56.3 billion in 2003-04, $61.1 billion in 2005-06 and $65.9 billion in 2007-08. This accounted for 12.0% of the total income estimate in SIH in 2003-04, 11.1% in 2005-06 and 9.5% in 2007-08.
Total Income (excluding Government pensions and allowances)
25 Total Income is the sum of all income derived from Wages and salaries, Own unincorporated business, Superannuation and annuities, Investments and Other income (excludingGovernment pensions, benefits or allowances), (defined in paragraphs 17 to 21 above).
Counts of individuals
26 Individuals may have income from a number of sources. Net income from a specific source may be positive or negative. For example, an individual may have positive net income from Wages and salaries but negative net income from Investment. The number of individuals for each income source includes all persons with either positive or negative net income from that source.
27 The total number of discrete persons in receipt of income from at least one of the income sources, is presented for the first time for the income year 2007-08. This total cannot be calculated as the sum of the individuals in each income category, as individuals may have more than one source of income in a given year. For example, an individual could derive income from Wages and salaries, Investment and Own unincorporated business and therefore contribute to the person count in each of these income sources.
28 There are several data considerations that users should be aware of when analysing the data. Overall, these are not viewed as being so severe that they would lead to the production of misleading information. Readers are cautioned to be aware of these considerations and take them into account when analysing the results.
29 For the purposes of providing statistical measures for the entire population, the ATO database has some limitations in its coverage. Persons who receive less than the taxable income threshold are not necessarily required to lodge a tax return. This can include persons who derive their income from government pensions and allowances. Consequently, the coverage of low income earners, including people receiving government pensions and allowances is not complete in ATO records. In addition, a number of Commonwealth of Australia Government pension, benefit and allowance payments are exempt from income tax and are therefore not required to be included in tax returns.
30 Generally, the ATO considers someone to be an Australian resident for tax purposes if they have either always lived in Australia or have come to Australia to live permanently, have been in Australia for more than half of the financial year (unless their usual home is overseas and they don't intend to live in Australia), have been in Australia continuously for six months or more and for most of that time have been in the one job and living in the same place, or are an overseas student enrolled in a course of study for more than six months duration.
Processing of tax returns
31 The data presented in this publication were compiled before the processing of all income tax returns for any given year may have been completed. Data provided to the ABS by the ATO are from returns processed up to 31 October, 16 months after the end of the financial year. Any returns lodged after this date are not included. Therefore, for 2007-08, returns processed after 31 October 2009 are not included. This also applies for each of the previous three years of data presented in this release, so for 2006-07 data for example, returns processed after 31 October 2008 are not included.
32 Annual revised data is published by the ATO in Taxation Statistics, Personal Tax, Table 7 for selected income items. Although this data is different to the data contained in this release, it can be used to give an indication of the likely change in the number of taxpayers and total income or loss over time as more tax returns are lodged. As an example, Table 1 below shows that for the 2003-04 income year, an additional 3.1% of taxpayers lodged their income tax returns in the twelve months after the initial processing cut off of 31 October 2005. By the 31 October 2009 cut off, 11.6 million tax returns had been processed for the 2003-04 financial year, an increase of 5.9% from the original 2003-04 data. An initial increase of around 3% in the next year was also observed for 2004-05 and 2005-06 data, and a 4.5% initial increase for 2006-07 data.
33 Table 2 shows an overall increase in total income as more tax returns are lodged after the initial cut off date. For 2003-04 data, an additional 3.1% of income was reported twelve months after the initial 16 month cut off of 31 October 2005. This increased to $435.4 billion by the 31 October 2009 cut off, a total increase of 5.1% since the original published income estimate.
34 Due to the later lodgement dates for a small portion of tax returns (as shown above) the data provided in this release slightly under-estimates the total taxable income for a given financial year.
35 The ATO has noted in Chapter 2 of Taxation Statistics 2007-08 that 'Lodgement of individuals' income tax returns grew by 7.1% for the 2007-08 income year. This increase reflects, in part, individual lodgements brought forward to access the government's tax bonus payment'.
Changes in taxation policy
36 The ATO provides information annually in Taxation Statistics on their website about changes that may affect taxation statistics. Changes relating to personal income tax are in each edition of Taxation Statistics.
37 For the income year 2007-08, a number of changes were noted in Chapter 2 of Taxation Statistics, including:
38 For the income year 2006-07, the following changes were noted in Chapter 2 of Taxation Statistics:
39 For the income year 2005-06, the following changes were noted in Chapter 2 of Taxation Statistics:
40 For the income year 2004-05, the following changes were noted in Chapter 2 of Taxation Statistics:
41 For the income year 2003-04, the following change was noted in Chapter 3 of Taxation Statistics:
COMPARISON WITH OTHER ABS INCOME DATA
42 The ABS Survey of Income and Housing (SIH) collects information on sources of income, amounts received and the characteristics of persons aged 15 years and over resident in private dwellings throughout Australia. The survey was conducted every year from 1994-95 to 1997-98, and then in 1999-2000, 2000-01 and 2002-03. From 2003-04, the survey is being conducted every two years. For further information about the concepts, definitions, methodology and estimation procedures used in the SIH, refer to Survey of Income and Housing, User Guide, 2007-08 (cat. no. 6553.0).
43 Data collected from SIH can be compared to ATO data published in this release for the years 2003-04, 2005-06 and 2007-08. Comparison of these three series can provide a means of assessing trends, establishing whether counts are of an expected magnitude and whether the distribution of income across the various sources is similar.
44 SIH produces estimates of current income as well as estimates of annual income in respect to the previous financial year. Current income refers to income being received at the time the data were collected from respondents. The data used in the following comparison are based on current income estimates as these are thought to provide a better picture of income earners, are more up to date and are generally reported more accurately than previous financial year estimates.
45 Differences exist between the three years of SIH data which should be taken into consideration, most significantly that the 2005-06 and 2007-08 surveys were run as stand alone surveys, whereas the 2003-04 SIH was integrated with the Household Expenditure Survey (HES). This may have had an impact on response.
46 Benchmarks used for the 2007-08 SIH were based on the 2006 census, whereas benchmarks for the 2003-04 and 2005-06 SIH were based on the 2001 census. Employment income for 2007-08 now includes all payments received by individuals as a result of their current or former involvement in paid employment. In addition to the regular and recurring cash receipts previously included, the new income measures also include non-cash benefits, bonuses, termination payments and payments for irregular overtime.
47 Table 3 presents comparable income data items from ATO data contained in this release and SIH data for 2003-04, 2005-06 and 2007-08.
b) SIH data is current estimates rather than previous financial year
c) SIH data includes non cash benefits in wage and salary income
d) Change to ATO superannuation income for 2007-08
48 The differences observed between the two sets of income data are likely to be as a result of different definitions, methodologies and reference periods. For example, the inclusion of imputation credits and distributions from trusts - non-primary production may contribute to the higher estimates observed in the ATO investment data.
49 The higher SIH wage and salary estimate is in part due to the inclusion of non-cash benefits (including salary sacrificed income) in this income source. Non-cash wage and salary income is not reported on the personal income tax form and is therefore excluded from wage and salary income data provided by the ATO.
50 The SIH Wages and salaries estimate for 2007-08 also includes, for the first time, irregular overtime and bonuses as well as termination payments.
51 With the changes to reporting of superannuation income (see paragraph 22 above) the SIH estimate of superannuation is likely to provide a more accurate indication of the level of income derived from superannuation and annuities from the 2007-08 income year onwards.
52 The Australian Standard Geographic Classification (ASGC) is used by the ABS for the collection and dissemination of geographically classified statistics. It is an essential reference for understanding and interpreting the geographic context of statistics published, not only by the ABS but also by other organisations, and its use enables comparability across datasets.
53 ATO data based on postcodes has been converted to data for Local Government Areas (LGA) and Statistical Local Areas (SLA) as defined by the Australian Standard Geographical Classification (ASGC). Boundaries of these regions can change over time and the ABS revises and releases the ASGC annually.
54 Data in this publication for all years are presented on boundaries in Australian Standard Geographical Classification (ASGC), 2008 (cat. no. 1216.0).
55 The ABS uses geographic correspondences to enable the conversion of data from one type of geographic region to another. These geographic correspondences are generally used to convert data for 'non-standard areas' to data for standard areas used by the ABS. Geographic correspondences (or conversions) are expressed as conversion factors based on population.
56 The geographic identifier on the ATO database is the postcode of the individuals' current home address at the time of completing the tax return. Consequently, postcode to SLA conversion factors have been used by the ATO to transform aggregated postcode data to estimates for Statistical Local Areas. The correspondences are based on the Estimated Resident Population. For further information see the detailed main structure of the Australian Standard Geographical Classification (ASGC), 2008 (cat. no. 1216.0).
57 The correspondence process:
58 When analysing data transformed by correspondences, the following limitations of this methodology need to be taken into account:
59 While care was taken in producing the correspondences, the ABS will not guarantee the accuracy of data transformed by correspondences.
60 The statistics in this electronic release and accompanying data cubes are presented according to the Australian Standard Geographical Classification (ASGC), 2008. Under this classification, statistical areas are defined as follows:
AVERAGE ANNUAL GROWTH RATE
62 The average annual growth rate is calculated as a percentage using the formula below, where Y0 is the average income at the start of the period, Yn is the average income at the end of the period, and n is the length of the period (in years) between Y0 and Yn.
[(Yn/Y0)1/n -1] x 100
63 For further information about these and other statistics, contact the National Information and Referral Service on 1300 135 070.
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