Small business income tax gap at $10bn

According to the ATO, over 60 per cent of the gap is made up of black economy behaviour, meaning taxpayers are deliberately omitting income and overclaiming expenses.

"The government has provided us with additional funding for a black economy program, based on the Black Economy Taskforce recommendations. So you will see an increased focus in this area through both physical visits to 'cash only' businesses and better use of data analytics," commissioner Chris Jordan said.

"It will become much harder to operate outside the system, or to report income below what your lifestyle suggests."

The size of the small business income tax gap is much larger in percentage terms than in other market segments at between 10 per cent and 15 per cent. While the ATO is releasing the figures soon, to give an indication, it is expecting the small business income tax gap to be in the order of $10 billion.

"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," Mr Jordan said.

"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."