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The Great Australia Tax Dodge

OK, this needs discussion
http://www.abc.net.au/news/2017-12-08/your-tax-rate-is-probably-higher-than-every-company/9238452

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The item has been removed. The ABC could have been ‘tapped on the shoulder’.

Wow… that was fast… Luckily I took a pdf of it :slight_smile: Will just have to host it as it’s 9.5Mb… another article on the same (without the detailed list)

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OK, PDF can be picked up from http://fly2.link/taxdodge
UPDATE: The actual report from the ATO can be found here: https://data.gov.au/dataset/corporate-transparency

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TheShovel was satire once upon a time, but became a real news outlet in recent years.

http://www.theshovel.com.au/2015/11/11/increase-in-gst-to-create-fairer-broader-system-where-apple-still-pays-no-tax/

http://www.theshovel.com.au/2016/05/11/aussie-battler-pays-no-tax-says-media-organisation-that-also-pays-no-tax/

Ah yes in this country a tax dodge is the great Australian pastime where if you are unlucky to get caught you pay some penalties and promise you won’t do it again.
In the US it is a visit to prison.

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Almost anything more serious than a parking infringement can mean incarceration in the US! However the IRS does try to extract money including back taxes, penalties, and interest prior to going that route. As with the ATO not so many IRS staff understand their gazillion pages of tax laws either.

I know a man (dual national) who always filed his US taxes and paid accordingly. One year the IRS sent him a penalty notice for $USD50,000. He cited chapter and verse of the laws and regulations in the US tax code underpinning his US returns in question but they would have none of it. After 9 months of threats from the IRS and sleepless nights they finally admitted he was right, they were wrong and so sorry, but he should not try it again. They heavy just like the ATO, but as you correctly wrote, they will put you in prison - and for anyone not aware the US never got Al Capone for anything but tax evasion!

What is surprising is most journalists don’t know the difference between revenue, gross profit and net profit/loss. One could have a business that generates billions in revenue but has high costs, creating losses. Tax is paid on profits and not revenues…however, multinationals or those companies that strategically place their head offices/register their business somewhere overseas to shift profits and minimise tax is a different proposition. These companies should be hit hard and maybe the ATO should look at taxing revenues for any companies that do…

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Perhaps this will help:

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And it continues… where is the Royal Commission into this?

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There is often confusion in the media to the difference between revenue, gross profit and net profit. Many businesses have very high revenue stream (like Qantas), but when costs and deductions are included, there is only a small if any profit.

Using Qantas example, it is also worth noting that the company did pay tax, even though the company did not report a net profit where company tax would apply. The company pays GST on its services, income tax for employees, payroll taxes and all the other non-company tax based taxes etc etc. Where companies pay dividends such as from stored cash (rather than profits), these dividends are also taxed at the marginal rate of the person/organisation receiving the income.

If journalists were reporting facts, they would report as ‘news’ the actual taxes that a company pays and not single out one tax such as company tax. Otherwise it is selective reporting to make a political point.

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Most companies recover their GST (as it is an end user tax), Income Tax may be paid by the company but again it is not paid in the end by them, it is an end user tax so actually paid by the employee. Taxes on dividends again are ultimately paid by the shareholder either as a reduced dividend as it has been franked and/or as part of their tax return each year. Excises and so on also are generally in the end recovered from the consumer as part of the pricing they pay.

I am not saying this isn’t returning money to the system but these costs are accounted for in the prices charged for the goods/services provided. The problem is that even when businesses make huge profits many large business pay no Company Tax whatsoever on that profit, some using a sort of sleight of hand to move profits back to the Tax Haven Country (eg Bermuda & Cayman Islands) based entities but regardless of the way the tax obligation is shed, it is because Tax Laws have been framed knowingly or unknowingly to benefit them.

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Yes, there can be a significant gross profit which is:

Gross profit = Revenue - Cost of Goods Sold

Gross profit is reported in annual company financial statement and is what used by journalists when stating how much profit a company makes…however, taxes are paid on net profits. Reporting such with detailed qualifications is highly misleading.

Net profit = Gross profit - working expenses (which were not included in the gross profit calculation).

It is fair to look at the difference between net and gross profit, as one can determine what additional costs may be been made and whether these costs appear reasonable. It can also give an indication of the efficiency of the business and also its competitiveness or other cost overheads which are a risk to investors/owners.

It can also be used to determine if there is income shifting, as you pointed out some overseas based companies loan money or get their Australian subsidiaries to to pay inflated royalties to reduce net profit of the Australian business to near zero. Such is wrong as it is in effect income shifting and could be seen as avoiding the payment of Australian company taxes. The government has given the ATO powers to take action against such businesses, to reclaim unpaid taxes. There are also draft Legislation subject to consultation to further strengthen the laws.

However, when reporting company balance sheets, one should look at the net profit. Businesses (like anyone who works or has investments) can claim reasonable working expenses as deductions. If the government starts to look at deductions and starts to wind them in, then this will open a political minefield especially to anyone who runs their own business or has any other reasonable deductions. It will also likely result in further movement of businesses offshore to other countries with more sympathetic tax regimes.

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The “accounting” may be sound, but is it right?
How does this benefit Australian voters? It only benefits the shareholders (and obviously the CEO). When are small business and your average Jill & Joe afforded the same privilege?
Paying tax should be something we all do or all not do but everyone else propping up these megacorps is insane.
The largest shareholder in Qantas is JP Morgan (so trustworthy) and they take home a tidy sum in dividends… how does that help Australia (other than a few hundred jobs that could have gone to smaller businesses anyway)?
If accounting practices allow for the big boys to benefit so ridiculously over and beyond everyone else, then THAT my friend is what a “Royal Commission into MegaCorp Tax Avoidance” should be about.

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‘net profit’ is a straight line I cannot leave. Please accept the simplicity and glib approach to detail and terminology and perhaps board engagement, but it is no wonder people are sceptical when

Gross profit = $1,000,000
exec bonuses and salaries = $750,000
other overheads = $300,000
net profit = (-$50,000) = No taxes and forward credit

Got to love accounting.

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It benefits the business as they are able to write off costs associated with running the business. If it is not a deduction, then the actual costs to provide the goods and services would increase as these costs would need to be included in the costs of the products/services. This would lead to higher product/service costs for Australian products and more likely that Australians would purchase ‘cheaper’ imported products. Business which could, would also explore moving their operations overseas, thus reducing the Australian employment base and size of the Australian economy. A reduce Australian economy may result in other higher taxes to cover government revenue generated from the business in Australia. In addition to this, it is also likely to have an impact on inflation which could have a roll on impact in interest rates.

Such would not be good for consumers, the Australian economy or the business itself.

They are. Whether a business is very small or very large, the same deductions apply. Here is information on the ATO website.[quote=“maxim, post:14, topic:14862”]

The largest shareholder in Qantas is JP Morgan
[/quote]

Yes they are and there are a lot of other investment houses which also invest in the sharemarket. If such companies generate income in Australia such as a dividend through company profit distribution, then they pay tax in Australia from such income (providing they don’t have some sort of tax avoidance scheme in place like those currently targeted by the ATO and will be further targeted in the future.

Their profits on this income in Australia assuming JP Morgan doesn’t have any of the aforementioned schemes, will be taxed at the currently company tax rate for their business.

It is possible that JP Morgan may claim tax credits in the country where the headoffice of the business is located, but this doesn’t impact on the tax revenue generated in Australia…just potentially reduces the tax paid in the other country.

There are far more tax benefits to some Australian businesses, such as primary producer. One example is a primary producer (farmer) can do income spreading over a number of years to reduce tax paid and balance off the years when losses are made. Such privileges are not available to other businesses - a similar benefit for all other companies and investors is the ability to foll forward losses so they can be used against future income/profits.

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Not quite.

If you are interested in seeing what deductions can be claims see the ATO link in the above post.

In relation to Qantas, the company has been reporting year on year losses for most past decade and only in he past year or so has again become profitable. Past losses including borrowings to sustain the business has been used against the $1,370 statutory billion profit in 2016-17 (see the Financial Report on page 55 of the Annual Report). The report also provides line items for those deductions/claims against the net profit. I can’t recall seeing bonuses and salaries as such deductions as these would be included in the working expenditure and net profit calculation.

It is also worth noting that Qantas has significant liabilities (inc. borrowings) of $13.6B, compared to its statutory profit of $1.37B.

Employee bonuses are also interesting as they will be taxed at the highest marginal income tax rate…so anyone earning over $37,001 will be paying a marginal rate greater than the current company tax rate. In effect, the government would be receiving more tax revenue from the employee bonus scheme than it the company was paying company tax.

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FWIW I well understand businesses and accounting principles, but cannot leave a straight line alone. Reality is that the corporate tax structures are complex but give those non-humans breaks than the rest of us do not receive.

My point was that expenses to arrive at taxable net are manipulated, despite my flippant example.

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There have been several parliamentary inquiries about corporate profit shifting and avoidance. Here is one of the recent ones.

The results and recommendations of these have lead to legislative changes giving the ATO to tools to persue such companies. There are more legislative changes in the consultation phase which will mean Australia will have the strongest/most robust tax laws in the developed world.

Modernising the taxation system is important to capture changes lead through freeing up markets.

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Yes, it would be nice ro get all the deductions that everyone else gets, but I for one wouldn’t want the personal tax system any more complex that it already is.

Larger businesses usually have a wider suite of deducations due to their operations, a good example is R&D…large companies like CSL and other pharmaceutical companies have considerable R&D budget/cost which incur tax concessions. Small business possibly would spend no, if little on R&D.

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