Big business: Legally avoiding tax the Australian way

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(Image by Alpha Stock Images )

Newly released ATO figures indicate that big business has avoided tax for the fourth year in a row.

More specifically, according to the ATO '2016-17 Report of Entity Tax Information', 722 big businesses paid no income tax in Australia in 2016/17.

Who are we talking about?

As the ATO indicates:

The corporate tax transparency population includes:

  • Australian public and foreign-owned entities with total income of $100 million or more
  • Australian-owned resident private entities with total income of $200 million or more
  • entities that have petroleum resource rent tax (PRRT) payable.

There were 2,109 entities covered by the report1,721 public and foreign-owned companies, 388 private companies and 14 paying PRRT. Collectively, they paid $45.7 billion in company tax — an increase of $7.5 billion or 19.6% over the previous income year. Most of this increase, $5.7 billion, came from the mining, energy and water sector, and was, in the main, the result of higher resource prices. However, the amount of tax paid by that sector, although more than the two previous financial years, was still less than it paid in 2013/14.

Despite Second Commissioner of Taxation Jeremy Hirschhorn warning ‘against focusing on the number of entities that paid either no tax or a small amount of tax relative to gross income’, we will focus on this here, because paying tax is a class issue.  

Workers have little wiggle room when it comes to paying tax. Companies – especially big companies with cross-border activities – have the ability to manipulate their circumstances to avoid tax. Also, it is not workers but the state which makes, administers and enforces the tax laws. Those laws reflect the grundnorm of capitalism — profit.

This means that even if the tax gap between what companies pay in tax and what they should pay is low – at about 4.4% of tax paid, or $1.8 billion in 2015-16 as the ATO claims, or high, as others have argued and up to $8 or $9 billion – the system is designed by the lackeys of those who have an interest as a class in not paying tax, or in paying as little as possible. The argument that companies "pay all the tax as legally required" fails to address the question of why the tax system is rigged in their favour.

Speaking of political influence, it is interesting to note that some of the big contributors to the political coffers of the Coalition are also companies which pay no tax.

As Gareth Hutchens and Nick Evershed reported in The Guardian:

… the Greens have pointed out at least eight of the largest companies paid more money in donations to the Labor and Liberal and National parties in 2016-17 than they paid in corporate tax that year.


Chevron paid $82,228 in political donations in 2016-17, Origin Energy $103,574, Woodside Petroleum $279,000, Whitehaven Coal $30,000, and Santos $102,516, but none of them paid corporate tax that year.  

There are other reasons why tax is a class issue. Workers often have a sense of community flowing from the nature of their cooperative work. Employers, on the other hand, see tax as a cost to business. They are in competition with each other and cutting costs, including tax, is one way to improve their profitability compared to their competitors. They have no sense of community.

According to Labor Shadow Assistant Treasurer Andrew Leigh:

‘Data issued by the Australian Taxation Office today showed that 722 out of the 2109 companies examined failed to pay any tax [in] the 2016-17 tax year. The companies that paid no tax include 100 firms reporting more than $1 billion in total income.’

Let that sink in... 34% of big business paid no income tax.

But before we rush off and say that all 722 are tax avoiders, let’s explore this a bit more. Your taxable income is your assessable income (as a generalisation, your gross income) less allowable deductions — or those deductions incurred in gaining or producing your income and other permissible deductions.

Just because a company has a high gross income, it may be making a loss due to trading conditions and, or high costs. According to the ATO, about 20 to 30% of the Australian Securities Exchange 500 companies are in this position. The figure falls to between 5 to 10% for the ASX 100 companies.  

These losses are carried forward into future years and can offset tax liability for years to come. That, for example, appears to have been the case for QANTAS, which indicates that because of the GFC, a union dispute, generous depreciation provisions and high fuel costs, it has had carry forward losses which mean it has not paid any income tax since 2009.

As QANTAS says:

Due to our carry forward tax losses, Qantas was not required to pay any company tax in 2016/17. This stems from almost $3 billion in accumulated tax losses from prior years, which now sit at $951 million due to the company’s strong financial performance more recently. Once these losses are exhausted, Qantas will return to paying company tax among the other taxes we pay and collect.

It is impossible to tell if, on top of these trading and other conditions, QANTAS is also arranging its affairs in such a way as to minimise, or avoid, tax. Given Qantas asked some of its staff to "volunteer" to work for nothing over Christmas and has gone through a job cutting program, obviously cutting costs to boost the bottom line is its main business driver. Tax avoidance, of course, is another way of boosting the bottom line.  

Qantas has 721 big business mates who paid no income tax in the 2016-17 income year. One of them was the Adani Abbot Point Terminal Holdings, who paid no income tax despite a gross income of $442 million. Gina Rinehart’s Roy Hill Holdings recorded gross income of $2.3 billion, but it too paid not a cent in income tax. The gross income of Rupert Murdoch’s News Australia Holdings was $247 million (and interestingly, taxable income of $353 million), but, you guessed it, paid no income tax.

Lots of IT companies also seem to be non-tax payers, as this report by Justin Hendry in ITNews makes clear.

You can click here, download and type in the name of your favourite company, to see how much or how little they are contributing to Australian society through the income tax system.

Despite the Morrison Government and its "little sir echoes" in the ATO claiming, as they do every year, that everything is all okay, or that their new legislation is fixing it all up, or that the tax gap is low, the fact that 34% of big business paid no income tax shows, as Andrew Leigh said, ‘the system is not as fair as it should be'.

Prominent economists Ross Garnaut, Craig Emerson, Reuben Finighan and Stephen Anthony, chief economist of Industry Super Australia, recently argued for a cash flow tax. This is ‘a tax that is levied on the cash entering the business less the cash leaving the business'. It will not be adopted.

A bolder argument is for a tax on the gross revenue of big businesses – that is, the cash entering the business – or a "Buffett Rule" for those companies. While taxable income (gross income less deductions incurred in gaining that income) is supposed to be the best guide of the ability to pay tax – and that is certainly true for workers – for big business with billions in assets, it is not true.

Even when they are making a loss (either because of market conditions or tax avoidance or other circumstances) should big business not be paying a contribution, such as an operating fee or licence perhaps to the rest of us? This could be based on their gross income for the privilege of carrying on business here, and using the infrastructure, educated workforce and other benefits paid for by our taxes.

A rough calculation of the 722 companies that paid no tax by increasing last year’s figure of $500 billion by just 10% gives us about $550 billion. A small tax on that gross income would yield somewhere in the order of $5 billion at 1%, up to $16 billion at 3%.

For now, tax policy remains the preserve of big business.

You can follow Canberra correspondent John Passant on Twitter @JohnPassantSigned copies of John's first book of poetry, Songs for the Band Unformed (Ginninderra Press 2016), are available for purchase from the IA store HERE.

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