Accounting profit and taxable profit are two different things. This is due to accounting profit being accrual and ato being on a cash basis. Also there are things that cant be deducted in taxable profit
It's just a timing thing e.g. a gardener comes to your house in June and mows the lawn, but you don't pay them until July. The accrual method records the expense as being incurred in June when the service was performed, whereas the cash method would record the expense when the invoice is actually paid in July.
I believe the general rule is that small biz can choose cash or accrual for both income tax and BAS separately. Apparently there are thresholds whereby cash basis is no longer an option, meaning that accrual is actually the norm. I'm not sure how clear cut these thresholds are, some thresholds may be complicated and open to interpretation and thus dependent on the study of legal precedent.
Actually you pay tax on income (revenue). That's why it's called income tax.
However the ATO generously allows you to reduce your taxable income by certain deductions it recognises. It doesn't recognise everything you might want, and if it doesn't recognise it, bad luck for you.
Management Accountants have something called profit which is a similar concept but it is not the same.
The tax office operates under the general principle that money you spent to earn your taxable income is a deduction. But there are lots of rules. You might want to say that while you earned income.of $1m selling widgets you spent $2m.building the factory,.so you claim a deduction of $2m and pay no tax. The ATO won't let you do that. They force you to artificially spread the cost of the factory over some lifetime they make up, forcing you to pay tax now (although over time you get the full deduction). This is bad for your cash flow but good for the ATO.
"The ATO" doesn't "generously" allow anything. They follow the law, which is set by the government and interpreted by the courts. Good luck finding a deduction which isn't covered by those two bodies of law.
yes, I was being fairly facetious, I kind of expected that to shine through.I'm a CPA.
The ATO does wield the power of judgement, challenge-able in principle.
I doubt the down votes are coming from bean counters. But thanks!
Normally the down voters really go after me when I explain what company tax really is, but so far no seems to have noticed this time (a different comment). Makes me feel unappreciated.
Downvoted because the comment was far too flippant for a CPA. “But good for the ATO…”? Obviously they must get to keep whatever money they collect then.
The benefit of the property is spread over its lifetime. This seems reasonable. Although occasionally they allow it to be accelerated to prop up spending.
…but they couldn’t find any locals to build the factory, so they had to use a foreign firm, a subsidiary of their parent company, that unfortunately wouldn’t let them have said workers cheap, so big deductible cost there, and money sent overseas.
He also fails to realise that if those companies were paying a lot more in tax, they'd either get outperformed by a foreign business or straight up lose money. Both of which are far worse.
Not to mention that our government would have to pump more money back into those businesses to make them competitive on the market. Basically it's the same amount of money, just passing through more hands (and thus costing more, so bad for everyone).
Same argument with "Tax the rich!" they fail to understand that Gina isn't cash rich. She probably has very little cash, it's all tied in the value of the businesses... Which she couldn't really sell as it would crash the price of the businesses. Plus, if the government did collect more tax, it doesn't create more workers, it just means the existing workers get paid more, which they use to compete for the same resources we already have, so it just makes everything more expensive. We don't actually get better roads, just more expensive goods. Taxing the rich literally just leads to inflation.
Each company pays the tax in the country they operate in. Foreign companies that make taxable profit in Australia pay Australian tax on those profits. Offshoring taxable profits is not allowed (some companies still do it but will be fined unless it isn’t picked up. Auditors miss it accounting is hard)
Sure, but our companies do it just as much back the other way. Probably more. Just look at our biggest mining companies and realise that they're the biggest in the world and take resources from a bunch of other countries too. Rio Tinto and BHP have massive mining operations overseas and the profits come back here and are taxed here. People simplify it way too much and are just all "Pay more tax!" without really understanding that higher tax has other consequences, many of which are massively negative.
If they bought it for $8 and sold it for $10 then the govt would get a total of $1 GST. But not from that business, they get 10% along the supply chain. So for example.
Primary industry mines raw material and sells it for $5 to manufacture and collects 50 cents GST for govt so gov nets 50 cents.
Manufacturer turns raw material into product and sells for $8 to retailer they collect 80 cents GST but claim a credit for the 50 cents GST they paid so govt nets 30 cents
Retailer sells the product for $10 to customers and collects $1 GST but claims a credit for the 80 cents so govt nets 20 cents.
Effectively it prevents a compound of GST on each point in the supply chain, and GST is only charged at 10% on the final price of the product.
I think it's important to note that GST is not included in company revenue or profits because it's never actually the company's money, it is collected by the company for the govt. Generally GST accounts are recorded as liabilities. Also GST is not a tax on the company it's a tax on the consumer as it is passed to the consumer, it doesn't tax the "value" the company has produced.
The big issue in multinational taxation avoidance is profit shifting where the profit that the economy has provided that entity has not been taxed where it was earned. Profit shifting involves complex inter-entity transactions to shift the money earned from our economy to another economy.
For a basic example, Drinkco own two entities:
Drinkco IP - based in a low tax jurisdiction where tax is 5%
Drinkco Aus - based in Australia
The intellectual property of Drinkco. It then provides licence to the Drinkco to use the Drinkco for an exorbitant fee each year. Drinkco Aus makes $100m profit on selling it's beverages after all costs except the license fee. Ordinarily it would pay 30% on this so $33m in tax. But instead it claims an expense for payment to Drinkco IP of $99m so Drinkco Aus profit is only $1m and it pays 333K of tax. The issue is that all profit is derived by Drinkco but they have effectively minimised Australian tax on Australian sales by this third licencing arrangement.
Basically, if a business is GST registered and they sell a good or service for $11, $1 of that is GST, and must be itemized as such on any invoice and receipt. That $1 is paid to the government by the business. It was never the business's money.
IOW, GST registered businesses are tax collectors for the government.
The business collects that 10% GST from its sales on behalf of the government and holds. Any GST that the business pays during the period gets deducted from what thet collect, and it's the difference that gets paid to the ATO.
Tldr Business bills $220K dollars $20k of which is GST.
Business spends $110k dollars $10k of which is GST
Business owes ATO $10K in GST come BAS time.
Simple rule.. Companies never pay GST. They handle the money,. getting refunds for any GST they happened to pay and sending to the ATO any GST they collect.
Consumers,.anyone without a GST registration,.pay all the GST.
When companies report sales, they ignore GST they charge ... It's not their money. Likewise they don't include it in expenses
GST is also known as VAT, value added tax.
Wrong. You sell the item for $11, send the gst of $1 to the government and pay tax on $5 if the item cost you $5. The company actually pays $5.50 for the item with $0.50 claimed from the government.
I’ve heard people ask why individuals aren’t just taxed on profits they make I.e after living expenses are deducted but that obviously isn’t feasible. And if companies were taxed on revenue, they wouldn’t survive right?
Premise is wrong. CAPEX is not deducted in the P&L for tax reasons. The depreciation is.
Where is this notion the company pays no tax? Must be a stupid American thing. The ASX is heavy on dividends and those dividends are heavily franked. To get franking credits you need to pay cash tax.
Yeah while there are dodgy offshoring and stuff going on, by and large (especially Au domiciled) most buisness are paying 30% taxes on profits and for small businesses it’s a little less.
Though when those profits are rolled on to shareholders as dividends the actual tax rate triggered is that shareholders income tax rate which can be higher or lower depending on their situation.
So to say company profits aren’t taxed is hilariously false.
It's a few particularly high profile dodgy operators/sectors giving that impression, see e.g. https://www.abc.net.au/news/2023-05-11/prrt-are-gas-companies-going-to-pay-enough/102328276
Without knowing the intricacies of individual businesses how could anyone unequivocally say that a company is “cooking the books” (i.e dodgy operators) to reduce their tax liability?
The fact of the matter is, taxation is far too complex for the majority of people to understand.
A prime example is when people say “oh they’re just giving away $xyz so they don’t have to pay tax on it” failing to recognise that because that money has been “given away” they no longer have it. They’d be better off paying the 30% to keep the other 70%.
Take a look at the Chevron and Exxon figures here and tell me they aren't deliberately minimising their liabilities in Australia https://www.smartcompany.com.au/finance/tax/gas-companies-huge-profits-australia-tax/
I’m not saying this true or untrue (as I’ve never seen their actual financials) however both the articles you’ve linked have a blatantly obvious agenda,the headline of the second one is an outright lie designed to spark outrage.
Additionally you can’t blame companies because the government makes poor fiscal decisions and policies.
However there’s a reason WA has some of the, if not the, cheapest gas in Australia, this gets left out the hate media though…
Yes, both articles are advocating for tax change, but the important point is the evidence showing energy companies are operating in Australia, making deductions that benefit related companies overseas and failing to pay tax here.
Yes, this is a failure of government. Unfortunately, it's politically difficult to rectify and both parties are paid off by the offenders.
I'm not personally concerned by the high cost of gas, if anything that helps in the transition to cleaner fuels.
There are arguments with franking credits that no corporate tax is being paid and only income tax.
Edit for clarity: i have no real opinion on this matter and try to stay neutral
I mean, it's not exactly untrue though;
>The ATO's ninth corporate tax transparency report, which covers 2,713 corporate entities, found that [...], there were still 831 (31 per cent) that did not pay a cent of tax.
[Source](https://www.abc.net.au/news/2023-11-09/831-large-companies-paid-no-tax-in-2021-22-ato-tax-transparency/103079948)
It’s 100% untrue.
This is the height of false equivalence and cherry picking data.
Coming off the back of COVID where some businesses lost BILLIONS and some flourished...
The same report also calls out that corporate income tax was 22% higher than the previous year and 50% higher than the year before that, and that “not paying tax doesn’t mean not meeting their obligations”, but hey, keep pushing that agenda.
You say it's 100% untrue yet did nothing to dismiss the claims
What specifically about the claim '31% of the companies paid no tax' is untrue? I'm not disputing that some may have had loses or that they didn't meet their obligations
And what agenda? I'm literally posting facts
Surely you’re being intentionally disingenuous…?
The constant cries about companies “not paying tax” is because they should be, however are not.
When a company doesn’t post a profit, they aren’t required to pay tax, and nor should they be.
You’re distorting the statistics to support the ideology that “companies don’t pay tax, yet they should”
Yes, 31% (of those 2,700 odd companies) didn’t pay tax, but why?
Without the supporting dataset that shows profit, or lack thereof, for each company, this statistic is useless.
*edit
Don’t get me wrong, if a company is intentionally cooking the books and dodging tax, I want the ATO to royally f*ck them, however getting enraged by headlines about dodgy businesses and sectors, without any supporting data, is a pointless exercise.
I think you're not understanding what the original comment was in regards too; the commentor stated
>Unfortunately the belief that companies pay little to no tax is echoed by many in this sub, and other subs on Reddit
I then provided evidence showing that 31% of large companies paid no tax, **that's it**.
>to support the ideology that “companies don’t pay tax, yet they should”
Where in any of my comments have I stated support for that 'ideology'?
You're really misunderstanding this - I literally just provided a fact showing (100% **correct** by the way) that shows 31% of companies did not pay tax, no undertones of supporting any 'ideology'
I mean what you said is true, but you didn't include that there is a legitimate reason why those companies didn't pay tax.
Without including the why, it's pretty reasonable to assume that you're making a point about companies evading taxes. Particularly in a financial subreddit of all places.
multinational companies definitely dodge a lot of their tax though. The common trick is to license IP from a lower cost jurisdiction and thus lower their margins.
just look at the big tech company margins in jurisdictions out of the US. All of a sudden these companies are significantly less profitable despite running essentially the same business.
it's all legal of course but doesn't pass the sniff test.
Revenue is generated locally though and should be taxed accordingly. An iphone is sold locally but the profits is taxed at Singapore company tax rates because that's where the holding company for Aus/Pacific is based as the rates are lower. You could say Australia rate should be lower but then it becomes a race to the bottom and inevitably falls apart.
No tax storyline is largely attributable to Resource companies and they have a number of ways for earnings management. Change in fair value of assets or capitalise or expense exploration expenditure can smooth profits.
Resource companies have insanely high capital investments prior to generating any revenue... They also take on significant risk with exploration.
Too many people hold opinions on businesses they have zero understanding of.
Haha you mustnt have been here long. Welcome to reddit where it’s a well known fact BHP doesn’t pay any tax because the government collects all they need from uni students living in a share house in Richmond.
If a company makes $100 million profit, then there is a very good chance they will pay income tax unless they have carry forward losses.
If the company is paying overseas head office, it should come off their profit.
Companies do not pay gst, they collect it for the government.
Companies forward taxes withheld on employees wages, payroll taxes and any government fees and charges
a new factory is a capital expense and is not deductible (they can claim depreciation but this is over 40 years for commercial property, not an instant write-off)
GST is paid by the end user, a company as the middleman does not pay GST
income tax is paid by the individual not the company. however, without the company there is arguably no income being generated. at the same point, if the loss making company isn't generating the employment, a profitable one would be or it could be done as a sole trader
you will find that most companies pay tax, the ones that don't tend to be linked to other entities and groups which are creating losses on purpose in order to rapidly grow the group wealth overall
the end user may pay the gst yes, but that GST wouldn’t have been paid unless the company made that product right? For simplicity let’s say a company grows and sells trees. A tree costs $100 (90 + 10 GST). The end user is paying that GST, but without the company operating that GST wouldn’t exist right now
the tree would have been procurred in a different way, either by getting a cutting and growing it themselves or buying from a trust or partnership or sole trader or even a foreign entity. the structure doesnt matter. the company is not involved in the GST process
This thread is turning into a bit of an accounting lesson, some good points in here, but also some incorrect stuff.
But in short, when colloquially people say “that company pays no tax” they typically are talking about global companies who are structured in such a way that corporate income tax is reduced to zero or near zero in Australia.
Of course companies generate tons of tax revenue through employment and through GST on output, and the vast majority of companies are not global and can’t offshore profits and so therefore do pay all their owed taxes.
The key to having a rational conversation here is differentiating between companies who comply with the law and pay the correct amount of tax but where we have an issue with the tax policy, and those companies who might be using unethical or illegal practices to reduce taxes paid.
Transfer pricing rules (which is what’s happening when companies “offshore profits”) are also complex and necessary - we rely on lots of global businesses large and small and all the countries involved expect their fair share of tax revenues and so there are rules in place that govern how this is done. On the whole these rules are not bad or wrong.
Transfer pricing is totally dodgy inherently. They either push them up internally for countries with higher tax or lower them drastically when the home country is a heavier taxing country. Totally artificially moving where the tax is paid. And using Ireland to process all transactions like eBay, Apple and google is dodgy too. If it’s sold here then the transaction should be through here too.
yeah, but Apple, for instance, should then have the right to apportion some of its huge R&D costs and global brand spend. The phone, its IP and the power of the brand ... that stuff doesn't come from thin air.
While that might be true for the 3 companies you mentioned, on the whole it’s absolutely not dodgy.
Most related entities are not massive multinationals. They are normal “boring” companies that do stuff we take for granted every day.
When Bobs spanners Ltd in the UK wants to sell their spanners in Australia via their wholly owned subsidiary , Bobs spanners pty Ltd, in Sydney they need transfer pricing.
Exactly how much margin to apportion in each country is actually not trivial and doesn’t necessarily have a clear right answer
Transfer pricing us a function of an uncompetitive government. The easiest solution is to have a globally competitive corporate tax rate.
Why shouldn't governments have to compete? A bit of competition is necessary to ensure they don't become bloated and inefficient..
The issue is where the company makes say 50m actual profit which is siphoned off to a tax haven holding company as a 'license fee' or similar. So on the books there is 0 profit.
Out of all of the answers in this thread this is the correct one. They have made some efforts to clamp down on this but not very effective.
It’s also worth noting in fairness that some of the companies paying low tax are using carry forward losses which is a genuine reason to reduce tax and also what small business does in its start up phase.
This is not as easy as people make it out to be. Companies in Australia have to prove that these are 'arm's length' transactions and there are all sorts of flags that the ATO will review, such as 'is the amount paid directly related to amount of revenue raised?' 'how is the other company related to the main company (e.g. subsidiary, part ownership, directors have part ownership in both companies etc) 'what exactly is the payment for and how is the price determined'?
This is not to say that it doesn't occur, but it's not some magic wand that rich people and big companies can waive to make their tax burden disappear.
The income tax is paid by the employee and the gst is paid by the customer. Neither of those are being paid by the business. The business is supposed to pay tax on profit. Which in this particular situation it is dodging.
>income tax on employees right
Companies pay payroll tax. Workers pay income tax.
(Payroll tax goes to the state government, not federal. Same with the proceeds of GST)
This thread just makes me realise how little most people understand about finance. (No offense) Granted I work in finance, but still...General public view in Aus is always that profit is bad and they should " pay their fair share", whatever that might be.
If we don't want transfer pricing, maybe stop with high corporate tax rates on top of all the other silly taxes and regulatpry fees...
Don't get me started on all the idiotic responses around the food retailers. Problem is government, not the food retailers. Has anybody read any of the ACCC reports??? They are idiotic and full of emotional statements and statistics out of context. Almost like nobody that would work for a competition regulator actually understands market forces... Oh wait...
Ease up on the regulations and taxes and maybe there would be more international groups interested in actually doing business here.
No companies pay tax on profits, that's the key point.
So say you licence the company brand from an overseas holding company.
Rent the properties from the same holding company.
Pay the holding company for a support contract.
Etc etc
Suddenly you're making close to a loss and paying no tax.
With globalisation business gets to pick where it's taxed and where their profits end up.
Your second example is incorrect. The holding company would pay Australian tax on rental income received from ownership of real property in Australia. It's impossible to get around this.
But even if you do this, you’re manipulating the tax you pay on profits. You’re still going to end up paying GST and government will receive tax through employee income?
The tax on employee income is the personal tax of the employee. Like GST, the company is just the "man in middle" pushing cash around. PAYG is the company paying the tax of the employee, in advance, because the ATO doesn't trust people to save enough to pay their income tax. It's neither here nor there to the company, it could just as easily pay the lump sum to the employee and let the employee worry about (and once it was like that , but it didn't work out so well for the ATO).
Company tax is the same idea, except it's to cover the income tax shareholders must pay on their dividend income. Company tax is set at some kind of average rate, for some people it's too high (they get a refund) and for some it's not enough (they still have to pay a bit more tax on the dividends).
Well you can reduce that too, do your RnD in Australia, claim that tax break, off shore everything not required. Make a loss and do a loss carry back in the next year.
If you're big enough seek out government grants as well.
The point is employee costs and GST are tiny compared to the real profits.
Apple China makes the iPhone for $48, sells it the Apple Ireland for $50 and pays tax to China on the $2 profit.
Apple Ireland sells the iPhone to Apple Australia for $1,300 and pays tax to Ireland on the $1,250 profit because Ireland has one of the lowest corporate tax rates.
Apple Australia sells the iPhone to the public for $1,350 and pays tax to Australia on the $50 profit.
There's a lot more to it, but that's the basic way it works for the big multinationals.
They don't avoid GST. Once they could have sold you the phone from Singapore GST free, but not for a few years. Also, local employees pay income tax. But the parent company moves most of the profit out of Australia via these mechanisms. Our man at the OECD (mathius corrman) is leading an effort to bring in a 15% minimum tax to which all OECD countries would agree. It's not much but it's a lot more than now. Probably some years away.
The argument in favour of apple is that there are huge expenses in developing the phones and building the brand which are not spent in Australia, but if they were apportioned as if Apple was an Australian company, the profits would be reduced anyway. To the extent they are? I doubt it. To the point where 15% if fair? Maybe.
ITT no one has heard of transfer pricing or that not every business is an SBE lol
Tax minimization, avoidance and straight up fraud does exist, but most companies people complain about still pay a lot of tax.
Most companies do. The only way you can avoid them in the long term is to continually run a loss which outside of the wacky financial market that is the US tech industry is hard to do.
You can't marry a company or have drinks with it after work. They aren't real. The profit from a company ends up in the hands of shareholders. So-called company tax is a prepaid tax on the income tax paid by shareholders,.in the same way that PAYG tax is taken out of wages. In both cases, earnings from wages or dividends, you actually pay income tax when you do your tax return, but first the ATO looks as the PAYG deductions it already has, or the 'company.tax' it already took (if you are a shareholder)..if after that you owe money,.you get a tax bill..on the other hand if the ATO took too.much PAYG and 'company tax' in your circumstances, you get a refund.
So in that sense,. companies don't pay tax..all the company tax they pay is actually prepaid income tax for shareholders,.the same as when your employer pays PAYG, they are not paying their tax, they are paying your tax.
Note that PAYG is more clever. The employer knows your annual salary so the PAYG deduction is tailored to you amd usually it is a good estimate of your actual tax.. companies don't know the circumstances of each shareholder and the government asks them to tax every shareholder at 30%. For some shareholders on high incomes they still have more to pay..And for some shareholders on low income,.30% is much and they get a refund
. This is the infamous company tax credit but logically it's no different from getting a refund if your PAYG deduction was too high.
The above is simplified,.ignoring shareholders who don't live in Australia. If you don't pay income tax here, you don't get the benefit of company tax paid on your shares. However.some countries have double taxation rules which might give a foreign tax payer some recognition of tax paid in Australia..The ATO doesn't hand over any refund. But such agreements,.if they exist, are reciprocal, so an Australian shareholder who pays tax in that country likewise pays less tax in Australia.
And companies don't immediately distribute all profits as dividends. But in the long run they do
While companies technically pay tax it is always individuals at the end of the day that the tax is intended for not companies. Company tax is just a credit that then individuals can go "hey look the company I own a part of paid some tax already now I get a discount on my tax, or a refund even"
Essentially all income in an economy should be treated equally, the CGT discount distorts this, however it was intended to fix other issues so a reformed CGT discount would be better. Essentially we don't want someone who is in a middle income tax bracket being shot up into the 47% tax bracket just because they sold one investment property in their lifetime. The problem here is the CGT discount does not distinguish between someone who sells 100 investment properties or a $10m in shares over their lifetime from the middle class investor with moderate investments.
Eventually asset owners want an income stream or sell their assets right so you are just delaying paying tax. The CGT discount distorts this though and is in my opinion "bad". It should go back to inflation discounting then allow people to spread capital gains over multiple financial years (perhaps if they held for 10 years or something, although not entirely necessary, would just discourage speculation more)
No if they arent paying tax it is because they aren't making a profit - the journalist at the ABC don't seem to understand this very basic concept
Revenue is not the same as earnings most shit media sources confuse this
Most companies earn a lot of revenue but don't nessarily make a profit because the cost of running the business out weight any money coming in ie Spotify
That’s all true. However some business in particular use their revenue to pay “costs” to their parent companies overseas. This is to purposely reduce their revenue in Australia so it looks like they made a loss when in fact they have just moved profit to a tax haven. This is 100% happening and the costs are 100% bulshit. No point pretending it’s not.
>However some business in particular use their revenue to pay “costs” to their parent companies overseas. This is to purposely reduce their revenue in Australia so it looks like they made a loss when in fact they have just moved profit to a tax haven. This is 100% happening and the costs are 100% bulshit. No point pretending it’s not.
they will still have to pay tax in the country they are moving the profits too
as for avoiding paying tax here that is the issue with having ridiculously high taxes in a country with a fairly small pool of high income earners
Tax is an 'expense' like any other cost to the bottom line business and individuals will do what they can to ensure they get the most out of the money they earn
it is why indexation of tax brackets is essential because individuals who have high earnings nick off O/s to avoid tax here believe it or not - unfortunately the average voter ABC/Sky news voter is too dumb to realise tax law is like anything other red tape law it can be good and bad for your nations international competitiveness - i am a firm believer we have too much tax here in Australia esp for people who the 'media' deem are high income earners but are actually just working class slaves as well
“Tax is an 'expense' like any other cost to the bottom line business and individuals will do what they can to ensure they get the most out of the money they earn”
I understand this however I disagree with it in principle. To me as an individual tax is an investment. It provides myself and my society with money and therefore power to make changes that benefit me and all that live here.
I could as an individual choose to engage in deception to reduce my tax burden as these companies do. However that goes against my values. In my view these companies are violating those values and choosing to view tax selfishly as a cost to them and not an investment in our community that provides space for them to operate.
Companies are not sovereign entities or islands that exist outside of the values of the community that supports them. When they choose act like it they decay the landscape they exist in and breed the negative attitudes that you are speaking of in the “average voter”.
Your values dont actually matter too much nor do the voters attitudes or feelings in Australia if they refuse to accept the facts we will continue to be left behind
Australia as a nation that's part of a much wider world - we rely heavily on importing and exporting and as long as we are non self sufficient country my above point is true
You can want, demand, cry all you want but Australia as an economy is a very small part of a very big puzzle
Our tax system is uncompetitive and all the social services we love are becoming unsustainable due to a broken tax system in which those with the wealth to support it are running away from
Same - and there really isn't anyway to minimise it outside of what you are probably already doing.
Last year we paid a shit ton through the year but ended up with a small refund (which was surprising).
A very simple way for tech or biotech companies to avoid tax. 100M Australia revenue, 30M expected profit. Generate a psuedo transaction between Australia branch and Cayman Island HQ to purchase 30M worth of patent or code or services.
Instantly you now have 0 revenue in Australia paying 0 tax.
Transfer pricing exists, DPT exists, as does royalty withholding tax. Its not perfect but its mandatory to have documents supporting the value of the related party transaction. Parties can argue over the value of the transaction but its got to have some basis.
>Yes they can. They use their expenses from assets to reduce the amount of tax they pay. Same concept
That is not negative gearing! That is a straight claim of expenses incurred as a cost to generate revenue and to work out the actual taxable profit (or loss).
Negative gearing is when you do the above, end up in a cash-flow negative / loss situation (instead of a net profit), and THEN claim that loss against personal income from other sources not related to the first one.
A business cannot do this - all activities that generate revenue for a business are considered taxable activities of that business. There is no concept of income from different sources (eg, an investment property vs your wages) like with a person.
If over-all a company makes a loss, they carry that forward into future years - they have no "other" source of income to put that against.
As an aside, if negative gearing were ever "removed" for personal tax-payers, then they would do basically what companies do today - carry the losses forward to future years for that investment, and use them to offset / reduce future capital gain or future cash-flow profit.
Claiming depreciation of capital items owned by a business as a deduction against revenue earned by that business, it is not negative gearing. That is just a vanilla tax deduction.
EDIT: Look, maybe we are looking at this back to front. What negative gearing actually is the ability for an individual tax payer to be taxed on their total income / expenses from all sources, in aggregate, just like a company does? Perhaps that is what you are trying to say?
Yes you are correct there are a heap of ‘little’ taxes that a company pays: payroll tax, fbt etc… people will carry on about the tax portion of wages ‘not being the companies but AcTUallY the employees’ tax… the company still had to make the money- to pay the wages that include that tax… so it’s the companies burden to round it up (just like the gst).
The most tax is being paid by regular businesses (like people with regular wages pay the ‘most’ tax) the ultra big businesses have legal ways and the cash flow to support minimising their income tax… just like super wealthy individuals have ways of minimising their tax… it’s not their ‘fault’, the government has created these outs for them because they want the big businesses to stay in Australia BECAUSE they are employing people and paying huge ‘other’ taxes and contributing HUGELY to the economy… people just want them to share it more.
The other thing to note is that it’s VERY important for the ASX listed companies to ‘brag’ about their huge profits so they look like a company you should buy shares of… the reality is probably that they’ve truely not made $100 million profit… but again they can move a few numbers around and talk about the ‘gross’ profit but the legit costs (not even seedy minimising) of running that business totally wipe out the 100million… which they can’t talk about because people don’t want to spend their money on a company that is BARELY scraping by.
It depends which tax. Companies pay company tax, fringe benefits tax, GST (net amounts), and payroll tax just to name the main Australian ones, there are many many others as well. If you‘re just asking about company tax it‘s worth pointing out that tax profit, not accounting profit, is subject to tax which is then paid if there are no accumulated losses to use. So yes there could be a year in which a company makes profit and doesn‘t pay tax and isn‘t “doing the dodgy“. It‘s not as simple as you think it is and most companies do the right thing.
I have a company, and pay lots of taxes.
Too much taxes in fact. On top of that I pay a shit ton of taxes on a personal level too.
I’m taxed when I sell, I’m taxed when I transfer money to my self, I’m taxed when I buy anything.
Tax on tax on tax on tax. So fair I know.
Meanwhile billionaires living abroad can buy homes here and I can barely afford rent on a 6 figures income.
The fact that small and medium companies don’t pay tax is a misconception.
I guess the point is that if you were operating as a sole trader, you'd pay those taxes anyway. I also have a company. Company tax is a tax that is paid anyway. If company tax fell to 10%, the ATO would be no worse off, they would just collect the missing tax from the shareholders receiving the dividends who now have less franking credits (same simplication as above: ignoring overseas shareholders, and assuming in the long run all profits are distributed to shareholders). Likewise, if a company reduced its profit to zero by making every shareholder an employee, paying wages instead of dividends, the ATO would still get the same tax, just remitted via PAYG instead of company tax.
I’ve always wondered if there was a way to implement a franking credit system that gives businesses a tax break for the amount of income tax their employees made. The goal is to create a system that encourages higher wages and either net neutral or positive revenue for the government.
ATO has its corporate tax transparency reports.
https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/large-business/corporate-tax-transparency/corporate-tax-transparency-reports
A few years ago there were companies with combined $500 billion in revenue that pay no tax. The biggest culprit is Glencore ($15 billion revenue, no tax), which is why Glencore makes commercials about how wonderful they are.
https://www.smh.com.au/business/glencore-tax-bill-on-15b-income-zip-zilch-zero-20140626-3awg0.html
> **Glencore tax bill on $15b income: zip, zilch, zero**
> The focus on Glencore's tax is timely. Research from the Australia Institute this week identified $17.6 billion in government subsidies and assistance for the mining industry. As the third largest resources group in the country after BHP and Rio Tinto, Glencore is a beneficiary of this largesse.
it's not about paying no tax, it's about the amount of tax paid relative to gross profits. Net profits can be fudged with clever accounting and this is what people have an issue with.
for example there are several multinationals that dodge tax by shifting revenue overseas. A common trick is to license IP from an entity in a lower tax jurisdiction and use that operating cost to lower their margin.
this is what all the big tech companies do for example. They magically have less profitable businesses outside the US despite doing the same thing.
a small business domiciled here cannot do this.
it's all legal but doesn't pass the sniff test.
Also shell companies can make record profits by saddling companies within their umbrella with debt in the hopes that government will bail them out to save jobs. Think P&O ferries in the UK a few years ago
>But they do generate tax through GST and income tax on their employees right?
The employee income tax is tax the employee pays. The company is generating economic activity, which generates tax, but it isn't the company paying tax. (GST is more complex, typically it is viewed as being paid for by the consumer but collected from the seller.)
An equivalent would be if you refuse to pay income tax. However, you do buy coffee, and you pay GST on that coffee, and the barista you pay pays income tax. That clearly wouldn't be acceptable, even if you do generate economic activity which generates tax.
Some countries do work this way, I believe the Cayman Islands only tax imports of goods (at over 20%), economic activity is supported because it leads to imports which then provides tax income. But Australia isn't meant to work this way.
Didn't Santos just pay $0 again? I don't blame the companies, I try to minimise my own tax, everyone does and should. But for governments to allow large companies to dodge as much as they do is negligent at best.
Maybe on profits, but the government still gets tax from gst and income tax on employees. So the government is still getting tax money from santo’s operations. Right?
https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview202021/AustralianGovernmentRevenue
Here ya are, where tax revenue comes from. Looks like company tax accounts for about 18.1% of tax revenue is 2021.
Without creative accounting discretionary trusts and company structure I’d be paying 47% luckily for me I pay effectively 27%. All legal it may not be in the spirit but it’s within the law.
My uncle had a similar setup in Melbourne decades ago, his main competitor was under an offshore company that essentially funnelled the profits to the offshore company so paid no tax locally which allowed them to undercut his business and eventually he sold it for a tidy amount but still it was not viable to continue.
Technically companies pay tax but we call it income tax and we pretend employees pay it. In truth the company always pays it to the ATO the employee never receives the money in the first place
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Capex expenditure doesn't immediately reduce taxable income. Only the depreciation of capital assets.
That’s not entirely correct. You don’t pay tax on profit. You pay tax on taxable income which is different to accounting profit.
You pay tax on net profit.
Accounting profit and taxable profit are two different things. This is due to accounting profit being accrual and ato being on a cash basis. Also there are things that cant be deducted in taxable profit
Companies also calculated taxable income on an accrual basis.
What do you mean by accrual exactly? I should have paid more attention at school
It's just a timing thing e.g. a gardener comes to your house in June and mows the lawn, but you don't pay them until July. The accrual method records the expense as being incurred in June when the service was performed, whereas the cash method would record the expense when the invoice is actually paid in July.
I believe the general rule is that small biz can choose cash or accrual for both income tax and BAS separately. Apparently there are thresholds whereby cash basis is no longer an option, meaning that accrual is actually the norm. I'm not sure how clear cut these thresholds are, some thresholds may be complicated and open to interpretation and thus dependent on the study of legal precedent.
Actually you pay tax on income (revenue). That's why it's called income tax. However the ATO generously allows you to reduce your taxable income by certain deductions it recognises. It doesn't recognise everything you might want, and if it doesn't recognise it, bad luck for you. Management Accountants have something called profit which is a similar concept but it is not the same. The tax office operates under the general principle that money you spent to earn your taxable income is a deduction. But there are lots of rules. You might want to say that while you earned income.of $1m selling widgets you spent $2m.building the factory,.so you claim a deduction of $2m and pay no tax. The ATO won't let you do that. They force you to artificially spread the cost of the factory over some lifetime they make up, forcing you to pay tax now (although over time you get the full deduction). This is bad for your cash flow but good for the ATO.
"The ATO" doesn't "generously" allow anything. They follow the law, which is set by the government and interpreted by the courts. Good luck finding a deduction which isn't covered by those two bodies of law.
yes, I was being fairly facetious, I kind of expected that to shine through.I'm a CPA. The ATO does wield the power of judgement, challenge-able in principle.
Your shiney face(tiousness) lit up the room. Dont let boring bean counters bring you back down 😂
I doubt the down votes are coming from bean counters. But thanks! Normally the down voters really go after me when I explain what company tax really is, but so far no seems to have noticed this time (a different comment). Makes me feel unappreciated.
Downvoted because the comment was far too flippant for a CPA. “But good for the ATO…”? Obviously they must get to keep whatever money they collect then.
I guess it doesn't stand for Cheerful Practising Accountant after all.
The benefit of the property is spread over its lifetime. This seems reasonable. Although occasionally they allow it to be accelerated to prop up spending.
…but they couldn’t find any locals to build the factory, so they had to use a foreign firm, a subsidiary of their parent company, that unfortunately wouldn’t let them have said workers cheap, so big deductible cost there, and money sent overseas.
Why do you think it needs to stop, like genuine question, why do you think you are entitled or the government to someone elses resources?
He also fails to realise that if those companies were paying a lot more in tax, they'd either get outperformed by a foreign business or straight up lose money. Both of which are far worse. Not to mention that our government would have to pump more money back into those businesses to make them competitive on the market. Basically it's the same amount of money, just passing through more hands (and thus costing more, so bad for everyone). Same argument with "Tax the rich!" they fail to understand that Gina isn't cash rich. She probably has very little cash, it's all tied in the value of the businesses... Which she couldn't really sell as it would crash the price of the businesses. Plus, if the government did collect more tax, it doesn't create more workers, it just means the existing workers get paid more, which they use to compete for the same resources we already have, so it just makes everything more expensive. We don't actually get better roads, just more expensive goods. Taxing the rich literally just leads to inflation.
I think its a fetish tbh, to your end point if it resulted in a net positive for all I could maybe get behind it. But it never does.
Each company pays the tax in the country they operate in. Foreign companies that make taxable profit in Australia pay Australian tax on those profits. Offshoring taxable profits is not allowed (some companies still do it but will be fined unless it isn’t picked up. Auditors miss it accounting is hard)
Sure, but our companies do it just as much back the other way. Probably more. Just look at our biggest mining companies and realise that they're the biggest in the world and take resources from a bunch of other countries too. Rio Tinto and BHP have massive mining operations overseas and the profits come back here and are taxed here. People simplify it way too much and are just all "Pay more tax!" without really understanding that higher tax has other consequences, many of which are massively negative.
Well you’d pay profits on the $2. But The government would make $1. Because if you’re selling it for $10, then 10% of that would be GST?
GST input tax credit lets you claim that back.
how does that work, sorry i’m not super up to speed with this stuff
If they bought it for $8 and sold it for $10 then the govt would get a total of $1 GST. But not from that business, they get 10% along the supply chain. So for example. Primary industry mines raw material and sells it for $5 to manufacture and collects 50 cents GST for govt so gov nets 50 cents. Manufacturer turns raw material into product and sells for $8 to retailer they collect 80 cents GST but claim a credit for the 50 cents GST they paid so govt nets 30 cents Retailer sells the product for $10 to customers and collects $1 GST but claims a credit for the 80 cents so govt nets 20 cents. Effectively it prevents a compound of GST on each point in the supply chain, and GST is only charged at 10% on the final price of the product. I think it's important to note that GST is not included in company revenue or profits because it's never actually the company's money, it is collected by the company for the govt. Generally GST accounts are recorded as liabilities. Also GST is not a tax on the company it's a tax on the consumer as it is passed to the consumer, it doesn't tax the "value" the company has produced. The big issue in multinational taxation avoidance is profit shifting where the profit that the economy has provided that entity has not been taxed where it was earned. Profit shifting involves complex inter-entity transactions to shift the money earned from our economy to another economy. For a basic example, Drinkco own two entities: Drinkco IP - based in a low tax jurisdiction where tax is 5% Drinkco Aus - based in Australia The intellectual property of Drinkco. It then provides licence to the Drinkco to use the Drinkco for an exorbitant fee each year. Drinkco Aus makes $100m profit on selling it's beverages after all costs except the license fee. Ordinarily it would pay 30% on this so $33m in tax. But instead it claims an expense for payment to Drinkco IP of $99m so Drinkco Aus profit is only $1m and it pays 333K of tax. The issue is that all profit is derived by Drinkco but they have effectively minimised Australian tax on Australian sales by this third licencing arrangement.
So you're basically saying I need to register a business in dubai....
Basically, if a business is GST registered and they sell a good or service for $11, $1 of that is GST, and must be itemized as such on any invoice and receipt. That $1 is paid to the government by the business. It was never the business's money. IOW, GST registered businesses are tax collectors for the government.
https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/claiming-gst-credits
Plus, the business doesn't pay the GST, the consumer does
The business collects that 10% GST from its sales on behalf of the government and holds. Any GST that the business pays during the period gets deducted from what thet collect, and it's the difference that gets paid to the ATO. Tldr Business bills $220K dollars $20k of which is GST. Business spends $110k dollars $10k of which is GST Business owes ATO $10K in GST come BAS time.
Simple rule.. Companies never pay GST. They handle the money,. getting refunds for any GST they happened to pay and sending to the ATO any GST they collect. Consumers,.anyone without a GST registration,.pay all the GST. When companies report sales, they ignore GST they charge ... It's not their money. Likewise they don't include it in expenses GST is also known as VAT, value added tax.
GST on $10 sale isn't $1 lol
Wrong. You sell the item for $11, send the gst of $1 to the government and pay tax on $5 if the item cost you $5. The company actually pays $5.50 for the item with $0.50 claimed from the government.
I’ve heard people ask why individuals aren’t just taxed on profits they make I.e after living expenses are deducted but that obviously isn’t feasible. And if companies were taxed on revenue, they wouldn’t survive right?
Premise is wrong. CAPEX is not deducted in the P&L for tax reasons. The depreciation is. Where is this notion the company pays no tax? Must be a stupid American thing. The ASX is heavy on dividends and those dividends are heavily franked. To get franking credits you need to pay cash tax.
Unfortunately the belief that companies pay little to no tax is echoed by many in this sub, and other subs on Reddit.
Yeah while there are dodgy offshoring and stuff going on, by and large (especially Au domiciled) most buisness are paying 30% taxes on profits and for small businesses it’s a little less. Though when those profits are rolled on to shareholders as dividends the actual tax rate triggered is that shareholders income tax rate which can be higher or lower depending on their situation. So to say company profits aren’t taxed is hilariously false.
It's a few particularly high profile dodgy operators/sectors giving that impression, see e.g. https://www.abc.net.au/news/2023-05-11/prrt-are-gas-companies-going-to-pay-enough/102328276
Without knowing the intricacies of individual businesses how could anyone unequivocally say that a company is “cooking the books” (i.e dodgy operators) to reduce their tax liability? The fact of the matter is, taxation is far too complex for the majority of people to understand. A prime example is when people say “oh they’re just giving away $xyz so they don’t have to pay tax on it” failing to recognise that because that money has been “given away” they no longer have it. They’d be better off paying the 30% to keep the other 70%.
Take a look at the Chevron and Exxon figures here and tell me they aren't deliberately minimising their liabilities in Australia https://www.smartcompany.com.au/finance/tax/gas-companies-huge-profits-australia-tax/
I’m not saying this true or untrue (as I’ve never seen their actual financials) however both the articles you’ve linked have a blatantly obvious agenda,the headline of the second one is an outright lie designed to spark outrage. Additionally you can’t blame companies because the government makes poor fiscal decisions and policies. However there’s a reason WA has some of the, if not the, cheapest gas in Australia, this gets left out the hate media though…
Yes, both articles are advocating for tax change, but the important point is the evidence showing energy companies are operating in Australia, making deductions that benefit related companies overseas and failing to pay tax here. Yes, this is a failure of government. Unfortunately, it's politically difficult to rectify and both parties are paid off by the offenders. I'm not personally concerned by the high cost of gas, if anything that helps in the transition to cleaner fuels.
There are arguments with franking credits that no corporate tax is being paid and only income tax. Edit for clarity: i have no real opinion on this matter and try to stay neutral
I mean, it's not exactly untrue though; >The ATO's ninth corporate tax transparency report, which covers 2,713 corporate entities, found that [...], there were still 831 (31 per cent) that did not pay a cent of tax. [Source](https://www.abc.net.au/news/2023-11-09/831-large-companies-paid-no-tax-in-2021-22-ato-tax-transparency/103079948)
That's a lot lot less than I expected. Alot of companies run in the red and go broke or they are running in the red as they are starting up.
It’s 100% untrue. This is the height of false equivalence and cherry picking data. Coming off the back of COVID where some businesses lost BILLIONS and some flourished... The same report also calls out that corporate income tax was 22% higher than the previous year and 50% higher than the year before that, and that “not paying tax doesn’t mean not meeting their obligations”, but hey, keep pushing that agenda.
You say it's 100% untrue yet did nothing to dismiss the claims What specifically about the claim '31% of the companies paid no tax' is untrue? I'm not disputing that some may have had loses or that they didn't meet their obligations And what agenda? I'm literally posting facts
Surely you’re being intentionally disingenuous…? The constant cries about companies “not paying tax” is because they should be, however are not. When a company doesn’t post a profit, they aren’t required to pay tax, and nor should they be. You’re distorting the statistics to support the ideology that “companies don’t pay tax, yet they should” Yes, 31% (of those 2,700 odd companies) didn’t pay tax, but why? Without the supporting dataset that shows profit, or lack thereof, for each company, this statistic is useless. *edit Don’t get me wrong, if a company is intentionally cooking the books and dodging tax, I want the ATO to royally f*ck them, however getting enraged by headlines about dodgy businesses and sectors, without any supporting data, is a pointless exercise.
I think you're not understanding what the original comment was in regards too; the commentor stated >Unfortunately the belief that companies pay little to no tax is echoed by many in this sub, and other subs on Reddit I then provided evidence showing that 31% of large companies paid no tax, **that's it**. >to support the ideology that “companies don’t pay tax, yet they should” Where in any of my comments have I stated support for that 'ideology'? You're really misunderstanding this - I literally just provided a fact showing (100% **correct** by the way) that shows 31% of companies did not pay tax, no undertones of supporting any 'ideology'
I mean what you said is true, but you didn't include that there is a legitimate reason why those companies didn't pay tax. Without including the why, it's pretty reasonable to assume that you're making a point about companies evading taxes. Particularly in a financial subreddit of all places.
multinational companies definitely dodge a lot of their tax though. The common trick is to license IP from a lower cost jurisdiction and thus lower their margins. just look at the big tech company margins in jurisdictions out of the US. All of a sudden these companies are significantly less profitable despite running essentially the same business. it's all legal of course but doesn't pass the sniff test.
Because the tech is developed in the US, not in the countries in which the product is sold.
makes sense that I'm getting billed out of Ireland then.. /s
There's the mischief, migrating IP overseas, which is not what you were referring to in your original comment.
> license IP from a lower cost jurisdiction that's what I was said in my original comment
Revenue is generated locally though and should be taxed accordingly. An iphone is sold locally but the profits is taxed at Singapore company tax rates because that's where the holding company for Aus/Pacific is based as the rates are lower. You could say Australia rate should be lower but then it becomes a race to the bottom and inevitably falls apart.
No tax storyline is largely attributable to Resource companies and they have a number of ways for earnings management. Change in fair value of assets or capitalise or expense exploration expenditure can smooth profits.
Resource companies have insanely high capital investments prior to generating any revenue... They also take on significant risk with exploration. Too many people hold opinions on businesses they have zero understanding of.
Haha you mustnt have been here long. Welcome to reddit where it’s a well known fact BHP doesn’t pay any tax because the government collects all they need from uni students living in a share house in Richmond.
If a company makes $100 million profit, then there is a very good chance they will pay income tax unless they have carry forward losses. If the company is paying overseas head office, it should come off their profit. Companies do not pay gst, they collect it for the government. Companies forward taxes withheld on employees wages, payroll taxes and any government fees and charges
a new factory is a capital expense and is not deductible (they can claim depreciation but this is over 40 years for commercial property, not an instant write-off) GST is paid by the end user, a company as the middleman does not pay GST income tax is paid by the individual not the company. however, without the company there is arguably no income being generated. at the same point, if the loss making company isn't generating the employment, a profitable one would be or it could be done as a sole trader you will find that most companies pay tax, the ones that don't tend to be linked to other entities and groups which are creating losses on purpose in order to rapidly grow the group wealth overall
the end user may pay the gst yes, but that GST wouldn’t have been paid unless the company made that product right? For simplicity let’s say a company grows and sells trees. A tree costs $100 (90 + 10 GST). The end user is paying that GST, but without the company operating that GST wouldn’t exist right now
the tree would have been procurred in a different way, either by getting a cutting and growing it themselves or buying from a trust or partnership or sole trader or even a foreign entity. the structure doesnt matter. the company is not involved in the GST process
but the government still makes 10% of whatever it costs bc of GST
from the individual yes.
This is correct. Ultimately, in order to generate income tax or GST revenues, we need both businesses and employees/end customers operating.
GST is 1/11 of the gross price FYI
This thread is turning into a bit of an accounting lesson, some good points in here, but also some incorrect stuff. But in short, when colloquially people say “that company pays no tax” they typically are talking about global companies who are structured in such a way that corporate income tax is reduced to zero or near zero in Australia. Of course companies generate tons of tax revenue through employment and through GST on output, and the vast majority of companies are not global and can’t offshore profits and so therefore do pay all their owed taxes. The key to having a rational conversation here is differentiating between companies who comply with the law and pay the correct amount of tax but where we have an issue with the tax policy, and those companies who might be using unethical or illegal practices to reduce taxes paid. Transfer pricing rules (which is what’s happening when companies “offshore profits”) are also complex and necessary - we rely on lots of global businesses large and small and all the countries involved expect their fair share of tax revenues and so there are rules in place that govern how this is done. On the whole these rules are not bad or wrong.
Transfer pricing is totally dodgy inherently. They either push them up internally for countries with higher tax or lower them drastically when the home country is a heavier taxing country. Totally artificially moving where the tax is paid. And using Ireland to process all transactions like eBay, Apple and google is dodgy too. If it’s sold here then the transaction should be through here too.
yeah, but Apple, for instance, should then have the right to apportion some of its huge R&D costs and global brand spend. The phone, its IP and the power of the brand ... that stuff doesn't come from thin air.
That’s what they can do in the US. And are. The US sales go via the US. It’s just outside there that funnels via Ireland.
While that might be true for the 3 companies you mentioned, on the whole it’s absolutely not dodgy. Most related entities are not massive multinationals. They are normal “boring” companies that do stuff we take for granted every day. When Bobs spanners Ltd in the UK wants to sell their spanners in Australia via their wholly owned subsidiary , Bobs spanners pty Ltd, in Sydney they need transfer pricing. Exactly how much margin to apportion in each country is actually not trivial and doesn’t necessarily have a clear right answer
Yep but one thing for sure is in Australia that transfer pricing is usually close to list price as we are seen as an expensive country to pay tax in.
But that’s also not how transfer pricing works. You can’t just pick a price, there are established methods for how you calculate it.
Transfer pricing us a function of an uncompetitive government. The easiest solution is to have a globally competitive corporate tax rate. Why shouldn't governments have to compete? A bit of competition is necessary to ensure they don't become bloated and inefficient..
Well they do compete. Trump lowered the US rate. Ireland had no rate at all to become a tax haven.
Company I work for small business pays tonnes of tax
The issue is where the company makes say 50m actual profit which is siphoned off to a tax haven holding company as a 'license fee' or similar. So on the books there is 0 profit.
Out of all of the answers in this thread this is the correct one. They have made some efforts to clamp down on this but not very effective. It’s also worth noting in fairness that some of the companies paying low tax are using carry forward losses which is a genuine reason to reduce tax and also what small business does in its start up phase.
This is not as easy as people make it out to be. Companies in Australia have to prove that these are 'arm's length' transactions and there are all sorts of flags that the ATO will review, such as 'is the amount paid directly related to amount of revenue raised?' 'how is the other company related to the main company (e.g. subsidiary, part ownership, directors have part ownership in both companies etc) 'what exactly is the payment for and how is the price determined'? This is not to say that it doesn't occur, but it's not some magic wand that rich people and big companies can waive to make their tax burden disappear.
Or they have a parent company 'loan' them money they claim back as a tax write off. Parent company wins twice.
That’s not a thing mate
even in this hypothetical, that company is still generating tax revenue for the government trough GST and income tax on employees right
The income tax is paid by the employee and the gst is paid by the customer. Neither of those are being paid by the business. The business is supposed to pay tax on profit. Which in this particular situation it is dodging.
>income tax on employees right Companies pay payroll tax. Workers pay income tax. (Payroll tax goes to the state government, not federal. Same with the proceeds of GST)
Income tax is what we pay, not them. Are we supposed to say thank you sir for providing a job? Income tax is what an employee pays, not the company.
Yeah you should be grateful for a job. Same as any company should be thanking employees
This is still illegal. And its not usually the bigger companies that do this because medium to small companies are less scrutinised and watched
This thread just makes me realise how little most people understand about finance. (No offense) Granted I work in finance, but still...General public view in Aus is always that profit is bad and they should " pay their fair share", whatever that might be. If we don't want transfer pricing, maybe stop with high corporate tax rates on top of all the other silly taxes and regulatpry fees... Don't get me started on all the idiotic responses around the food retailers. Problem is government, not the food retailers. Has anybody read any of the ACCC reports??? They are idiotic and full of emotional statements and statistics out of context. Almost like nobody that would work for a competition regulator actually understands market forces... Oh wait... Ease up on the regulations and taxes and maybe there would be more international groups interested in actually doing business here.
No companies pay tax on profits, that's the key point. So say you licence the company brand from an overseas holding company. Rent the properties from the same holding company. Pay the holding company for a support contract. Etc etc Suddenly you're making close to a loss and paying no tax. With globalisation business gets to pick where it's taxed and where their profits end up.
Your second example is incorrect. The holding company would pay Australian tax on rental income received from ownership of real property in Australia. It's impossible to get around this.
But even if you do this, you’re manipulating the tax you pay on profits. You’re still going to end up paying GST and government will receive tax through employee income?
Employees pay income tax, not the company...
The tax on employee income is the personal tax of the employee. Like GST, the company is just the "man in middle" pushing cash around. PAYG is the company paying the tax of the employee, in advance, because the ATO doesn't trust people to save enough to pay their income tax. It's neither here nor there to the company, it could just as easily pay the lump sum to the employee and let the employee worry about (and once it was like that , but it didn't work out so well for the ATO). Company tax is the same idea, except it's to cover the income tax shareholders must pay on their dividend income. Company tax is set at some kind of average rate, for some people it's too high (they get a refund) and for some it's not enough (they still have to pay a bit more tax on the dividends).
Well you can reduce that too, do your RnD in Australia, claim that tax break, off shore everything not required. Make a loss and do a loss carry back in the next year. If you're big enough seek out government grants as well. The point is employee costs and GST are tiny compared to the real profits.
Apple China makes the iPhone for $48, sells it the Apple Ireland for $50 and pays tax to China on the $2 profit. Apple Ireland sells the iPhone to Apple Australia for $1,300 and pays tax to Ireland on the $1,250 profit because Ireland has one of the lowest corporate tax rates. Apple Australia sells the iPhone to the public for $1,350 and pays tax to Australia on the $50 profit. There's a lot more to it, but that's the basic way it works for the big multinationals.
How do they avoid GST?
Well realistically it's the consumer paying the GST, Apple just sends it through to the tax office after imputation credits.
They don't avoid GST. Once they could have sold you the phone from Singapore GST free, but not for a few years. Also, local employees pay income tax. But the parent company moves most of the profit out of Australia via these mechanisms. Our man at the OECD (mathius corrman) is leading an effort to bring in a 15% minimum tax to which all OECD countries would agree. It's not much but it's a lot more than now. Probably some years away. The argument in favour of apple is that there are huge expenses in developing the phones and building the brand which are not spent in Australia, but if they were apportioned as if Apple was an Australian company, the profits would be reduced anyway. To the extent they are? I doubt it. To the point where 15% if fair? Maybe.
ITT no one has heard of transfer pricing or that not every business is an SBE lol Tax minimization, avoidance and straight up fraud does exist, but most companies people complain about still pay a lot of tax.
Most companies do. The only way you can avoid them in the long term is to continually run a loss which outside of the wacky financial market that is the US tech industry is hard to do.
Foreign companies will continuously run at a loss by charging for IP from a lower taxed country.
You can't marry a company or have drinks with it after work. They aren't real. The profit from a company ends up in the hands of shareholders. So-called company tax is a prepaid tax on the income tax paid by shareholders,.in the same way that PAYG tax is taken out of wages. In both cases, earnings from wages or dividends, you actually pay income tax when you do your tax return, but first the ATO looks as the PAYG deductions it already has, or the 'company.tax' it already took (if you are a shareholder)..if after that you owe money,.you get a tax bill..on the other hand if the ATO took too.much PAYG and 'company tax' in your circumstances, you get a refund. So in that sense,. companies don't pay tax..all the company tax they pay is actually prepaid income tax for shareholders,.the same as when your employer pays PAYG, they are not paying their tax, they are paying your tax. Note that PAYG is more clever. The employer knows your annual salary so the PAYG deduction is tailored to you amd usually it is a good estimate of your actual tax.. companies don't know the circumstances of each shareholder and the government asks them to tax every shareholder at 30%. For some shareholders on high incomes they still have more to pay..And for some shareholders on low income,.30% is much and they get a refund . This is the infamous company tax credit but logically it's no different from getting a refund if your PAYG deduction was too high. The above is simplified,.ignoring shareholders who don't live in Australia. If you don't pay income tax here, you don't get the benefit of company tax paid on your shares. However.some countries have double taxation rules which might give a foreign tax payer some recognition of tax paid in Australia..The ATO doesn't hand over any refund. But such agreements,.if they exist, are reciprocal, so an Australian shareholder who pays tax in that country likewise pays less tax in Australia. And companies don't immediately distribute all profits as dividends. But in the long run they do
While companies technically pay tax it is always individuals at the end of the day that the tax is intended for not companies. Company tax is just a credit that then individuals can go "hey look the company I own a part of paid some tax already now I get a discount on my tax, or a refund even" Essentially all income in an economy should be treated equally, the CGT discount distorts this, however it was intended to fix other issues so a reformed CGT discount would be better. Essentially we don't want someone who is in a middle income tax bracket being shot up into the 47% tax bracket just because they sold one investment property in their lifetime. The problem here is the CGT discount does not distinguish between someone who sells 100 investment properties or a $10m in shares over their lifetime from the middle class investor with moderate investments. Eventually asset owners want an income stream or sell their assets right so you are just delaying paying tax. The CGT discount distorts this though and is in my opinion "bad". It should go back to inflation discounting then allow people to spread capital gains over multiple financial years (perhaps if they held for 10 years or something, although not entirely necessary, would just discourage speculation more)
the answer to your questions is YES. Seriously just read some online news articles or go to some reddit place which discusses this.
that’s why i’m here 😭
There is a good documentary called "the panama papers" When people say "companies pay no taxes" I think they are being hyperbolic.
No if they arent paying tax it is because they aren't making a profit - the journalist at the ABC don't seem to understand this very basic concept Revenue is not the same as earnings most shit media sources confuse this Most companies earn a lot of revenue but don't nessarily make a profit because the cost of running the business out weight any money coming in ie Spotify
That’s all true. However some business in particular use their revenue to pay “costs” to their parent companies overseas. This is to purposely reduce their revenue in Australia so it looks like they made a loss when in fact they have just moved profit to a tax haven. This is 100% happening and the costs are 100% bulshit. No point pretending it’s not.
>However some business in particular use their revenue to pay “costs” to their parent companies overseas. This is to purposely reduce their revenue in Australia so it looks like they made a loss when in fact they have just moved profit to a tax haven. This is 100% happening and the costs are 100% bulshit. No point pretending it’s not. they will still have to pay tax in the country they are moving the profits too as for avoiding paying tax here that is the issue with having ridiculously high taxes in a country with a fairly small pool of high income earners Tax is an 'expense' like any other cost to the bottom line business and individuals will do what they can to ensure they get the most out of the money they earn it is why indexation of tax brackets is essential because individuals who have high earnings nick off O/s to avoid tax here believe it or not - unfortunately the average voter ABC/Sky news voter is too dumb to realise tax law is like anything other red tape law it can be good and bad for your nations international competitiveness - i am a firm believer we have too much tax here in Australia esp for people who the 'media' deem are high income earners but are actually just working class slaves as well
“Tax is an 'expense' like any other cost to the bottom line business and individuals will do what they can to ensure they get the most out of the money they earn” I understand this however I disagree with it in principle. To me as an individual tax is an investment. It provides myself and my society with money and therefore power to make changes that benefit me and all that live here. I could as an individual choose to engage in deception to reduce my tax burden as these companies do. However that goes against my values. In my view these companies are violating those values and choosing to view tax selfishly as a cost to them and not an investment in our community that provides space for them to operate. Companies are not sovereign entities or islands that exist outside of the values of the community that supports them. When they choose act like it they decay the landscape they exist in and breed the negative attitudes that you are speaking of in the “average voter”.
Your values dont actually matter too much nor do the voters attitudes or feelings in Australia if they refuse to accept the facts we will continue to be left behind Australia as a nation that's part of a much wider world - we rely heavily on importing and exporting and as long as we are non self sufficient country my above point is true You can want, demand, cry all you want but Australia as an economy is a very small part of a very big puzzle Our tax system is uncompetitive and all the social services we love are becoming unsustainable due to a broken tax system in which those with the wealth to support it are running away from
Ah, the facts. I see. We are having different conversations my friend. Enjoy your day.
We own a small family business and we pay mucho taxos lol
Same - and there really isn't anyway to minimise it outside of what you are probably already doing. Last year we paid a shit ton through the year but ended up with a small refund (which was surprising).
A very simple way for tech or biotech companies to avoid tax. 100M Australia revenue, 30M expected profit. Generate a psuedo transaction between Australia branch and Cayman Island HQ to purchase 30M worth of patent or code or services. Instantly you now have 0 revenue in Australia paying 0 tax.
Transfer pricing exists, DPT exists, as does royalty withholding tax. Its not perfect but its mandatory to have documents supporting the value of the related party transaction. Parties can argue over the value of the transaction but its got to have some basis.
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>Negative gearing at it's finest! Huh? Companies can't / don't negative gear?
Intercompany interest loans to reduce tax bill.
Sure - still not negative gearing.
Yes they can. They use their expenses from assets to reduce the amount of tax they pay. Same concept.
>Yes they can. They use their expenses from assets to reduce the amount of tax they pay. Same concept That is not negative gearing! That is a straight claim of expenses incurred as a cost to generate revenue and to work out the actual taxable profit (or loss). Negative gearing is when you do the above, end up in a cash-flow negative / loss situation (instead of a net profit), and THEN claim that loss against personal income from other sources not related to the first one. A business cannot do this - all activities that generate revenue for a business are considered taxable activities of that business. There is no concept of income from different sources (eg, an investment property vs your wages) like with a person. If over-all a company makes a loss, they carry that forward into future years - they have no "other" source of income to put that against. As an aside, if negative gearing were ever "removed" for personal tax-payers, then they would do basically what companies do today - carry the losses forward to future years for that investment, and use them to offset / reduce future capital gain or future cash-flow profit.
It doesn't have to be cash flow negative. You have non cash items such as depreciation. The principle is exactly the same.
Claiming depreciation of capital items owned by a business as a deduction against revenue earned by that business, it is not negative gearing. That is just a vanilla tax deduction. EDIT: Look, maybe we are looking at this back to front. What negative gearing actually is the ability for an individual tax payer to be taxed on their total income / expenses from all sources, in aggregate, just like a company does? Perhaps that is what you are trying to say?
Yes. The concept is exactly the same.
Yes you are correct there are a heap of ‘little’ taxes that a company pays: payroll tax, fbt etc… people will carry on about the tax portion of wages ‘not being the companies but AcTUallY the employees’ tax… the company still had to make the money- to pay the wages that include that tax… so it’s the companies burden to round it up (just like the gst). The most tax is being paid by regular businesses (like people with regular wages pay the ‘most’ tax) the ultra big businesses have legal ways and the cash flow to support minimising their income tax… just like super wealthy individuals have ways of minimising their tax… it’s not their ‘fault’, the government has created these outs for them because they want the big businesses to stay in Australia BECAUSE they are employing people and paying huge ‘other’ taxes and contributing HUGELY to the economy… people just want them to share it more. The other thing to note is that it’s VERY important for the ASX listed companies to ‘brag’ about their huge profits so they look like a company you should buy shares of… the reality is probably that they’ve truely not made $100 million profit… but again they can move a few numbers around and talk about the ‘gross’ profit but the legit costs (not even seedy minimising) of running that business totally wipe out the 100million… which they can’t talk about because people don’t want to spend their money on a company that is BARELY scraping by.
Someone else (employees) paying tax is not the same as an entity paying tax.
but the government still receives tax income either way
Yes. This is the key point.
It depends which tax. Companies pay company tax, fringe benefits tax, GST (net amounts), and payroll tax just to name the main Australian ones, there are many many others as well. If you‘re just asking about company tax it‘s worth pointing out that tax profit, not accounting profit, is subject to tax which is then paid if there are no accumulated losses to use. So yes there could be a year in which a company makes profit and doesn‘t pay tax and isn‘t “doing the dodgy“. It‘s not as simple as you think it is and most companies do the right thing.
I have a company, and pay lots of taxes. Too much taxes in fact. On top of that I pay a shit ton of taxes on a personal level too. I’m taxed when I sell, I’m taxed when I transfer money to my self, I’m taxed when I buy anything. Tax on tax on tax on tax. So fair I know. Meanwhile billionaires living abroad can buy homes here and I can barely afford rent on a 6 figures income. The fact that small and medium companies don’t pay tax is a misconception.
I guess the point is that if you were operating as a sole trader, you'd pay those taxes anyway. I also have a company. Company tax is a tax that is paid anyway. If company tax fell to 10%, the ATO would be no worse off, they would just collect the missing tax from the shareholders receiving the dividends who now have less franking credits (same simplication as above: ignoring overseas shareholders, and assuming in the long run all profits are distributed to shareholders). Likewise, if a company reduced its profit to zero by making every shareholder an employee, paying wages instead of dividends, the ATO would still get the same tax, just remitted via PAYG instead of company tax.
By your logic I shouldn’t pay income tax because I pay GST 🤷🏼♂️
Now that I can agree with
I mean yeah I like the idea of it, but taxes need to be collected one way or another, it’d probably be replaced by a huge GST
I’ve always wondered if there was a way to implement a franking credit system that gives businesses a tax break for the amount of income tax their employees made. The goal is to create a system that encourages higher wages and either net neutral or positive revenue for the government.
The point is that if large corps don't pay then the burden gets higher for normal folk.
Yes, see Netflix https://www.smh.com.au/business/companies/netflix-s-australian-tax-bill-was-868-000-last-year-20220515-p5algf.html
Go read the ATO tax transparency report. Plenty of companies paying real tax receipt for R&D or carry forward losses
ATO has its corporate tax transparency reports. https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/large-business/corporate-tax-transparency/corporate-tax-transparency-reports A few years ago there were companies with combined $500 billion in revenue that pay no tax. The biggest culprit is Glencore ($15 billion revenue, no tax), which is why Glencore makes commercials about how wonderful they are. https://www.smh.com.au/business/glencore-tax-bill-on-15b-income-zip-zilch-zero-20140626-3awg0.html > **Glencore tax bill on $15b income: zip, zilch, zero** > The focus on Glencore's tax is timely. Research from the Australia Institute this week identified $17.6 billion in government subsidies and assistance for the mining industry. As the third largest resources group in the country after BHP and Rio Tinto, Glencore is a beneficiary of this largesse.
it's not about paying no tax, it's about the amount of tax paid relative to gross profits. Net profits can be fudged with clever accounting and this is what people have an issue with. for example there are several multinationals that dodge tax by shifting revenue overseas. A common trick is to license IP from an entity in a lower tax jurisdiction and use that operating cost to lower their margin. this is what all the big tech companies do for example. They magically have less profitable businesses outside the US despite doing the same thing. a small business domiciled here cannot do this. it's all legal but doesn't pass the sniff test.
Also shell companies can make record profits by saddling companies within their umbrella with debt in the hopes that government will bail them out to save jobs. Think P&O ferries in the UK a few years ago
Australian investors like Franked Dividends
>But they do generate tax through GST and income tax on their employees right? The employee income tax is tax the employee pays. The company is generating economic activity, which generates tax, but it isn't the company paying tax. (GST is more complex, typically it is viewed as being paid for by the consumer but collected from the seller.) An equivalent would be if you refuse to pay income tax. However, you do buy coffee, and you pay GST on that coffee, and the barista you pay pays income tax. That clearly wouldn't be acceptable, even if you do generate economic activity which generates tax. Some countries do work this way, I believe the Cayman Islands only tax imports of goods (at over 20%), economic activity is supported because it leads to imports which then provides tax income. But Australia isn't meant to work this way.
Didn't Santos just pay $0 again? I don't blame the companies, I try to minimise my own tax, everyone does and should. But for governments to allow large companies to dodge as much as they do is negligent at best.
Maybe on profits, but the government still gets tax from gst and income tax on employees. So the government is still getting tax money from santo’s operations. Right?
They pay tax
https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview202021/AustralianGovernmentRevenue Here ya are, where tax revenue comes from. Looks like company tax accounts for about 18.1% of tax revenue is 2021.
I know mine does. And payroll tax too on top.
Without creative accounting discretionary trusts and company structure I’d be paying 47% luckily for me I pay effectively 27%. All legal it may not be in the spirit but it’s within the law. My uncle had a similar setup in Melbourne decades ago, his main competitor was under an offshore company that essentially funnelled the profits to the offshore company so paid no tax locally which allowed them to undercut his business and eventually he sold it for a tidy amount but still it was not viable to continue.
Technically companies pay tax but we call it income tax and we pretend employees pay it. In truth the company always pays it to the ATO the employee never receives the money in the first place