One-third of big businesses in Australia still don’t pay any tax five years into ATO crackdown | Tax

One-third of large companies in Australia still don’t pay any tax despite a taxation office crackdown on the big end of town that has been under way for five years.

Transparency data released by the Australian Taxation Office on Friday shows 782 out of 2,370 of Australia’s biggest companies paid no tax in the 2019-20 financial year, mostly because they made a loss or claimed credits against losses run-up in previous years.

The 33% rate is up slightly from last year’s 32% but down from 36% in 2015 – the year before the ATO set up a big business tax avoidance taskforce.

The tax office assistant commissioner Rebecca Saint said the agency closely examined the claims made by big corporations and there were “legitimate reasons why a company may not pay tax”.

“Just because an entity doesn’t pay tax doesn’t necessarily mean that there’s tax avoidance or similar activity occurring, there can be good commercial justification to that,” she said.

“We have high levels of confidence around those entities that don’t pay tax and what I mean by that is we actually go and have looked into whether those losses are generated from commercial activities, as opposed to tax avoidance arrangements.”

However, she said the ATO hoped to do more to reduce the gap between the amount of tax it expects companies to pay and the amount actually collected, which currently sits at 8.3% when measured before enforcement action.

“We’re looking to move that to 4%,” Saint said.

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Saint said the ATO wanted to reduce the corporate tax gap after enforcement action is taken from its current level of 4.3% to 2%. “So we are still striving and encouraging businesses to make even further improvements to their tax performance,” she said.

Under laws introduced when Labor was in power federally, the ATO publishes the revenue, taxable income and tax paid by public and foreign-owned companies with turnover of $100m or more and Australian private companies with turnover of $200m or more.

Australian private companies were initially to be treated in the same way as other companies but the threshold was increased by the Liberal government in late 2015.

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Of the companies that paid no tax in the new data, 16% made an accounting loss and 10% used losses from previous years. Five per cent made a loss only on a tax basis and 2% used tax offsets.

Australia’s flag carrier, Qantas, was able to use carried forward losses, including one of a mammoth $2.8bn in the 2013-14 financial year, to reduce its taxes to zero until the 2017-18 financial year, when it paid $11m.

This increased to $253m the following year. But over the next few years, Qantas is once again unlikely to pay tax after declaring a $2.35bn loss in the financial year just gone due to most of its fleet being grounded by the coronavirus crisis.

Saint said she couldn’t comment on the appropriateness of allowing companies to use prior year losses to reduce their tax bills.

“That is a policy question,” she said. “The legislation provides the ability for companies to be able to carry forward their losses to offset future tax payable. We look to ensure that each year the tax outcomes are correct.”

The assistant commissioner said the new tax data showed the effect of the first months of the Covid-19 pandemic on some companies but the full picture would not be visible until the figures for 2020-21 were published next year.

“I expect that you still see patchy results in the sense of what we have seen within some of the industry segments in the report is that there have been some entities that have performed really strongly and others who have been severely impacted by Covid,” she said.

“Those differences are due to a number of reasons – it could be things like location, sub-industry and different restrictions affecting different groups. So I think it’ll be very variable coming through next year.”