Over 1,200 large companies paid no corporate tax in Australia in the 2022/23 financial year, according to new data from the(ATO).
Total corporate tax paid was over 23.3% higher than the previous year. Despite this, about a third of all companies paid no tax. This included The Star, Koala, Adani, Kogan, and Starbucks.
There are many legal reasons why this might be the case, and theroutinely checks companies are paying appropriately. But how is it legal that some companies can pay no tax?
Corporate tax
Companies are taxed on their profits (total earnings minus expenses).
If a company operates at a loss in a financial year, they don’t have to pay any tax.
This is quite common, and not just for failing companies: for example, companies spending money to expand will often record losses.
Australia also lets companies “carry forward” losses into future years. That means a big loss in one year could be spread out to reduce tax to zero over several years.
Just like people, companies can also claim a range of ‘deductions’ which reduce their tax bill. For example, tax breaks are available for companies investing in research and development.
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As a support measure during COVID, the Government also allowed businesses to “carry back” losses. That meant businesses with large losses during COVID could effectively get a refund on the tax paid in previous years.
Without any additional information, we don’t know the specific circumstances of the companies paying no tax each year. The ATO monitors for illegal underpaying, but these figures don’t include the results of that monitoring.
There is significant international debate about whether corporate tax laws make it too easy for companies to (legally) structure their businesses to pay very little tax.
ATO data is available back to 2013/14, and it shows a large number of companies who have paid no tax despite consistently large earnings.
A particular focus of this debate centres around multinational corporations.Leading economic institutions like the World Bank and the International Monetary Fund have highlighted that many large companies take advantage of different countries’ rules to avoid paying taxes.
Large companies’ corporate tax globally
Like Australia, countries tax profits rather than earnings. Most comparable countries to Australia also allow losses to be carried forward into future years, although some have time limits in place.
The International Monetary Fund recommends a ‘minimum tax’ on earnings, where companies must pay a small amount of tax on total earnings even if they make no profit.
Australia’s corporate tax rate is 30% (30c for every dollar). This rate is one of the highest in the world. In comparison, the UK’s corporate tax is 19%, and in the U.S. it’s 21%.
