Billion-dollar but tax-free: Are SMEs paying more tax than Australia’s biggest businesses?


Treasurer Josh Frydenberg. Source: AAP/Mick Tsikas.

The tax office has released the details of the tax some of Australia’s largest companies paid in the 2016-17 financial year, revealing about a third paid no company tax.

However, ongoing efforts to pursue tax avoidance have decreased the tax gap to about $1.8 billion, or 4.4% of collected tax, with $45.7 billion collected from about 2,100 large companies in 2016-17.

That accounts for about two-thirds of total tax, the ATO said on Thursday, but the fact some large companies paid either no tax or as little as $856 has left some business owners asking questions.

The ATO said in its report 722 large companies did not pay tax in 2016-17, either because they made a loss, utilised prior losses or due to tax offsets and reconciliation items.

“Sensitivity to economic conditions, reinvestment back into the business, distribution of profits to other entities within the broader group, tax deductions and tax offsets can all affect the amount of taxable income and tax payable,” the ATO said.

However, when companies that are part of a broader corporate or economic group are taken into account, 77% paid tax.

The actual amount of tax payable between the companies monitored ranges from $3.9 billion to just $856.

How do SMEs compare?

Small businesses pay a fair chunk of tax in Australia, accounting for the majority of the $23.7 billion owed to the ATO by the end of the 2017-18 financial year.

Small companies “aren’t as aggressive”

Accountant Lisa Greig of Perigee Advisers says some of her SME clients are paying more company tax annually than many of the large companies on the ATO’s list.

“Bigger businesses have more access to funding that allows them to do more sophisticated structuring, which can give them some tax advantages,” she tells SmartCompany.

“Every taxpayer can do that … but small companies aren’t as aggressive.”

Greig says the practice of using past losses to offset future tax bills and taking advantage of things like R&D incentives are common big-business tactics, which are often not well understood by small businesses.

“ATO is doing a good job”

David McKellar of Allied Business Accountants reckons if the ATO dataset was compared to all SMEs in Australia there would be a “similar cross-section” of results.

“Some pay a lot of tax and others pay little or no tax, and it often varies year to year depending on circumstances,” he tells SmartCompany.

“There is a perception in the community that large companies don’t pay their fair share of tax, and while that may be true in some cases, it is the minority of cases and the ATO is doing a good job of targeting those companies to ensure compliance.

“Large companies are of course out to make a profit for their shareholders and will structure themselves to minimise tax as much as possible in order to do so.

“Similarly, small- and medium-sized businesses should ensure that they are structured in the best possible way to ensure their taxation is minimised, because no one wants to, or should be, paying more tax than they need to,” McKellar says.

Treasurer Josh Frydenberg said in a statement on Thursday the disclosure showed big business was paying its fair share of tax.

“The ATO Large Corporate Tax Gap report found an increasing level of tax compliance among large corporate groups, those with gross income of over $250 million in an income year,” he said.

Others were less enthused.

“These companies use Australian infrastructure, resources and labour to make immense profits, they must pay their fair share in tax,” ACTU secretary Sally McManus said.

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