Sep 5, 2016

Company profits soar, but taxes MIA

Companies now contribute less tax than under Labor, writes economics reporter Alan Austin.

Company reporting season this year has extra interest. Yes, it will show shareholders how much they will pocket. But it will also reveal how much tax the Turnbull government is allowing the corporations to avoid. We know companies have paid much less tax since 2013, when it was announced that “Australia is under new management”. This is clear from the Australian Tax Office annual reports, statements by ATO commissioners, the ATO transparency report, the Senate inquiry and the national accounts. Now we can get a fair idea of how much Treasury is losing via the current tax holiday, and from which corporations. We could then, with enough time and patience, calculate by how much the gross debt -- which blew out by a staggering $51.7 billion last financial year -- could have been reduced. Transurban’s operations over the year to June 2016 were fantastic! Revenue from ordinary activities -- building and running toll roads -- increased 18.8% over the previous year. That’s after the 2015 result was up 61.7% on 2014. Dividends rose 14% for the second year in a row. The share price soared. Directors and senior staff all got bonuses. Amazingly successful company -- but it paid no company tax. In fact, it somehow gained a $69 million tax credit from the ATO. Commercial property group Stockland had a fine year with revenue up 10% to $2.33 billion and net profit a healthy $919 million. Only 3.3% of this was paid in tax -- $30 million. [How much will a company tax cut boost 'jobs and growth'?] Most companies do pay some income tax. But it is clear they contribute less than during the Labor years, when 30% of net profit was collected and all figures were subject to stringent audits. Since the 2013 election, several thousand ATO personnel have gone, including audit staff. Wesfarmers also had a pretty good 2016. Revenue from Coles, Kmart, Officeworks, Target and Bunnings were all up on last year. Revenue for the group increased from $62.4 to $66 billion. Healthy dividends and executive salaries were maintained. Yet the tax payable is down from $1004 million last year to $631 million this year. Woolworths’ revenue was virtually the same as last year’s but also cut its tax by nearly 40%. In 2015, group sales were $60.68 billion and tax paid was $1112.8 million. In 2016, sales were $60.19 billion but tax was down to $712.6 million. A sudden drop of 36%. Real estate developer Mirvac also had an excellent year with total revenue and other income up 42% on 2015 to more than $3 billion. Its profit before tax was above $1 billion but only $139 million was taxable. This is because most Mirvac operations are via trusts. This raises the matter of whether trust legislation now needs to be revisited. Mirvac started out in 1972 as two Sydney guys building a block of flats. It is now a huge listed corporation with market capital of $7.5 billion. In 2012, Fortescue Metals generated $6716 million in sales revenue, gross profit of $2708 million and net profit before income tax of $2263 million. They paid $704 million in tax. This year, sales revenue was up to $7083 million and gross profit still a healthy $2019 million. But somehow the taxable profit just fell away and tax paid dropped to a puny $369 million. [Is Treasury another victim of the great corporate tax heist?] Boral also had much better outcomes in 2016 than last year. Revenue was up $14 million and cost of sales down $112 million. Profit before income tax (after admin and financing costs) was $284.2 million, slightly below last year’s $288.5 million. But whereas the tax paid last year was $45.1 million, it was down to just $32.2 million this year -- 11.3% of net profit. In the notes to the accounts on the tax calculations, there are the usual adjustments. Then there is a strange entry of $28.9 million in Boral’s favour referred to as “finalisation of tax matters”. Curious, Crikey asked Boral about this and were advised: “After finalising a number of long standing tax matters during the year, we were able to write back a provision that we no longer need. This led to a benefit of A$28.9 million being recorded.” Yes, but what provision? Why? We don’t know. Does Boral? Does the ATO? There are more annual reports to come. So it will take a while to assess precisely Treasury’s company tax shortfall now Australia is open for business. But it appears already to be a large chunk of the projected 2016-17 deficit of $37.1 billion. So does Australia really have a spending problem? Or does it have a treasurer and finance minister problem?

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6 thoughts on “Company profits soar, but taxes MIA

  1. Rocky Mylar

    ” several thousand ATO personnel have gone, including audit staff.”
    The LNP needs to be careful. It is not only large corporations that can lose their social license.

  2. graybul

    “So does Australia really have a spending problem? Or does it have a treasurer and finance minister problem”?

    Why limit your finger pointing Alan? No mainstream media headlines; No Four Corners exposure; No political elites faux outrage etc etc. The Australian political compass that has stood us in good stead; allowed us to own values of “fair go”, mateship, pride in a national identity no longer trusted. Whether it be business, political, or any special interest elite; the Australian electorate continues to disconnect as we lose our raison d’etre. Power and greed has replaced unity.

    Count the homeless living on the streets of our cities . . . . as your C’wealth/Corporate car passes by!

  3. Dog's Breakfast

    It’s a neoliberal wet dream.

    How has it come to this, and how does a party that supports and promotes this get elected, and re-elected to government.

  4. leon knight

    Have faith people, I am sure the Murdoch rags will have a blistering expose of this rorting shortly…..

  5. AR

    Sometimes I just can’t even muster despair.

  6. Paul Ritchie

    I am following up your piece about the taxation of property companies entitled “Company profits soar but taxes MIA”.

    First, the question of taxation for large corporates, particularly those that operate across multiple jurisdictions is a legitimate one. Australian property and building are no different than any other sector in that we want successful companies to pay their fair share of tax.

    But the issue you raise does not fall into this area.

    When it comes to listed property trusts, tax is paid by the unit holders rather than the company – this ensures we don’t have double taxation. It doesn’t mean the company is avoiding or evading tax, it means that the actual owners of the trust (the unit holders) are paying the tax.

    It also means that a unit trust investor is in exactly the same tax position as someone else who brought a property in their own name.

    To get a little more technical, listed property trusts will typically be “managed investment trusts” (MITs) for Australian tax purposes. Under an MIT, the investors pay tax directly on their share of the passive taxable income of the trust. This tax is paid:

    1) “by assessment” for Australian resident investors, which can be as high as 49% depending on their personal tax position; and

    2) through withholding taxes for non-Australian resident investors at tax rates of 15% or 30% depending on the country of the non-resident investor.

    As well, the Australian taxation arrangements for real estate investment trusts are consistent with most taxation regimes around the world.

    All of this points to taxes being paid and not MIA for property groups – the same way as property taxes are being paid by Australians who own property directly.

    Ken Morrison
    Chief Executive
    Property Council of Australia

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