‘Legitimate reasons’: More than 830 large companies paid no income tax in 2021-22, ATO says

Nearly one third of the largest companies in Australia paid no income tax in 2021-22, according to the ATO.

Nearly one third of the largest companies in Australia paid no income tax in 2021-22, according to the Australian Taxation Office (ATO).

It’s not unusual for large companies to pay no income tax in a given year, since income tax is paid on profit, not revenue, and not every company records a profit every year for various reasons.

Companies that pay no income tax may also still pay a large amount in other kinds of taxes.

“The fact that an entity pays no income tax, does not necessarily mean that they are not meeting their obligations,” ATO Deputy Commissioner Rebecca Saint said in a statement.

“Tax is paid on profit not gross income. Even entities with large revenue streams may not make a profit for a variety of reasons. There are legitimate reasons why a company may pay no income tax, for example they may not have made a profit for the year or may be in the start phase of their business.”

She added, “The Australian community can be assured we pay close attention to those who pay no income tax to ensure that they are not trying to game the system.”

‘A fantastic result for the Australian community.’ Picture: Dean Tirkot/news.com.au

‘Fantastic result’

The ATO’s ninth annual Corporate Tax Transparency (CTT) report released on Thursday shows Australia’s largest corporate entities paid a record $83.8 billion in income tax in 2021-22.

The report covers 2713 entities, comprising 1496 foreign-owned companies with an income of $100 million or more, 590 Australian public entities with an income with $100 million or more, and 627 Australian-owned resident private companies with an income of $200 million or more.

The nearly $84 billion tax take was up 22.2 per cent from the previous year and nearly 50 per cent higher than two years ago.

“This is a fantastic result for the Australian community,” Ms Saint said.

“A combination of a rapidly recovering economy, high commodity prices and high levels of voluntary tax compliance, backed up by the hard work of the Tax Avoidance Taskforce over many years, has delivered in spades.”

While all sectors of the economy reported increased tax payable, the most significant contributor to the increase was the mining sector, reflecting strong commodity prices.

“The 2022 income year was the first year that the mining sector paid more tax than all other sectors combined, something we haven’t seen in the history of the CTT report,” Ms Saint said.

“ In fact, the mining sector paid more tax in 2021–22 than the total tax from all sectors in the each of the first three years of CTT reporting. The increase in population in the report as well as tax paid is not only a reflection of strong business conditions at the time, but also the high levels of tax compliance by most large businesses in Australia.”

Ms Saint said corporate tax compliance in Australia “sets the bar for the rest of the world”.

More than 830 companies paid no income tax in 2021-22. Picture: Jason Edwards

Companies that paid no tax

Of the 2713 corporate entities in the report, 31 per cent, or 831, did not have a tax liability for 2021-22.

“Where a corporate entity has tax deductions that exceed its income, it can incur a tax loss and pay no tax for that year,” the ATO said.

“Companies with losses in one year can carry these losses forward and deduct them from their profits in future years. Corporate entities may also be able to use features in the Australian tax law such as tax offsets to reduce the amount of tax they pay, sometimes to zero.”

Of the 831 that paid no tax, 326 incurred an accounting loss, 181 incurred a tax loss, 63 utilised offsets and 261 utilised losses from the prior year.

“The main reason for nil taxes can vary from year to year,” the report said. “This year there were higher rates of entities incurring accounting losses as opposed to utilising carry forward losses.”

The percentage of entities that paid no income tax has decreased since the first CTT report, down from 36 per cent in 2013-14.

“We examine tax loss making companies very carefully to understand why they are making a loss and whether this represents a compliance risk,” the ATO said. “We apply considerable resources to ensure these taxpayers are paying the right amount of tax.”

The ATO notes the 31 per cent figure is similar to ASX data, which shows around 20-30 per cent of the top 500 companies reporting a net loss to their shareholders in any given year.

“The ASX data shows that even extremely large companies will sometimes not make a profit in a year when they expand or face challenging market conditions,” it said.

There are “numerous commercial reasons why corporations can make a loss”, including “sensitivity to economic and environmental conditions which may impact income and expenses” and “capital investment decisions, including reinvesting capital assets or business expansion that can lead to increased tax deductions”, the ATO added.

Many of the individual entities that did not pay tax are part of a larger corporate group.

When taken together, the percentage of economic groups that did not pay tax fell to 20 per cent because at least one entity in the group did pay income tax.

The ‘tax gap’ for large corporates stands at $3 billion. Picture: Brendan Read/NCA NewsWire

$3 billion tax gap

The ATO says since it formed the Tax Avoidance Taskforce in 2016, it has helped secured more than $27.7 billion in additional tax revenue from multinational enterprises, large public and private businesses as of August 31, 2023.

In 2022-23, the ATO says it secured a record $6.4 billion of tax revenue from public and multinational businesses.

The so-called “tax gap”, or the difference between what the ATO expects to collect and the amount that would have been collected if every taxpayer was fully compliant with the law, was approximately 4.2 per cent, or $3 billion, for large corporate groups in 2020-21.

“In other words, in the 2020-21 year, we estimate large companies paid approximately 95.8 per cent of the total theoretical tax payable,” the ATO said. This compares to the small business income tax gap of 12.8 per cent or $15 billion for 2020–21.”

This shows that most large businesses “meet their tax obligations and are paying the right amount of tax”.

“However, we strive to improve the tax compliance of large corporates further to 98 per cent,” the ATO said.

The report also shows some large oil and gas companies have begun paying tax following the completion of LNG projects and the recoupment of start-up costs.

Tax payments from this sector have skyrocketed in the 2022-23 year to more than $11 billion.

“The Tax Avoidance Taskforce has been instrumental in moving a number of large oil and gas companies into a tax payable position,” Ms Saint said.

“Oil and gas companies contributed $4.4 billion of the record $6.4 billion tax revenue secured from public and multinational businesses for the 2022–23 financial year. Our intervention ensured that these companies paid more tax and sooner.”

Petroleum Resource Rent Tax (PRRT) payable doubled to almost $2 billion — the highest reported PRRT since the CTT started — with oil prices being a key driver.