Speaker 1: Already and this is this is the.
Speaker 2: Daily, This is the daily. Ohs oh, now it makes sense.
Speaker 2: Good morning and welcome to the Daily os Is Tuesday,
Speaker 2: the seventh of October. I'm Billie fit Simon's. I'm Sam Kauzlowski, Netflix,
Speaker 2: AGL and Virgin Australia. What do these companies have in common? Well,
Speaker 2: they generate hundreds of millions of dollars in revenue each year,
Speaker 2: but they paid no company tax in the twenty twenty
Speaker 2: three twenty four financial year. That's according to the Australian
Speaker 2: Tax Officers Annual Corporate Tax Report released last week. So
Speaker 2: how can this be? We will break down everything you
Speaker 2: need to know in today's podcast.
Speaker 1: This topic, Billy, has always fascinated me because it's not
Speaker 1: actually even unique to Australia. There are large corporations all
Speaker 1: over the world. Every year or so a story comes
Speaker 1: out that they paid no corporate tax, and there's this
Speaker 1: question of how can you bring in this much money
Speaker 1: and not pay tax when you and I pay income
Speaker 1: tax and we have an understanding of tax rates, So
Speaker 1: why don't we start by exploring the differences though, between
Speaker 1: the tax that you and I pay, which is individual
Speaker 1: tax and company tax rates.
Speaker 2: Yes, so we all know. You know what tax is.
Speaker 2: The most familiar one for all of us would be
Speaker 2: the pay as you go tax that comes out of
Speaker 2: our paycheck every cycle.
Speaker 1: So that's what.
Speaker 2: Employees pay the government. But what we're talking about today
Speaker 2: is what employers pay the government in tax. So that's
Speaker 2: the companies and it's called company tax. But the thing
Speaker 2: about company tax is that the businesses only need to
Speaker 2: pay tax on profits. So it's not what they earn
Speaker 2: in revenue each year, it's what they earn in profit.
Speaker 1: So if they take away the dollar figure, that's the
Speaker 1: expenses that they laid out that financial year, and they
Speaker 1: take that number away from the revenue number, that cream
Speaker 1: on the top is the profit exactly.
Speaker 2: And so what's interesting, and I think what is quite
Speaker 2: controversial every time this topic comes up, is that you
Speaker 2: could have a company that is earning hundreds of millions
Speaker 2: of dollars in revenue every year, but if the company
Speaker 2: isn't earning a profit, once it takes into account how
Speaker 2: much it costs to run the company, that's when they
Speaker 2: don't need to pay any company tax. In Australia, and
Speaker 2: another thing in Australia, which is kind of recent it
Speaker 2: only came about during COVID, is that Australia lets companies
Speaker 2: carry forward losses into future years. And so what that
Speaker 2: means is that a big loss in one year could
Speaker 2: be spread out to reduce tax to zero over several years.
Speaker 1: So let's play that out. So let's say that you
Speaker 1: lost one hundred dollars in year one, and in the
Speaker 1: second year you made one hundred dollars. You could say
Speaker 1: to the tax office that in that second year you
Speaker 1: actually broke even, Yes, because you'd lost one hundred dollars
Speaker 1: the year before. You're carrying that forward and using it
Speaker 1: to deduct from those beautiful profits you made in the
Speaker 1: second year, exactly.
Speaker 2: And so it's kind of like a tax loophole, but
Speaker 2: also not because it's very legal.
Speaker 1: Yeah, it's above board.
Speaker 2: Yeah, And there are lots of these kind of rules,
Speaker 2: like the carry forward rule, that allow companies to structure
Speaker 2: their affairs in such a way that they pay little
Speaker 2: or no tax for many years. I think one thing
Speaker 2: that you can compare it to is tax deductions for
Speaker 2: individuals for employees. Think of it like that. But obviously,
Speaker 2: once you're dealing with hundreds of millions of dollars. It's
Speaker 2: a lot more complex and there are so many more
Speaker 2: different rules that apply. And I think what's important to
Speaker 2: remember is that there's no suggestion that any of these
Speaker 2: big companies have done anything wrong by not paying company tax.
Speaker 2: It's completely allowed. But I think it's something that not
Speaker 2: many people know about, so it's just a great literacy
Speaker 2: angle for us to explain.
Speaker 1: And the other important bit of this chat is to
Speaker 1: remember that we're not talking about companies paying no tax
Speaker 1: at all across the board. We're talking about the company
Speaker 1: tax on profits, but companies still pay other taxes like
Speaker 1: payroll tax or GST.
Speaker 2: Yes. I have to admit when I first learned about
Speaker 2: this many years ago, and I was like, oh my god,
Speaker 2: companies are paying no tax. What the hell? Yeah, And
Speaker 2: I was so confused about that. But yes, it's important
Speaker 2: to say that's actually not true. We're just talking about
Speaker 2: company tax, but things like GST or even payroll.
Speaker 1: Tax, which is normally state based.
Speaker 2: Yes, but companies also have to pay payroll tax, which
Speaker 2: is an employer tax that's different to the pay as
Speaker 2: you go tax. It's all very complicated, but it's not
Speaker 2: true that they're not paying any tax.
Speaker 1: At all the other important part of this discussion. So
Speaker 1: you've taken us through this idea that if a company
Speaker 1: is operating at a loss, if they're spending more than
Speaker 1: they're making, then they're not paying any company tax. That
Speaker 1: doesn't necessarily mean the company is failing. I mean, think
Speaker 1: about those names that you rolled out at the top, Netflix, AGL,
Speaker 1: virgin Those are all brands that are you know, at
Speaker 1: least from their boards and CEOs, they're heading in the
Speaker 1: right direction.
Speaker 2: Yeah, you know who taught me about this, tell me
Speaker 2: you thank you. When I first started working at TDA
Speaker 2: and started learning about the world of business and everything,
Speaker 2: I remember you telling me that companies don't immediately need
Speaker 2: to start making a profit. You know, you're playing a
Speaker 2: long game here, and so it is not unusual that
Speaker 2: businesses will often operate at a loss in specific years
Speaker 2: for good reasons. For example, they might be expanding their
Speaker 2: business and they might be planning to make profits or hopefully.
Speaker 2: I mean all businesses will be planning to make profits
Speaker 2: in a future year, but it might just take a
Speaker 2: couple of years to get there.
Speaker 1: Can I add one layer of complexity to that. Yes,
Speaker 1: Sometimes even investors or shareholders like on the stock market.
Speaker 1: They might actually be disappointed if a company is making
Speaker 1: too much profit because it's showing that they're not using
Speaker 1: that money to put it in growth opportunities. And a
Speaker 1: dollar in the bank can get interest and that's really
Speaker 1: good and secure. But a dollar being used by an
Speaker 1: innovative company to do something that makes their market share bigger,
Speaker 1: that might result in three dollars. And so, yeah, profit
Speaker 1: is a really interesting idea.
Speaker 2: Yeah, and I remember the last time that we spoke
Speaker 2: about companies paying no company tax on the podcast, we
Speaker 2: talked about well for that specific year, we were talking
Speaker 2: about Quantus paying no tax, and it was during the
Speaker 2: years of COVID and they were operating at big losses.
Speaker 2: But now as of this pass report, they are paying
Speaker 2: company tax. So it just shows that again, you can
Speaker 2: be making a loss one year, the next year you
Speaker 2: can be making big profits and again paying company tax then.
Speaker 1: And what investors always want to see is growth and
Speaker 1: whatever form that growth is in is very important to them.
Speaker 1: Remind us why we're talking about this today though.
Speaker 2: Yeah, So the reason we're talking about this today is
Speaker 2: because the Australian Tax Office released its annual Corporate Tax report.
Speaker 2: Now that is a report where it covers private and
Speaker 2: public companies that are making at least one hundred million
Speaker 2: dollars every year. I look to see if the dally
Speaker 2: Os was there. Unfortunately, we're not quite there.
Speaker 1: One of these years, one of these years we are
Speaker 1: going to be interrogated on the corporate tax report. Not
Speaker 1: quite yet.
Speaker 2: So any company that is making one hundred million dollars
Speaker 2: or more in revenue in Australia is included in this report,
Speaker 2: and it revealed that more than a quarter of these
Speaker 2: big companies did not pay any company tax. Now, if
Speaker 2: you're not familiar with this kind of story, you might
Speaker 2: be thinking that's quite a lot. More than a quarter
Speaker 2: of companies in Australia making over one hundred million dollars
Speaker 2: a year aren't paying company tax. But that's actually the
Speaker 2: lowest percentage of companies paying zero tax in the past decade.
Speaker 1: And when you're talking about these companies that are making
Speaker 1: over one hundred million, are these companies that we've heard of,
Speaker 1: Are these companies that we engage with or are they
Speaker 1: you know, miscellaneous massive maybe mining companies that we don't
Speaker 1: have much interaction with as consumers.
Speaker 2: Yeah, so I mentioned some of them at the top.
Speaker 2: There was AGL, Virgin. There was also Toll the shipping
Speaker 2: company Ticketmaster, one that I'm sure many of us are
Speaker 2: familiar with and what I found interesting. So we've mentioned
Speaker 2: that the threshold to be included in this report is
Speaker 2: one hundred million, but some of these companies are literally
Speaker 2: making billions of dollars but they still paid no company tax.
Speaker 2: One that we have talked about is Netflix. They made
Speaker 2: more than a billion.
Speaker 1: Dollars just in Australia, just.
Speaker 2: In Australia, and justin revenue, again not profit, but they
Speaker 2: paid no company tax. And what's interesting and quite controversial,
Speaker 2: I think it's safe to say, is that a company
Speaker 2: like Netflix, which is a multinational company, they are not
Speaker 2: playing around with the rules in tax systems in single countries,
Speaker 2: but they also get to play around with it across
Speaker 2: all countries that they operate in. So it's a very
Speaker 2: different company to something like Virgin Australia.
Speaker 1: So let's spell that out a little bit more.
Speaker 2: So.
Speaker 1: What you're talking about there is the idea that Netflix
Speaker 1: Netflix Australia has an Australian company that is fully owned
Speaker 1: by Netflix Worldwide and where Netflix Worldwide is registered and
Speaker 1: it's based that will have an impact on how much
Speaker 1: tax they pay. Yes, got it?
Speaker 2: Okay, And I'm not necessarily saying Netflix, but I'm saying
Speaker 2: that some companies, some multinational companies, could be moving profits
Speaker 2: or revenues around to pay less tax in certain countries.
Speaker 1: And so this is part of the debate that government,
Speaker 1: successive governments, both labor and liberal have had over many
Speaker 1: decades now, which is the idea that if you're earning
Speaker 1: money from Australians but then sending that money overseas straight away,
Speaker 1: that's another way to not pay corporate tax. What should
Speaker 1: the rules be there? And no one really has had
Speaker 1: a clear answer to that question. I mean one of
Speaker 1: the companies that this comes up with a lot is
Speaker 1: measure and the number of Australian businesses that spend money
Speaker 1: on Facebook ads for example, if you look at the
Speaker 1: receipts of those ads, then it'll say Dublin on it
Speaker 1: and it goes straight to Ireland and that's where that
Speaker 1: business is based out of and so they have to
Speaker 1: be accountable to Irish tax laws but not Australian. Now,
Speaker 1: it's worth noting that Meta says that they are compliant
Speaker 1: with all Australian tax laws, and the ATO is a
Speaker 1: very powerful institution in chasing up these companies, and all
Speaker 1: of this is above board. And I think that's the
Speaker 1: recurring interesting point here, Billy, is that no one's breaking
Speaker 1: rules here. The rules are set up to allow for
Speaker 1: companies to structure themselves in these ways.
Speaker 2: Yeah, and it's interesting that you bring up that the
Speaker 2: ATO is, you know, really focusing on compliance, because that
Speaker 2: is the reason that when I mentioned earlier that it
Speaker 2: is the lowest percentage of companies paying no company tax.
Speaker 2: The reason for that is because they have increased their
Speaker 2: investment into making sure that all companies are being compliant.
Speaker 1: And that's through these tax avoidance bodies that they set
Speaker 1: up with in the ATO that take forensic examinations of
Speaker 1: companies to make sure that they're paying the tax that's
Speaker 1: owed to the ATO exactly.
Speaker 2: And investment into that task force has increased in recent years.
Speaker 2: And so yeah, like I said, this is the first
Speaker 2: time in eleven years. Well I didn't say this stat
Speaker 2: this is a new stat So the first time in
Speaker 2: eleven years that the number of entities paying no tax
Speaker 2: has dropped to below thirty percent, and that number of
Speaker 2: eleven years, that's just when this report started, so it's
Speaker 2: basically the first time on record that it has dropped
Speaker 2: to below thirty percent. So it just shows that it
Speaker 2: is working. It is above board, but there is a
Speaker 2: real focus on compliance at the moment. It's above board
Speaker 2: in terms of this report, right, but as we know,
Speaker 2: you know, there are potentially dodgy things happening, not what
Speaker 2: we've talked about today, but outside of what we're talking
Speaker 2: about today.
Speaker 1: It's an area of the law and of the economy
Speaker 1: that people spend their entire lives trying to work through,
Speaker 1: work in and work around.
Speaker 2: That we've just tried to explain in a ten minute
Speaker 2: podcast on a Tuesday morning, So.
Speaker 1: Possibly go wrong. Billy, thank you so much for taking
Speaker 1: us through that very complicated area, but one that always
Speaker 1: grabs the headlines and we thought it was worth explaining.
Speaker 1: Thank you, and that's all we've got time for you
Speaker 1: on today's episode of The Daily OS. We're going to
Speaker 1: be back in the afternoon with some headlines. If you've
Speaker 1: got any questions left over from this discussion, just shoot
Speaker 1: us a dm over on our Instagram. We've got TDA Finance,
Speaker 1: our brand new finance newsletter and a good place to
Speaker 1: try and break down some extra questions you've got from
Speaker 1: today's episode. We'll speak to you later in the afternoon.
Speaker 1: Until then, have a great day. My name is Lily
Speaker 1: Maddon and I'm a proud Arunda Bunjelung Calkatin woman from
Speaker 1: Gadigol Country.
Speaker 2: The Daily oz acknowledges that this podcast is recorded on
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Speaker 2: all Aboriginal and Torrestrate island and nations. We pay our
Speaker 2: respects to the first peoples of these countries, both past
Speaker 2: and present.