Big business took $25 billion in tax relief in 2014, Tax Office figures show

Australia’s biggest 900 companies claimed tax deductions and exemptions worth a total $25 billion last year – enough to wipe out two-thirds of the current federal budget deficit at a stroke.

As Treasurer Joe Hockey prompted a national “conversation” about tax reform, including the prospect of a higher and broader GST, the Australian Tax Office’s own data showed the top 900 companies paid an “effective tax rate” of just 19.3 cents in the dollar on pre-tax profits in 2014.

The corporate tax rate is 30 per cent.

Companies now pay proportionately less tax on their income than the average wage-earning Australian.

Mr Hockey and Treasury have flagged a tax cut for business to boost international competitiveness but the Tax Office’s numbers show that, on average, Australia’s biggest companies are already paying less than Britain’s statutory rate of 21 per cent after they have taken a range of concessions and write-offs.

Once loss-making companies, which pay no tax, are excluded the effective tax rate paid by Australia’s top 900 companies is about 21 per cent.

The figures are contained in a Tax Office briefing document of August 2014, obtained under Freedom of Information.

The figures compare closely with a Tax Justice Network report, revealed by Fairfax Media in September, which found the top ASX 200 companies contributed an average 23 per cent over the past decade.

The report, which found companies like James Hardie, Sydney Airport, Echo Entertainment – owner of Sydney’s Star City Casino – and Downer EDI paid less than 10 cents in the dollar in company tax, was rubbished by the corporate lobby, including the Business Council of Australia and the Corporate Tax Association.

It was also dismissed by Mr Hockey who said the review, part-funded by United Voice, a union which represents low-paid childcare and hospitality workers, was “wrong”.

An ATO spokesman stressed that the top 900 included super funds, which pay 15 per cent tax on profits, and stapled securities like property trusts, which don’t pay company tax but pass on the tax obligation to investors. He said their inclusion lowered the average rate paid but could not quantify by how much.

Although the ATO briefing document refers to “taxable income”, a spokesman for Mr Hockey said the table actually showed “accounting profit”.

“The document you refer to was created for internal ATO use and looks at the notion of ‘effective tax rate’ as a proportion of tax paid to accounting profit. This is simply a benchmark – tax is not applied on accounting profit and taxable income is a very different concept,” he said.

The Tax Justice Network, which includes charities, churches and other not-for-profit groups, said the ATO figures proved there is a significant gap between the statutory rate and what companies end up actually paying.

“Some of the companies paying lower tax is due to legitimate deductions and revenue earned overseas but some will be due to aggressive tax planning and tax avoidance. These figures justify the [Senate] inquiry into corporate tax avoidance,” said Uniting Church spokesman Mark Zirnsak.

The inquiry’s public hearings begin next week and will hear from executives from miner Glencore, Apple, Google, Microsoft and News Corporation.

The ATO document shows the top 900 companies, including the ASX 200, contributed $44.7 billion in 2013-14.

The big corporations would have paid $69.5 billion if they paid at the 30 per cent rate.

An Australian on average weekly earnings pays an effective tax of 22.7 per cent of their income, according to Treasury’s tax discussion paper, released on Monday by Mr Hockey. It says by 2023 average Australians will pay 27.4 per cent of earnings without systemic reform.

But the ATO briefing confirmed that the corporate contribution declined last year. The total take from the top 900 fell 11 per cent in 2014.

The document outlines the strategy of the “public groups and international” team inside the ATO which is charged with enforcing a fair tax take from the 33,000 Australian and foreign-owned businesses that report a combined income of $1.96 trillion. The largest 900 fit within the responsibility of this unit.

Treasury deputy-secretary Rob Heferen provided Fairfax Media with a briefing on the ATO document, stressing that the deductions taken were perfectly legitimate within the current tax landscape. But he acknowledged it was a measure of deductions available to companies.

They include rebates for “non-assessable, non-exempt income” – or profits repatriated from overseas operations – allowances for capital spent on research and development and franking credits.

The tax discussion paper found the corporate tax system was “extremely complex”. “Artificial distinctions embedded in the system often create unintended biases towards particular forms of investment, distort business decisions and increase incentives to engage in complex tax planning,” it said.

In a statement, the Corporate Tax Association said: “To infer a company is engaged in tax avoidance or aggressive minimisation simply because their ETR [effective tax rate] is below the statutory rate is grossly misleading and has no place in a facts-based debate about whether Australia’s tax laws actually produce outcomes that most people would regard as fair.”

A spokesman for Mr Hockey said: “The bottom line is that tax is paid by corporates at 30 per cent of their taxable income. This does not suggest that there is any ‘missing’ tax.”

“The government has released the Tax Discussion Paper as part of the Tax White Paper process to ensure a resilient system that ensures all companies pay their fair share of tax.”