Hidden billions: ATO forgot to say corporations get tax rebates too

by Michael West | Dec 23, 2018 | Finance & Tax

Kevin Rudd was PM. An election loomed. Tony Abbott was ahead in the polls and Rupert Murdoch’s newspapers were furiously crusading for Abbott when Rupert’s media empire was presented with a tax refund of almost $900 million. Michael West reports on corporate tax refunds.

It was 2013. News Corp had just won a court case against the Australian Tax Office (ATO) in the Federal Court and was duly awarded a tax refund of $882 million. At the Tax Office, they were not happy. Some badly wanted to appeal the decision. After all, News was then the ATO’s “number one corporate tax risk”, the nation’s premier tax dodger that is.

Insiders say the prospects of the Tax Office winning on appeal were good but the case was never re-contested. Taxpayers picked up the bill for what was a non-cash, paper transaction where News Corp’s Australian operations recorded a $2 billion loss and its tax haven entities a $2 billion gain.

As for the $882 million refund from Australian taxpayers – which became $923 million with interest – Murdoch’s 21st Century Fox ended up with the lion’s share when the media mogul split his empire in two.

You can see the refund coming through in the following year’s financial statements. Though, what you won’t see is the refund showing up in the Tax Office Corporate Transparency report.

Data shows tax, not tax refunds 

Herein lies the rub. The ATO’s annual tax transparency data, which arose from the 2015 Senate Inquiry into Corporate Tax Avoidance, is terrific. It has helped keep the torch on multinational tax avoiders. Yet no tax refunds are disclosed, only tax payable.

In other words, corporations are showing how much they pay but not how much they get back. While the Tax Office, now in the fourth year of its corporate data dump, reveals how much income Australia’s top companies made, and how much tax is payable by them, what it does not show is the billions handed back to them in rebates.

Data expert Greg Bean says 27 per cent of the data is “useless” because of the failure of companies to report refunds.

“Surprise surprise, there are NO companies in any of the four years of data that received a tax refund, as far as we can tell, because the data is blank,” says Bean.

“Out of the 2100+ companies reported on, 567 have reported no Taxable Income or Tax Payable, these columns are just blank. Seventeen months after the end of the 2016-17 tax year, a group of 567 companies with a Total Income of $301B+ have not been able to provide either a Taxable Income or Tax Payable figure.

“Of the 1,544 companies left, after we discard the 567 useless ones, another 153 do report a Taxable Income but not Tax Payable, it is blank. So, out of ~2110 company reports we have about 1,388 with useful information.”

ATO tax dump reveals the dodgers: the usual suspects shine

Asked about the size of corporate tax refunds annually, the Tax Office declined to furnish a number. As with personal tax returns, corporate reporting is something of an “honour system”. The company reports the numbers and the ATO decides whether to contest. A spokesman for the ATO told michaelwest.com.au:

Under the corporate tax transparency measure the ATO is required to publish the total income, taxable income and income tax payable as reported in the tax returns of certain corporate entities. These figures reflect the total amount reported for the relevant income year. Note, a company cannot have a negative tax payable amount for an income year. Therefore, the amount reported on their tax return can only be positive or nil.

For completeness, each income year, companies make regular payments towards their expected annual income tax liability via the pay as you go (PAYG) instalment system. They may receive a “refund” on lodgement if their total PAYG instalments exceed their actual income tax liability for the year, but it is the whole of year actual tax liability that is reported.

To be fair to the Tax Office and the corporations reporting to it, the numbers do tend to even out, showing with reasonable accuracy over time whether a company is a good taxpayer, an egregious tax avoider and anything in between.

The case of News Corp is instructive – especially as it entails what surely must be one of the largest tax refunds in Australian history. When you look at the News Corp financial statements, you find they pay tax – some tax, albeit not much in view of the size of the company.

News Corp shows it’s all about how you present the numbers

But when you look at the ATO disclosures, you find (for the 2016-17 year – the data has a big lag) News Australia Holdings (the main Australian subsidiary of the US media group) showed zero tax payable.

There is a blank in the “tax payable” field. Total income is $2.9 billion, and “taxable income” is $116 million.

There is a distinction to be made between a “simple” refund and a contested assessment, the Murdoch case being a glamorous example of the latter.

The “simple” refund is typical of the personal rebate we get as individual taxpayers when we pay too much tax during the year and get a refund when we lodge our tax return. Same thing with companies: they pay on an estimates basis during the year and top up/get a refund when they lodge.

The other sort is “contested” tax: the refund which comes when you contest an assessment and win. Neither register on the ATO data disclosures made public each December.

Once again, this year and next, in the coming weeks, this website will be rolling out its Top 40 Tax Dodgers and Top 40 Taxpayers charts. Stay tuned.

#Top40 Tax Dodgers Countdown: critics and trends

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Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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