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