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The ATO says a higher level of scrutiny has seen significant improvement with tax compliance among large corporations, with Australia’s biggest corporations paying more than $57.2 billion tax in the last financial year.
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ATO reveals improved tax compliance trend from big business
15 December 2021
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10 minute read
The Australian Taxation Office (ATO) has released its seventh annual report on corporate tax transparency providing the latest snapshot of tax compliance among large corporations.
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This year’s tax transparency report covers 2,370 corporate entities, of which 1,378 are foreign-owned companies with an income of $100 million or more, 513 are Australian public entities with an income of $100 million or more and 479 are Australian-owned resident private companies with an income of $200 million or more.
The companies in the report paid a combined total of $57.2 billion, or around 65 per cent of all corporate income tax in 2019-20.
Since the first report in 2013-14, there has been growth in total income, taxable income, and income tax payable. In 2019-20, the growth in these amounts has been largely driven by the mining sector, which accounted for around 44 per cent of tax payable.
While the report reflects the impact of the early stages of the COVID-19 pandemic (particularly on the wholesale, retail and services sector), it does not provide additional detail on recipients of JobKeeper or other stimulus payments.
ATO deputy commissioner Rebecca Saint explained that the report reflects the ATO’s intensive engagement with the top end of town in recent years.
“While the tax paid by this population may fluctuate year on year, the overall trend couldn’t be clearer. Corporates are placing a higher value on tax compliance, driving consistent and willing voluntary participation,” Ms Saint said.
The corporate tax transparency report shows that the proportion of companies that have paid no income tax remains steady at 33 per cent in 2019-20. This reflects a decline from 36 per cent since the first report in 2013-14.
For 2018-19, the ATO estimated a net tax gap of 4.3 per cent or $2.6 billion after ATO engagement, meaning large corporate groups paid over 95 per cent of the theoretical total amount of income tax payable in 2018-19.
“Very few other revenue authorities calculate and publish tax gaps. This makes international comparisons difficult, but Australians can be reassured that large corporate groups are held to account more than any other sector of the economy,” Ms Saint explained.
Increased ATO engagement
The Tax Avoidance Taskforce (the Taskforce) has also had a significant impact on corporate tax collections. Since its inception in 2016, Ms Saint noted the Taskforce has proven very successful. In addition to contributing to the ATO collecting over $10 billion in additional tax from public and multinational businesses, it has driven improved tax compliance.
The resources of the Taskforce have allowed the ATO to establish the justified trust program, which requires the largest businesses to assure us they are paying the right amount of tax by having regard to objective evidence.
“This is a significantly higher level of scrutiny than the previous approach of investigating identified risks,” Ms Saint said.
“Our reports on the Top 100 shows that the number of taxpayers achieving a high assurance rating increased from 6 per cent in 2019 to 49 per cent in 2021.
“We attribute this to a combination of businesses recognising that investing in their tax governance has tangible real-world benefits – as well as a significant investment of time and resources by the ATO in scrutinising structures, transactions and tax governance frameworks.
“The health of the tax system is underpinned by willing participation, which is shown by four out of five of the largest businesses in Australia having obtained either a high or medium assurance rating.”
Ms Saint added low assurance ratings prompt the ATO to conduct comprehensive and intensive reviews where it is more likely to use audits to resolve issues.
“Although we cannot disclose the assurance ratings of individual taxpayers, we note that many are using a justified trust rating as a key performance indicator,” she noted.
“We are seeing businesses with ‘high assurance’ tax ratings informing their shareholders, employees and other stakeholders.”
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