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  • Net losses and nil tax payable

    Generally, around 20–30% of Australian Securities Exchange (ASX) 500 companies report a current-year net loss to their shareholders in any given year (see Figure 21). Importantly, this shows even extremely large companies will sometimes make a loss in a particular year.

    Figure 21: Proportion of companies with reported loss, by ASX population, 2009–2018

    This figure demonstrates that even Australia’s largest companies can report losses from year to year, and that the observed rates of loss-making are broadly consistent over time. The proportion of ASX 500 companies reporting a current-year net loss has ranged between 20–30% over the past ten years (2009–2018).

    ATTRIBUTION

    This chart was compiled using Morningstar DatAnalysis Premium and contains listed companies only (including trading and suspended companies). The sectors are classified according to the Global Industry Classification Standard and the search query was PreTax Profit from Annual Profit & Loss. The search results were refined to exclude blank or zero results. As such, the population of companies included in the analysis varies on a yearly basis depending on the number of results returned in the search, which may not match the number of companies listed on the ASX. The companies included in the analysis were allocated to ASX indices based on current data, and this allocation remains constant for the entire 2009 to 2018 period.

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    While the majority of entities in the corporate transparency population made profits and paid tax in 2017–18, factors that can affect the amount of taxable income and tax payable include:

    • sensitivity to economic conditions
    • reinvestment back into the business
    • distribution of profits to other entities within the broader group
    • tax deductions and tax offsets.

    Although taxable income or loss (effectively a taxable profit or loss) is calculated differently to accounting profits or losses, it is useful to compare levels. Confidence can be obtained if loss-making levels are broadly comparable between accounting and tax.

    We look to understand the reason for tax losses or nil tax payable. For example, there would often be alignment between the reporting of an accounting or economic loss in a company tax return with a consequential tax loss, given the close relationship between the accounting and tax systems (the company tax return asks for information to reconcile the calculation of taxable income from accounting profit).

    Of the 2,214 entities in scope for the 2017–18 transparency report, 1,504 (68%) paid tax; however, due to features of the tax system, the remainder did not. At an entity level, those that didn’t pay tax are grouped in Figure 22 by the primary feature of the tax system that resulted in nil tax being payable in the income year. Of these:

    • 269 entities (12%) reported a taxable income but prior-year losses were available to deduct against that profit, so no tax was payable
    • 242 entities (11%) reported an accounting loss
    • 146 entities (7%) reported an accounting profit but reconciliation items (for example, tax deductions allowed at higher rates than accounting permits) resulted in a tax loss
    • 53 entities (2%) reported a taxable income but were also entitled to offsets (such as the research and development incentive) at least equal to the tax otherwise payable.

    Figure 22: Entity tax outcomes 2017–18

    Of the 2,214 entities in scope for the transparency report in 2017–18, 1,504 (68%) had a tax liability and 710 (32%) did not. Among those that did not have a tax liability in 2017–18,242 (11%) incurred an accounting loss, 146 (7%) incurred a tax loss, 53 (2%) utilised offsets and 269 (12%) utilised losses from prior years.

    The proportion of companies paying tax at an economic group level is significantly higher at 79% (Figure 23). This is because entities without a tax liability for a given year may have been part of a broader economic group that did have a tax liability.

    At the economic group level, a total of 1,948 economic groups or standalone entities were to some degree in scope for the transparency report. Of these, 79% had a tax liability through one or more member entities (noting some of these entities may not be included in the reported entity list in their own right), while 21% did not (Figure 23).

    Figure 23: Economic group level tax outcomes, 2017–18

    Of the 1,948 economic groups and standalone entities that were to some degree in scope for the transparency report in 2017–18, 1,530 (79%) had a tax liability and 418 (21%) did not. Among those that did not have a tax liability in 2017–18,132 (7%) incurred an accounting loss, 90 (5%) incurred a tax loss, 22 (1%) utilised offsets and 174 (9%) utilised losses from prior years.

    Among the groups and standalone entities that have not paid tax there has been a shift in the reason why. Between 2015–16 and 2017–18 there has been a decline in those entities incurring an accounting loss and an increase in those that have utilised losses from prior years or incurred tax losses. The proportion of groups or standalone entities utilising offsets has remained low at 1% to 2% during this time.

    Figure 24: Proportion of economic groups with nil tax payable, by tax outcome, 2015–16 to 2017–18

    This graph shows the reasons why economic groups paid nil tax over the last three years. The graph shows a decline in the proportion of groups incurring an accounting loss over the three years and an increase in the proportion utilising prior year losses or incurring tax losses. The proportion of groups or standalone entities utilising offsets remained low at 1% to 2% during this time.

      Last modified: 12 Dec 2019QC 60880