Where a corporate entity has tax deductions that exceed its income, it can incur a tax loss and pay no tax for that year. Companies with losses in one year can carry these losses forward and deduct them from their profits in future years.
Corporate entities may also be able to use features in the Australian tax law (such as tax offsets) to reduce the amount of tax they pay, sometimes to zero. Eligibility criteria for each offset can be different and are used to stimulate investment in areas given special concessions in the tax law (for example, the research and development offset).
We examine tax loss making companies very carefully to understand why they are making a loss and whether this represents a compliance risk. We can use our strong information-gathering powers to obtain documents and information from corporates, and exchange information with other jurisdictions on the operation of corporations (see country-by-country reporting).
We can examine Australian Securities Exchange (ASX) data, an annual report to shareholders and other third-party information to determine the overall performance of an entity in comparison to the information reported on its tax return.
The corporate tax transparency data this year has 33% of entities reporting nil tax paid. This proportion is similar to ASX data which shows around 20–30% of ASX 500 companies reporting a net loss to their shareholders in any given year. The ASX data shows that even extremely large companies will sometimes not make a profit in a year when they expand or face challenging market conditions.