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  • Entities and report data

    The figures in the Report of entity tax information do not themselves indicate whether an entity is paying a high or low rate of tax.

    Measuring a company’s 'effective tax rate' (how much tax they pay as a percentage of profits) requires more information than that included in the report and comparing effective tax rates across single entities does not take into account related-party transactions, the broader economic group or a number of other factors.

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    How entities are reported

    The Report of entity tax information is at the corporate tax entity level (for income tax purposes), however these entities may represent economic groups, and some economic groups contain two or more tax groups and other non-consolidated entities within them.

    These largest corporations tend to operate in sectors of the Australian economy that are characterised by a high degree of capital intensity, economies of scale, and are exposed to cross-border trade. We will include more detailed analysis of the population when the report is published.

    Legal forms and structures

    Entities may choose to use different legal forms or structures to meet their business needs. This means that economically similar activities may end up being taxed differently, depending on choice of legal structure.

    Entities listed in the Report of entity tax information may not be directly comparable to entities reporting as financial groups under corporation law. Many economic groups are made up of multiple entities and lodge returns for each entity in the group, even though they may all be included in one set of financial statements. This can also result in the tax being paid by one entity in the group, for the whole group, and others in the group showing nil tax payable.

    Many private companies are associated with private groups that contain flow-through entities such as trusts and partnerships and the group's income may be taxed at the beneficiary or individual level, rather than at the corporate level. Tax and income reported at the entity level may result in two or more associated entities reporting the same third-party income twice, but ultimately only one amount of group profit and therefore one amount of tax. For example, a trust may hold an asset and charge the private company for its use arriving at a zero profit for the company, while the trust returns the profit as assessable income and distributes that income to trust beneficiaries who are each taxed accordingly. We do not publish the tax affairs of associated entities if they do not also meet the requirements under the law. We do not publish the tax affairs of individuals associated with private companies.

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    Stapled groups

    Some economic groups may include a company and a trust that are 'stapled'. Others may include two or more trusts that are stapled.

    In these stapled groups, one of the companies or trusts may be included in the transparency reporting, but others may not, so that aspect of the overall economic group will not be reflected in the data. It will also be difficult to reconcile the total income in the report with the income reported by the group for financial reporting purposes.

    Life insurance companies

    Life insurance companies have two taxable incomes – ordinary income and complying superannuation income. The taxable income or loss of each class is worked out separately. The tax rate is different for each class, with:

    • ordinary income subject to the rate of 30%
    • complying superannuation income subject to a lower rate of  
      • 15% if in the accumulation phase of a super fund
      • or effectively 0% (non-assessable) if the income is from assets supporting pension or annuity liabilities.
       

    This ensures that income tax is taxed in the same way as income of a complying super fund.

    Example

    Franking credits received in relation to assets supporting superannuation, pension and annuity liabilities are refundable to a life insurance company, which also ensures they are treated in the same way as franking credits received by a superannuation fund. This may reduce the net tax paid by a life insurance company.

    The Report of entity tax information shows an aggregation of the two classes and may give the impression of artificially low tax payable compared with total income and taxable income, as those amounts will include income attributable to policy holders (and taxed at concessional rates).

    Conversely, the effective tax rate (tax paid or accounting tax expense as a percentage of accounting profits reported in a company's financial accounts) may also be distorted to provide an artificially high effective tax rate because of tax paid (or refunded) attributable to policy holders.

    End of example

    Offshore banking units

    The offshore banking unit (OBU) regime provides a concessional tax rate to encourage genuine offshore banking activity in Australia. An OBU, or the part of an entity that is a registered OBU, is subject to an effective tax rate of 10% on income from eligible activities. Other income of the entity is taxed at the normal company tax rate of 30%.

    Permanent establishments

    Consolidated groups disregard transactions between members in the group when compiling their accounts. This does not happen for dealings with unconsolidated members of the group. An example is where a foreign multinational, trades in Australia through a permanent establishment, such as a branch of a financial institution that has dealings with other members of that group. So, the amount reported as total income by different entities may not be directly comparable.

    Inbound approved deposit taking institutions (ADIs) will generally operate their wholesale banking business in Australia through a permanent establishment as opposed to a locally-incorporated subsidiary. They are generally low-margin, high-volume businesses and the disparity between total gross income and taxable net income will be greater than in other industries.

    If a group containing an ADI also conducts other activities in Australia, such as broking, through locally-incorporated subsidiaries that form a tax consolidated group, transactions may occur between the permanent establishment and the tax consolidated group. While these transactions may not have any economic effect, they will effectively be reported on a gross basis and inflate the total income disclosures for the combined permanent establishment and tax consolidated group.

    Taxation of financial arrangements

    The Taxation of financial arrangements (TOFA) rules provide for the tax treatment of gains and losses on financial arrangements. The reporting of TOFA gains and losses for tax purposes is at a gross level rather than net level at which these gains are reported for accounting purposes. This can distort the ratio of total income to tax payable.

    There is a timing difference with credit losses being recognised from an accounting perspective, being when impaired and deductible from a tax perspective, and when actually written off.

      Last modified: 11 Dec 2020QC 44476