Understanding tax loss
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. Offsets are special concessions in the tax law used to stimulate investment in particular areas, for example the Research and development tax incentive.
We examine companies making a tax loss very carefully to understand why they are making a loss and whether this represents a compliance risk. We apply considerable resources to ensure these taxpayers are paying the right amount of tax. For information on the specific risks we deal with, see the Tax Avoidance Taskforce and refer to Corporate population compliance for links to our corporate population compliance findings.
The corporate tax transparency data this year shows 28% of entities reporting nil tax paid. This proportion broadly aligns 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.
For more information, see Why some corporations pay no tax.
Reasons for tax losses
There are numerous commercial reasons why corporations can make a loss. The main reasons include, but are not limited to:
- sensitivity to economic and environmental conditions which may impact income and expenses
- capital investment decisions, including reinvesting capital assets or business expansion, that can lead to increased tax deductions.
Although taxable income or loss is calculated differently to accounting profit or loss, it is useful to compare. We can gain confidence when we examine a corporate entity and find loss-making levels are broadly comparable between accounting and tax views.
Given the close relationship between the accounting and tax systems, we often look at the alignment between the reporting of an accounting or economic loss in a company tax return with a consequential tax loss. The company tax return asks for information to reconcile the calculation of taxable income from accounting profit or loss.
An entity may not pay tax in an income year where it reports:
- an accounting loss
- an accounting profit but reconciliation items resulted in a tax loss – for example, tax deductions allowed at higher rates than accounting permits
- a taxable income but was also entitled to offsets (such as the research and development incentive) at least equal to the tax otherwise payable
- a taxable income but prior year losses were available to deduct against that profit, so no tax was payable.
Of the 4,110 entities in the corporate tax transparency population for 2023–24:
- 2,974 (72%) paid tax
- 1,136 (28%) did not pay tax.
Figure 10: Reasons for nil tax at the entity level, 2023–24
Economic group level analysis
Many single entities that did not pay tax are members of a tax paying corporate group. An economic group includes all entities, such as companies, trusts and partnerships, that lodge an Australian tax return under a direct or indirect Australian or foreign ultimate holding company or other majority controlling interest. This includes all entities under a single ultimate holding company or under the ownership of a single individual, trust or partnership.
Multinationals typically comprise many corporate entities operating across multiple jurisdictions. At the economic group level, a total of 3,521 economic groups or standalone entities were to some degree in scope for the Corporate tax transparency report. When we analyse this population at the group level, the percentage with nil tax payable drops from 28% to 20% because at least one entity in the group did pay tax (see Figure 11).
Figure 11: Reasons for nil tax at the economic group level, 2023–24
The main reason for nil taxes can vary from year to year. In 2023–24 entities incurring accounting losses continued to be the main reason why entities did not pay tax followed by utilisation of carry forward losses (see Figure 12).
Figure 12: Proportion of economic groups with nil tax payable, by tax outcome over 3 years
Nil tax payable – by ownership segment
The proportion of entities with nil tax payable has decreased in the 11 years since this report was first published, from 36% in 2013–14 to 28% in 2023–24. This drop is largely a reflection of better business conditions.
The proportion of foreign-owned entities which paid nil tax decreased slightly in 2023–24. There was also a decrease in the proportion of Australian public entities and Australian private entities with nil tax payable both this year and over the 3-year period (see Figure 13). The addition of private entities with total income less than $200 million has had a minimal impact on the proportion of entities with nil tax payable in the private entity segment.
Note: The 2022–23 and 2023–24 ownership cohorts are not directly comparable to the 2021–22 year, as smaller Australian private entities with total income less than $200 million weren't represented in the data. For more information, see Interpreting the results.
Figure 13: Proportion of entities with nil tax payable, by ownership segment, over 3 years
Nil tax payable – by industry segment
The proportion of entities with nil tax payable decreased in 2023–24 and this was reflected across all industry segments (see Figure 14). Nil tax payable can depend on macroeconomic factors such as economic downturns or conditions that affect industry segments in different ways.
There is a higher percentage of nil tax payable entities in the Mining, Energy and Water segment compared to other segments, due to factors such as volatile commodity prices and extended lead times before projects become revenue generating.
Figure 14: Proportion of entities with nil tax payable, by industry segment, over 3 years