There are numerous commercial reasons why corporates can make a loss. 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 levels. We can gain confidence when we examine a corporate and find loss-making levels are broadly comparable between accounting and tax.
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, 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 or loss).
Of the 2,311 entities in scope for the 2018–19 transparency report, 1,570 (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 21 by the primary feature of the tax system that led to their nil tax payable outcome. Of these:
- 293 entities (13%) reported an accounting loss
- 136 entities (6%) reported an accounting profit but reconciliation items (for example, tax deductions allowed at higher rates than accounting permits) resulted in a tax loss
- 58 entities (3%) 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
- 254 entities (11%) reported a taxable income but prior-year losses were available to deduct against that profit, so no tax was payable.
Figure 21: Entity tax outcomes, 2018–19
The corporate tax transparency population consists of larger corporates and are often part of groups that comprise multiple companies or even trusts. Corporate entities with nil tax payable for a given year may have been part of a broader economic group that did have a tax liability (see Figure 22). At the economic group level, a total of 2,041 economic groups or standalone entities were to some degree in scope for the transparency report.
When we analyse this population at the group level, the percentage with nil tax payable drops to 22% because at least one corporate in the group did pay tax.
Figure 22: Economic group level tax outcomes, 2018–19
Since 2016–17 there has been a small increase in those groups incurring an accounting loss. Utilisation of losses has remained relatively stable over the period and the proportion of groups or companies utilising offsets has remained low, ranging between 1% to 2% during this time (see Figure 23).
Figure 23: Proportion of economic groups with nil tax payable, by tax outcome, 2016–17 to 2018–19
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