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The Australian Taxation Office’s (ATO) published its tenth annual Corporate Tax Transparency Report (CTTR), reporting on the tax contribution of large corporates to the Australian tax system.
The report provides aggregate data from the income tax returns of corporations with total income equal to or exceeding A$100 million including those liable for Petroleum Resource Rent Tax (PRRT).
Understanding the 2023–24 Corporate Tax Transparency Report 
In summary, total tax payable increased by 16.7% from 2021-22 (A$97 billion) while total income increased by 23.3% (A$3,139 billion). CTTR contained data on some of Australia’s largest companies that have paid little to no corporate tax despite billions in revenue. Whilst this aspect dominated the headlines for a few days after the CTTR publication, it does little in advancing the public discourse when it comes to the economic contribution of mining companies. In the authors’ view, while the data published in CTTR provides an insight into the state of tax payable by corporate Australia, the data does not do justice when it comes to the economic contributions by Australian companies.
Data such as level of investment by these companies provides insightful context to the wider community in understanding the fundamental reasons behind lower tax payable.
To get an insight into this, we have done a high level number crunching based on a selected companies capex investment along with earnings before income tax (EBIT).
Our research has concluded that two thirds of entities with more than AUD $1 billion reported income that reported no tax payable had achieved an EBIT margin of under 10 percent.
Albert Einstein may tell you that EBIT is relative, and he would be right, as no two companies or industries operate the same, but a general rule of thumb is to target 10-20 percent EBIT margin. Now, sub 10 percent is still millions of dollars, so why are these companies reporting zeros to the ATO? We must look even deeper.
Why Some Large Companies Pay Little to No Tax
It is common to see mining giants, like Glencore, dominating the Australian economy and the revenue statistics, but revenue is not profit. Some parts of the business such as their coal production generate large profits, but they are hindered by other parts, such as their copper production. Glencore’s Mount Isa copper smelting plant is projected to lose AUD$2.2 billion over the next 7 years, recently receiving a AUD$600 million government support loan. Despite this financial aid, the plant is a large financial burden to the company. This problem has allowed Glencore to legitimately utilise ATO’s carry forward tax losses system to offset current profits with losses from previous years. Their EBIT, a reliable measure of a company’s operating profitability, has dropped consistently over the previous 3 years, ensuring these carry forward losses have more impact on tax payable now. Company history and high costs must be considered in tandem with high revenue figures when assessing a company’s taxable income.
In addition to EBIT, we looked into investment in CapEx by large mining companies. We selected a handful of them to see if there is a correlation between tax payable and net cash flows used in investing activities. Our analysis found that the selected companies in the mining sector had significant level of investment in the three years leading up to 2023-24 – ranging from 14% to 73% of their total turnover. To us, this indicates that like most things, more than meets the eye. 
As we can see, carry forward losses can be a powerful tool to deduct expenses, but necessary to incentivise companies to keep their profits within Australia. Deductible carry forward losses can be the result of some form of investment activity within Australia, like Glencore’s continued investment into a loss creating smelting plant. Our research into comparable energy and mining companies like Glencore reported minimal tax payable were committing approximately 20% of their revenue into investment activities in recent years. This is money that goes back into their respective business’ (and the economy), which can be hundreds of millions of dollars in some cases.
Without incentives such as these, this money could be extracted out of Australia into other parts of their business, that fall under a different country’s tax jurisdiction. This is an unsustainable strategy for long term Australian prosperity. Investment creates opportunity, and opportunity creates success. Success for people, success for government, success for Australia. That is why we incentivise companies to utilise legitimate tax-deductible strategies, but that does not mean companies can use or abuse it.
Other Glencore entities, such as Oakbridge and Glencore SA Holdings, paid the full 30% corporate tax rate according to ATO disclosures. The ATO’s taxation system allows for lower tax payable, but there must be legitimate reasons.
Corporate Tax Association’s Chief Samantha McCulloch stated “the results [of the ATO’s report] dispel the myth that Australia’s oil and gas sector does not pay its fair share. The fact is that the oil and gas sector is Australia’s second-largest corporate taxpayer, which helps pay for essential services and infrastructure for all Australians”.
Australia’s strong tax compliance and economic context
The ATO reported that entities with an income more than AUD$5 billion account for nearly 60% of tax payable. Given that over half of all corporate tax is made up by a small number of companies, incentives are paramount to our taxation system and any alterations to it must be carefully considered.
The ATO enforces one of the highest levels of tax compliance by large businesses in the world, with 94.1 per cent of tax paid voluntarily and 96.3 per cent after compliance actions. Further the CTTR shows that the percentage of those entities that paid no income tax in the CTT report has decreased from 31% in 2022–23 to 28% in 2023–24. Assistant Tax Commissioner Michelle Sams noted that “the data continues to demonstrate the high levels of compliance amongst our largest corporates”.
No country’s tax system is perfect, and you can’t keep everyone happy, but we must acknowledge that Australian prosperity has, and still does, largely depend upon the energy and mining sector, explaining why our taxation system seems to incentivise them. All this is to say, that whilst specific surface level numbers may be used to entice certain opinions from the Australian public, we must ensure that we delve deeper and understand the context behind the data.
FOR MORE INFORMATION
Our understanding of tax governance, specialist skills, and deep industry knowledge help clients locally and globally, reach out to Minty Tafesse or one of our local RSM Tax experts.
