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Recent Media

This section provides a selection of media items posted in the last seven days on issues within TaxWatch’s area of interest. Items of longer-term interest will then be transferred to the monthly archives and may also be filed under he relevant topic in the Tax Policy collection.


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'Taxpayers sabotaged': Companies not paying tax despite receiving $6 billion in government contracts

Eryk Bagshaw, The Sydney Morning Herald, 27 May 2017

Multinational companies winning taxpayer-funded contracts worth hundreds of millions of dollars are not paying tax, a Fairfax Media investigation of Tax Office and tender data has revealed. Computer giant IBM, software company SAP and military arsenal provider Northrop Grumman are among those paying little or no tax in Australia, while scoring hundreds of government contracts. A Fairfax Media analysis of 20 of the largest tender-winning companies over the past decade has found taxpayers shelled out $6 billion for services ranging from tank maintenance to software. But those top 20 companies paid only a combined $42 million in tax in the last financial year, Tax Office data shows, meaning Australia may have missed out on as much as $264 million in tax if the companies paid the average rate of 30 per cent. Australian business leaders have accused the Turnbull government of fostering an "unconscionable situation" and "sabotaging the taxpayer". Japanese tech conglomerate Fujitsu, winner of a $42 million contract for broadcasting technology in August, paid the highest tax rate of the top 20, at 18 per cent. The company, which made a global profit of $1 billion last year, has secured 268 taxpayer-funded tenders over the past decade. All companies that responded to questions from Fairfax Media said they operated legally and reduced their total tax payable by claiming tax credits for development or carrying tax losses forward. [Link to their responses in original article] Fairfax Media can reveal Coalition senator Barry O'Sullivan first raised concerns with former treasurer Joe Hockey more than three years ago, but despite the 2015 recommendations of a Senate inquiry, little direct action has been taken by the government. The Tax Office's Black Economy report, released on budget night, urged the government to "take the lead" and limit tender opportunities to companies that have a good tax record. In documents recently released under freedom of information, Finance Minister Mathias Cormann previously said assessing a company's tax rate for tenders was impractical and warned that discriminating against foreign companies would be a breach of free trade obligations. "This would demand very specific expertise and impose significant compliance costs for businesses as well as the Commonwealth," he said in 2016. Bureau of Statistics figures show that in 2014-15, $52 billion of the $59 billion awarded in tenders were attached to an Australian address. Many, such as airplane titan Boeing, which has taken out 232 tenders over the past decade, operate from an Australian address while being owned by their US based parent company. A spokesman said Boeing paid taxes in Australia in accordance with relevant laws and requirements. It is understood Senator O'Sullivan was particularly concerned about the increasingly uneven playing field in IT contracts, a problem that has emerged as more government services move online. IBM has a $1 billion contract to overhaul computing at the Department of Human Services but has failed to sign on to the government's tax transparency reforms. It has won 178 tenders in the past decade but paid 0 per cent tax last year. A confidential ministerial brief for Financial Services Minister Kelly O'Dwyer states the measures in the government's tax integrity package and the Multinational Anti Avoidance Law would ensure that activity taking place in Australia is taxed in Australia. But neither it nor the recently released procurement rules from the Department of Finance include a provision for withholding government contracts from companies not paying tax; rather suppliers are asked to "provide an economic benefit" through paying tax in Australia. Labor has adopted the 2015 Senate inquiry recommendation that tenderers be forced to state their country of tax. "Disclosure isn't discrimination," said Labor's shadow assistant treasurer Andrew Leigh. "You see the analogy with Plutus payroll [which allegedly defrauded $165 million from the tax office] – good companies which have been working for many decades missed out on government tenders because their model involved paying tax." Small Business Minister Michael McCormack is also understood to have advocated for a greater focus on small to medium-sized Australian enterprises, which receive less than a quarter of all government contracts, despite the value of all tender contracts more than doubling from $26 billion to $56 billion in the past decade. Mercury chief executive John Anastasiou, who has contracts under threat from SAP, a company that paid 15 per cent tax last year, said he was deeply disturbed by the situation. "It is unconscionable that they are generating large sums of money from Australian taxpayers while contributing a paltry amount to the system that is supporting their business," he wrote in a letter to Prime Minister Malcolm Turnbull. Optical Superstore chief executive Ian Melrose, who lost a defence contract to Specsavers, headquartered in the corporate tax haven of Guernsey in the Channel Islands, said the concept of letting Australian taxpayers' money support a contract "whose headquarters have a zero tax rate sabotages the Australian taxpayer." Small Business Ombudsman Kate Carnell has launched an investigation into the issue. "This scenario has gotten worse because the government has gone to fewer bigger tenders," she said. "A mower used to get the mowing contract, a maintenance company got the maintenance contract and the defence expert got the defence contract. Those three have now been pulled into one contact picked up by large multinationals." KPMG's Australian tax leader, Grant Wardell-Johnson, said the recommendations of the ATO's black economy report were an appropriate next step. "If I was to draft the laws and you were involved in anti-avoidance activity that would threaten your procurement," he said. Top

Government faces tough test on $16.3m property vacancy tax plan

Michael Bleby and Larry Schlesinger, The Australian Financial Review, 23 May 2017

A federal budget plan to tax homes left vacant by foreign owners remains unclear, with the Australian Taxation Office yet to say how it will be implemented. Treasurer Scott Morrison said last month that the ATO would implement the measure, which aims to free up housing stock and raise $16.3 million over the next four years by charging owners at least $5000. But the ATO said it couldn't yet provide any details on how it will determine whether dwellings are left unoccupied and out of the rental market for six months or more out of every year, as this would be contained in legislation that had not yet passed through parliament. "Unfortunately we are unable to answer your question as the government announcement is yet to be legislated," a spokeswoman told The Australian Financial Review. The federal government faces the same dilemma as Victoria, which this year said it would start taxing properties left vacant in Melbourne's inner and middle suburbs for six months or more at 1 per cent of their value. Victoria's regime, which it says will raise $80 million over the next four years, will be self-reporting – owners will be expected to inform the State Revenue Office when their property becomes vacant. A federal treasury spokeswoman said the department was working on the rules. "The government is developing legislation as a matter of priority and anticipates that it will be introduced into Parliament later this year," she said. "The measure is not about raising revenue, but ensuring vacant properties are released into the market both now and into the future."

Ghost house

Some vacant homes are easy to spot. The six-bedroom, six-bathroom mansion at 57 Coolawin Road in Sydney's prestigious north shore suburb of Northbridge, which former Kohlberg Kravis Roberts head Justin Reizes sold last year for $15,250,000, is almost never used by its overseas-based owners. "They're not there a lot," said selling agent Michael Coombs, who confirmed the buyers were Australian residents. Another local agent said neighbours referred to the home as a "ghost house", with timing switches turning the lights on and off. But many vacant homes, particularly apartments, are hard to identify and housing policy advocates say a broad-based land tax levied across all property that would replace transaction taxes such as stamp duty would do more to improve the liquidity of housing and put stock on the market. While the Victorian scheme is self-reporting, the state government says the SRO has extensive powers to match data from state and federal agencies and other entities, as well as the ability to compel document inspection, conduct searches and require people to attend interviews. And with the federal government only expecting to tax 1000 vacant foreign-owned properties in 2019-20 – for a total $5 million in revenue – the proposal is a futile exercise, according to the Property Council of Australia. "This will end up being a tax that costs more to enforce than it raises," Property Council chief executive Ken Morrison said. "We see no practical mechanism to collect this tax in a cost-effective way so it's simply going to end up as bad policy in search of a headline." The lobby group, which represents property developers, also opposes higher land taxes. Housing think tank Prosper Australia, which lobbies for a broad land tax, said a vacancy tax was a step in the right direction. "A variety of measures such as water consumption or postal analysis can be used without notice to verify vacant property at little administrative cost," Prosper director Karl Fitzgerald said. "The cost to society of ever-increasing housing prices demands action."

Double hit looms

But if the new regimes are pursued, foreign owners of vacant properties in Victoria, at least, can expect to take a double hit from both state and federal vacancy taxes. "The Vacant Residential Property Tax is intended to encourage these owners to make their property available for purchase or rent, allowing Melbourne's current housing stock to be used more efficiently, a measure that the Turnbull government now appears to be following," Victorian Treasurer Tim Pallas said. And then there's Canberra. "The annual vacancy charge for foreign buyers is a tax levied by the federal government and would be in addition to any relevant tax levied by a state or territory government," the federal Treasury spokeswoman said. Top

Black economy surges to ‘much larger’ $50m

Damon Kitney, The Australian, 23 May 2017

The federal government’s key tax adviser has dramatically upgraded its estimates of the size of the cash economy in Australia to as much as $50 billion, as it ramps up its focus on illegal activities including drug trafficking and money laundering. The interim report of The Black Economy Taskforce that was released with the federal budget a fortnight ago made nine ­initial recommendations to the government to crack down on the cash economy, including new reporting requirements for courier and cleaner businesses. But taskforce head Michael Andrew said it had received detailed, confidential briefings from various agencies and individuals on criminal elements of the black economy since handing its interim report to the federal government in March. The Australian Bureau of Statistics estimated in 2012 that the black economy in Australia had grown to 1.5 per cent of GDP ($25bn per year in today’s dollars). “Since I put the report out, when I was saying the black economy was worth $25bn, now I think it’s worth a minimum of $35bn and could be as much as $50bn. Briefings we have received on the illegal side of the black economy — the drug trade, money laundering — have led us to believe it is much larger than we first thought,’’ Mr Andrew told The Australian. Mr Andrew also heads the Board of Taxation, which advises the government on the development of tax policy. “We have done a good job so far on the household component of the cash economy,” he said. “In the final report, which goes to the government in October, we will focus closely on the illegal component of the black economy,’’ Mr Andrew added. He said the taskforce would be working closely with government agencies such as the Department of Immigration and Border Security, the Australian Criminal Intelligence Commission, Austrac, Australian Federal Police and the tax office. The AFP last week revealed it had cracked a major conspiracy to defraud taxpayers of at least $165 million by a group running an alleged payroll tax scam out of Sydney. ATO deputy commissioner Michael Cranston has been issued with a summons to appear in court in relation to his son’s alleged involvement in the scam. The Black Economy Taskforce is now set to focus on a range of areas including illegal gambling, hire practices from criminal gangs and the illegal cigarette trade as it delves further into the black economy. Its interim report also lists cryptocurrencies such as bitcoin as likely areas of focus in its final report. “While cash can facilitate black economy and illegal behaviour, non-cash payment methods can also be used, including cryptocurrencies, certain commodities (for example the black market trade in cigarettes, both smuggled manufactured cigarettes and ‘chop chop’), as well as money-laundering practices such as ‘cuckoo smurfing’,” the report says. “These are not commonly or widely used at present (although it is estimated that 14 per cent of total tobacco consumption in Australia is illegal). If the community moves away from cash, or limits on cash payments are put in place, these alternatives may become more popular.’’ The Black Economy Taskforce interim report also recommended that the Australian government only sign procurement contracts with firms that had a good tax record and did not engage in bribery or corruption. It also suggested it may impose new responsibilities on procurement officers in private sector companies because of the critical role they play in influencing commercial suppliers. “Through their purchasing decisions, they can set high standards for supplier behaviour (insisting on compliance with tax and other legal requirements) or, when under commercial pressure to cut costs, allow poor practices to flourish. Indeed, there have been well-documented cases of suppliers being forced to cut corners in these instances,” the report said. “The taskforce will consider ways to improve supply chain management practices in its final report. Strengthened procurement officer accountabilities (including the idea of making them responsible officers under the Corporations Act) will be considered. There may also be scope for tax and other regulatory authorities to publicise instances of egregious supplier practices (for example, exploitation of vulnerable employees).” Mr Andrew said the move was about making those at the top of companies more responsible for ethical sourcing through their supply chains. “When you have large monopolies or duopolies dictating prices at the top of the supply chain, at the bottom of the chain you see people cutting corners,” he said. Top

Bank levy to hit investors, customers, workers

Richard Gluyas, The Australian, 22 May 2017

Modelling by the major banks reveals that the government’s $6.2 billion levy on industry liabilities will have a significant impact on one or more of the three groups that will share the pain — customers, shareholders and bank workforces. With the government taking submissions on draft legislation for the tax last Friday, the big four commercial banks and Macquarie Group are yet to determine the extent to which each group will suffer as a result of the $1.5bn-a-year revenue grab. However, working on the assumption that each of the big four is facing an incremental tax bill in the range of $300m to $350m a year, internal bank modelling shows a big impact on customers, shareholders and staff if they were to bear the entire burden. If shareholders were to take the hit, dividends would be slashed by 5-6 per cent, according to a well-placed industry source. Customers, on the other hand, would face a 6-9 basis point hike in interest rates for all loan products, including business and personal. Finally, if the banks’ huge workforces were targeted, staff numbers would have to be slashed by about 10 per cent — equivalent to 2500 to 3000 people — to offset the higher cost burden. The banks will ultimately determine a fair apportionment between the three stakeholder groups. Treasurer Scott Morrison has made his view clear — that the industry should “absorb” the cost itself. However, as a succession of chief executives has pointed out, there is no such thing as the banks absorbing the impost. ANZ chief executive Shayne Elliott, who has adopted the most conciliatory approach to the tax, said there was no “secret vault” from which the banks could draw to meet their obligations. If the banks were to take no ­action, they would effectively be passing on the entire cost to shareholders through lower profits and, in all likelihood, lower dividends. This would hurt the industry’s natural ally in any campaign it wages against the tax. Mr Morrison has derided the banks’ protests, telling them to “cry me a river” and accusing the industry of having no friends. But even Mr Elliott, who is now urging the banks to move on and form a better relationship with the government, has argued that ANZ has a large group of friends in the form of its 550,000 mum and dad shareholders. The prospect of a 5-6 per cent cut in their dividends that was directly connected to the tax could inflame some passions, particularly among self-funded retirees. The banks are expected to continue lobbying against key elements of the tax, despite failing to secure changes in the draft legislation they saw for the first time last Wednesday after signing strict confidentiality agreements. Contrary to the banks’ wishes, the draft legislation was not broadened to include foreign banks, and there was no sunset clause for the tax in 2020-21, when the budget is forecast to return to surplus. Westpac said it continued to have “significant concerns” about the tax, as outlined in its first submission after a briefing by Treasury officials two days after the budget. “We believe it is an inefficient tax that is targeting a group of companies that are already the biggest taxpayers in the country,” the bank said. “If this tax is implemented, we strongly encourage the government to include foreign banks and a sunset clause to ensure that domestic banks can compete on an equal footing.” National Australia Bank slammed the secrecy surrounding the tax, and said it had worked through the night in the 39 hours that the draft legislation had been available to respond to a budget measure that would have unintended consequences. “We believe the community should have the opportunity to be part of the discussion of what is a significant new tax that will ultimately affect all Australians,” NAB said. “It should be debated in a public forum, such as releasing the final draft exposure legislation for public consultation, as often occurs with other pieces of legislation in the Treasury portfolio.” Top

Mathias Cormann rejects hitting foreign banks with tax

Phillip Coorey, The Australian Financial Review, 22 May 2017

The federal government has rejected a call by Labor and the Nick Xenophon Team to subject foreign banks to the new bank tax, arguing it would defeat the purpose of the levy which was to foster greater competition. Finance Minister Mathias Cormann told ABC radio on Monday that foreign banks were similar in size to the small banks, which were supposed to be advantaged by the the imposition of a 0.06 per cent tax on the liabilities of the big four Australian banks plus Macquarie Bank, all of which qualify for the tax by having more than $100 billion in liabilities. In a dig at Labor, which suggested last week that foreign banks be included, Senator Cormann pointed out that it was Labor icon Paul Keating who let the foreign banks into Australia to improve competition. "A feature of our major bank levy policy design is to level the playing field for smaller banks operating here in Australia, to helping them compete with the major banks," he said. "Foreign banks were first encouraged into the Australian market, for very good reasons, by Paul Keating in order to ensure that we had increased competition in the banking system." He said that still held and no foreign bank operating in Australia "is a major bank in Australia". Another concern within government is that some of the foreign banks are already subject to similar levies on their home country, and would be double taxed if hit with the bank tax in Australia. The position is not unanimous. Last week, Assistant Treasurer Michael Sukkar did not rule out including foreign banks and Queensland MP Andrew Laming says they should be taxed as well. The government can secure the passage of the bank tax legislation with the nine Greens plus one other of the Senate crossbenchers. Prime Minister Malcolm Turnbull said if the legisation did ot pass, the budget would fall short by $6.2 billion and the nation's AAA credit rating would be a risk. Greens banking spokesman Peter Whish-Wilson said last week, and again over the weekend, that his party would consider the change but he did not believe it was workable. He said the foreign bank operations in Australia were on a par with the smaller banks which were meant to benefit from the bank tax and it would be discriminatory to tax one and not the other. Such a differentiation could possible breach trade and services agreements. He said the Greens would not let a squabble on foreign banks hold up the imposition of the bank tax. "But the fundamental thing for us is that whatever we support, it has to be workable, and I have my doubts that a levy on the big four and the offshore banks would be workable. "It would certainly take the pressure off the big banks, and the underlying reason we support a levy on the banks is to get back the implicit guarantee and some money for the explicit guarantee following the GFC." Westpac issued a statement saying the tax, if passed on the shareholders, will cost about 8c per share. It says the impact of the levy on the bottom line represents a cost of around $370 million or around $260 million after tax. "The exact cost will depend on the final form of the new legislation passed and the composition of Westpac's liabilities," it says. "No company can simply 'absorb' a new tax, so consideration is being given to how we will manage this significant impost on the bank.  We plan to consult with stakeholders, including shareholders, on the levy. "To dimension the impact of the Levy for our shareholders, the $260 million after tax cost is equivalent to around 8 cents per share (using the above estimates).  Based on Westpac's 2016 full year dividends of 188 cents per share, this represents 4.3% of dividends paid." Senator Whish-Wilson questined how the government expected to raise $1.5 billion a year if Westpac was paying only $260 million. Meanwhile, Senator Cormann also called on Labor to rethink its opposition to an across-the-board increase to the Medicare levy to fully fund the National Disability Insurance Scheme. This came after leadership aspirant Anthony Albanese broke ranks last week and suggested Labor leader Bill Shorten should have accepted the budget measure and not chosen to fight it by demanding the tax increase apply only to those on incomes over $87,000. On Monday, Fairfax Media reported the extent of the split in shadow cabinet over the decision, Senator Cormann seized on the report saying Mr Shorten should listen to the majority of his shadow cabinet. "We call on Bill Shorten to reflect on the national interest and the public interest instead of continuing his opportunistic political games," he said. Labor MP Peter Khalil told Sky News the decision "was a very good decision" and "demonstrated a very good decision making process". He said it spared 10 million lower paid people from a tax increase. Top

Shorten to end double dip on tax advice

Colin Brinsden, The Australian, 21 May 2017

Opposition Leader Bill Shorten has pinched a phrase from Joe Hockey to describe how rich people manage their tax affairs. He wants to end the practice of paying accountants thousands of dollars to arrange financial affairs and then claim that as a further deduction. "That is a double dip," Mr Shorten said, a slogan used by Mr Hockey when he was treasurer to attack parents who drew parental leave payments from two sources. Mr Shorten told the Victorian Labor conference on Sunday it was an absurd situation where if you have a lot of money you can not only claim a lot of deductions, "but you can deduct the costs of deducting the costs". A Labor government would eliminate the ability to claim more than $3000 on their accountant's costs. "We should not have a taxation system in this country where paying taxation is an opt out benefit for the very wealthy, and that's what we have at the moment," he said. An analysis by The Australian Institute found setting such a limit would go unnoticed by the vast majority of Australian taxpayers. But those people on an income of over $1 million deduct an average of $12,657 for the management of their tax affairs. It compares with the average $378 deducted for tax advice. However, the average of those earning over $1 million but not paying any tax spend over $1 million on tax advice a year. "This loophole is legal but when it is being exploited in such an excessive way it probably doesn't pass the pub test for most taxpayers," the institute's senior economist Matt Grudnoff says. Top

Tax deductions for advice should be capped at $3,000: Australia Institute

Michael Janda, ABC News, 22 May 2017

The Australia Institute think tank has backed a plan by Labor to limit deductions for the cost of managing tax affairs to $3,000.

Under current tax laws, individuals can claim all their expenses related to managing taxation, such as accountancy and legal fees, software costs and the like. The 2014-15 statistics from the Australian Taxation Office showed more than $2.3 billion in deductions were claimed for managing tax affairs. Analysis of the ATO statistics by The Australia Institute found that less than half (47 per cent) of taxpayers claimed a deduction for getting assistance to manage their tax affairs. Presumably the majority used the ATO's online e-tax system without professional help. Of those who did claim a deduction, the average amount was $378, but the median was just $165. That indicates that a relatively small group are making much larger deductions, pulling the average higher. The Australia Institute's analysis showed that those earning more than a million dollars claimed an average $12,657 in deductions for help managing their tax affairs. The average amount claimed dropped off sharply from there as incomes declined.

High earners claim vastly more tax advice deductions

The institute's senior economist, Matt Grudnoff, told RN Breakfast that this was inequitable in two different ways. "There are a number of people who earnt more than a million dollars who paid no tax and, of that group, they were deducting in excess of a million dollars each to manage their tax affairs," he said. The Labor proposal is expected to affect around 90,000 taxpayers, which is only 1 per cent of the total, but still raise just short of $2 billion over a decade. Mr Grudnoff said, aside from improving fairness in the tax system, a cap on tax advice deductions might also help reduce the economically inefficient allocation of resources to tax minimisation. "They hire very clever people and they spend money and their entire job is basically to minimise their tax," he said. "These people aren't producing anything of particular value in the economy and these people are spending large amounts of resources just to reduce their tax. "It'd be far better from a societal point of view if these very clever people were out doing something more productive and these very rich people were paying their fair share of tax."

Accountants defend 'tax planning opportunities'

A major accounting body has defended its members, and their clients' rights to use legal means to minimise tax. Michael Croker, the tax leader at Chartered Accountants Australia and New Zealand (CA ANZ), said groups critical of tax loopholes should advocate closing them rather than limiting deductions for people's legitimate tax planning. "If civil society groups have concerns about tax planning opportunities which exist under the law, they should advocate for changes to the law rather than criticise those who avail themselves of the opportunities which the law itself presents," he wrote in an email to the ABC. Mr Croker said the services accountant provide to their clients in relation to tax advice go far beyond simply minimising their liabilities. CA ANZ have also identified a number of questions about Labor's proposal, which so far lacks important details. Some of the questions include whether the limit will include litigation costs and interest payments to the ATO or costs associated with ATO audits (even where no extra tax liability is found), and whether will there be a carve out for small businesses. Chartered Accountants also argue that the deduction limit may dissuade some people from seeking private rulings from the ATO or voluntarily disclosing some tax issues via their agent. Top