Wealthy outsmarting the ATO

The wealthiest Australians are using a complex series of trusts and private companies to hide money from the Australian Tax Office (ATO), which seems powerless to recoup the tax on some $500 billion.

A report released by Auditor General Ian McPhee, which looked at how the ATO deals with high-wealth individuals (HWIs), reveals that those individuals with an estimated net wealth of $30 million or more are a “significant revenue risk”. The 2650 HWIs and 3700 potential HWIs, had a combined wealth totalling $500 billion in 2012/13, yet the ATO estimates that the wealthiest Australians only paid $1.4 billion in tax in 2011/12. The audit report states “Despite this tax contribution there is a perception among the wider population that the rich may not always pay their fair share of tax.”

Complex business arrangements using closely-held companies and trusts, which each have a different tax liability, allow the wealthy to maintain expensive lifestyles with relying on income in a conventional taxable form. Combined with the fact that private companies and trusts are not listed on the stock exchange, and that they don’t attract the attention of the Australian Securities and Investment Commission, tracing the actual monetary value of an individual can be difficult.

The ATO has 300 staff carrying out 500 audits and reviews, but according to the Auditor General, 70 per cent of audits and 84 per cent of reviews do not have a financial outcome. In the instances when audits or reviews result in a request for more tax to be paid, two thirds were challenged and of these two thirds, 49 per cent were resolved in favour of the individual.

Read more at TheGuardian.com

Opinion: People should pay their dues

A survey of Australian attitudes to tax has found that we’re generally happy with what we’re paying, but think that high-income earners should pay more.

The Per Capita 2014 Tax Study surveyed 1000 Australians and the results weren’t particularly surprising. While 95 per cent believe low and middle income earners pay too much tax, 45 per cent believe that they, as individuals, are paying the right amount and a majority believe high-income earners are paying too little. However, there is confusion about which group, individuals or companies, bear the greatest tax burden, with the average respondent believing that individuals pay 50 per cent of taxes collected and companies 42 per cent. The actual split is 75 per cent paid by individuals and 25 per cent paid by companies.

I wonder if responses would change if the 1000 respondents were aware of how little tax high-wealth individuals pay and how the ATO seems powerless to recoup income from these wily tax evaders. While the Government is happy to introduce a temporary debt levy on those earning $180,000, little is being done to chase what is due from those who have incredibly clever tax accountants. The deficit levy will only be collectable from those who declare their full earnings to the ATO, i.e. those who are paid via the PAYG system. Those who are truly earning millions of dollars and can most afford to repair the budget will not be affected by the two per cent increase, thanks to the aforementioned clever tax accounts. And while no one seems deeply concerned by the need to raise taxes to provide better services, let us not forget that funding for critical health, education and public services is being withdrawn and that the deficit levy is only to make the books look better.

It really is time to stop pussyfooting around with our complex and easily rorted tax system. And if there really is a need for everyone to share the burden, then let’s ensure it is everyone and not just those who don’t have access to tax avoidance measures. Maybe it’s time to look at Sweden, where taxes go up to 60 per cent but everyone’s happy paying because they get plenty in return.

Are you happy with the level of tax paid by individuals? Do you think companies should pay more? Or do you think those individuals who avoid paying tax should be pursued more vigorously and effectively?