
Key points
- The utilisation of tax losses currently depends on the subsequent profitability of a company and whether the company meets certain integrity rules. As the pattern for utilising a tax loss differs between companies in different situations, the benefits of different reform options will depend on a company's circumstances.
- The current treatment of tax losses increases the effective tax rate on certain investments (those with some probability of causing a business to incur a tax loss), in theory biasing business decisions against such investment.
- The tax treatment of losses creates a bias against risk taking, the adverse impact of which may be greater in a volatile economic environment in which businesses are increasingly required to be flexible and innovative.
- The tax treatment of losses reduces the quantity and quality of potential investment and also has a detrimental impact on business cash flows when businesses are under stress.
- Perfectly symmetrical treatment of profits and losses could be achieved by allowing full loss refundability.7 The Working Group has ruled out full refundability as a viable reform in its interim report and instead uses it as a benchmark to assess other reform options.
Loss creation and utilisation generally follows the business cycle8
Tax losses arise when a business's allowable deductions exceed its assessable income. When a tax loss must be carried forward into a future income year, the real value of the loss is reduced, unless it is indexed or uplifted over the carry forward period.
The aggregate carried forward loss balance for all companies has steadily increased over time from around $100 billion in 1999-2000 to around $170 billion in 2009-10.9, 10 To put this into perspective, the current aggregate carried forward loss balance represents almost 8 per cent of aggregate company income (before expenses) each year. As theory would suggest, the data indicates that the aggregate carried forward loss balance appears to be negatively correlated to changes in real gross domestic product. For example, difficult business conditions during 2008 saw a reduction in loss utilisation and an increase in losses added by companies.
The utilisation rate of total company losses (total company losses used in a year as a percentage of total company losses added in that year) has decreased from approximately 53 per cent in 2006-07 to around 28 per cent in 2009-10. This has been predominantly attributable to a substantial increase in losses being added, which has increased over the period by about 69 per cent.
Looking at a longer time period, the amount of company losses added to the carried forward balance each year is on average around three times the amount of losses that is utilised. In dollar terms, over the last 15 years, the average annual amount of company losses added each year was around $33 billion, while the average amount utilised each year was around $11 billion.
In 2009-10, the finance and insurance sector and the mining sector together accounted for approximately 48 per cent of the $170 billion company carried forward losses, representing 27 per cent and 21 per cent of total accumulated losses respectively. The manufacturing sector accounted for the third largest percentage of accumulated losses, approximately $14 billion, representing 8 per cent of total accumulated losses.
From 2006-07 to 2009-10, there has been relatively slow growth in the proportion of carried forward losses residing in the finance and insurance and manufacturing sectors, while the mining industry had the fastest growth in the proportion of carried forward tax losses, increasing from around $17 billion in 2006-07 to just under $35 billion in 2009-10. The growth in losses being carried forward by the mining sector coincides with heavy investment from the mining boom and may reflect the long lead times before profit, which is typical of mining investments.
The biggest changes in loss carry forward stocks over the period 2006-07 to 2009-10 occurred for large companies (companies with a turnover between $100 million and $250 million) and for very large companies (companies with a turnover of greater than $250 million). Losses being added for these companies increased over this period by approximately 24 per cent and 30 per cent respectively. Despite this increase in losses added for those companies, micro companies (those with a turnover of less than $2 million) still had the second largest aggregate carried forward loss balance in 2009-10 of around $40 billion.
The treatment of losses matters more for some companies than others
Companies may be in a tax loss position for many different reasons and the length of time they are in a tax loss position will vary depending on the different factors at play. For example, a company may experience temporary changes in assessable income or expenses as a result of a natural disaster, which result in the company temporarily incurring a tax loss.
Alternatively, a company may experience multiple years in a tax loss position because of lower income caused by reduced demand for the company's product, or because of large upfront expenditure in its start-up phase.
The worked examples below illustrate companies in different positions. They are used throughout the report to show the impact of the different reform options on companies that have different business cycles and tax profiles. All of the examples assume a corporate tax rate of 30 per cent in 2012-13 and a corporate tax rate of 29 per cent thereafter.
- A start-up company with significant upfront expenditure but little to no income in its early years of operation. The company faces the prospect of significant income in later years if the upfront investment proves successful but there is also a substantial risk of the investment failing.
- A viable company temporarily in loss because of a temporary shock (if the business' position was viewed over a five year period it would not be in loss). This cameo is intended to represent a business in an industry that faces seasonal and cyclical fluctuations.
- A once profitable company facing a sustained change in its operating environment that needs to consider changing business strategies or shutting down.
- A company investing to upgrade its product line in order to attract more customers. This company makes losses due to reduced assessable income and increased deductions as a result of refurbishments and staff training.
- A terminal company that has never had positive taxable income. This is what may happen to the start-up company if its investment does not pay off.
- A consolidated group of companies that is able to spread income and deductions across the group.
Worked example 1: A start-up company
After undertaking extensive research and development, AAA Pty Ltd (AAA) has developed a way to turn algae into biodegradable plastic. AAA believes there is a market for the plastic and wants to start manufacturing the plastic. AAA has large initial expenditure on equipment needed in the production process.
AAA is new to the market and although the team has expertise in making the algae plastic, AAA takes a while to increase the number of supply contracts it has with wholesalers of plastic goods who want to buy the algae plastic.
AAA's sales increase exponentially over the first three years of operation (2012-13 to 2014-15). Despite
sales increasing and the business doing well, AAA does not have positive taxable income until the fourth year of operation (2015-16), because of the deductions and the carried forward losses associated with the large initial outlays of the business. AAA's taxable income increases from that point on.
| Year | 2012-13 | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 |
|---|---|---|---|---|---|---|
| Assessable income | $0 | $1,000,000 | $5,000,000 | $7,000,000 | $8,000,000 | $10,000,000 |
| Expenses — excluding depreciation | ($2,000,000) | ($2,000,000) | ($2,000,000) | ($2,000,000) | ($2,000,000) | ($2,000,000) |
| Deductions — depreciation | ($1,000,000) | ($1,000,000) | ($1,000,000) | ($1,000,000) | ($1,000,000) | ($1,000,000) |
| Deductions — carry forward losses | $0 | $0 | ($2,000,000) | ($3,000,000) | $0 | $0 |
| Taxable income | ($3,000,000) | ($2,000,000) | $0 | $1,000,000 | $5,000,000 | $7,000,000 |
| Tax payable | $0 | $0 | $0 | $290,000 | $1,450,000 | $2,030,000 |
| Total carry forward losses | $3,000,000 | $5,000,000 | $3,000,000 | $0 | $0 | $0 |
Worked example 2: A company facing a temporary shock
Bread Pty Ltd (Bread) operates a successful bakery that sources all of its wheat from nearby farms (local suppliers). Bread normally pays $464,000 in taxes every year ($480,000 in 2012-13) because it has relatively stable income and expenses.
In 2015-16 a flood causes substantial damage to the premises out of which Bread Pty Ltd operates its business. Bread faces substantial costs to repair the damage caused to ovens and also faces the cost of replacing the water-damaged machines and the loss of income over the days the shop was closed. In addition to these costs, the price of wheat has increased because of the devastating impact that the flood has had on the nearby wheat crops.
A combination of reduced revenue (assessable income), increased expenses and the deductions associated with the depreciation of Bread's new equipment, causes Bread to be in a tax loss position (a loss of $600,000) in 2015-16.
The clean-up process following the flood commences and Bread is returns quickly to operating as normal. As Bread is now able to claim tax depreciation deductions for its new capital equipment and deductions for its carry forward losses, it has no taxable income in 2016-17. In 2017-18 Bread returns to positive taxable income.
| Year | 2012-13 | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 |
|---|---|---|---|---|---|---|
| Assessable income | $2,000,000 | $2,000,000 | $2,000,000 | $1,200,000 | $1,800,000 | $2,500,000 |
| Expenses — excluding depreciation | ($200,000) | ($200,000) | ($200,000) | ($1,000,000) | ($500,000) | ($200,000) |
| Deductions — depreciation | ($200,000) | ($200,000) | ($200,000) | ($800,000) | ($800,000) | ($800,000) |
| Deductions — losses | $0 | $0 | $0 | $0 | ($500,000) | ($100,000) |
| Taxable income | $1,600,000 | $1,600,000 | $1,600,000 | ($600,000) | $0 | $1,400,000 |
| Tax payable | $480,000 | $464,000 | $464,000 | $0 | $0 | $406,000 |
| Total carry forward losses | $0 | $0 | $0 | $600,000 | $100,000 | $0 |
Worked example 3: A company facing a sustained shock
XYZ Pty Ltd (XYZ) manufactures widgets. XYZ's revenue is influenced by the international price of widgets (over which XYZ has no influence). There is currently strong international demand for widgets and XYZ is experiencing strong revenues.
From 2012-13 to 2014-15, XYZ has strong revenues and has deductions representing ordinary business expenditure and also deductions for depreciation allowances claimed for the machinery used to produce the widgets.
As a result of the strong Australian dollar and technical advancements made by international competitors, XYZ's widgets become relatively less competitive and XYZ experiences a substantial decrease in its revenues. After deducting ordinary business expenditure and deductions for depreciation allowances, XYZ is left in a loss position ($500,000) in 2015-16.
The prolonged impact of the strong Australian dollar and continual technological advancements by competitors continues to decrease the relative competitiveness of XYZ's widgets resulting in the revenues of the business declining further. In 2016-17 XYZ decides to undertake a feasibility study to decide whether it should shut down or change its business strategy. It subsequently decides to change the business from producing widgets to producing the equipment used to make widgets and providing consulting services related to widget production.
In 2016-17, XYZ faces increased expenses and deductions related to these changes, resulting in a tax loss of $2,000,000. Then, in 2017-18, XYZ starts to sell its widget making equipment (but does not make any capital gains or losses) and starts providing consulting services. However XYZ has zero taxable income because it utilises its carry forward losses.
| Year | 2012-13 | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 |
|---|---|---|---|---|---|---|
| Assessable income | $3,000,000 | $3,000,000 | $2,000,000 | $1,000,000 | $500,000 | $1,000,000 |
| Expenses — excluding depreciation | ($500,000) | ($500,000) | ($500,000) | ($500,000) | (2,500,000) | ($500,000) |
| Deductions — depreciation | ($1,000,000) | ($1,000,000) | ($1,000,000) | ($1,000,000) | $0 | ($100,000) |
| Deductions — losses | $0 | $0 | $0 | $0 | $0 | ($400,000) |
| Taxable income | $1,500,000 | $1,500,000 | $500,000 | ($500,000) | ($2,000,000) | $0 |
| Tax payable | $450,000 | $435,000 | $145,000 | $0 | $0 | $0 |
| Total carry forward losses | $0 | $0 | $0 | $500,000 | $2,500,000 | $2,100,000 |
Worked Example 4: A company investing to upgrade its product line
Especial Hotels Pty Ltd o
perates three five star hotels in different capital cities around Australia.
To attract greater numbers of international visitors and business clients, Especial decides to undertake a substantial refurbishment of all three hotels. This will involve replacing all beds and other furniture, upgrading all in-room televisions and fridges and installing a new range of light fittings and lamps.
Especial is also looking to distinguish itself on the basis of its service, particularly to overseas visitors. Subject to available cash flow, it would like to use the period of refurbishment to offer some of its staff the opportunity to upgrade their skills (for example, through learning a new language).
This plan is developed over the course of 2012-13 and 2013-14 where Especial has taxable income of $6.25 million and $5.25 million respectively. At the end of 2014-15 Especial has a franking account balance of $5 million.
The refurbishment is planned to commence in 2014-15 with the largest of the three hotels and involves closing parts of the hotel during the refurbishment. In April 2016, Especial plans to launch an advertising campaign promoting its refurbished rooms.
Especial plans to refurbish its other hotels in 2015-16. A further advertising campaign would be rolled out once the refurbishment of all three hotels is completed early in 2016.
As a result of the refurbishment Especial would have substantially less assessable income and larger deductions than in previous years. As a result, it would make a tax loss of $5 million in 2014-15 and $3.95 million in 2015-16.
Under the current income tax law, Especial would build up a stock of carry forward tax losses. Provided it doesn't experience a change in majority ownership these tax losses can be used to reduce Especial's taxable income in future years.
| Year | 2012-13 | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 |
|---|---|---|---|---|---|---|
| Assessable income | $25,000,000 | $25,000,000 | $12,000,000 | $15,000,000 | $20,000,000 | $30,000,000 |
| Expenses — excluding depreciation | ($18,000,000) | ($19,000,000) | ($16,100,000) | ($18,000,000) | ($19,000,000) | ($18,000,000) |
| Deductions — depreciation | ($750,000) | ($750,000) | ($900,000) | ($950,000) | ($1,800,000) | ($1,800,000) |
| Deductions — losses | $0 | $0 | $0 | $0 | $0 | ($9,750,000) |
| Taxable income | $6,250,000 | $5,250,000 | ($5,000,000) | ($3,950,000) | ($800,000) | $450,000 |
| Tax payable | $1,875,000 | $1,522,500 | $0 | $0 | $0 | $130,500 |
| Total carry forward losses | $0 | $0 | $5,000,000 | $8,950,000 | $9,750,000 | $0 |
Worked example 5: A terminal company
After assessing the global market for sprockets, CCC Pty Ltd (CCC) believes that there is an emerging market for new and innovative sprockets. Based on a feasibility study, CCC begins to buy and construct the equipment it needs to commence making the new and innovative sprockets.
When CCC launches the sprockets into the market, sales increase slowly. After the second year of operation the demand for the sprockets grows rapidly. Although CCC's sprockets have become quite popular, CCC does not have taxable income in its first two years of operation due to the upfront expenses, ongoing business expenses and its carry forward losses.
In its third year of operation, a new universal sprocket is launched into the market by a competitor meaning that CCC's sprockets are no longer the sprocket of choice for its customers. Demand for CCC's sprocket decreases dramatically and CCC decides to shut down.
In all three years CCC was in operation it was in a tax loss position.
| Year | 2012-13 | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 |
|---|---|---|---|---|---|---|
| Assessable income | $500,000 | $5,000,000 | $1,000,000 | - | - | - |
| Expenses — excluding depreciation | ($3,000,000) | ($2,000,000) | ($500,000) | - | - | - |
| Deductions — depreciation | ($1,000,000) | ($1,000,000) | ($1,000,000) | - | - | - |
| Deductions — losses | $0 | ($2,000,000) | $0 | - | - | - |
| Taxable income | ($3,500,000) | $0 | ($500,000) | - | - | - |
| Tax payable | $0 | $0 | $0 | - | - | - |
| Total carry forward losses | $3,500,000 | $1,500,000 | $2,000,000 | - | - | - |
Worked example 6: A consolidated group
Consol is a consolidated group that consists of Head Co and three subsidiaries — a hardware company (Hardware Co), a grocery company (Grocery Co) and also a mining and exploration company (Mining Co).
Head Co is the only entity recognised for income tax purposes with its taxable income worked out as if the consolidated group was a single entity.
In 2015-16, there has been decreased demand for products relating to complete DIY jobs. This causes the sales of hardware products to dramatically decrease, resulting in the hardware company being in a tax loss.
Despite the hardware company being in a tax loss position, Head Co is not in a tax loss position because Hardware Co's tax loss can be deducted from the assessable income of Grocery Co and Mining Co.
| Year | 2012-13 | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 |
|---|---|---|---|---|---|---|
| Grocery Co | ||||||
| Assessable Income | $2,000,000 | $2,000,000 | $2,000,000 | $2,000,000 | $2,000,000 | $2,000,000 |
| Expenses | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 |
| Taxable income | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 |
| Hardware Co | ||||||
| Assessable Income | $1,000,000 | $1,000,000 | $1,000,000 | $400,000 | $100,000 | $100,000 |
| Expenses | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 |
| Taxable income | $500,000 | $500,000 | $500,000 | ($100,000) | ($400,000) | ($400,000) |
| Mining Co | ||||||
| Assess able Income |
$2,000,000 | $3,000,000 | $4,000,000 | $5,000,000 | $5,000,000 | $5,000,000 |
| Expenses | $1,500,000 | $1,500,000 | $1,500,000 | $2,500,000 | $3,000,000 | $3,000,000 |
| Taxable income | $500,000 | $1,500,000 | $2,500,000 | $2,500,000 | $2,000,000 | $2,000,000 |
| Head Co | ||||||
| Consolidated income | $2,000,000 | $3,000,000 | $4,000,000 | $3,400,000 | $2,600,000 | $2,600,000 |
| Deductions — losses | $0 | $0 | $0 | $0 | $0 | $0 |
| Taxable income | $2,000,000 | $3,000,000 | $4,000,000 | $3,400,000 | $2,600,000 | $2,600,000 |
| Tax payable | $600,000 | $870,000 | $1,160,000 | $986,000 | $754,000 | $754,000 |
| Total carry forward losses | $0 | $0 | $0 | $0 | $0 | $0 |
The business tax system treats profits and losses asymmetrically
The existing tax system treats profits and losses asymmetrically by taxing a profit in the year it is derived, while only allowing taxpayers to access the tax value of a loss by carrying it forward at its original value and using it to deduct against future assessable income.11 As the tax loss is required to be carried forward until it can be utilised, the value of the tax loss erodes over time, with a longer carry forward period resulting in a greater erosion of value. A perfectly symmetrical treatment of losses and profits would require the income tax value of a loss to be refunded in the year the loss is incurred (that is, a cashing out of tax losses) or the uplift of losses at an appropriate rate and a refund at the cessation of a business.
Australia is not unique in this asymmetrical treatment. It is common practice in other jurisdictions to require a loss to be carried forward rather than to pay the income tax value of a tax loss to taxpayers in the year the loss is incurred (through a refund from the Government).
The asymmetric treatment of profits and losses is reinforced by the loss integrity rules which must be satisfied by a company before it can use its losses. The loss integrity rules test for continuity of ownership, and if that test is failed consideration is given to the business activities undertaken.12 These rules can lead to losses being ‘trapped' and not able to be used.
Immediate refundability is the appropriate benchmark for loss reforms
Providing perfectly symmetrical treatment of profits and losses would involve the Government refunding the tax value of losses at the same rate and over the same timeframe as it would otherwise require the payment of taxes. For example, a purely symmetrical tax treatment may require a company in taxable profit to pay 30 per cent as company tax and allow a company in tax loss to be refunded 30 per cent of the tax loss. It should be noted, however, that this would only be perfectly symmetrical treatment where business income is being measured consistently in both cases. This is not the case for, example, where certain assets have been given concessionary tax depreciation arrangements, resulting in an asset's depreciation for tax purposes not matching its economic depreciation (that is, the effective tax rate is lower than the statutory rate).
Full loss refundability would provide for immediate lost recoupment and therefore would come at a significant cost to the Budget. A further consequence of immediate refundability, is the potential for tax avoidance, particularly if refunds were made on the basis of assessments that were later amended.
The Working Group is also mindful that other jurisdictions do not provide immediate refundability of losses. Therefore, notwithstanding Australia's transfer pricing and thin capitalisation arrangements, immediate refundability may encourage companies to move their losses to Australia.
The requirement of revenue neutrality for any loss reforms recommended by the Working Group and the cost and integrity concerns stemming from immediate refundability have led the Working Group to not propose immediate refundability (the Government refunding the tax value of a loss) as a viable reform option for the treatment of losses in the foreseeable future and the focus has instead been on reforms that move towards (but without achieving) immediate refundability.
The Working Group has used immediate refundability as an economic benchmark against which to assess alternative reforms for improving the tax treatment of losses with the aim of reducing the bias against risk taking.
The treatment of losses restricts business cash-flow in a downturn
The current tax treatment of losses can be seen as the Government withholding its share of the cash flow impact of a loss, leaving businesses to bear the full impact of a loss in the year it is incurred. The current tax treatment of losses delays (and in the extreme case of zero future assessable income, denies) the cash flow benefit for businesses associated with accessing the tax value of a loss.
This cash flow impact can be detrimental to a business' future economic prospects, especially where the company requires short-term liquidity to meet day-to-day outgoings. It also reduces the ability of a business to make investments in new equipment, research and development, staff training and development and other activities that help to increase the viability of the business in the long-term and add to productivity. Poor cash flow can also limit its access to commercial funding through debt and equity markets.
Improving loss recoupment would enhance the automatic stabiliser role of company tax to the extent that affected businesses are credit constrained, by providing a cash injection to allow expenditures that could not otherwise be made. As would be expected with an automatic stabiliser, the smoothing effect on business investment would be accompanied by greater volatility in government revenue as the impact of refunding amounts to those in a loss position would be more pronounced during a downturn in the economy. However, government revenues would improve more quickly as businesses recover.
The bias against risk taking reduces the quantity and quality of investment
An income year is an arbitrary time period, likely to be shorter than the life of an investment. Requiring businesses to bring to account their financial position at the end of an income year can result in a tax loss in that year, despite the business being profitable over the life of an investment. Businesses in this position face a higher effective tax burden as the use of that loss is restricted, notwithstanding the fact that the business may not have incurred a loss over a longer time frame or even over a different snapshot in time.
In the worked examples introduced earlier, the arbitrary income period is the cause of the losses in scenarios one, two, three, four and six.
Where there is a probability of a business incurring a tax loss in an income year, the current tax treatment of losses can be viewed as either: increasing the effective tax rate on investment above the marginal tax rate that would otherwise apply; or lowering the expected after-tax return on investment. In this way, the current tax treatment of losses influences business decision
making by creating a bias against riskier investments. A lack of uplift means that the full value of a carry forward loss is not used, and the risk that the loss may not be able to be used because of the operation of the current integrity tests, deters investments that may incur a tax loss. As a result, some investment that may be optimal or socially desirable given the prevailing tax rate may not be undertaken.
When considering the deployment of scarce resources, businesses must assess whether a possible investment provides sufficient returns over time for the risk involved, compared to other potential investments. In doing so, businesses often assess expected future returns from a potential investment against a ‘hurdle' rate of return. This hurdle rate takes into consideration the project's risk and the opportunity cost of forgoing other projects. The tax treatment of losses influences the net present value of future cash flows and the effective rate of return compared to the hurdle rate of return. In this way the tax treatment of losses may influence business investment decisions.
The current asymmetric tax treatment of profits and losses increases the necessary pre-tax return for more risky investments, with the difference between the necessary pre-tax and post-tax rate of return increasing with increasing risk. This tax wedge reduces the investment in more risky investment, relative to a tax system that treats profits and losses symmetrically.
The tax system's bias against risky investments may divert capital to less risky, lower value investments. The bias against business risk taking is likely to be particularly detrimental to productivity in Australia's current circumstances that require businesses to be flexible and innovative, and to be able to take advantage of new opportunities presenting themselves in the changing global environment.
Reducing the tax system's bias against risky investments could be expected to increase both the quantity and quality of investment, potentially improving the allocation of resources across the economy. This could have positive flow-on effects for productivity, which in turn can support growth in real wages and employment.
Box 2.1 Effective tax rates of low and high risk investments
The two tables below (Table 1 and Table 2) show the impact of the tax treatment of losses on the effective tax rates that apply for two possible investment choices where the statutory tax rate is 30 per cent. The higher-risk investment choice has a 40 per cent probability of incurring a loss (20 per cent probability of incurring a loss of $60 and a 20 per cent probability of incurring a loss of $40).
Assuming the value of the loss is not recouped, the higher-risk investment faces a 50 per cent effective tax rate. Of course, if the company is able to access the tax value of the loss, the effective tax rate will be greater than 30 per cent, but less than 50 per cent.
Table 1: Tax impact on low-risk investment choice
| Possible before-tax return on an investment ($) | Investment 1 (less risky) | |||
|---|---|---|---|---|
| Prob. of return (%) | Before-tax expected return ($) |
After-tax expected return ($) |
Effective tax rate (%) |
|
| 40 | 50 | 20 | 14 | 30 |
| 20 | 50 | 10 | 7 | 30 |
| Total | $30 | $21 | 30% | |
Table 2: Tax impact on a higher-risk investment choice
| Possible before-tax return on an investment ($) | Investment 2 (more risky) | |||
|---|---|---|---|---|
| Prob. of return (%) | Before-tax expected return ($) |
After-tax expected return ($) |
Effective tax rate (%) |
|
| 120 | 10 | 12 | 8.4 | 30 |
| 100 | 20 | 20 | 14 | 30 |
| 80 | 20 | 16 | 11.2 | 30 |
| 20 | 10 | 2 | 1.4 | 30 |
| -40 | 20 | -8 | -8 | - |
| -60 | 20 | -12 | -12 | - |
| Total | $30 | $15 | 50% | |
7 A pure symmetrical tax treatment would require a company in taxable profit to pay a certain percentage of company tax on that taxable profit and would allow a company in tax loss to be refunded at the same rate as it was taxed. For example, a company in taxable profit would pay 30 per cent of the taxable profit as company tax and a company in tax loss would be refunded 30 per cent of the tax loss.
8 Data has been extracted from the company tax record file data and should be read as providing an indication of broad trends only.
9 Source: ATO data.
10 For comparison, nominal GDP in 1999-2000 was approximately $660 billion, nominal GDP in 2009-10 was around $1.3 trillion and corporate income tax paid in 2009-10 was estimated in Budget Paper No.1 as $53.2 billion
11 Business Tax Working Group, 2011, Interim report on the tax treatment of losses, The Treasury, Canberra.
12 Division 165 and Division 166 of Part III of the Income Tax Assessment Act 1997 (Cwth) (ITAA 1997).