Why do PayG get slammed by the tax man vs Companies?

[deji4christ]

Someone educate me -

Why is there a PAYG tax bracket higher than a company tax bracket?

How can CBA, Woolworths, Coles, BHP ect. Be
Making record breaking billion dollar profits, on a discounted tax rate of ~30% (true tax rate is probably a fraction of that).

Where as people within those companies pay over 40%.

Why are we making it so difficult for working people yet companies get a free ride.

Like us - the more a company makes the more they pay tax. So they won’t go broke.

What’s the highest expense of a company? Typically it’s people…

Why not cut 15% from salary tax brackets and put them into companies… we the working people pay 30% and the companies pay 45%.

I’m thinking it’s flawed logic the other way around…

 

[ericakuhl89]

@deji4christ Don't forget: there is no tax free threshold for company tax. Companies pay 30% on every $ of taxable income

 

[ericakuhl89]

Before you get too incensed: you should compare the actual (or average) tax rate for individuals to the actual tax rate for companies. Most people pay less than 30% tax (including Medicare Levy) on their total income. It is only once you get to about $180,000 and more where the tax (plus Medicare Levy) starts to exceed 30%.

Further, for an individual to start paying 40% (including Medicare Levy) actual tax, they need to be earning about $425,000. So, not your typical wage earner

 

[resjudicata]

@ericakuhl89 For the vast majority of companies this is not an issue.

No one runs a company instead of sole trader without making this calculation

 

[virginity]

@resjudicata It makes no material difference to an individual (from a tax perspective) whether they act as a sole trader or register a company.

They can only get money out of the company in two ways - paying themself a wage or a dividend. (Of course, they could buy "business" assets that they use for personal reasons, but that's technically illegal.)

If they pay themself a wage, they pay the same tax rate as everyone else. If they pay dividends, the company tax is effectively netted out in the form of franking credits.

Where it gets a bit more complex is around when the tax is paid, and the time value of money. Assuming the company not writing off prior losses (in which case, they'd have no franking credit to pay out anyway), the company would have to pay tax, then pay the dividend, then the individual could claim the franking credits when they do their tax return. So there is some opportunity cost here.

I'm oversimplifying a little, but hopefully the point is clear.

 

[reviewmayhutmui]

@virginity Instead of paying themselves $200k salary they pay themselves $50k, their partner $50k, their two kids $50k each. That's a $24k tax bill instead of $60k

Also an oversimplification but just to demonstrate

 

[bill99]

@reviewmayhutmui I don't think you can distribute to children anymore, well it isn't tax efficient anymore, or perhaps that was just trusts.

You can pay adult children a wage, however getting that back from them would be fraud, so you'd have to be okay just giving away your money

 

[hoothoothooray]

@bill99 I guess if you were clever/cheeky enough to set up paying each of your family a wage to dodge taxes, you'd have access to their accounts for the money.

 

[bill99]

@hoothoothooray Yeah like I'm sure it happens, but it is fraudulent so you'd always be looking over your shoulder.

My dad got audited and he has one of the most basic tax returns, so people definitely do get audited, even the ones definitely not doing anything wrong.

I wouldn't risk it, but I'm sure many people would.

 

[mommytothree0402]

@deji4christ For the Australian companies you’ve listed it doesn’t matter what the corporate tax rate is. Lifting the corporate tax rate just increases the franking credits on their dividends. Ultimately it’s the individual that pays tax on company profit once that cash is distributed to shareholders, and at that point it is taxed as income at the marginal individual rate. Any profit retained by the company eventually becomes an expense, or is capitalised and depreciated.

The corporate tax rate is only material to foreign companies.

Edit: I guess it’s also material to any foreign investor who doesn’t benefit from franking.