# Company tax flat rate vs. individual tax brackets



## SirRumpole (13 November 2014)

Why do companies pay a flat rate of tax while individuals have tax brackets ?

Surely a bracketed company tax based on say, ROI would be an effective super profits tax that would apply to all businesses, not just miners ?

[Sorry the title meant to say

Company tax flat rate vs individual *tax brackets*]


----------



## pinkboy (13 November 2014)

Yes, lets tax the guts out of companies.



Income Tax
Payroll Tax
Quarterly BAS
Land Tax

Those are the main taxes companies pay, by no means an exhaustive list.  Not so flat rate now is it?


pinkboy


----------



## SirRumpole (13 November 2014)

pinkboy said:


> Yes, lets tax the guts out of companies.
> 
> 
> 
> ...




Apart from the fact that most big companies pay less than 20% in tax anyway.

Hardly "taxing the guts" out of them is it ? And the poor consumer pays income tax, gst, rates and expenses incurred in earning an income (fuel and transpor, parking fees, child care) for which they get no deductions at all.

Cry, cry for businesses.


----------



## pinkboy (13 November 2014)

SirRumpole said:


> Apart from the fact that most big companies pay less than 20% in tax anyway.  How?  You have quoted a 'flat rate of 30%' net of all business related deductions.
> 
> Hardly "taxing the guts" out of them is it ? And the poor consumer pays income tax As do companies....
> gst As do companies.....
> ...




In red above.

pinkboy


----------



## SirRumpole (13 November 2014)

pinkboy said:


> In red above.
> 
> pinkboy




Companies get a rebate of gst.

Individuals can't get a deduction for travel to and from work expenses

Rates etc, companies get a deduction for


----------



## pinkboy (13 November 2014)

SirRumpole said:


> Companies get a rebate of gst. They get a rebate, but a company that invoices more GST then credits will be paying GST in their BAS.
> 
> Individuals can't get a deduction for travel to and from work expenses Move closer to work, work closer to home, commute by cheaper method
> 
> Rates etc, companies get a deduction for A deduction yes.  It is still $1 spent to save 30c tax.




Sounds like you are having a whinge more about the cost of living than about the amount of tax a company pays.  You cant have your cake and eat it too.


pinkboy


----------



## SirRumpole (13 November 2014)

pinkboy said:


> Sounds like you are having a whinge more about the cost of living than about the amount of tax a company pays.  You cant have your cake and eat it too.
> 
> 
> pinkboy




No, I'm whinging about companies not paying a fair share of tax. This has been a known problem for many years which even our esteemed Treasurer Sloppy Joe has realised. The revenue problem does not come from the average taxpayer who has very few ways of avoiding tax, it comes from corporations and wealthy individuals using tax dodges. Something has to be done to close these loopholes or we will all be worse off.


----------



## Julia (13 November 2014)

SirRumpole said:


> Surely a bracketed company tax based on say, ROI would be an effective super profits tax that would apply to all businesses, not just miners ?



So as profit increases, so does tax rate?
Sounds like a massive disincentive to me.


----------



## pinkboy (13 November 2014)

SirRumpole said:


> No, I'm whinging about companies not paying a fair share of tax. This has been a known problem for many years which even our esteemed Treasurer Sloppy Joe has realised. The revenue problem does not come from the average taxpayer who has very few ways of avoiding tax, it comes from corporations and wealthy individuals using tax dodges. Something has to be done to close these loopholes or we will all be worse off.




Guess what will happen if you raise company tax?  Companies will raise prices, increasing profit margin to cover the extra taxation.....which of course leads to further GST paid by the end consumer.

Raise company tax and you'll have more to whinge about.

What are these loopholes you speak of?  High net worth individuals spread their earnings and legitimately lower their taxable income by doing so.  Don't think for one second there is some imaginary loophole that only a select few people can access.  It costs money to save money.

Joe Hockey has inherited the current system from all treasurers put before him, from both parties.  He cant be to blame.  He can only do so much to leave his mark for the next person, and by doing so, hopefully for the good at the time.  

There will NEVER be a definitive taxation system where one size fits all for forever future generations.  Ever changing economies will mean ever changing taxation structure. We have to deal with today, what was decided yesterday, and what we decide today, we will have to deal with tomorrow.


pinkboy


----------



## Value Collector (13 November 2014)

I think a 30% tax rate is fine, Why should they pay more.

just means less money to be reinvested into growth, or paid out as dividends, which get taxed at the bracket rate anyway.


----------



## SirRumpole (13 November 2014)

Value Collector said:


> I think a 30% tax rate is fine, Why should they pay more.




Most don't even pay that.


----------



## SirRumpole (13 November 2014)

Julia said:


> So as profit increases, so does tax rate?
> Sounds like a massive disincentive to me.




There is a point where companies increase profits by ripping off consumers.

Sounds good to me to provide a disincentive for them doing that.


----------



## Value Collector (13 November 2014)

SirRumpole said:


> Most don't even pay that.




Care to expand on that?


----------



## pinkboy (13 November 2014)

SirRumpole said:


> There is a point where companies increase profits by ripping off consumers.
> 
> Sounds good to me to provide a disincentive for them doing that.




Companies are not here to help you get through life ok.  Again, sounds like you are using company tax to scape goat your whinge about high cost of living.

Of course its about profit!  Why would someone go into business without profit being their number #1 priority for doing so?  I get a kick out of a profitable job!  How I get that profit is none of any consumers concern, as for large corporations it's the same.

pinkboy


----------



## SirRumpole (13 November 2014)

Value Collector said:


> Care to expand on that?




http://www.abc.net.au/news/2014-09-...lian-companies-pay-less-than-10pc-tax/5775870


----------



## pinkboy (13 November 2014)

Value Collector said:


> Care to expand on that?




I feel SirRumpole is confusing companies paying 30% of their turnover in tax instead of 30% of their net profit.

pinkboy


----------



## Value Collector (13 November 2014)

SirRumpole said:


> There is a point where companies increase profits by ripping off consumers.
> 
> Sounds good to me to provide a disincentive for them doing that.




High profit margins is how you encourage new entrants into a market, Why do you think we have an over supply of iron ore now, if the government intervened to subdue profit, the market would still be undersupplied, paying high prices except the government would have just been raping the system. 

All that would happen under your theory is that companies that have operated well to the point where they do get higher profit margins, would have the government take it away through taxation.

I would much rather have the company pay 30% tax, keep the bulk of their "super" profits and then let the high profit margin be eroded by the free market as more competitors come into play.


----------



## SirRumpole (13 November 2014)

pinkboy said:


> I feel SirRumpole is confusing companies paying 30% of their turnover in tax instead of 30% of their net profit.
> 
> pinkboy




Thanks, I'm quite aware of the difference between turnover and net profit.

In fact a turnover tax (at say 10%) instead of profit tax could be a better way of collecting taxes from business.

What do you think ?


----------



## SirRumpole (13 November 2014)

Value Collector said:


> High profit margins is how you encourage new entrants into a market, Why do you think we have an over supply of iron ore now, if the government intervened to subdue profit, the market would still be undersupplied, paying high prices except the government would have just been raping the system.
> 
> All that would happen under your theory is that companies that have operated well to the point where they do get higher profit margins, would have the government take it away through taxation.
> 
> I would much rather have the company pay 30% tax, keep the bulk of their "super" profits and then let the high profit margin be eroded by the free market as more competitors come into play.




With a market as small as ours the chances of new entrants coming in to high profit margin businesses isn't that great. It's just not worth their while. 

Why do we only have four big banks ?


----------



## drsmith (13 November 2014)

I think Rumpy's a little bored today.


----------



## pinkboy (13 November 2014)

SirRumpole said:


> Thanks, I'm quite aware of the difference between turnover and net profit.
> 
> In fact a turnover tax (at say 10%) instead of profit tax could be a better way of collecting taxes from business.
> 
> What do you think ?




Of course.....it depends.

Are you proposing abolishing all the other taxes on companies?

I would stand back and look at my own overall position and see if it were worthwhile for myself.  If I was better off as a wage slave, then I would go back to PAYG and there would be less company profit going into the pool.  Other businesses would do that too.

Drastically changing the company taxation system wont happen.  My personal preference would probably raising the GST if we had to put up with higher taxes - that way _User Pays_.


pinkboy


----------



## bellenuit (13 November 2014)

SirRumpole said:


> In fact a turnover tax (at say 10%) instead of profit tax could be a better way of collecting taxes from business.
> 
> What do you think ?




That could be very counter productive as you are hitting companies when they can least afford it and going easy on them when they can.

For example, a company starting out may have no profit (possibly be running at a loss) and has turnover of $10M say. You hit them with a tax bill of $1M, when in reality they need everything they have to reinvest in the company. Another company, more mature, also has turnover of $10M, but is earning profit of $5M say. They can afford to pay $1.5M tax (30% of earnings), but they are only taxed $1M, just 20% of earnings. It would be too big a hurdle for startups to overcome.

On your original question, 30% is quite high for companies. They have to compete on the world stage and if our tax rates are too high, they will move elsewhere.

A progressive rate, though fine in theory, has lots of problems. For instance, take mergers or company takeovers. Let's take a simple example. Say the rate is 20% on earnings up to $10M and 40% on any earnings above $10M.  

Say a company with earnings of $10M takes over or merges with a company with earnings of $5M. And, ignoring any capital issues, after the takeover or merger both companies perform exactly as before, except that they are now a single entity. Previously tax would have been $2M and $1M for the 2 companies, a total of $3M. After the takeover or merger, the tax take has increased to $4M. The combined company is till producing the same (combined) output, employs the same (combined) amount of people etc., but must now pay $1M more tax. This is a huge disincentive for companies trying to expand through mergers or acquisitions and it is obvious that the same disincentive would be experienced through organic growth.


----------



## pinkboy (13 November 2014)

bellenuit said:


> That could be very counter productive as you are hitting companies when they can least afford it and going easy on them when they can.
> 
> For example, a company starting out may have no profit (possibly be running at a loss) and has turnover of $10M say. You hit them with a tax bill of $1M, when in reality they need everything they have to reinvest in the company. Another company, more mature, also has turnover of $10M, but is earning profit of $5M say. They can afford to pay $1.5M tax (30% of earnings), but they are only taxed $1M, just 20% of earnings. It would be too big a hurdle for startups to overcome.
> 
> ...




And THAT is how you debunk a theory!

Kudos!


pinkboy


----------



## Value Collector (13 November 2014)

SirRumpole said:


> Thanks, I'm quite aware of the difference between turnover and net profit.
> 
> In fact a turnover tax (at say 10%) instead of profit tax could be a better way of collecting taxes from business.
> 
> What do you think ?




Woolworths makes about 3% of their turn over in profit, So they would have to raise prices.

a large portion of companies have profits of less than 10% of revenue, and others who might make margin over 10% would see they are paying 70% of their profit in tax.

not to mention the compounding factor as every company along the supply chain has to give up 10% of revenue, 

It also completely ignores other deductions such as depreciation and interest payments to bond holders under your system a company owning a gas pipeline would be paying almost 100% of their profits in tax, and never beable to claim depreciation as their pipeline wastes away to nothing.


----------



## Dettis (13 November 2020)

pinkboy said:


> > Apart from the fact that most big companies pay less than 20% in tax anyway.  How?  You have quoted a 'flat rate of 30%' net of all business related deductions.
> >
> > Hardly "taxing the guts" out of them is it ? And the poor consumer pays income tax As do companies....
> > gst As do companies.....
> ...






if you have a good accountant, they solve this problem)


----------



## Value Collector (14 November 2020)

SirRumpole said:


> Why do companies pay a flat rate of tax while individuals have tax brackets ?
> 
> Surely a bracketed company tax based on say, ROI would be an effective super profits tax that would apply to all businesses, not just miners ?
> 
> ...




The answer to this original question is simply that once the companies profits are paid out to share holders they are taxed at each shareholders different tax bracket. 

But while the company retains earnings and reinvests them, they just pay the flat rate, think of it as a way of encouraging companies to retain earnings and invest to grow the economy and Create jobs.


----------

