What would you say if I told you that less than 10% of us pays more than 60% of the country’s tax bill?
Yes it’s true and I’ll explain more in a moment, but it underpins the concept that one of the most important aspects of becoming a professional property investor is establishing optimal ownership structures.
While I would never suggest choosing a particular ownership structure just to minimise your tax (that’s not only stupid, but it’s illegal) there are significant taxation implications depending on how you own your investment properties.
And of course certain structures help reduce your risk exposure whilst maximising your portfolio’s wealth creation capacity.
Now let me warn you about two things:
- There’s lots of numbers and figures in this article, but please bear with me. Firstly I think you’ll read some statistics that are likely to amaze you and, more importantly, you may get some ideas that could save you a heap of money.
- I’m not licensed to advise on financial or tax matters, but it’s likely that what you are about to read will make you seek appropriate advice.
So who pays the taxes in Australia?
We all like to have a gripe about how frequently the A.T.O. dips into our pockets to line Canberra’s coffers, but do you really know where all that revenue is coming from?
I’m guessing the answer is most likely no.
In fact, you’ve probably never put much thought to the matter.
However, you might be a little more interested in the topic of tax (and the potential to legally reduce your tax bill) when I tell you that less than 10% of the population in Australia pays most of the tax contributed by individuals.
Whereas Aussie companies, who have a history of writing over $2,000 billion in profits annually, are paying less than half of all combines individual income tax revenue.
Now that’s interesting, isn’t it?
Statistics from the tax office reveal that of the entire $133.1 billion in individual income tax revenue collected by the government for the 2010/2011 financial year, less than 10% of us paid more than 60% or $101.7 billion, whereas company taxes accounted for just $61.7billion.
These figures are derived from a report published by the A.T.O report entitled Taxation Statistics 2010-2011 and figures provide an overall picture that looks something like this:
In Australia, all individuals, companies, trusts and any other income earning entities are legally required to pay taxes, so that we can pay for the essential services, infrastructure and the management of our country by those we elect to run it on our behalf.
Then there are additional taxes like GST, excises, superannuation and fringe benefits tax.
Income and company tax make up around 70% of all ATO revenue, followed by GST at 16% and other combined taxes contributing the remaining 14% or so.
Given that, as a property investor, you are probably concerned with your personal taxation obligation to the government, I’m going to focus primarily on individual income tax.
In 2011 Australia’s population was approximately 22.3 million, with 12.6 million of us lodging individual tax returns, which accounted for around 84.7% of all returns lodged during the 2010-11 financial year.
Guess how much individual taxpayers earned?
Just under 9.4 million taxpayers earned a total taxable income of $631.3 billion net, out of which they were assessed to have a combined income tax obligation of $133.1 billion, or 49% of the total $279.2 billion worth of revenue collected by the ATO. Of this $133.1 billion, $144 billion was garnered from taxes applied to salaries and wages.
This means that the remaining income tax generated was due to money derived from non-salary activities, such as share and property investments, pensions, personal services, super payments, interest and so forth.
How many properties did individual taxpayers own?
Of particular interest among all of these figures is the following table, which demonstrates that Australians owned more than 1.7 million rental properties in individual ownership structures for this period;
Half our population payed income tax
Now considering the age ranges of individuals who submitted tax returns, as highlighted in the table below you’ll see that around half of our population submitted an individual tax return.
If you want to set up your own significant property investment business, one that could one day replace your personal exertion income, then you should really consider joining us at Wealth Retreat 2016. We give you a blue print to build your own property investment and then give you a tool box full of Power Tools to help you build it. Find out more Click here find out more and register your interest online to find out more or email my assistant Jo Fitt [email protected] and she’ll explain everything.
But these figures will astound you!
The table below indicates taxable income assessed according to the various tax scale ranges, and highlights that;
- 2.7% of all taxpayers or 1.35% of the overall population paid 26.2% of all individual income tax; and
- Another 17.2% of all taxpayers or 8.6% of the population, paid an additional 35.4% of individual income tax collected across 2010/2011.
In other words…
While less than 10% of the entire population paid more than 60% of all individual tax collected ($101.7 billion) during this period, 65% of the overall population contributed to less than 4% of the ATO’s income tax revenue for that year.
So, where do you fit in and are you paying more than your fair share?
When we compare individual income tax with company tax (ignoring for the purpose of this exercise other forms of tax like trusts, super funds and GST), the combined revenue raked in by the ATO from these entities, which often boast a massive asset base and annual turnover, is less than half of that contributed by individual taxpayers.
Company returns comprised 5.3% of all tax returns for that period (a total of 788,983), with combined gross earnings reported of $3,440 billion.
But after the myriad of deductions, concessions and offsets these companies are afforded due to the structure in which they operate (a total of $2,201 billion in tax write offs to be exact!), their combined tax obligation was just $61.7 billion!
Remember, this is compared to what was forked out by approximately 9.4 million individual taxpayers at around $133.1 billion or 48% of all revenue collected.
The figures I’m quoting are from the ATO for the 2010-11 tax year but new research has revealed 76 of Australia’s biggest multinationals pay an average effective tax rate of just 16.2% – half the corporate tax rate (30%) in the 2013-4 tax year
It has also discovered the Commonwealth Government lost $5.4bn in potential tax revenue in 2013 and 2014 from those same companies, as they shifted billions of dollars in profits offshore.
It gets better (if you own a company!)…
Of these companies, 14% were assessed as making a loss after deductions and therefore managed to avoid any tax obligation whatsoever, after deductions.
Jaw dropping isn’t it?
Let’s think about that for a minute.
Essentially, all companies of all shapes and sizes across Australia, including those multi-national giants, contributed just 22% to Canberra’s coffers, while the top 10% of income earners contributed 37%.
If you are not sufficiently surprised just reading through the numbers, here is a pie chart that clearly demonstrated how Australia’s tax base is significantly skewed when it comes to who the government is collecting their revenue from.
A few final thoughts
I know there are a lot of numbers, figures and percentages to wrap your head around here and you may think I’ve highlighted what, at first glance, appears to be a very inequitable system just to get you worked into some kind of self-righteous frenzy.
However, this is not all the case…
Rather, it’s all about perspective.
Firstly we must recognise that without a tax system which makes doing business in our country profitable by way of reasonable, well targeted & structured tax breaks to enable companies to survive as viable enterprises, many would simply move their operations offshore, meaning significantly less employees hired and less salaries paid from which Income Tax revenue could be collected.
A viable, strong business sector is essential to keep employment levels high and allow us maintain the lifestyles to which many of us have become accustomed.
Not to mention paying for the essential services and vital infrastructure that lends itself to the comfortable “lucky country” existence which many of us take for granted.
Additionally, in a society where we have come to expect a significant number of government funded services to cushion the blow following natural disasters and assist those less fortunate, we must recognise that the revenue to pay for these schemes has to come from somewhere.
What I would like you to take from this revealing exercise is…
The importance to reflect on how you are structuring the ownership of assets within your portfolio.
Our system favours property investors who run their portfolio’s like a business and own the properties in the correct entities. In fact owning properties in your own name may mean you could be missing out on many legitimate claims to legally reduce your tax.
Maybe that’s something worth considering and seeking professional advice about?
I hope you’ve found these insights helped give you some ideas about your own wealth creation.
That’s one of the major reasons we spend a large part of our 5 day Wealth Retreat on running your property investments like a business and you’ll be taught the right systems structures and strategies by appropriately qualified accountants, lawyers and financial planners.
But there’s much, much more to Wealth Retreat that just property money and tax.
Just click here now and find out all about Australia’s ultimate learning & networking event for investors & entrepreneurs.
So what is it beyond the money that pushes and prods and sparks and motivates you to perform at your best and to build and dream and dare?
When I asked people at Wealth Retreat what drove them here are their top two answers:
Number One: Making a difference. To touch the lives of other people. They want to give back to people and causes that are so much bigger than they themselves are. They believe that as they receive they need to “pay it forward” to the next generation of business owners or investors. How are you paying it forward?
Number Two: To care for their friends and family and provide an amazing lifestyle and quality of life for them, and especially to have the time to be with them.
Have you ever wished you could join us at Wealth Retreat?
While the numbers are limited (on purpose) I urge you to call my assistant Jo Fitt on 03 9591 8888 and find out more and see if you qualify to join us on the Gold Coast on May 30th to June 3rd 2015.
Or email her at [email protected] to get the process started. We have a very limited number of spaces for the event and with over 43% of spots already taken it’s only going to get harder and harder to get in later.
If you would like to find out a little more check out our website by clicking here.
If you’re ready to commit to playing at a higher level, to spending 5 days with a select handful of other doers in an environment that will challenge and push you to even higher levels of achievement and success, then please call Jo on 03 9591 8888 or email her at [email protected] and ask her to explain a bit more about Wealth Retreat and get on the interview list.
Also published on Medium.