How Much Tax Did We Really Pay?

Accountant working on taxes

In a time of stagnant wage growth, rising electricity bills and climbing living costs, hardworking Australians are just trying to stay afloat.

But there is one institution that is making it even harder for everyday Aussies to get by.

The Australian Taxation Office.

In a time that is seeing many Australians struggle to get by, the ATO has recorded its highest ever collection of debt.

According to the ABC, the 2016–17 financial year saw the ATO collect $23.7 billion. And most of it was from small business owners.

In a report, the ATO stated that $10 billion of the near $24 billion owed to the ATO subjected to objection or appeal.

But it is individuals who are being pushed into paying more tax.

When completing their tax online, individuals were ‘nudged to review specific items’, according to the ABC.

The ATO would send messages to those lodging online returns, which affected roughly 230,000 taxpayers. This real-time analytic message helped the ATO recoup an extra $24 million of taxpayer dollars. This real-time analytic message helped the ATO recoup an extra $24 million of taxpayer dollars.

The usage of myTax also increased by 9% to 3.5 million lodging their tax returns themselves.

Tax refunds were also up 3.2% from the 2016–17 financial year, to $102.3 billion.

Income tax refunds were at $42.5 billion and activity statement refunds of $58.8 billion.

So what does this increase in debt mean for taxpayers in the future?

What does an increase in tax debt mean?

Well, according to Dr Adrian Raftery, the Deakin School of Business associate professor, it’s ‘alarming’. Telling nine.com.au:

It is not a mere coincidence that the increase in tax debt has come at the same time that there has been a[n] 11 per cent reduction in compliance audits and reviews by the ATO since 2015/16.

Whilst the taxman hasn’t necessarily fallen asleep at the wheel, it certainly has taken its eyes off the road for a while and given taxpayers a bit too much leeway in paying its debt.’

The ATO claims that they have increased their compliance activity in the last few years, and Dr Raftery believes the ATO will ramp up activity even more in the years to come, warning:

There is no doubt that I expect more activity from the ATO debt collectors in coming months. If you are not quaking in your boots, the ATO will soon be shaking them to get the cash that you owe them.’

Net tax collection is also up for 2017–18. It’s currently up $34.4 billion to $397 billion.

Compare this to the real GDP growth of the last financial year, which saw an increase of only 2.9%.

Australians are paying nearly three time more in tax than the rate at which the GDP is growing.

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How investors were effected by the ATO

Shareholders are also being targeted. When shareholders invest in a company, they don’t get taxed double by the ATO. Instead they get credit for the tax already paid by the company in the dividend aspect of their income. As the ATO reports:

In reality, company tax receipts can create an entitlement to franking credits for resident shareholders that could offset a portion of these effects in future periods.

Shareholder data could also be targeted in new ATO share data crackdown.

ATO assistant commissioner Kath Anderson said:

We will use the information to identify taxpayers who have not properly reported the sale or transfer of shares as income or capital gains in their income tax returns

Having access to increased data will help us to protect honest taxpayers, by detecting those who have not done the right thing. This helps ensure a level playing field for all.

Almost one third of Australians own shares, but a lot of these shareholders are novices. According to the ATO, this cause them to make mistakes when lodging their tax returns.

So what does this crackdown mean for you? Well, it makes it even more important for you to keep accurate and decent records of your purchase and sale price of the shares you hold and sell.

In an ideal world, you should never make investment decisions based on tax. Your choices on where to invest and when should be based purely on the merits of the investment, regardless of any tax benefits. But with each year, the ATO’s grasp widens.

We’ll continue to keep an eye on the government’s growing burden on your wealth here in Money Morning.

This week in Money Morning

In Monday’s Money Morning, Harje looked at bond yields, and explained that they are so incredibly low that investors are willing to accept a potential 5% return on wonderful businesses. And it’s why PEs are still so far above their average.  As bond yields have risen in the past few weeks, the margin between potential stock returns and risk-free returns on government bonds is now very narrow. To find out where Harje believes bond yields and share markets are heading next, go here.

In Tuesday’s Money Morning, Harje discussed how there are thousands of businesses on the ASX. All of them are falling, not because earnings are falling, but because prices are down and investors want to haemorrhage their bleeding portfolios. The majority is telling you you’re wrong. And the majority probably has a lot of smart people on their side. So maybe you’re the one who’s wrong…

So do you sell your stocks? According to Harje, the majority is not right all the time. In fact, they are often wrong about a lot of things. To find where Harje believes investors should be looking, go here.

On Wednesday, Harje looked at income taxes. As you know, they have only been around for 219 years or so. And even then, people were only forced to pay 1–3% of their incomes, not 30–50%! In fact, the US Supreme Court in 1895 would rule that income tax was unconstitutional. Tax revenues have gone up year after year, government spending hasn’t gotten any wiser. No matter how much money they’ve given, they just can’t seem to limit their spending to where it will create the most value for citizens. And today, we all just accept income taxes. How does the saying go…death and taxes are the only two certainties. To find out more, go here.

In Thursday’s Money Morning, Harje explains why he is for more tariffs. Well, it’s something investors won’t be expecting. Everyone wants things to get better. It’s why they’ve jumped back into stocks. They want a ‘great deal’ to happen. But if it doesn’t, more money will fly out of stocks. The problem with stocks, for a long time, has been prices. No matter how good the business. Not matter what the growth potential. Too often, investors get excitable by future growth and fall in love with wonderful businesses. To find out more behind Harje’s reasoning, click here.

In Friday’s Money Morning, Harje looks into how research studies tell us to buy the unloved, the undesirable stocks. Buy the stocks that make your stomach churn, stocks most investors wouldn’t touch. The reason why is because investors over-exaggerate good and bad news, while also having a fuzzy picture of the future. Valuation professor at Columbia business school, Brue Greenwald likes to say when investors think they’re 100% right, they’re really only 60% right. Now, Harje’s not saying you should buy stocks making no money at all that are on their way out. But if you jump into areas where no one else wants to go, low prices will do wonders for your portfolio. To find out more, go here.

Kind regards,

Alana Sumic,
Editor, Money Weekend

PS: In this free report, economy expert reveals four ways you could cash in on the global infrastructure boom. Download now.

Alana Sumic

As the Editor of the weekend edition of Money Morning, Alana brings you a summary of the news for the week, and her own take on the week’s most important story in markets.

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