Briefing paper
Description

The issue of tax concessions and tax loopholes has grown in prominence in recent years. Growing inequality has put the focus on those who seek to avoid paying their fair share in our progressive taxation system. These tax loopholes include excess franking credits that see mainly wealthy retirees who have paid no tax get a tax refund from the government.

The tax statistics give us an insight into how a small minority of people are spending very large sums of money in order to find and take advantage of tax loopholes. When we look at people’s income before it is reduced by tax deductions we see that some people are able to substantially reduce the amount of tax they pay. But this comes at a large cost.

Looking just at people with gross incomes (incomes before tax deductions) of more than a million dollars we see that those with the largest deductions spend considerable more on managing their tax affairs. Figure 1 breaks those with gross incomes above a $1 million into three groups. The first group is those who don’t have sufficient deductions to reduce their taxable income below $1 million and so their gross income and their taxable income are above $1 million. The second group are those who did have sufficient deductions to reduce their taxable income below $1 million, so their gross income is above $1 million but their taxable income is below $1 million. The third group is those that had enough deductions to reduce their taxable income below the tax-free threshold. This group had a gross income of more than $1 million but paid no tax.

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