Peninsula Partners Accountants



We all know that Uber, Google, Facebook and the like all pay bugger income tax in Australia.  The first question  I'll keep this simple, because even though it is hidden behind a veil of complex structure and offshore tax havens, at it's heart it can be drawn up on the back of a napkin.

Everybody, be it a salary earner or a Mornington Peninsula based small business or a corporate multinational, earn an income and are entitled to deduct the costs of earning that income.  The difference between what you earn and what you deduct is taxed at the applicable rate.

Where multinationals differ to the rest of us, is that they have a head office in place like Ireland or the Cayman Islands or another low taxing country. This head office serves as the hub for the multinational.  This hub then "charges"a fee to the companies set up in places like the higher taxing Australia.  These fees are called things like royalties or marketing services, a charge levied to use the hub's services.

This fee is treated as an expense in Australia, and deducted against the Australian income, leaving less avalable to be taxed in Australia. Simple!

Of course, it is hidden far better than this (eg interest on loans from the Irish company to the Australian one, treating online sales in Australia as being exported from the Cayman Islands etc), but at its heart, suspicious costs are applied to the businesses in the higher taxing nationalities by the businesses from the lower taxing nationalities.

And this happens because it's great not only for the multinational, but also for the country in which they are based. Sure they might only charge 15% comany tax instead of Australia's 30%, but it's 15% on a whole lot more profits than would otherwise be the case!  And besides, the "hub" creates jobs and brings in tax paying employees.  

It needs to be remembered that Australia does have some wins on this front.  Rio Tinto can extract coal from mines it owns in Canada, put them on a ship and deliver them straight to China, yet pays tax in Australia for the profits on that transaction, without a single Aussie being involved.

But clearly it is unfair.  And you know what, it is also illegal.  I'm loathe to bore you by quoting excepts of tax law, but there are provisions to apply penalties to businesses (and individuals) that have entered into transactions where the sole or dominant purpose of the transaction is to obtain a tax benefit.  Sorry, but paying a massive royalty to a conveniently located head office would seem to me to meet that criteria.  Paying 12% interest on a loan the same head company, when fnance can be obtained for half that in Australia sounds like an attempt to get a tax benefit to me.

Next week, part two: Why the Hell don't we do something about it!!


Hurry... Last Days!

The 30th June is the accountant's New Year's Eve.  Ok, the parties aren't as much fun (mainly because they're attended by other accountants), but the countdown clock is very real.  And decisions that are made either side of midnight on the 30th can be extremely important to your finances.  Here are some ways that can help you enjoy a happy new financial year.

Read more: Hurry... Last Days!

2015 Budget Review

The second Tuesday in May is a great night for accountants, journalists and insomniacs.  Each year, the treasurer brings down the budget, and each year, Peninsula Partners brings you a light hearted, plain English but still informative summary of its content.

2014 was a disastrous budget for the Liberal government, with poor political fallout from policies that seemed to attack pensioners and the sick whilst rewarding high income earners taking maternity leave.  Throw in a poorly timed cigar smoking session, and it wasn't Joe Hockey's greatest night.

It seems some lessons have been learnt on the political front (for example, $3 billion has been "spent" abandoning the $7 GP payment), but what does it achieve from an economic point of view, which after all is the main purpose of the budget.

Read more: 2015 Budget Review

The Tortoise of Wall Street

Jordan Belfort, the man who's life story was the basis of the movie The Wolf of Wall Street, did not make his pile of money by investing. He made it by taking advantage of investors that were looking to get rich quick, charging them commissions to buy risky stocks. Belfort would get paid no matter what return the investment provided, and he had no shortage of customers.

Trying to get rich quick is a human trait that has existed for centuries. The Ballarat goldfields were flooded with people from across the globe looking to become overnight millionaires and four times a week we are one Lotto ticket away from living the rest of our lives on a yacht on the Whitsundays.

Read more: The Tortoise of Wall Street