For 55 millionaires, the 2018-19 financial year was very good. Not only did they earn more than $1m, they paid no net tax. They achieved this through a range of methods, mostly big donations and also by spending a vast amount on accountants and tax lawyers to manage their tax affairs.
In 2018-19 there were 15,385 people who had a total income of over $1m – just a bit over 0.1% of the 14.68m people who earned an income that year, and up from 14,909 the year before.
Of those millionaires, 15,303 paid an average of 44% tax on their $35.08bn total taxable income; the other 55 paid nothing.
Forty-five of those millionaires were able to reduce their taxable income down to below the tax-free threshold of $18,200, with the other 10 able to reduce their taxable income low enough that, when combined with other measures, they paid no net tax at all.
So how do you go about being a millionaire who pays no tax? The big item this year was gifts and donations. Of the tax-paying millionaires, 8,514 donated a total of $14bn for an average of $165,789. That is pretty generous, but is not going to be enough to reduce your tax bill to zero.
But 21 of the no tax-paying millionaires donated an average of $10.099m. The 11 millionaires who were able to get their taxable income below $6,000, donated a total of $158m. That is a massive tax deduction.
They also reduced their taxable income by paying people to reduce it.
The ATO found that around 90% of everyone who fills out a tax return pays less than $300 to do it (or does it themselves):
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But as F Scott Fitzgerald would say, “Let me tell you about the very rich. They are different from you and me”, and one way they are different is how much they spend on managing their tax affairs.
Twenty seven of the non tax-paying millionaires spent an average of $387,108 managing their tax affairs, compared to just $5,773 by the millionaires who paid tax.
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And it is not just millionaires who spend big money on accountants and tax lawyers to reduce their taxable income.
Some 709 people who had a total income of above $180,000 were able to reduce their taxable income below the tax-free threshold. They spent an average of $82,507 on managing their tax affairs, compared to the $1,233 spent on average by those who remained in the top tax bracket.
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It is for this reason that the ALP really should re-instate its policy of the 2019 election to limit individual deductions of tax affairs to $3,000.
It would affect a minuscule number of people – almost all of whom are high income individuals paying vast sums of money to avoid paying vaster sums of tax.
One interesting thing is millionaires like to negative gear as well. Nearly three thousand millionaires claimed a rental loss in 2018-19 – making the 19.3% of millionaire negative gearers higher than the average 8.9% of Australians to do so in the past year:
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It wasn’t a great year for negative gearers – record low interest rates make it hard to make a loss, given your actual mortgage payments are reduced.
The average rental loss in 2018-19 was $9,086 – well down on the $11,010 average loss in 2010-11 when the cash rate was at 4.5%:
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But as ever the benefits of negative gearing are massively skewed to the wealthy.
It is always important when looking at negative gearing to use “total” and not “taxable” income, because the whole point of negative gearing is to reduce your taxable income.
Looking at this figure we can see that 4% of individuals in 2018-19 had a total income above $180,000, but they made up 9% of everyone who negative geared, and they claimed 17% of all the rental losses claimed that financial year:
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Nearly half of all negative gearing losses go to the richest 21% of individuals.
But again this is not a shock, for when we look at who negative gears by occupation, it is clear that those people in occupations with higher median income are much more likely to be recording a rental loss:
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Whether it be anaesthetists or surgeons, high income medical practitioners are the biggest negative gearers. Well over a quarter of those professions negative gear, compared to just 11.4% of registered nurses.
Negative gearing, as with most things in the tax system, such as deducting the cost of your tax affairs, is available to all, but the benefits are massively skewed to the wealthy.