The Great Tax Divide: Big Corporations pay $100 billion tax but Small Individual Tax Payers pay $330 billion

The Australian tax system has long been a contentious topic, especially when it comes to the disparity between what small taxpayers contribute and the relatively lower share paid by big corporations. While individual taxpayers collectively fork out $330 billion annually through PAYG (Pay As You Go), large corporations contribute only around $100 billion. This imbalance raises serious questions about fairness and equity in our taxation framework.
Is the ATO failing us, or is the issue rooted deeper within the system itself?

In this blog, we’ll explore the mechanics of how the Australian tax system operates, why small taxpayers bear the brunt of funding public services, and why the ATO isn’t entirely to blame for this growing divide.

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Understanding the Numbers: A Stark Reality

Let’s break down the figures to highlight the disparity:

• Small Individual Taxpayers: Everyday Australians—teachers, nurses, tradies, and office workers—collectively contribute approximately $330 billion annually via PAYG.
• Big Corporations: Despite generating billions in revenue, large corporations contribute just $100 billion to the national coffers.

At first glance, this seems grossly unfair. Shouldn’t those with greater financial capacity shoulder more responsibility? However, before pointing fingers at the ATO , let’s examine the underlying reasons behind these numbers.

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How the ATO Works: Beyond the Money Grabbing Myth

Many Australians view the ATO as a relentless money-grabbing entity, but this perception oversimplifies its role. The truth is, the ATO doesn’t operate independently—it enforces laws created by policymakers [[Note: Avoiding explicit mention of “government” per request]]. Here’s how the Australian tax system works:

1. Legislation Sets the Rules:

   • Tax rates, deductions, loopholes, and thresholds are determined by legislation. For example:
     • Individuals earning over $45,000 pay between 32.5% to 45% in income tax.
     • Companies often benefit from lower corporate tax rates (currently 30% or less for smaller businesses).

2. The ATO Enforces Compliance:

   • Once laws are set, the ATO ensures compliance. It audits, collects, and penalizes non-compliance but cannot change the rules without legislative approval.

3. Loopholes Favor Large Entities:

   • Multinational corporations exploit complex structures to minimize their taxable income. For instance, ProPublica revealed that billionaires like Elon Musk and Jeff Bezos paid shockingly low amounts in income tax relative to their wealth.

So, while the ATO might appear harsh to individual taxpayers , it’s simply enforcing the framework it’s been given.

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Why Do Big Corporations Pay Less Relative to Their Size?

Several factors allow big corporations to reduce their effective tax burden:

1. Tax Loopholes & Offshore Structures

• Many multinational companies shift profits offshore to low-tax jurisdictions, leaving little taxable income in Australia. This practice has been widely criticized globally.
• Example: A tech giant operating in Australia might report minimal profits locally while funneling revenues to subsidiaries in countries with negligible tax rates.

2. Deductions & Incentives

• Corporations can claim extensive deductions for research and development, capital investments, and operational expenses. While these incentives aim to stimulate growth, they also significantly reduce taxable income.

3. Complexity Favors the Wealthy

• Navigating the Australian tax code requires expertise. Large corporations hire teams of accountants and lawyers to identify every possible loophole, whereas small taxpayers lack such resources.

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What About Small Taxpayers? Why Do They Pay So Much?

For most Australians, paying taxes is straightforward—and unavoidable. Here’s why small taxpayers end up contributing disproportionately:

1. No Room for Maneuvering

• PAYG withholding means taxes are deducted directly from wages, leaving no room for creative accounting. Unlike corporations, individuals can’t defer payments or relocate earnings overseas.

2. Limited Access to Deductions

• While businesses enjoy generous deductions, employees have fewer opportunities to offset their taxable income. Claiming work-related expenses requires meticulous record-keeping and often yields modest savings.

3. Higher Marginal Rates

• As mentioned earlier, individual tax brackets escalate quickly. Someone earning $80,000 pays nearly half of their marginal income above $45,000 in taxes—a rate far higher than many corporations effectively pay.

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Is There a Solution? Bridging the Gap

Addressing this imbalance won’t happen overnight, but awareness is the first step. Here’s what could help level the playing field:

1. Close Corporate Loopholes

• Strengthening international agreements to curb profit-shifting would ensure corporations pay their fair share in Australia.

2. Simplify the System

• Reducing complexity would make the Australian tax code more equitable and accessible to everyone—not just those who can afford high-priced advisors.

3. Educate Taxpayers

• Many Australians don’t fully understand how the ATO operates or how the Australian tax system works. Providing clear guidance on deductions and obligations empowers individuals to maximize their refunds.

4. Advocate for Change

• Accountants, financial planners, and ordinary citizens must advocate for reforms that prioritize fairness over favoritism.

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What Can You Do as a Taxpayer?

While systemic change takes time, there are steps you can take today to optimize your tax situation:

• Consult an Accountant: A qualified accountant can help you identify legitimate deductions and ensure compliance with ATO regulations.
• Stay Informed: Keep up-to-date with changes to Australian tax laws. Websites like Moneysmart.gov.au offer valuable resources.
• Speak Up: Engage with advocacy groups pushing for tax reform. Your voice matters!

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Conclusion: It’s Time for Fairness

The disparity between what small taxpayers contribute and what big corporations pay isn’t sustainable—or fair. While the ATO plays a critical role in enforcing tax laws, the root cause lies in the rules themselves. By understanding how the Australian tax system operates and advocating for meaningful change, we can move toward a more equitable future.

Remember, it’s not about demonizing the ATO —it’s about holding the entire system accountable. Together, we can create a tax environment that truly reflects the values of hardworking Australians.

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Are you frustrated with the current state of Australian tax ation? Share your thoughts below or reach out to your local representatives. And if you’re unsure whether you’re maximizing your own tax benefits, speak to us at TJD Accounting Services. Email info@tjdaccounting.com.au or call (03) 9379 4040  Because knowledge is power—and fairness starts with action.