How wealthy executives share their tax bills

Wealthy executives have been abusing tax breaks that were meant to encourage workers to take a stake in their bosses’

companies.

The idea behind that scheme, which the Keating government introduced in 1995, was to promote industrial harmony in Australia.

The scheme has wide support in Federal parliament, with both the Rudd government and the Coalition, led by Malcolm Turnbull, backing it.

But the  Tax Office has reported that   wealthy executives, who abused it, have produced a “very serious loss of tax revenue.”

And the Federal Treasury has estimated that the Federal government could raise an extra $200 million in tax, over the next four years, if it closed the loopholes that permit this evasion.

So that’s precisely what the government set out to do, in its budget on May 12.

But it acted hastily and clumsily.

The protests that followed forced the government to make concessions, which have still to be settled.

“We do not mind admitting that perhaps we could calibrate this measure better,” the Assistant Treasurer, Chris Bowen, told parliament.

How, though, did the rorts work?

Mr Bowen said one executive had acquired options, under an employee share scheme, in the 2004 income year.

“The taxpayer did not elect to be taxed up front,” Mr Bowen said.

Instead, he deferred that liability.

“An ATO audit found the extra tax payable from that one individual was over half a million dollars.”

This was not an isolated case.

Mr Bowen said 8 per cent of the wealthy Australians, examined under a Tax Office high wealth investigation had “tax shortfalls.”

He and the Federal Treasurer, Wayne Swan are now promising to produce an issues paper, on how this problem might be fixed.  They say they will do so within a fortnight.

We don’t know yet, exactly what that paper will say.

But we can confidently predict that the government sill take a tough line on this kind of evasion.

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