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How close are taxable income and accounting profit? An empirical study of large Australian companies


There has been a perception by the Australian public that ‘big’ Australian businesses do not pay their ‘fair’ share of income tax. This perception is primarily based on the belief that there exists a vast array of tax concessions available to companies in Australia. The present article examines the gap between taxable income and accounting profit of large Australian companies. This is achieved by estimating the effective tax rates (ETRs), defined as the ratio of income tax expense over accounting profit before tax, of 20 large (and highly visible) corporations in Australia for the six-year period from 2005 to 2010. Three measures of ETR, namely ETR, current and cash ETR are considered in this article. It is shown that while annual ETRs tend to fluctuate from year to year around the statutory tax rate, the aggregate ETRs of most companies are very close to the statutory tax rate. Thus, taxable income and accounting profit are very close for large Australian companies. These empirical findings are consistent with the Australian Government’s income tax base broadening policy which has, over the past 25 years, removed most tax concessions to companies.

Author profiles

Shirley CARLON
Corresponding author, Senior Lecturer, School of Taxation and Business Law, UNSW
Current at September 2013
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Dr Alfred Tran CTA
Alfred is a Honorary Associate Professor, Research School of Accounting, The Australian National University. - Current at 17 April 2020
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Binh Tran-Nam
Binh is a Professor, School of Taxation & Business Law, UNSW Australia and RMIT Asia Graduate Centre, RMIT University Vietnam, and International Fellow, Tax Administration Research Centre, Exeter University-Institute for Fiscal Studies. - Current at 03 November 2016
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