If Santa was an Australian tax resident
A lighter look at the complexity of Australian taxation laws and the year that has been.
Dear Mr Claus,
Thank you for the opportunity to provide strategic business, tax and compliance advice for your operation. We’re pleased you have initiated this advice as the Australian Taxation Office (ATO) has instigated a number of reviews that may impact your operations and your team, and its relationship to contractors. Some of these issues have been exacerbated by the pandemic.
We have identified a number of areas of concern as a starting point for further discussions. These include:
Business structure viability
The fact that you run a global enterprise that generates no income or profit but ‘gifts’ millions of toys each year produced by your offshore factory, has significant brand value, is represented extensively in merchandise, your spokespeople are employed by shopping centres all around the world, but you have never lodged a tax return or paid tax in Australia, is likely to trigger an ATO investigation. There is also a risk that the Serious Financial Crime Taskforce might become involved.
As discussed, we do not believe that the “it’s magic” argument will suffice in the event of an investigation. The argument has been tested previously with the ATO to no avail.
Your enterprise’s lack of structure also means that you are missing out on significant benefits. For example, tax deductions might be available for expenses you incur. A number of significant changes were made in recent years enabling businesses to immediately deduct the cost of assets used to produce income.
Your flying reindeers are likely to be considered beasts of burden and as such can be depreciated as plant. However, a deduction is only available to the extent that the reindeer are used to produce income that is taxable in Australia.
At present, you do not make any claim for expenses incurred during your Christmas Eve deliveries. While we understand food – cookies, reindeer food, glasses of milk and the occasional tipple of scotch – is provided free by the world’s children, there are likely to be other expenses that you incur. The cost of your uniform, dry-cleaning (removing chimney soot), and postage, to name a few.
Research & Development
We understand that the ‘flying sleigh’ was developed in your workshop and the technology has developed markedly over the years. In addition, your purpose-built ‘naughty or nice’ technology system is unique (we note our concerns about potential privacy breaches and a lack of an opt-in/opt-out system; I know you have been watching the detrimental brand impact on several social media outlets). If incorporated, there is a potential to access the R&D tax incentive that provides entities with a turnover of less than $20m a refundable tax credit of your corporate tax rate plus 18.5%. The value of the tax offset is lower for companies with a turnover of $20m or more.
The technology developed in your workshop, if patented and commercialised, could revolutionise logistics and put a whole new meaning to same-day delivery. We are certain that Australia Post, in particular, would be very interested in entering into discussions with you.
There have been significant shifts over recent years to ensure that multinational enterprises pay tax in the country where they generate their income. The increase of digitalisation has only exacerbated the issue. While not earning an income, your enterprise operates globally with a workshop located in the North Pole and delivers to clients across the globe.
Representation in a particular country may also be enough to make your operation subject to local tax laws. You appear to have local agents - several thousand Santa representatives — with authority to operate on your behalf in shopping centres across Australia. These agents commit the operation with the promise of toys to millions of children. A local agent acting with authority may expose you to local tax laws. This is an issue that may extend well beyond Australia and requires urgent assessment.
As discussed, there are currently no provisions within Australian tax law to allow the Commissioner the discretion to ignore your tax liabilities as a goodwill gesture. Please contact us urgently regarding these issues.
Please note that our office will close over Christmas commencing Wednesday 22 December at 4:00 PM and will reopen with a majority of staff on 6 January 2022, with the balance of our team coming back by 10 January 2022.