Committee to Examine Financial and Tax Practices of For-profit Aged Care Providers

Monday 14 May 2018 @ 9.32 a.m. | Corporate & Regulatory | Taxation

On Thursday (10 May 2018) the Senate referred for inquiry by the Senate Standing Committees on Economics (the Committee), the matter of "Financial and tax practices of for-profit aged care providers". The Committee is due to report back to the Senate by 14 August 2018. The inquiry arises from recent reports that have raised concerns about how aged care companies are dealing with their tax liabilities and in particular how they are dealing with the large amounts of taxpayer funds that go into their industry.  

The Terms of Reference

The Committee has been tasked by the Senate to look into the financial and tax practices of for-profit aged care providers, with particular reference to:

(a)  the use of any tax avoidance or aggressive tax minimisation strategies;

(b)  the associated impacts on the quality of service delivery, the sustainability of the sector, or value for money for government;

(c)  the adequacy of accountability and probity mechanisms for the expenditure of taxpayer money;

(d)  whether current practices meet public expectations; and

(e)  any other related matters

See Journals of the Senate p 3104 item 22 (No. 97—10 May 2018)

Reasons Leading to Inquiry 

Some of the key reasons leading to the Senate inquiry are expressed in a report by the Tax Justice Network (TJN), called "Tax Avoidance by For-Profit Aged Care Companies: Profit Shifting on Public Funds". The report was commissioned by the Australian Nursing & Midwifery Federation.

The report has found that the six largest aged care providers in Australia received more than $2.17 billion in government subsidies in the 2017 financial year making up 72 percent of their total revenue which was over $3 billion and in the period 2016 - 2018 these companies also reported profits of $210 million.

The Report also found that:

  • Measured by number of beds, not-for-profit providers are the largest aged care provider group in Australia but also there has been a rapid growth in the size and spread of for-profit companies.
  • Companies can use various accounting methods to avoid paying tax and that one method is when a company links (or staples) two or more businesses (securities) they own together, each security is treated separately for tax purposes to reduce the amount of tax the company has to pay. According to the Report aged care companies are known to use this method as well as other tax avoiding practices.
  • Another practice, said to be employed by the TJN Report, is that of “renting” their aged care homes from themselves (that is, one security rents to another) or by providing loans between securities and shareholders.

Of current attempts by government to reform this area of taxation the report says:

"The Australian Government and the Federal Opposition (the Australian Labor Party) have proposed several ways to fix the problems with companies avoiding tax by using trust structures and other methods but there are still loopholes."

The report points to the difficulties in getting ". . . a detailed and complete picture of the full extent to which these heavily subsidised aged care companies are avoiding paying as much tax as they should, . . ." The report claims Australian law is ". . . not currently strong enough to ensure that their financial records and accounting practices are publicly available and fully transparent".

Key Reform Suggested by the Report

The report recommends that any company receiving Commonwealth funds over $10 million in any year must file complete audited annual financial statements with Australian Securities and Investments Commission (ASIC) in full compliance with all Australian Accounting Standards and not be eligible for "Reduced Disclosure Requirements".

Further, the report recommends that:

". . . public and private companies must fully disclose all transactions between trusts or similar parties that are part of stapled structures or similar corporate structures where most or all income is earned from a related party and where operating income is substantially reduced by lease and/or finance payments to related parties with beneficial tax treatment."

It will be interesting to see the report of the Committee when it is tabled in the Senate and exactly what legislation follows from its findings. 

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products. Nothing on this website should be construed as legal advice and does not substitute for the advice of competent legal counsel.

Sources:

Related Articles:

Legislation hotline: 1800 077 088

FREE legislation news, delivered weekly.

Sign up now.

We love legislation. About us.

NEW information resources - great for training.

Access now.

Law One product page. Search national legislation.Point in Time product page. Search legislation by time period.