Experts say there are legitimate reasons why high-income earners may be paying no tax, but it does raise questions around whether the system could be fairer — especially for those who don’t have the same opportunities to benefit from tax deductions.

Why some people don’t pay tax

For example, those who earn income generated overseas may have already paid tax in a foreign country. Australia has treaties with most countries, so residents don’t pay double tax.

Superannuation earnings in the draw-down or retirement phase are also not taxed, something that has been described by former federal treasury secretary Ken Henry as “stupid”.

‘Unfair’ system that disadvantages wage and salary earners

A study by UNSW found high-income taxpayers were best able to mitigate their tax liability because they were more likely to have access to different business structures.

“A business can claim a tax deduction for most expenses they incur in carrying on your business if they are directly related to earning your assessable income.”

But they reported $430.4 million in capital gains, which are profits from the sale of investments such as property, shares and crypto assets.

“Personally, I think that’s unfair between rich and poor, and it’s also unfair between old and young.”

The worst offenders when it comes to tax avoidance

He says the ATO estimates small business discrepancies make up around 40 per cent of the tax gap, amounting to $17.7 billion of the $44.5 billion gap in 2021-22.

“The tax office would know who those people are, they will have gone over their affairs with a pretty fine-tooth comb and if they’re not paying tax, it would be for a good reason,” he says.

High-income earners better able to take advantage of tax deductions

The group reported a total income of $461.8 million, but their deductions came to $390.3 million. One person claimed $8 million in dividend deductions alone.

In 2022-23, they claimed $63 million for the cost of managing their tax affairs, but the overwhelming majority of this money ($58 million) was for interest charged by the ATO for late payment of taxes and penalties.

“It’s not an expense necessarily incurred in producing accessible income — like interest on a loan taken out to purchase an investment property or the cost of cleaning work clothes such as a uniform — and it is not a policy purpose, such as donations to registered charities … so it shouldn’t be a tax deduction,” he says.

‘National hobby’ in Australia to avoid paying tax

Jericho says many tax concessions, such as the capital gains tax discount and negative gearing, are viewed as legitimate and this encourages people to change their behaviour to avoid paying tax.

“We should have people feeling that paying taxes is a good thing because it delivers all our services.”

“This is a really important conversation to be having about income inequality and wealth inequality, and how can we use tax policy and design to mitigate the effects rather than [tinker] on the sidelines,” Kayis-Kumar says.

What changes could be made?

But a second study found the ability for individuals to direct deductions between personal and corporate income may dampen the effectiveness of such a change.

“It’s more attractive to put income into pots where the tax rate’s lower, and to put deductions into pots where the tax rate is higher.”

Support needed for changes

For example, if Australia reduced the number of deductions available and lowered tax rates simultaneously, most people wouldn’t get much of a refund at the end of the financial year.

“It would be simple and I think it would be fair,” Eslake says.