Is Santa a tax cheat? 

December 2014

Given the sheer amount of conversation around global business and tax, we thought we'd take a light-hearted look at Santa, who is by definition and myth, a truly global figure for many of us. We wondered what the ATO would make of his activities, particularly in light of its recent focus on clawing back revenue from international firms who operate in Australia but don't pay quite so much tax as Mr Hockey thinks they should. 

Santa does, after all, run a global business that generates no profits but 'gifts' millions of toys each year produced in his offshore factory. The ATO has been looking closely at any business or individual that operates within Australia but has significant transactions or operations internationally. 

So what's likely to trigger an investigation for Santa? Let's find out.

Tax resident or non-resident? 

Santa is a citizen of the world, yet he has a secret Australian warehouse to aid distribution and Christmas Eve logistics across the region.  The warehouse domiciled in Australia may mean that he has a permanent establishment in Australia which could mean he should be taxed like an Australian entity on profits made from the warehouse. 

As there is no Double Tax Agreement between Australia and the North Pole, it's possible he could be subject to local tax laws in both countries.  There might be some scope to claim a tax credit to help reduce the impact of double taxation. We note that this same situation is likely to apply in many countries not just Australia. 

Representation in a particular country may also be enough to make his operation subject to local tax laws.  Santa does have appear to have local elves - um, we mean agents – with authority to operate on his 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 Santa to local tax laws.  This is an issue that may extend well beyond Australia. 

Santa's little helpers. Volunteers or underpaid employees? 

One of the key areas of Santa's operation would be a review should be of the employment status of the 'Santa's little helpers' based in Australia to determine if they are contractors or employees.

If the helpers are deemed to be employees, Santa may be liable for the superannuation guarantee for this year (9.5% from 1 July 2014) and all previous years. It may be hard to argue that they are truly independent given the level of corporate branding involved. 

Santa's organisation will also need to register for workers compensation in each state he operates in and will need to consider state-based payroll tax obligations. Hopefully he will not fall foul of any workplace relations' obligations!

Importing goods into Australia 

Most goods imported into Australia with a value above $1,000 are subject to GST.  With approximately 4,503,075 children in Australia on Santa's Naughty or Nice list, averaging $40 per gift the ATO might estimate that Santa would be liable for GST in excess of $18,012,300.  Tax structuring should be part of Santa's agenda when talking to his accountant. 

Reindeers – beasts of burden? 

Santa may be subject to Australian tax laws and if so, a number of deductions would be available to him. His reindeer, for example, are likely to be considered 'beasts of burden' and as such can be depreciated as plant. 

There are currently no provisions within Australian tax law to allow the Commissioner the discretion to ignore Santa's tax liabilities as a goodwill gesture. 

If you think that your business might be affected by some of the issues facing Santa, please give us a call on 02 9957 4033.

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Last updated December 2014. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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