Kay Hull (Riverina, National Party) Share this | Hansard source

It is with great joy that I rise to speak in support of the Tax Laws Amendment (2005 Measures No. 6) Bill 2005. I want to focus on one area in particular. I have not been so relieved to see a piece of legislation in a long time. I think the last time was when we moved to restore the tax treatment for irrigators such as Murrumbidgee Irrigation in my electorate. I was very proud and pleased when we were able to resolve in this House those taxation issues that were the unintended consequences of privatisation.

Today I rise to speak about the same area, because this bill is incredibly important for the one particular group that I was so concerned about, and that is Coleambally Irrigation in my electorate. Much of the bill is centred on Coleambally Irrigation. We have heard the case of how the taxation treatment may have impacted on the not-for-profit organisations, but there was one company only that was responsible for running the court cases. One company only bore the incredible costs of court cases, and that was Coleambally Irrigation Mutual Cooperative Ltd.

Let me give the House a bit of background: in January 2000 Coleambally Irrigation was established and registered as a non-trading cooperative under the Co-operatives Act 1992 (NSW). The purpose of Coleambally Irrigation is to construct, own and maintain all new irrigation infrastructure assets in the Coleambally district for the benefit of their community. It is financed by a sinking fund levy made up of contributions by irrigator members.

In 2000 Coleambally Irrigation applied to the Australian Taxation Office for a private binding ruling in order to have their sinking fund contributions recognised as non-assessable income. In February 2002, the application was rejected by the ATO on the basis that the mutuality principle did not apply to Coleambally Irrigation for a number of reasons. This is a major issue for Coleambally Irrigation, but it went on to include many more people.

Coleambally is the fourth largest irrigation region in Australia. It is twice as big as the Ord River. There are 503 farms owned by 400 separate farming enterprises in the region. Coleambally Irrigation provides community owned infrastructure that the state government is no longer willing to fund but is essential to the viability of our Coleambally community and to the region that it serves. The irrigation activity underpins the whole community and the community is involved at all levels.

The implications of the court decision for Coleambally Irrigation and the Coleambally community were substantial in terms of their annual financial liability but, not only that, this tax ruling had implications for non-profit mutuals generally over a long period. This created a significant hurdle for thousands of clubs and not-for-profit organisations. We had a large number—well over 100,000—of these not-for-profit organisations and mutual organisations around Australia in a wide range of sectors that had similar non-profit winding up clauses and that did not have an exemption under section 23 of the income tax act. These clubs included registered clubs; leagues clubs aligned with National Rugby League teams; RSL and workers clubs; a range of cooperatives, agricultural and non-agricultural; rural financial counselling services; motoring associations; business associations; environmental groups; some child-care centres; the housing cooperatives; some community libraries and other local services; and many incorporated associations, non-trading cooperatives and companies which were limited by guarantee.

Then came the lobbying. I was absolutely determined to restore the balance of not-for-profit and mutuals. I could not understand the case against Coleambally because it fitted the mutuality principle in every way, shape and form. However, here was Coleambally Irrigation being subject to court case after court case at their cost and basically leading to the demolishment of Coleambally as a community, but having implications right across Australia for every not-for-profit organisation simply because they have a winding up rule.

As I said, this bill is incredibly important to not-for-profit organisations. I am focusing on the amendment to ensure that certain not-for-profit organisations are not subject to tax on their mutual receipts as a result of the Coleambally Federal Court decision handed down on 7 September 2004. We lobbied hard and have had discussions with the minister since 2000 basically. A major amount of money has been spent by Coleambally Irrigation to prove what I thought was a no brainer. Thankfully, when this case was presented to the minister, and in particular the former minister Mal Brough, he could see the common sense of the determination and argument that we were putting forward. This situation was the result of major court decisions that effectively reversed the tax office’s longstanding practice of allowing not-for-profit community organisations to rely on the mutuality principle to exclude certain receipts from assessable income even though members were precluded from receiving any surplus funds on their winding up.

This amendment will provide legislative backing for the tax office practice. Had the government not made this change, the mutual receipts of 200,000 to 300,000 not-for-profit bodies—including clubs, motoring organisations, associations and a whole host of friendly societies—would potentially become liable for income tax. And not only that, it would be retrospective. So this was a major issue to deal with. It took up an enormous amount of time and effort both in my office and certainly in Coleambally Irrigation’s office.

Under the mutuality principle, a long established principle in tax law, membership subscriptions and receipts from other mutual dealings with members are not usually included in taxable income. The number of not-for-profit entities that benefit from the mutuality principle is enormous—it is across the board. The amendments that we have ensure that not-for-profit entities are not subject to income tax on their ordinary income from their members solely because they are prohibited from distributing surplus funds to members.

When I was having this discussion, it seemed as though Coleambally were in an absolutely invidious no-win situation. The New South Wales government insisted that they have this winding up rule, yet the ATO were penalising them for having that rule. It did not matter which way they went—they could not establish their mutuality without this winding up rule because the New South Wales government insisted that it be in there, and then they found themselves penalised for having the rule. So they were in a catch-22, an absolute no-win situation. So I am very thrilled to have these amendments.

On Monday, 30 May 2005, when the former Minister for Revenue and Assistant Treasurer, Mal Brough, announced that the mutuality principle would be restored, there was jubilation right across my electorate of Riverina and beyond, simply because this was justice being done. This was where you finally saw what it was like in a democratic process to be able to come in as a backbencher, to present a cogent case and argument and to convince the minister that these continual court cases were not assisting anybody. They were draining Coleambally of funds and, ultimately, this really needed a political fix rather than a legal fix. When Mal Brough came out and announced that the mutuality principle would be restored and that the government would amend the income tax law to ensure that certain not-for-profit organisations were not subject to tax on income as a result of the High Court decision on Coleambally, I was, as I said, thrilled to pieces, and so were Coleambally Irrigation. It was an action that restored, as the bill before the House will restore, the longstanding benefits of this mutuality principle.

The announcement honoured the government’s commitment made during the 2004 election, when Coleambally Irrigation were in what I believed to be a dire situation. It addressed the concerns that Coly were raising about the impact of the judicial decision arising from litigation. Even the former Minister for Revenue and Assistant Treasurer recognised this in his press release. He said:

It addresses the concerns raised about the impact of judicial decisions arising from litigation between Coleambally Irrigation Mutual Co-operative Ltd and the Commissioner of Taxation …

I was very pleased that the former minister had recognised this situation. When the High Court decided not to grant Coleambally Irrigation Mutual Cooperative leave to appeal the decision that the principle of mutuality cannot apply where the members of an organisation are prevented from obtaining the value of the assets on its winding up, the process did not just go on and on and then allow so many people to be impacted upon.

What we have here are amendments that have no adverse effect on taxpayers. We are simply reinstating the previously accepted treatment that applied prior to the Coleambally court decision that income received by not-for-profit entities, such as the membership subscriptions, is to be treated as mutual receipts and not as assessable income. Again, I feel suitably relieved and quite thrilled for Coleambally Irrigation. I know that each of the board members and each of the members of Coleambally Irrigation, including their CEO, is sitting here waiting for this bill to move through the House at a rate of knots. I feel only when the bill is passed by this House and approved by the Senate will they breathe a sigh of relief and recognise that they will be able to move forward as an organisation. Another very strong point I have here is that this bill is retrospective from 1 July 2000 to ensure that the taxation status of those organisations that I listed is not adversely affected by that Federal Court decision.

In conclusion, the decision by the Minister for Revenue and Assistant Treasurer is a major victory. Over a number of years I have gone through this issue with a few assistant treasurers, and I am pretty proud that we have finally seen the light and have put in a political fix, as was required from the very beginning, to restore the intention of the mutuality principle. Again, I would like to thank the former Assistant Treasurer, Mal Brough, for his assistance with this. I would like to thank Phil Lindsay in the former Assistant Treasurer’s office for being so diligent and so patient with me over a long period of time and all of the staff members that have been involved with me since 2000 on these issues. They have committed an enormous amount of time and energy on my behalf, for and on behalf of Coleambally Irrigation.

This is a good result. This is democracy and justice for a fantastic organisation that sets about building communities and making them strong. It is with great pleasure that I stand in the House today not only to support this bill but to urge everybody to progress the bill rapidly through the House and through the Senate in order that the appropriate work can be done to restore the original intent, thereby giving Coleambally Irrigation surety and security for their future. They are one of the best irrigators in the nation. I have just had the new Parliamentary Secretary to the Prime Minister, who is responsible for water, the member for Wentworth, Malcolm Turnbull—

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