Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Hansard source

in reply—I start my summing-up speech by thanking all of those members who have taken part in the debate on the Tax Laws Amendment (2006 Measures No. 1) Bill 2006. In particular I pay tribute to the member for Riverina for her words, although I have had the opportunity to be in the chamber for only a short period of time while she was speaking. I very much respect the work she has done for her constituents not just in this area but across many areas. I had the good fortune to visit her electorate last year and I heard of the respect that the constituents in her part of the world have for her. That is because of her actions on behalf of people who have been the victims of some of these promotion schemes or of other scurrilous activities by unscrupulous operators. Her hard work and the attention that she has given to those constituents is why they hold her in such high esteem. I congratulate her not only for the fantastic work that she does within her electorate but also for the very positive and constructive way in which she has contributed to this debate.

The first item that I want to speak about in my summing-up speech is temporary residents. It is no hidden secret that we have a very much contracting labour base and that, in particular, we have incredible demands on our labour internationally. We know that countries are adopting a more graduated approach to individuals entering and leaving the residents tax system. The first measure addresses this issue by providing improvements to the taxation arrangements for temporary residents which will give Australia one of the most competitive expatriate taxation regimes in the world. Temporary residents will be exempt from Australian tax on most foreign source income including capital gains. This exemption is confined to foreign source income and does not apply to their Australian source income or generally to salaries and wages. These amendments will also exempt temporary residents from interest withholding tax obligations associated with overseas liabilities and some record-keeping obligations.

By way of background, this measure was introduced into parliament twice in 2002 and was defeated—twice—by the Labor opposition in the Senate. As a result, the government withdrew the measure prior to the 2004 election. In the 2005 budget the government committed to pursuing the measure, recognising that it would reduce the costs to Australian business of employing highly mobile skilled labour as currently the extra tax costs are often passed on to employers. Since this measure was previously introduced, some beneficial changes have been made. Firstly, to reduce complexity there are no longer any arbitrary time limits. Secondly, temporary residents will be treated like nonresidents for capital gains tax purposes.

The rules for capital gains made on employees’ shares or rights have been made more explicit. The amendments will apply from 1 July 2006, except for the interest withholding tax exemption which will apply from the day of royal assent. This measure does not favour temporary residents over Australian citizens when deciding who to employ. The government is committed to assisting businesses to access the skilled labour needed to compete internationally.

The second measure in this bill evolved from the 1999 review of business taxation where it was identified that there was a need to address expenditures known as ‘black hole expenditures’. Black hole expenditures are, for example, business expenditures incurred before a business commences or after it ceases. They also may evolve where business expenditures fall outside the scope of the various deduction provisions of the income tax law. The amendments in this bill provide for a systematic treatment of business black hole expenditures. This measure provides a five-year write-off for business capital expenditures incurred on or after 1 July 2005. This includes pre and post business expenses. As part of the systematic treatment, some black hole expenditures will be recognised by amending the capital gains tax regime and the elements of cost for depreciating assets. There is also a new five-year write-off for payments to terminate a lease or licence. This applies where these are a business expense. The new five-year write-off for business capital expenditures will be a provision of last resort. This means that it will apply only where business capital expenditures are not already taken into account and are not denied a deduction for the purposes of the income tax law.

The Treasurer has previously said that James Hardie will not be provided with special legislation and will be required to comply with Australian taxation law. If James Hardie makes a payment that is tax deductible or depreciable, it will be deductible or depreciable under Australian law. If James Hardie wants to take advantage of the black hole expenditure measures, it can take advantage of black hole expenditures. As with any other taxpayer, James Hardie can structure its payments to take advantage of the tax law. The black hole provision is one of last resort—that is, the expenditure must not already be recognised and not denied a deduction for the purposes of the income tax law. Therefore, for the James Hardie payments to be considered under the new measure they must not already be taken into account and not denied deductibility. This will be a matter for the Commissioner of Taxation to determine based on the facts and circumstances of the payments and subject, of course, to the passage of the legislation.

The Commissioner of Taxation has statutory responsibility for the interpretation of the income tax laws. The application of the law is a matter for the taxpayer and the commissioner. This amendment is a positive improvement to the tax laws for businesses. Earlier drafting of the measure and tax office interpretation of black hole expenditure was criticised as being restrictive. However, in an article a leading tax consulting firm has stated that:

The proposed amendments go a long way to addressing the issue.

The article also states:

It has been a long-standing problem and it has been helpful that the change has been made.

The third measure amends the law to introduce a civil penalty regime to deter the promotion of tax avoidance and tax evasion schemes. On 5 December 2003, the government announced that it would introduce a civil penalty regime to deter the promotion of tax exploitation schemes. Currently there are no civil or administrative penalties for the promotion of these schemes, with the result that promoters can obtain substantial profits while investors may be subject to penalties under the income law.

This bill will provide for greater symmetry by ensuring that promoters are at risk of penalty when they expose their clients to scheme penalties. This measure also provides for injunctions and voluntary undertakings. These remedies can be used by the Commissioner of Taxation to stop the promotion of schemes before taxpayers are put at undue risk. For an injunction or penalty to apply, a promoter will have to (1) market a scheme or encourage growth or interest in it, (2) receive consideration for that conduct and (3) have a substantial role in respect of marketing and encouragement. Implementers are affected only if they implement a scheme and promote it on the basis of conforming to a product ruling in a materially different way.

This measure has been welcomed by key industry commentators. Alan Cummine, Executive Director of plantation scheme Treefarm Investment Managers Australia was quoted as saying, ‘It is satisfying to see the government finally bringing this legislation to the parliament.’ Dr Dirkis of the Taxation Institute of Australia stated that the laws proposed in this bill fix problems with an earlier version of the promoter penalties—‘It’s now more focused on the promoter of the scheme.’

Finally, the fourth measure in this bill amends the A New Tax System (Goods and Services Tax) Act 1999 to clarify that prepaid phone card products are eligible vouchers for the purpose of division 100 of the act. This amendment puts beyond all doubt the fact that GST applies to these products when they are used and not when they are sold. As the amendment confirms the industry’s existing treatment of these products, it applies retrospectively from 1 July 2000. This amendment also clarifies that from 11 May 2005, GST is to be paid on the face value of the voucher. This ensures that for vouchers sold at less than their face value through a distribution chain any value added is subject to GST.

Additionally, the measure provides a simplified accounting arrangement for eligible vouchers supplied through a distribution chain which will apply from the date of royal assent. This amendment, of course, gives effect to the government’s announcement in the 2005-06 budget. This bill is another demonstration of the Howard government’s commitment to business, to providing support and certainty wherever it is possible and to addressing areas of concern that are brought to our attention, in particular through the consultation stage.

As part of my summing up speech, I want to thank all of those stakeholders who have had a considerable interest from day one in this issue. I also want to pay tribute to the previous minister and of course to Treasury for the efforts they have put in to come to this conclusion. It is, as I say, about the government consulting with business, about addressing concerns that businesses have, about helping them employ more Australians and ultimately about helping Australian families. For these reasons, as I have outlined, I commend the bill to the House.

Debate interrupted.

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