Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Hansard source

The Tax Laws Amendment (2006 Measures No. 2) Bill 2006 deals with amendments to various sections of the Income Tax Assessment Act 1997; it has six schedules, which I will deal with one by one. Schedule 1 to the bill deals with proposed ex gratia payments to be made to former maintenance personnel working on F111 aircraft upgrades. Apparently these one-off payments are being made to certain personnel who experienced a unique working environment while maintaining the fuel tanks of those aircraft. This measure follows concerns about adverse health effects on those maintenance personnel.

The government does not accept liability but is seeking to legislate to create the certainty that any payment received will be tax free in the hands of the beneficiaries. As capital items they should not be assessable, but they could potentially be deemed ‘income-in-kind’, as they relate to employment. While such special interest group legislation tends to add complexity to tax laws, the opposition supports this measure.

Schedule 2 will add two organisations to the list of those eligible for deductible gift recipient status. The first recipient group is Playgroup Victoria Inc., an organisation which offers valuable support to parents. Playgroups, of course, facilitate positive learning and social experience for children, and on that basis Labor supports its inclusion. The second group is St Michael’s Church Restoration Fund in Melbourne. This group is raising money for urgent restoration and critical repair work required to preserve the local church building.

Schedule 3 ensures the cost base for capital gains tax is extended to correct a previous error. The Tax Law Improvement Project was the government’s notoriously unsuccessful attempt to simplify the tax act. In what has become a familiar story under the Howard government, it resulted in a much larger act. The government is now seeking to correct an anomaly that was created as part of this process. The cost base for capital gains tax was adjusted in the 1997 act to include options for the disposal of assets and issuing of shares. However, it has now come to light that this has excluded certain types of options, most commonly those related to the issuing of options in a unit trust. These options and any payment to exercise them are now to be included in the capital gains tax cost base.

Schedule 4 of the bill retrospectively allows capital gains tax roll-over relief where assets are compulsorily acquired. When an asset is disposed of post May 1985, capital gains tax applies even if the asset is acquired as a result of Commonwealth law. In some cases where an asset must be disposed of, this means that the pre-1985 GST-free treatment is lost. The change in this bill ensures that the roll-over relief is provided when the acquisition is compulsory. This means that the CGT-free treatment will transfer to the new owner if the asset was purchased before the capital gains tax regime applied. Post-1985 assets will not incur capital gains tax until sold. This provision appears to be necessary to ensure compulsory acquisition occurs on just terms. The explanatory memorandum of the bill does not seem to make it clear exactly what types of contracts and acquisitions this bill is intended to cover. I call upon the minister in his summation to clarify this matter and provide more information to the House.

Schedule 5 of the bill narrows the scope of franking deficits tax. Under the simplified imputation system a company’s tax transactions operate through a franking account. Payment of tax is a credit, and the franking of a dividend creates a debit to the franking account. To ensure against successive dividend franking, a franking deficit tax applies if, at the end of the year, the franking account is in deficit. This tax is equal to the deficit. As the deficit tax is simply a bringing forward of a future tax liability, this tax can be offset against future tax liabilities under what is called the ‘franking deficits tax offset’. But this offset could also be a mechanism for excessive franking.

To protect against this, where a franking deficit tax liability is greater than 10 per cent of the franking credit in any given year, the deficit tax offset is reduced by 30 per cent. This can be a harsh provision where the variation in the franking deficit occurs due to something outside the control of the company concerned. This bill narrows the scope under which this reduction in the offset occurs so that, if the deficit is outside the company’s control, the offset is not reduced. The commissioner is given a new discretion to remit a reduction in this offset.

While on the surface this provision appears reasonable, the explanatory memorandum does not outline the cases in which it is expected to occur. There is a suggestion in the EM that this measure is required in the case of a reduction in PAYE instalments due to some downturn in profit. Again, I call upon the minister, when summing up at the end of the debate, to give us an example and to further clarify for the House what it will mean when given effect in those circumstances.

Schedule 6 overrides the requirement for a superannuation guarantee contribution to be made to a state fund if an employee nominates another fund. The superannuation choice regime allows an employee to nominate the fund where their superannuation guarantee payments are to be made. However, superannuation guarantee contributions to certain funds are mandated under state law. This schedule overrides such state legislation to specify that, if an employee specifies a fund, no obligation exists upon the employer to make the superannuation guarantee payments mandated under state law. I suggest that this is another example of the Commonwealth overriding state legislation and a further diminution of the federal compact, with more power going to the Commonwealth.  A further schedule in the bill corrects anomalies and errors in previous tax bills.

On 28 March, I rose in this place to raise the plight of two of my constituents, Debbie and Lance Beckett. They are the operators of a Cessnock cleaning business known as Callais Cleaning. They unfortunately found themselves heavily indebted to the Taxation Office over a period of a number of years. Although they concede that they made some errors, this was not entirely their own fault—there was a problem with an accountant. I will not go through the details again, but the tax debt was quite a large one—around $300,000. The Becketts are very good people. They have a great business, which employees 15 people. Currently, Lance Beckett is in Far North Queensland helping to clean up in the wake of Cyclone Larry, working hard and taking many of his employees with him.

Unfortunately, the tax office had gone to that stage where the calling in or enforcement of the debt was likely to cost the Becketts not only their business but also the family home. I made some comments last time I spoke about what I see as the sometimes all too aggressive approach of the tax office in recovering some of these debts. Last year, for example, the tax office sent some 2,000 small businesses to the wall as a result of their pursuit of these tax debts.

Today I have a happier story. Today I am here to thank the tax office and to congratulate them on their more sympathetic approach to the case of the Becketts. The Becketts had been paying some $5,000 every month in repayment of this debt—a substantial payment for any small business, as I am sure you would agree. They have a viable business, and I am sure their business will flourish in the future. It would have been a tragedy for the tax office to have gone forward with their enforcement, to have shut the business down, to have made the Becketts lose their house and to have made 15 people lose their jobs. I know we have to maintain strict discipline on small business—the last thing we want to be doing is relaxing discipline too far on small business and to have the tax office become the lender of last resort. That would result in small businesses getting themselves into greater difficulty. But there is a balance, and this one-size-fits-all approach is not always appropriate. In the case of the Becketts, that was proven to be the case. They are very genuine people, keen to work their way out of this situation.

The other point I made last time I spoke is that the Becketts were very confident that an amended assessment would be accepted by the tax office and that their liability to the tax office was likely to be significantly reduced—not overwhelmingly reduced but significantly reduced. That made the payments they were making even higher relative to the debt. Being a critic of the tax office from time to time, I want to take this opportunity to thank the Commissioner of Taxation and his agency’s staff for showing some flexibility in this case and making two constituents of mine and their family if not happy—because they have a lot of work to do before they get themselves out of the woods—then at least hopeful, saving the jobs of the 15 people who work for them and allowing Lance Beckett to stay in Far North Queensland and get on with the job of assisting with the clean-up in the wake of Cyclone Larry.

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