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

in reply—Can I start by thanking all the members who have taken part in this very important debate on the Tax Laws Amendment (2007 Measures No. 3) Bill 2007. Schedule 1 to this bill amends the tax integrity rules concerning private company distributions, division 7A of the Income Tax Assessment Act 1936. The amendments will reduce the punitive nature of the provisions by removing the automatic debiting of a company’s franking account when a deemed dividend arises. The amendments will also reduce the extent to which taxpayers can inadvertently trigger a deemed dividend under division 7A. The commissioner will also have the discretion to disregard a deemed dividend in certain circumstances. These changes demonstrate the government’s commitment to addressing legitimate concerns about the impact of tax integrity measures on taxpayers, especially where taxpayers are attempting to meet their tax obligations. Not only will the changes provide greater flexibility; they will also reduce compliance costs for taxpayers.

Schedule 2 to this bill will ensure that certain superannuation contributions made during the period 8 December 2006 to 30 June 2007, such as those made by a friend, are included in the non-concessional contributions cap calculation that covers that period. Schedule 3 will improve the taxation of resident testamentary trusts by ensuring that an income beneficiary of such a trust need not be assessed on the capital gains of the trust, from which they will not benefit. These changes will allow the trustee of such a trust to choose to be assessed on the capital gains instead.

Schedule 4 of this bill will allow nondependants of a member of the Australian Defence Force, a member of any Australian police force or an Australian Protective Service officer killed in the line of duty to access the same concessional tax treatment for lump sum superannuation death benefits as dependants. This means that from 1 July 2007 eligible nondependants will pay no tax on the lump sum superannuation benefit left to them by someone who has died in the line of duty. I acknowledge the contribution made to this debate by the member for Werriwa. I had the benefit of listening to his speech on this schedule to the bill and I know that he holds very passionately his views on this topic. I commend his presentation.

Schedule 5 will extend by one year a transitional period under the thin capitalisation rules. The extension will enable a thorough assessment of the impact of the thin cap rules of adopting Australian equivalents to international financial reporting standards. It will also provide time to develop and consult on any permanent changes to the rules that may be considered appropriate.

Schedule 6 to this bill will reduce compliance costs for companies by repealing the dividend tainting rules. As a consequence of the introduction of the consolidation regime and the simplified imputation system, the dividend tainting rules are no longer necessary.

Schedule 7 to this bill clarifies the exemption from interest withholding tax by more closely specifying the types of financial instruments that will be eligible for the exemption. Broadly, the instruments now eligible for exemption are debentures, non-equity shares, syndicated loans and other instruments prescribed by regulation. These amendments reduce uncertainty for taxpayers by confirming the policy intent in relation to debt interest, which is broadly that Australian business should not face a constraint on access to offshore capital for significant investments because of interest withholding tax. They also, though, enhance the integrity of the tax base.

Schedule 8 of this bill inserts new rules to ensure that investment in forestry managed investment schemes is encouraged to facilitate the continued expansion of our plantation forestry estate. Initial investors will be eligible for income tax deductions for any contributions they make, provided a 70 per cent direct forestry expenditure rule and some other requirements are met.

To address the government’s concerns about the level of commissions charged, this measure incorporates an arms-length pricing rule and a requirement that all the trees are established within 18 months. In addition, the schedule requires the manager to include investors’ contributions in its assessable income in the income year the contributions are first deductible to the investors. Secondary market trading of interests in forestry schemes will introduce pricing information regarding forestry scheme investments. To facilitate a deeper secondary market for forestry scheme investments, the schedule allows both existing and new interests to be traded. Initial investors will be subject to a full-year holding period and market value pricing rules and are required to return sale or harvest proceeds on revenue account. The schedule also clarifies the income tax treatment of sale or harvest proceeds received by secondary investors, and a deductibility of payments by secondary investors to the schemes.

Schedule 9 makes amendments to require Australian trustees to collect tax on trust taxable income payable to the trustee of a foreign trust. After these changes, Australian trustees will be required to pay tax on the taxable income of the trust attributable to any foreign resident entity, whether it be an individual, company or trust.

Schedule 10 to this bill enables Australian managed funds to collect a non-final withholding at a single rate—the company tax rate—on distributions of Australian sourced income to nonresidents that are not dividends, interest or royalties, and the nonresident investor will be able to claim a credit for the withholding tax on lodging an Australian income tax return. This schedule will improve the efficiency of Australia’s managed funds industry and provide greater certainty to the industry.

I will turn for a moment to the second reading amendment moved by the member for Prospect, which has taken place in relation to schedule 10 of this bill. This schedule, as I outlined, expands the existing PAYG withholding system to cover distribution of Australian sourced income from managed investment funds or foreign residents. The member proposes to reduce the withholding rate from 30 to 15 per cent and make it a final tax. The measure in this bill was recommended by the independent Board of Taxation in its review of international taxation arrangements, and the recommendation specified a non-final rate of 30 per cent. This measure does not introduce a new tax—it merely codifies and simplifies a tax withholding system already applied to many foreign investors.

This government has reformed Australia’s tax system to allow the managed fund industry to grow and to prosper, and implementing recommendations from both the Review of Business Taxation and the Review of International Taxation Arrangements has put in place a highly competitive tax environment. In fact, Australia’s managed investment fund industry is the fourth largest in the world, according to industry figures. Australia also tops the list of real estate investment trust markets in the Asia-Pacific region and is around the second largest in the world.

This government encourages foreign investment into Australia, and—this is a key point—the Treasury costing prepared in accordance with the Charter of Budget Honesty puts the cost at more than $100 million. Members of the Labor Party believe the cost to be only $15 million per year. This demonstrates what economic idiots they are. They provided their own assumptions to Econtech and did not require the assumptions to be questioned by Econtech. Labor Party assumptions were supplied to Econtech and were costed at $15 million. Is it any surprise to people that the Labor Party wrecked the Australian economy when they were last in government? They have costed a measure at $15 million—

See this speech in context