Kevin Andrews (Menzies, Liberal Party) Share this | Hansard source

I was interested to note the previous speaker, the member for Dawson, encouraging Australians to spend and invest in the current circumstances. Of course, for that to occur there are at least two preconditions that most people would want to see: firstly, adequate regulation of the financial and, indeed, taxation systems, which the Tax Laws Amendment (2008 Measures No. 5) Bill 2008 goes to; and, secondly, competent economic management of the finances of the nation. In that context, it is interesting to note that in the past few weeks, far from having solved some financial crisis, the current government has actually created one by guaranteeing banks but not other financial institutions, leading to a run of funds from those other financial institutions to banks. Indeed, with many financial institutions around this country in which Australians—elderly Australians in particular—have funds invested in a variety of ways, they are finding that those deposits have been frozen. It is hardly the mark of economic competence in a government to actually bring about a financial crisis where none existed, so far as Australia was concerned in this regard, in the first place.

The provisions in this bill, I suppose, would be regarded by most Australians as rather arcane, but given the events of the past few weeks I suppose proper and appropriate regulation is something which is ultimately of importance to all of us in terms of the way in which the taxation and financial systems in Australia operate. We can see the problems that have occurred elsewhere around the world without adequate regulation, particularly in the United States of America, where the failure to regulate, for example, the subprime mortgage market in a way which did not occur here has contributed to the problems in the United States, just as other measures that have been taken over quite a few years in that country, particularly in saying to people who could not otherwise afford loans that there were financial institutions that should provide loans to them—effectively without any equity or any real means by which people could repay those loans—have led to major problems so far as the United States is concerned. Turning to the provisions of this bill, these are measures which in large part have their origin in work commenced by the previous government, the Howard government, but which, due to time constraints with the election and the term coming to its conclusion and in order to ensure that there was proper and adequate consultation in relation to these measures, were not introduced prior to the election just over a year ago and which now are being introduced.

There are five schedules that contain the important provisions of this bill. Without going into them in a huge amount of detail, I will say something briefly about each of those schedules. The first, schedule 1, as other speakers have pointed out, is an integrity measure which goes to matters relating or pertaining to real property. It amends the A New Tax System (Goods and Services Tax) Act 1999. The object of the schedule is to ensure that GST is applied to value added to real property after 1 July 2000 where there is an interaction between the margin scheme and the going concern, farmland and associates provisions. Schedule 1 makes changes to the GST margin scheme to prevent equities manipulating their affairs relating to real property so as to reduce their GST liability. The first aspect of this schedule ensures that where the margin scheme is applied to real property that was previously acquired on a GST-free basis then the value added by the entity that made the GST-free sale is included in calculating the GST payable under the margin scheme. This is consistent with the intent of the goods and services tax.

The second aspect of this schedule ensures that where the eligibility to use the margin scheme is removed the eligibility to use the margin scheme cannot be reinstated by interposing a GST-free or non-taxable sale. Currently, the eligibility to supply real property under the margin scheme can be reinstated by interposing a GST-free or non-taxable supply. The third aspect strengthens the GST general anti-avoidance provisions to apply to schemes that are entered into with the sole or dominant purpose of gaining a GST benefit. This schedule was initiated under the coalition government and builds on the coalition’s strong record of demonstrated commitment to maintaining the integrity, the base and the operation of the GST. Indeed, in Australia, in terms of regulation of not only the taxation scheme in this country but the financial scheme, I think the situation we are in compared to, for example, that in the United States is very much a credit to the work that was done over the previous term of the Howard government in this country.

Turning to schedule 2, this schedule to the bill makes changes to the thin capitalisation regime provisions in division 820 of the Income Tax Assessment Act 1997. The object of this schedule is to make changes to the thin capitalisation position of complying entities for certain specific impacts due to the adoption of the Australian equivalence to International Financial Reporting Standards in 2005. Schedule 2 modifies the accounting standards treatment of specified assets and liabilities. The schedule amends the accounting standards relating to the thin capitalisation regime for identifying and valuing an entity’s assets liabilities and equity capital. The measure was initiated by the adoption of the Australian equivalence to the International Financial Reporting Standards in 2005. The current form of this schedule is a result of extensive consultation with industry stakeholders, and there have been significant improvements since the exposure draft was initially released.

Schedule 3 to the bill amends section 128F of the Income Tax Assessment Act 1936. The object of this schedule is to provide an exemption from interest withholding tax for bonds issued by state and territory central borrowing authorities in Australia. Schedule 4 to the bill amends the Fringe Benefits Tax Benefits Assessment Act 1986. Schedule 4 affects the fringe benefits tax treatment of benefits jointly held by an employee and a third party. The requirement for these measures was brought about by a decision in the Federal Court in the case of the National Australia Bank Ltd and the Federal Commissioner of Taxation. The court ruled that an employer could reduce the entire taxable value of their fringe benefit provided jointly to an employee and third party, typically their partner, in relation to an income-earning asset. This was inconsistent with the general principles of income and deductions. The measures will require an employer to adjust the taxable value of the fringe benefit according to the proportion of the jointly held asset that the employee owns.

Finally, schedule 5 of the bill amends division 6C of the Income Tax Assessment Act 1936. The object of this schedule is to make changes to the eligible investment business rules for managed funds. The measures, subject to certain conditions, include a definition of the term ‘investing in land’ to include fixtures, chattels and moveable property. This schedule also expands the range of financial instruments in which a managed investment trust can invest. It also introduces a number of safe harbours, which I will not go into at this stage. The Board of Taxation is currently conducting a review of tax arrangements applying to managed funds that operate as managed investment funds, and division 6C is included in this review. The Board of Taxation is due to report on its review by the middle of next year.

As I indicated, the former coalition government identified the need for action in this area and maintained in principle support for integrity measures. Legislative action was delayed so that further consultations could be undertaken in recognition of the implications of any changes for the property sector in Australia. These are sensible changes. They are changes that were initiated by the former government and they have my support. I commend the bill to the House.

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