Chris Trevor (Flynn, Australian Labor Party) Share this | Hansard source

I rise today to speak on the Tax Laws Amendment (2008 Measures No. 5) Bill 2008. This bill is broken into five separate schedules and aims to clear up previous shades of grey within our very own tax system. I feel personally that this is an important bill and one that can only strengthen Australia’s footing, particularly at a time of global financial crisis. Each of the five schedules in this bill carries different aspects and implications and I would like to speak today regarding each of these five schedules briefly.

Schedule 1 will introduce changes to the manner in which GST and the sale of real property is treated. This schedule amends the A New Tax System (Goods and Services Tax) Act 1999, which was introduced, of course, by the former Howard government. With schedule 1 of this bill my government will introduce an integrity measure to the GST that had been overlooked by the former government with regard to the sale of property. GST, when introduced back in 2000, was always intended to apply to increases in the value of real property such as land, with important exceptions—for example, farmland. However, because of technical defects within the original legislation it has been possible for some to avoid paying their fair share of GST when entering into contracts for the sale of property. This has been possible due to what has been termed in GST legislation as a ‘margin scheme’, which applies to the sale of real property, and how this margin scheme interacts with the following three exemption scenarios: (1) provisions that allow the GST-free sale of a ‘going concern’—for example, a business or shop, (2) the GST-free sale of farmland and (3) provisions dealing with associated entities.

This new bill will tighten the rules with regard to these three exemption scenarios to ensure that real property transactions cannot be unfairly structured in a way to reduce the GST liability of a taxpayer who was not technically eligible for a GST exemption and would otherwise have claimed an unfair advantage over others who choose to follow the intent of the tax law. As Chairman of the Prime Minister’s Country Task Force and as a representative of many primary producers in my electorate of Flynn, I strongly support the continued exemption on the sale of farmland from GST. However, this schedule will ensure that it is applied only in legitimate circumstances, as was always intended.

Schedule 2 of the Tax Laws Amendment (2008 Measures No. 5) Bill 2008 modifies the rules in relation to the application of accounting standards and in particular the thin capitalisation regime. Schedule 2 adjusts the system to better equip Australia after our adoption in 2005 of the equivalent of the international financial reporting standards and the thin capitalisation positions of businesses. Schedule 2 will help ensure that both Australian and foreign owned multinational businesses operating in Australia cannot unfairly reduce their Australian tax liabilities by allocating excessive amounts of debt to their Australian operations.

Schedule 3 of this bill is an important measure and one aimed to assist our state government counterparts to lower the cost of their capital and financing arrangements for state infrastructure projects—an essential move given today’s funding environment and economic conditions. Schedule 3 will amend the Income Tax Assessment Act 1936 to exempt bonds issued in Australia by state and territory central borrowing authorities from the interest withholding tax. This aspect of the bill is also designed to make state government issued bonds more attractive to overseas investors and ease some of the burden currently faced by the Commonwealth government securities market. To be eligible for this exemption of interest withholding tax, a bond must pass the public offer test and can include debenture stock and notes.

Schedule 4 of the bill deals with the fringe benefits tax. A loophole has emerged in the fringe benefits tax legislation and arrangements regarding an employee and their partner who jointly hold an income-producing asset, such as an investment property or shares. The loophole was that the partner situated in the highest marginal tax bracket could enter into salary-sacrificing arrangements with their employer to reduce their taxable income by an amount equal to the expenses that had been incurred as a result of owning the income-producing asset. By using the ‘otherwise deductible’ rule, fringe benefits tax could be reduced to zero and the employee in the higher of the two tax brackets effectively received 100 per cent of the tax deductible expenses but in reality only owned a proportion of the asset and should only have been entitled to a corresponding amount of the expenses incurred. Schedule 4 of this bill will make it clear and fair that deductions from jointly held assets should only be allocated according to the taxpayer’s share of that asset and end the practice of being able to claim 100 per cent of the deductions while only owning a share of the corresponding asset.

Lastly, schedule 5 of this bill is part of the Rudd Labor government’s agenda to promote Australia as a funds management hub in the Asia-Pacific region. In order to create this hub, the government will need to enhance the competitiveness of the Australian funds management industry on the international stage. In order to achieve this, the Rudd Labor government has commissioned a review of taxation policy that applies to managed investment trusts. Once this review is completed, which is due by mid-2009, the government will introduce a specific tax regime to apply to this industry that will ensure Australia is an attractive place for investment in managed funds.

Pending this more involved review of the competitiveness of the Australian managed funds industry, the government, through this bill, will modernise and clarify the eligible investment business rules to lower compliance costs for managed investment trusts. These interim measures will include: clarifying the scope and meaning of investment in land for the purpose of deriving rent; introducing a 25 per cent safe harbour allowance for non-rental, non-trading income from investment land and a two per cent safe harbour at the whole-of-trust level for non-trading income; and increasing the scope of financial instruments that may be traded by a managed fund.

These five schedules represent various changes to our tax system, but I welcome any move by my government to increase the consistency and fairness of the tax system—after all that is what Australia is renowned for: a fair go. I also welcome any move that will make Australia more competitive on the international stage and more attractive to foreign investment. This is particularly important given the current set of economic circumstances that our economy now operates in. I believe that the Tax Laws Amendment (2008 Measures No. 5) Bill 2008 does just that. I congratulate the Rudd Labor government for its outstanding leadership on this issue and commend this bill to the House.

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