Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Hansard source

in reply—I thank those members who contributed to the second reading debate on the Tax Laws Amendment (2009 Measures No. 4) Bill 2009, in particular the members on the government side. I thank the shadow small business minister for his support for the bill at large but in particular for schedule 1. Schedule 1 lifts the expenditure cap for access to the existing research and development tax offset from $1 million to $2 million with effect from 1 July 2009. This measure provides a further boost to small pre-profit companies in research-intensive industries ahead of the introduction of the new R&D tax incentive in 2010-11. It also mitigates the incentive for firms to keep their R&D spending below the current expenditure cap. That is why we are lifting it from $1 million to $2 million.

I will foreshadow the further reform very briefly. This is really a transition from the old system to a new system, which will be an R&D tax credit. It was announced in the budget, but it was to come in not immediately, from 1 July 2009, but in 2010-11. It is a tax credit that, in effect, is equivalent to the 150 per cent R&D tax concession that was introduced by the previous Labor government but then cut back to 125 per cent in 1996 or 1997 by the incoming Howard government. That did damage the incentive to invest in research and development.

What we are doing here is restoring that incentive but also making it available to small businesses that do not have the taxable income to claim the traditional R&D tax concession. When a tax credit is provided, it is immaterial really, in terms of incentives, whether those businesses have the necessary cash flow or not. That is why it is an initiative that is targeted at small businesses and especially targeted at start-up small businesses. This schedule 1 is a transition to those longer term arrangements that come into effect later. It is all part of the Rudd government’s support for research and development in this country, its support for innovation and creativity.

Schedule 2 honours the government’s 2008 budget commitment to improve the integrity of prescribed private funds and to provide the trustees of such funds with greater certainty as to their philanthropic obligations. The government recently consulted on draft guidelines, which will shortly be made by legislative instrument. Following a thorough public consultation process, the bill amends the Income Tax Assessment Act 1997, the Taxation Administration Act 1953 and the A New Tax System (Australian Business Number) Act 1999 to improve the integrity of prescribed private funds.

Schedule 3 amends the income tax law to provide relief from capital gains tax to members and insured entities of friendly societies that have either a life insurance business or a private health insurance business, or both, when the society demutualises to a for-profit entity. Depending on how the friendly society chooses to demutualise, these entities do not necessarily easily fit within the existing demutualisation regimes. These amendments will provide a broadly equivalent capital gains tax outcome for members and insured entities of these friendly societies relative to that which members and policyholders of a stand-alone life insurer or private health insurer would receive if the insurer demutualised.

Schedule 4 amends the Income Tax Assessment Act 1997 to ensure that losses transferred to the head company of a consolidated group, or a multiple entry consolidated group, by a joining entity that is insolvent at the joining time are not wasted. The head company will be able to apply the transferred losses in one of three ways—that is, the losses can be applied to reduce a net forgiven amount under the commercial debt forgiveness rules; alternatively, they can be applied to reduce a capital allowance that is adjusted under the limited recourse debt rules or to reduce a capital gain that arises when the joining entity subsequently leaves the group.

As the amendments are beneficial to taxpayers, they apply from 1 July 2002—that is, from the commencement of the consolidation regime.

Finally, the bill includes minor amendments to the tax laws. The amendments ensure that the law operates as intended by correcting technical or drafting defects, removing anomalies and addressing unintended outcomes. The minor amendments are part of the government’s commitment to the care and maintenance of the tax law. Minor amendment packages now include addressing minor legislative issues raised by the public through the recently introduced tax issues entry system. I commend the bill to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.

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