Alan Griffin (Bruce, Australian Labor Party, Minister for Veterans' Affairs) Share this | Hansard source

I move:

That this bill be now read a second time.

Today, I introduce a bill that rewrites five areas of income tax law. It removes 149 pages from the Income Tax Assessment Act 1936.

The rewrite of that act began in 1993, when the Tax Law Improvement Project was set up in response to a recommendation from the Joint Committee of Public Accounts and Audit. In 1997, that project gave us a new act: the Income Tax Assessment Act 1997.

The original intention had been for the Tax Law Improvement Project to continue working until it had completed the rewrite. But, in 1998, the project was subsumed into other tax reform work being done at the time and has not resumed since. That has left us today with two income tax assessment acts.

Having two assessment acts is undesirable. It is an unnecessary complexity, for taxpayers and for tax practitioners, in an area of our law that is already highly complex. Accordingly, we should strive to achieve a single income tax assessment act as soon as is reasonable.

To that end, the government is pursuing an approach of rewriting the law into the 1997 act, or into the Taxation Administration Act 1953, whenever a particular area of the 1936 act is being significantly reformed, or as resources otherwise permit.

Examples include the government’s reforms of the income tax law’s various foreign source income attribution regimes and the research and development provisions, both of which have been the subject of extensive public consultation.

The provisions rewritten by the bill were selected because they were already drafted in a style that was close to the style used in the 1997 act, so would require less reworking than provisions drafted in an older style.

The five areas the bill rewrites are:

1. Part VI, which contains rules about the collection and recovery of income tax, including rules about when income tax becomes due and payable, rules allowing the commissioner to make estimates of certain tax debts and to take recovery action based on those estimates, and rules imposing penalties on directors of a company that fails to pay certain types of tax debts, e.g. amounts withheld from an employee’s wages.

One of the collection and recovery rules being rewritten gives the commissioner power to seek security from a taxpayer for an existing or future tax liability in certain situations. The commissioner may ask for security where he believes there is a serious risk of a tax liability not being paid or to protect the integrity of the tax system.

Examples of such situations include: where necessary to protect the integrity of the tax system against schemes such as ‘fraudulent phoenix activity’, which broadly involves winding up a company (with significant unpaid debts) but continuing the same business through a newly ‘risen’ company, where a taxpayer plans to temporarily carry on an enterprise in Australia and leave without returning, where the taxpayer has a history of noncompliance (including by defaulting on their tax liabilities) and where the directors of a corporate taxpayer have a history of noncompliance, where the commissioner is granting a taxpayer the benefit of a payment arrangement.

Consistent with current tax administration policy about having a single set of general collection and recovery rules for all taxes, the effect of security deposits rules has been expanded to cover all taxes administered by the commissioner. This will assist the commissioner in ensuring that taxpayers cannot avoid any of their tax liabilities and will limit the effectiveness of tax avoidance schemes like ‘fraudulent phoenix activity’.

The rewrite of these provisions also includes new machinery rules and higher penalties for noncompliance.

Incorporating these machinery provisions provides certainty for taxpayers about their rights and obligations.

The current penalty has been largely untouched since 1936. The penalty no longer provides an appropriate deterrent for taxpayers who do not comply with a requirement to provide security. The penalty has therefore been increased to reflect changed circumstances since 1936.

These changes to the security deposits rules, and a closing of loopholes in the directors’ penalty rules, will contribute to deterring phoenix activity while the government considers further policy options over the coming year (as part of a wider public consultation process) to address phoenix activity;

2. Schedule 2C, which contains the rules for the income tax treatment of the gain a debtor makes when one of their commercial debts is forgiven;

3. Schedule 2E, which ensures that a lessor and lessee of a luxury car get the same income tax treatment they would have got had the lessor sold the car to the lessee and lent the lessee the money for the purchase;

4. Schedule 2G, which establishes the farm management deposit (FMD) scheme that allows eligible primary producers to set aside pre-tax income in profitable years for subsequent withdrawal in low-income years.

Primary producers claim a deduction when they make FMDs and include an amount in assessable income on withdrawal.

This reduces the risk to eligible primary producers of income variability owing to factors such as drought.

5. Schedule 2J, which ensures that general insurance companies are taxed on premium income received, and can deduct liabilities for outstanding claims, over the period of risk under the policies to which the income and deductions relate.

The rewrites do not make any major policy changes. However, they do make changes to the structure and the text of the 1936 act provisions so that they conform to the preferred drafting approach used in the 1997 act. They also simplify the expression of the provisions and remove some redundant provisions.

Details of the changes made by the bill are contained in the explanatory memorandum.

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