Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Hansard source

I rise on behalf of the shadow Treasurer to speak on this Tax Laws Amendment (2013 Measures No. 1) Bill. The bill has three schedules. Firstly, it seeks to strengthen integrity rules for scrip-for-scrip rollover in relation to small business and other concessions. Secondly, it seeks to provide tax exemption status for certain ex gratia payments for natural disasters. Thirdly, it seeks to extend tax deductibility status to ethics education. In relation to the third schedule the coalition has a number of reservations in relation to the broad drafting, and in the consideration in detail stage we will seek to remove this schedule from the bill. This was foreshadowed yesterday by our shadow Assistant Treasurer, Senator Mathias Cormann.

First, let me deal with the first two schedules. The first schedule seeks to amend the Income Tax Assessment Act 1997 to ensure that certain integrity rules in the small business concessions and the scrip-for-scrip rollover apply to life insurance companies, superannuation funds and trusts in the same way that they apply to other types of entities. Scrip-for-scrip rollover is where a company is allowed to defer a capital gains tax gain until a later CGT event happens with its shares. The connected entity test in the small business entity provisions ensures that assets and turnover of related entities are taken into account in determining whether the limits for access to the relevant small business concessions have been exceeded. The significant in-common stakeholder tests contained in the CGT scrip-for-scrip rollover are designed to ensure that an entity that has a sufficiently high level of ownership in both the original and acquiring entity cannot use the rollover to defer tax indefinitely on the disposal of the underlying assets of the original entity.

The changes contained in schedule 1 of this bill seek to ensure that the small business connected entity test and the CGT scrip-for-scrip rollover stakeholder tests apply on the basis of who owns relevant interests in the entity rather than who benefits from those interests. Schedule 1 to this bill ensures that these integrity rules and the capital gains tax provisions more generally are applied as if absolutely entitled beneficiaries, bankrupt individuals, companies in liquidation and security providers are the owners of relevant assets. That is, in these provisions the nominal owners are looked through to the underlying owners of such assets. These changes are largely integrity measures, as the coalition recognises. The scrip-for-scrip rollover integrity provisions that apply to individuals and companies also apply to trusts, superannuation funds and life insurance companies.

Some trusts, superannuation funds and life insurance companies consider the integrity provisions do not apply to them because, as the stakeholders, they own the interest for the benefit of others—that is, the beneficiaries—rather than for their own benefit. The government claims this was never the intended interpretation of the integrity provisions. Following the release of the government's 2013-14 budget, which showed a marked deterioration in budget settings, the coalition announced that we reserve the right to accept all savings put forward in previous budgets that were yet to be legislated. This falls into that category.

The integrity rule changes are retrospective and align with the date these changes were announced—being 10 May 2011—and, from the 2011-12 budget, to transactions that occur from the time of that announcement. The look-through treatment provisions were announced on 8 May 2012 as part of the 2012-13 budget. The look-through treatment provisions, whilst potentially retrospective, do not disadvantage taxpayers as they are optional until the commencement of these provisions. The measures are worth $220 million in additional revenue for the budget over the forward estimates and, as stated at the outset, the coalition will not oppose these changes.

Schedule 2 to the bill also amends the Income Tax Assessment Act 1997 to exempt from income tax the disaster income recovery subsidy for people who have lost income as a result of disasters occurring across Australia during the period 3 January this year to 30 September this year. The coalition is of course supportive of the schedule.

Schedule 3 seeks to add a new deductible gift recipient category to the Income Tax Assessment Act 1997. It seeks to extend tax deductibility to donations to public funds established solely for providing education in ethics in government schools in Australia as an alternative to religious instruction, where the ethics education to be provided is in accordance with state or territory law. Currently, the tax laws contain a deductible gift recipient general category for organisations which provide religious instruction in government schools but there is no category for ethics classes.

As I foreshadowed at the outset, as drafted, the coalition has reservations in relation to this schedule of the bill. As the shadow Assistant Treasurer, Senator Cormann, said yesterday, the coalition has no philosophical objection to ethics classes, but we do not think that it is appropriate at this point that a whole new category be created. The coalition believes that the government's proposal to introduce an entire new general category of deductible gift recipients in relation to ethics education is too rushed—as has often been the case—and too broad.

At present there is one provider of relevant services nationally, Primary Ethics, who provide services in one state only, and that is New South Wales. There is a method available under the current income tax laws now to provide DGR status to that organisation if the government chose to specifically propose the listing of that organisation. Given that there is only one provider who sought such a listing and was rejected by the government, it would seem more appropriate to consider these requests on a case-by-case basis rather than open up a whole new category at this point in time. In this context, the implications of starting a whole new category, instead of approving the one listing requested, need more careful consideration. For that reason, the coalition will move in the consideration in detail stage to excise this schedule from the bill.

In conclusion, as stated at the outset, we will not be opposing the bill. We acknowledge the integrity measures put forward by the government within schedule 1 in relation to the integrity rules for scrip-for-scrip in its application to life insurance companies, superannuation funds and trusts in the same way they apply to other types of entities. We also welcome tax exemption for natural disasters, contained in schedule 2 of this bill. For the reasons that I have outlined, the coalition will be seeking in the consideration in detail stage to move an amendment to remove schedule 3 from the bill.

See this speech in context