Alex Hawke (Mitchell, Liberal Party, Assistant Minister to the Treasurer) Share this | Hansard source

Firstly, I would like to thank all those members who have made a contribution to this debate. The Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015 makes two important changes to Australia's capital gains tax regime and implements two measures announced but unenacted by the previous government—and that is important for opposition members to note.

Schedule 1 to this bill amends the taxation treatment of earn-out arrangements in order to provide more clarity for sales or purchases of businesses involving earn-out rights, which are rights to future financial benefits linked to the performance of the asset after the sale. This bill will make any financial benefits received under the earn-out right part of the original value of the business or business asset for capital gains tax purposes. When payments under the earn-out right are made, these payments will be added to the capital proceeds or the cost base of the original sale, through amendments to the taxpayer's tax return at that time.

Earn-out rights involve the sale or purchase of business assets where the value of the underlying asset is uncertain, and can create flexibility for purchasers and sellers of these assets. Earn-out arrangements are a legitimate and efficient way of structuring the sale of a business, or business assets, to deal with uncertainty about its value.

However, there is significant complexity in the current treatment of earn-out arrangements, which may affect the ability of businesses to efficiently price their business assets. This measure not only provides more clarity and certainty to businesses but also protects any entitlements they have to small business capital gains tax concessions.

This measure was initially announced by the previous government on 12 May 2010. The measure will apply to all earn-out arrangements entered into after 23 April 2015. In addition, to protect taxpayers who have reasonably and in good faith anticipated changes to the tax law as a result of the announcement by the previous government some five years ago, the bill also includes protections to preserve their current tax income.

Schedule 2 to this bill amends the taxation laws to introduce a withholding tax on the disposal of certain taxable Australian property by foreign residents. The measure puts Australian residents and foreign residents on a level playing field when it comes to meeting their tax obligations.

Together with the strengthened foreign investment rules introduced recently by the government, the implementation of this measure reflects the government's commitment to ensuring that foreign investors are following the rules. This measure seeks to address difficulties associated with collecting tax from foreign resident taxpayers. It will do this by requiring, from 1 July 2016, the buyer of certain assets held by a foreign resident to withhold and pay to the Australian Taxation Office 10 per cent of the purchase price. The amount collected is an estimate of the vendor's final income tax liability. The vendor is still required to lodge an income tax return and pay any outstanding debt. They may claim a credit for the amount of tax withheld in the income tax return at this time. In this way, the withholding measure also encourages participation and engagement by foreign residents with the Australian Taxation Office. The withholding obligation arises where a foreign resident disposes of certain land or land related assets. It will not, however, apply where the transaction involves real property valued at under $2 million. This ensures that the measure is appropriately targeted at those areas where revenue is at greatest risk and minimises the impact on other property transactions. The development of the measure has undergone extensive consultation with stakeholders. The government believes that the final design of the measure strikes an appropriate balance between maintaining the integrity of the tax system and minimising the impact on the majority of property transactions. This measure was initially announced by the previous government as part of the 2013-14 budget.

I commend the bill to the House.

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