Jason Falinski (Mackellar, Liberal Party) Share this | Hansard source

I rise today to speak on the Treasury Laws Amendment (Tax Integrity and Other Measures) Bill 2018. As I am Chair of the House Committee on Tax and Revenue, this bill is close to my heart. Yes, there is a beating heart at the core of all good tax legislation. This bill fulfils the Turnbull government's commitment to ensure Australians can have confidence in a fair and equitable tax system whereby everyone plays by the same set of rules and pays their fair share of tax. This government, more than any other government in the past, has legislated tough laws to crack down on tax avoidance across the entire tax system and across all sectors of the economy.

This bill makes a number of key changes across four schedules that all work to make our tax system fairer, more cost-effective and efficient and to ensure that everyone plays by the same rules. Firstly, schedule 1, better known as MAAL, makes technical amendments to ensure that the government's multinational tax avoidance law operates as intended. As a result of this amendment, multinationals will no longer be able to use corporate structures with foreign trusts and partnerships to avoid the application of the MAAL. These changes were announced in last year's budget as part of the government's commitment to ensuring that multinational entities pay their fair share of tax.

The OECD has estimated that, globally, between US$100 billion and US$240 billion of corporate tax revenue is lost annually due to base erosion and profit-shifting strategies developed by tax lawyers in new tax jurisdictions, like Liechtenstein and the Bahamas. As part of the global effort to combat multinational tax avoidance, the OECD G20 base erosion and profit-shifting project has delivered a number of recommendations to strengthen countries' tax integrity rules and ensure that the international tax system works as intended. Since 2015, Australia has implemented a range of such actions. The government has also taken additional action on multinational tax avoidance beyond the OECD recommendations, including implementing the multinational anti-avoidance law and the diverted profits tax, both of which discourage large multinationals from artificially diverting profits offshore.

The MAAL, which took effect from 1 January 2016, prevents multinationals from escaping Australian tax by using artificial or contrived arrangements to avoid having a taxable presence in Australia. The ATO has observed a significant change in how multinational companies are approaching their Australian tax obligations as a result of the tough new anti-avoidance laws put in place by this government. The ATO estimates that more than $7 billion in sales revenue annually is already being added to the Australian tax base as a result of the government's MAAL. Already we have seen 38 multinational entities changing, or they are in the process of changing, their tax affairs to bring their Australian sourced sales back onshore in compliance with the MAAL, including Google and Facebook. This is also competitively neutral, putting foreign multinationals on the same level as Australian owned and run businesses.

Secondly, schedule 2 of the bill improves the integrity of the small business capital gains tax concessions, in line with the measures announced in the 2017-18 budget to improve integrity and ensure that small business CGT concessions are appropriately targeted. Currently, some taxpayers are able to access the small business CGT concessions for assets that are unrelated to their small businesses. The proposed amendment applies to CGT events that occur on or after 1 July 2017. This application is consistent with the 2017-18 budget announcements to ensure that small business CGT concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business—for instance, by arranging their affairs so that their ownership interests in larger businesses do not count towards the test for determining eligibility of the concessions. The proposed amendments are needed to improve the integrity of the concessions and ensure that they are appropriately targeted for the benefit of genuine small businesses. The small business CGT concessions provide taxpayers with full or partial relief from taxation on capital gains on the disposal of assets related to their business.

There are four existing small business CGT concessions. The first is retirement exemption—lifetime limit exempting $500,000 of capital gains from disposing of active assets on retirement. If the taxpayer is under 55 years of age, money from the disposal of the asset must be paid into a complying superannuation fund or a retirement savings account. There is a 50 per cent active asset reduction—a 50 per cent reduction in the capital gains made from the disposal of an asset used in a business. There is a 15-year exemption—a 100 per cent exemption for active assets owned for at least 15 years where the taxpayer is over the age of 55 and is retiring or permanently incapacitated. And there is the rollover deferral of all or part of a capital gain for two years or longer if the taxpayer requires a replacement asset or incurs expenditure on making capital improvements to an existing asset. These concessions help small businesses grow and reinvest their profits as well as contribute to their retirement savings through the sale of their business. This is about ensuring that these concessions continue to benefit those who need them most—hardworking small business owners.

The proposed amendment will mean that small business CGT concessions can only be accessed in relation to assets used in small business, or ownership interests in a small business. As a result of the consultation process, amendments to the exposure draft were made to streamline the operation of the integrity rules surrounding the use of cash and financial instruments as part of the business. The requirement for cash and financial instruments to be inherently connected with the business will continue to apply. An additional integrity rule is also being introduced to ensure that there is no incentive for taxpayers to enter into artificial arrangements for the purpose of meeting this test.

For the purpose of testing the size of an enterprise or company or trust being disposed of, an entity is treated as controlling another entity if its interest in that entity is 20 per cent or more. This means that more entities will be considered to be connected with each other and will need to include their assets or turnover for the purpose of this test. The lowering of this threshold to 20 per cent is a necessary tightening to ensure the concessions can only be accessed in relation to genuine small businesses. Importantly, these tests apply on an entity-by-entity basis. The taxpayer at the top of a chain of companies or trusts may not qualify for the concession in respect of shares or interest it holds—for example, because that chain includes an indirect interest in a large business. However, another taxpayer in the same chain of companies or trusts may qualify for the concessions in respect of shares or interest it holds in a small business.

Let's take a tradesman in my electorate as an example—say, John the plumber. He started his plumbing business at the age of 25 after receiving all of his qualifications, building his business over 30 years to be a modestly successful entity, employing apprentices and becoming a local household name—in the area, of course. John, now in his mid-50s, can no longer do the arduous work he previously did over the past 30 years. John decides to sell his business and retire. This is what the Liberal Party has given John, a person who has risked going out on his own to start a business, has put his home on the line, has put his hand in his own pocket, has employed apprentices and has contributed to our community and the wider economy: he can now retire without having to pay capital gains tax, rebalancing the risk-for-reward equation.

The Turnbull government is committed to supporting small businesses through tax relief and initiatives such as the $20,000 instant asset write-off, which was extended for a further 12 months in Tuesday night's budget as outlined by the Treasurer. These small business CGT concessions assist owners of small businesses by providing relief from CGT on the disposal of assets related to their business, helping them to reinvest and grow, as well as contributing to their retirement savings through the sale of the business—but, above all, by encouraging entrepreneurship. The concessions themselves are not changing and will continue to be available to genuine small businesses and taxpayers with an aggregated turnover of less than $2 million or business assets of less than $6 million.

Key features of the new law include: limiting the size of the company or trust being disposed of, to ensure that it is a genuine small business; clarifying that a taxpayer is required to be a small business entity at the time they dispose of their interests in the company or trust, to ensure that taxpayers do not benefit from the concession where the relevant business activities are too remote; and modifying the active asset test so that it looks through shares in companies and interests in trusts to the activities and assets of the underlying entities, which will prevent the concessions from being available where most of the value of the company or trust is unrelated to the small business activities.

Additional integrity rules also apply to ensure that the new tests cannot be manipulated or avoided. Schedule 3 of this bill delivers on a key commitment in the government's fin-tech statement, removing ambiguity from the tax law and clarifying that early stage venture capital limited partnerships and venture capital limited partnerships can invest in innovative Australian fin-tech businesses. This bill builds on the government's $1.1 billion National Innovation and Science Agenda and highlights our commitment to support innovative—

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