Bert Van Manen (Forde, Liberal Party) Share this | Hansard source

It's my pleasure to rise in this House and speak about another package of tax measures that this government is seeking to introduce to ensure that everyone in Australia pays their fair share of tax—the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018, the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2018 and the Income Tax Rates Amendment (Sovereign Entities) Bill 2018. This is important because we need people to pay their fair share of tax to ensure that we have the funds in the budget to provide for our infrastructure, our schools and our essential services that all Australians expect and deserve. The current concessions and loopholes have leaked hundreds of millions of dollars in revenue, and it's important that we seek to close those because we can't afford to leave those loopholes and concessions unaddressed.

These bills aim to address the unintended loopholes while tightening some broad tax concessions, including, as the member for Kingsford Smith outlined, stapled structures that currently allow foreign investors to get a very low rate of tax and, in turn, get a competitive advantage over Australian investors by paying little, if any, tax. Foreign investors have been taking advantage of this system by converting trading income into more favourably taxed passive income in land-rich sectors such as infrastructure. That these tax benefits are available only to foreign investors places Australian investors and businesses at a competitive disadvantage. That these concessions are available only to foreign investors results in a two-tiered tax system that has the potential to distort investment decisions and biases investments towards those structures I outlined before. As we look across our economy, it's important that, irrespective of your structure and your business, everyone pays the same rate of tax to ensure that we have the necessary revenue for the services that we need to provide. This bill will stop double gearing so that foreign investors will be unable to shift profits to avoid tax. It will stop foreign investors getting tax concessions on their stapled structures to achieve tax rates well below 15 per cent on their Australian business income or, in some cases, be tax free. That's in stark comparison to Australian entities, who pay a corporate tax rate of up to 30 cents in the dollar.

But, importantly, these bills are the latest in a range of measures that this government has sought to introduce over the past few years that are resulting in some of the strongest taxation integrity rules in the world. However, these stapled arrangements and the broad tax concessions provide an opportunity to avoid or minimise tax, and that poses a risk to the integrity of our tax system, and these bills seek to reduce or close those loopholes. One of the loopholes that we're closing concerns trading income that is presently converted to passive income—income from agricultural land and residential housing, other than affordable housing. We will see this income taxed at the corporate tax rate for foreign investors, which will improve the outcomes for all Australians across the housing spectrum, particularly those most in need of home ownership. The proposed reforms will, again, prevent foreign investors from double gearing these investments to generate more favourably taxed income. These measures address risks to Australia's corporate tax base posed by this range of structures.

Schedules 1 to 5 of the bill amend the Income Tax Assessment Act 1997, the Income Tax Assessment Act 1936 and the Taxation Administration Act 1953 to improve the integrity of the income tax law for these arrangements, including foreign investors using managed investment trusts and the income that flows through those. Increasingly, we've seen businesses in a broad range of sectors seek to use tax structures to minimise the tax that they pay, and, with the managed investment trusts concession being used through stapled securities and similar arrangements, we've seen the conversion of active income into passive income. Further, some foreign investors have entered into arrangements that generate debt greater than the prescribed thin capitalisation debt limits by using double-gearing structures, leading to the ability to claim greater tax deductions than were otherwise available to Australian investors and therein create, as I outlined before, a two-tiered tax structure and a commercial advantage for many of these entities.

Several of these measures are specifically designed to address housing affordability for members of the community earning low to moderate incomes by providing incentives for investors to increase the supply of affordable housing. As a result, managed investment trusts will be able to invest in residential housing that is held primarily for the purpose of deriving rent. However, distributions that are attributable to investments in residential housing that are not used to provide affordable housing will be non-concessional managed investment trust income and subject to a final withholding tax of 30 per cent.

Schedule 2 improves the integrity of the income tax law by modifying the thin capitalisation rules to prevent double-gearing structures. This schedule will apply in the income years commencing on or after 1 July 2018, with no transitional period, as the amendments close a clear technical loophole in the law. The thin capitalisation rules will bring in about $400 million in revenue over the forward estimates, while helping to put Australian investors on a more equal footing by removing lower and unintended tax rates currently available to foreign investors. Foreign investors have increasingly entered into these structures that allow them to convert active business income to interest income with lower withholding tax rates.

This is just another example, as I said before, of the government seeking to address a range of issues to ensure the integrity of our tax system. Importantly, the measures that have been put in place over the last few years create a tax system that is much stronger in its tax integrity than many others around the world. And as a result, under this government, Australia is a global leader in the fight against multinational tax avoidance. Some of the measures that have been introduced have resulted in approximately $7 billion in liabilities being raised against large public groups and multinationals and around another $7 billion in sales being returned to Australia each and every year. That results in hundreds of millions of dollars of additional GST revenue, which is a direct benefit to the states.

Once again, this is a demonstration that this government is focused on making sure foreign investors pay their fair share of tax as part of their social licence for operating in Australia. This in turn ensures that we have a strong economy, resulting in more jobs and opportunity for hardworking Australians, who are looking to build and grow the wealth for their future and for their families and, importantly, ensuring that their government can provide and fund the essential services that Australians expect and rely on. It's pleasing to see that progressively over the last few years we have continued to strengthen the integrity of our tax system to ensure that everyone, whether foreign or domestic, is paying their fair share and allowing us to generate the revenue necessary to provide the services that every Australian expects. I commend these bills in their original form to the House.

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