Kylea Tink (North Sydney, Independent) Share this | Hansard source

As I rise to speak to the Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024, I can't help but be struck by the thought that, yet again, here is another Frankensteinian monster of a bill, one that combines changes to the way fuel-efficient vehicles are treated under the luxury car tax system, provisions that would make the penalties attached to general interest charges and shortfall interest charges non-tax-deductible, an extension of the ATO's notification period for retaining funds from 14 to 30 days and, finally, the long-promised extension of the instant asset write-off for small businesses, which is being moved as an amendment to this bill by the government. Again, there's no logic in this legislation. It couples some pretty ordinary reforms in a way that makes it hard to vote against them, as the overall potential upside probably outweighs the potential downside. But it's still ugly.

Let me explain. If we start at the beginning, in principle, the changes to the luxury car tax are welcome, not the least because these are way overdue. Yet, the changes to the tax deductibility of the ATO penalties are problematic, as they're likely to be yet another measure that will disproportionately affect small businesses who are already struggling. Rather, the reform offered here does nothing to meaningfully assist small businesses to reduce their debts, but it will impact their cash flow. The ATO time extension is probably neither here nor there, although it does seem to prioritise the needs of an agency over all others, while the extension of the instant asset write-off is quite simply something that can't come soon enough and, potentially, hasn't gone far enough in this iteration. In this scenario, the question I have to answer as the member for North Sydney is, 'Which side of the median line does the needle finally land on?'

Speaking firstly to the reform of the luxury car tax, schedule 1 of this bill redefines fuel-efficient vehicles as those with fuel consumption not exceeding 3½ litres per 100 kilometres, which is down from seven litres per 100 kilometres and aligns the indexation rates that apply to the fuel-efficient and other luxury car tax thresholds. While these changes are sensible, they're actually long overdue and not nearly ambitious enough to, in the Assistant Treasurer's words, 'foster a cleaner and more sustainable future'. The introduction of the luxury car tax followed hot on the heels of the GST, and was eventually designed to try to encourage people to consider local cars over high-end imports and opt for the most fuel-efficient models. To encourage the latter, the tax is based on two thresholds in the 2024 financial year: a higher threshold of $91,387 for fuel-efficient vehicles, which are currently defined as vehicles with fuel consumption not exceeding seven litres per 100 kilometres, and a lower threshold of $80,567 for all other vehicles. What this means is that businesses and individuals that sell or import a car pay 33 per cent of the value of the car that exceeds the relevant threshold of the luxury car tax. However, this tax is now largely out of date and no longer incentivises the purchase of the most efficient vehicles possible.

The introduction of the vehicle efficiency standards this year means car manufacturers are finally prioritising the importation of the most efficient vehicles they have in their line. Given this, the current definition allows many models that actually aren't the most efficient vehicles on the market at the moment to take advantage of the tax break. It is time we close this loophole, in my opinion. Additionally, different indexing arrangements for the two thresholds have eroded the price advantage of the so-called fuel-efficient vehicles. These changes are sensible, but the government could have gone further if they were truly committed to driving change. The first thing they could have done was to change the definition of fuel-efficient vehicles under the luxury car tax to 'zero emissions vehicles' rather than the proposed definition of '3½ litres per 100 kilometres'. While that would have been bold, it's a change that would have ensured only the most fuel-efficient models—that is, those without an internal combustion engine—would benefit from the higher concessional threshold. This would have also made the luxury car tax consistent with other federal legislation designed to encourage the uptake of more efficient vehicles, such as the fringe benefit tax exemption—which as of April of this year is available only to zero emissions vehicles.

In making this suggestion, though, I recognise that people living in regional and rural areas often have no choice but to purchase fossil-fuelled or hybrid vehicles, and I would not want to see them disadvantaged by legislative reform. Having grown up in north-west New South Wales in the town of Coonabarabran, I'm incredibly aware that the charging infrastructure for zero emissions vehicles is just not up to scratch in regional areas. So, while being supportive of the introduction of targeted policies to increase clean vehicle uptake, I would argue we need targeted assistance to ensure the transition is equitable and that regional and rural Australians aren't left behind.

The second way to amend the luxury car tax would be to remove the broad exemption for all utility vehicles. As it currently stands, this exemption is offered regardless of the reasons these vehicles are being purchased. Commercial vehicles are defined by the ATO as 'those designed for the principal purpose of carrying goods used for business or trade' and they are not subject to luxury car tax. Yet there's no requirement for someone who either owns or is choosing to buy one of these vehicles to demonstrate that the car is being purchased or used primarily for commercial purposes.

Rather, the accepted test to determine the principal purpose of a utility vehicle rests on whether the passenger-carrying capacity is less than 50 per cent of the load-carrying capacity. According to the Australia Institute, this definition meant that every dual-cab ute on the market in 2024 was exempt from the luxury car tax. With the number of light commercial vehicle sales well outweighing the number of people who are registered as tradespeople nationwide, it's clear that not all purchases are for commercial reasons. While I doubt that what I'm about to say is going to make me popular, I would argue that this loophole should be closed or replaced with a narrower definition of a commercial vehicle. There are simply far too many of these cars on the road in my electorate of North Sydney.

I stress that this is something the Labor government should care deeply about as, under their watch, emissions have flatlined. To June 2024, emissions decreased by a measly 0.7 per cent compared to the previous year. And while emissions reductions were recorded in the stationary energy, agriculture, electricity and industrial process sectors, transport emissions continue to increase. All the modelling supports the supposition that this is due in no small part to the trend towards the purchasing of SUVs, light commercial vehicles and heavy vehicles, which is something that our current tax system encourages. If the government want to get serious about emissions reduction in our transport sector, they need to push for bolder reforms to decarbonise transport. Fixing an inefficient tax that encourages the use of heavier, higher-emitting vehicles for personal use is, I would suggest, a good place to start.

Ultimately, the changes contained in this bill are pretty pedestrian in their ambition, with similar changes originally proposed as far back as 2019 by Independent senator Tim Storer when he was chair of the Senate select committee on EVs, and members of this crossbench have continued to advocate for them during this term. An ambitious transport agender would have included: removing the luxury car tax ute loophole; reforming the heavy vehicle road user charge or the fuel tax credit system; shifting to an equitable, transparent user-pays road charge system; or encouraging active transport through tax deductible ride-to-work allowances for employees. Yet none of these things are currently being pursued by this government. Instead, the changes being proposed here should and could have been made years ago, so it's a bit hard to get too excited by them.

Turning to schedule 2 of the bill, these changes will remove the ability of taxpayers to claim the general interest charge, also known as the GIC, and the shortfall interest charge, known as the SIC, as tax deductions. While this proposal may seem innocuous, I have real concerns about the impacts these changes will have, particularly on small, family-run businesses in Australia. Without transitional or accompanying safeguards, this measure risks being the straw that breaks the camel's back, and I ask the government to think very carefully before they make yet another bureaucratic change without fully thinking through the impact on the end user. In context, the ATO imposes these penalties either on taxpayers who have not paid their taxes on time or where a tax liability has been incorrectly self-assessed, resulting in a shortfall of tax paid. At the moment, if incurred, both the penalties are tax deductible, and some businesses and individuals may actually choose to cop them. Having spoken to people likely to be affected by this change, I know they don't do that lightly but often have no choice as they are struggling with cash flow.

In making these changes, the government argues that penalties for noncompliance should not be tax deductible, and on the surface that seems reasonable. But the reality is far more complex, and whether it is intended to or not, this measure will disproportionally impact small, family-run businesses, who currently owe about two-thirds of the collectible tax debt. As I think everyone in this place knows, these people are already struggling. Recent research from the Commonwealth Bank found that more than half of the small- to medium-size businesses in Australia are feeling the stress of navigating the cost-of-living crisis, with one in two business owners reporting feeling stress owing to financial pressure.

As the member for the third-largest business sector in the country, I hear about their stress every day. Small businesses tell me about the unhelpful and often stressful interactions they have with the ATO or external debt collection agencies. I can't help but feel that, while this change might seem like nothing much to the government, it sends yet another message to small and medium businesses that this government does not understand what they are facing or how they operate. Increasing the cost of tax debt will not help these businesses self-assess their tax liability more effectively. Rather, it risks accelerating the accumulation of tax liabilities on small businesses to unsustainable levels, forcing them to increase their reliance on accountants and financial advisers, which in turn drives up the cost of operating their businesses. While I acknowledge the tax commissioner will retain the discretion to remit the interest charges where they consider it is fair and reasonable to do so—say, in the instance of financial distress, as I've outlined—I don't think that offers adequate protections, particularly in the current uncertain economic environment. To rely entirely on a commissioner's discretion is to leave many Australian families and businesses at the whim of one decision.

With all of that said, I would encourage the government to delay this measure and instead work with the small business community to find a solution that ultimately reduces outstanding debt without accelerating current debts to unsustainable levels. For instance, rather than penalising generally compliant small businesses by denying them a deduction for GIC or SIC, the government could choose to invest more in an organisation such as the Australian Small Business and Family Enterprise Ombudsman, who in turn could deliver better education and other services to help family-run businesses correctly self-assess their income tax liability. The government could choose a carrot rather than a stick. At the same time, the ATO could implement targeted debt collection measures that focus on high-debt accounts.

Sensible recommendations have been made by submitters to the Senate Standing Committee on Economics inquiry into this bill, and they do warrant further consideration by the government. They include clarifying whether the proposal applies to amended assessments issued on or after 1 July 2025 that are referrable to income years beginning prior to 1 July 2025. As many of us know, many people run their tax accumulation 12 months behind. This would create a more level playing field for over- and underpayment of tax and encourage the accuracy and accountability of the ATO, excluding disputed debts subject to a fifty-fifty arrangement made before the announcement of this measure and at the very least retaining the deductibility of the SIC.

Finally, I want to turn to the government amendment that we expect to see as this bill progresses through the House. It's an amendment that would finally legislate an extension of the instant asset write-off for small businesses through to 30 June 2025. While I will certainly be supporting this amendment, the deferral of this measure, including the fact that it was removed from a bill which passed at the end of last year, has left small businesses in an uncertain position yet again. As the CEO of the Council of Small Business Organisations Australia, Luke Achterstraat, has said, many will feel like this is groundhog day—a painful reminder of the last financial year, when the legislation was only passed a matter of days before the window for applications was due to expire.

Ultimately, this government continues to seem to fail to understand that, for this measure to work and be effective for small businesses, they need certainty. It needs to be legislated, not just announced. The fact that the government does not seem to get this point just shows how out of touch they really are with how small businesses operate. I reiterate my previous calls for a permanent, ongoing instant asset tax write-off for small and family businesses with an increased threshold to at least $30,000. For this reason, I will be supporting the member for Warringah's amendment to that effect.

There seems to be no absence of voices in this place for big business. As such, I would suggest many of them currently enjoy favourable operating environments. But if this government genuinely wants small businesses to thrive, making the instant asset write-off permanent and lifting the threshold would be a good place to start. Generally speaking, I would encourage them to stop talking and start listening to this sector so we can get reform that makes it possible to have a successful small-business environment in this country.

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