Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

This bill amends various taxation laws to implement a range of changes and improvements to Australia’s taxation system.

Schedule 1 exempts temporary residents from Australian tax on most foreign source income, including capital gains. The exemption is confined to foreign source income and does not apply to their Australian source income, or generally to salary and wages. These amendments will also exempt temporary residents from interest withholding tax obligations associated with overseas liabilities and with some record-keeping obligations. This measure does not favour temporary residents over Australian citizens when deciding who to employ.

This exemption was introduced into the parliament twice in 2002 and was defeated twice by the opposition in the Senate. As a result the government withdrew the measure prior to the 2004 election.

In the 2005 budget, the government committed to pursue the measure again, recognising it would reduce the costs to Australian business of employing highly mobile skilled labour, as currently the extra tax costs are often passed on to employers. In addition, by making it easier to relocate key staff to Australia, these changes will facilitate Australia’s growth as a regional centre.

Several beneficial changes have been made to the previously introduced measure. First, to reduce complexity there are no longer any arbitrary time limits. Second, temporary residents will be treated like non-residents for capital gains tax purposes. Finally, the rules for capital gains made on employee shares or rights have been made more explicit. Overall, these changes will simplify the rules for most temporary residents.

An internationally competitive basis for taxation of mobile talent is an issue not only for small- and medium-sized businesses but also for large businesses alike.

The amendments will apply from 1 July 2006, except for the interest withholding tax exemption, which will apply from the day of royal assent.

Schedule 2 introduces a systematic treatment of business black-hole expenditures. It provides a five-year write-off for business capital expenditures incurred on or after 1 July 2005. This includes pre- and post-business expenses. As part of the systematic treatment, some black-hole expenditures will be recognised by amending the capital gains tax regime and the elements of cost for depreciating assets.

This schedule also introduces a new five-year write-off for payments to terminate a lease or licence. This applies where these are a business expense.

The new five-year write-off for business capital expenditures will be a provision of last resort. This means that it will apply only where business capital expenditures are not already taken into account and are not denied a deduction for the purposes of the income tax law.

This fulfils the government’s commitment to provide such a regime as detailed in last year’s budget.

Schedule 3 amends the law to introduce a civil penalty regime to deter the promotion of tax avoidance and tax evasion schemes.

There are currently scheme penalty provisions that apply to taxpayers who participate in tax avoidance and evasion schemes. This bill will provide for greater symmetry in risk by ensuring that promoters are at risk of penalty when they expose their clients to scheme penalties.

This bill also provides for injunctions and voluntary undertakings. These remedies can be used by the Commissioner of Taxation to stop the promotion of schemes before taxpayers are put at undue risk. For an injunction or penalty to apply, a promoter will have to:

• market a scheme or encourage growth or interest in it; and
• receive consideration for that conduct; and
• have a substantial role with respect to marketing and encouragement.

Implementers are only affected if they implement a scheme, promoted on the basis of conforming to a product ruling, in a materially different way.

Schedule 4 amends the A New Tax System (Goods and Services Tax) Act 1999 to clarify that prepaid phone card products are ‘eligible vouchers’ for the purpose of division 100 of the GST act. This confirms the policy intent that GST applies to these products when they are used and not when they are sold.  As the amendment confirms the industry’s existing treatment of these products, it applies retrospectively from 1 July 2000.

This schedule also clarifies that from 11 May 2005 GST is to be paid on the face value of a voucher. This ensures that for vouchers sold at less than their face value through a distribution chain, any value-added is subject to GST. In addition, the measure provides a simplified accounting arrangement for ‘eligible vouchers’ supplied through a distribution chain, which will apply from the date of royal assent. Full details of the measures in this bill are contained in the explanatory memorandum. I commend this bill to the House and present the explanatory memorandum.

Debate (on motion by Mr Edwards) adjourned.