Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Link to this | Hansard source

The Tax Laws Amendment (2006 Measures No. 1) Bill 2006 is another typically complex tax bill. It contains four schedules that will give members an opportunity to have a free-ranging debate in a number of areas of tax administration. The first schedule deals with the tax treatment of foreign income for temporary residents and is driven by Australia’s desire to improve our international competitiveness in attracting skilled people to our country—typically, but not exclusively, people in senior management. The second schedule deals with black-hole expenditures. The third provision deals with those schemes so familiar to so many backbenchers, and indeed frontbenchers, in this place—the mass-marketing schemes, which produce so many victims in this country. The fourth deals with the GST and its application to mobile phone products. So there is an opportunity to have a free-ranging debate in a number of areas of taxation administration.

I will begin by saying a few things about tax administration in this country, on this the eve of the 10th anniversary of the Howard government. You would have to say, Mr Deputy Speaker, that it is not a happy anniversary in that regard. We have seen many recent examples of tax administration gone bad in this country, and I will give a couple of examples of that as I begin my contribution to this debate. The first point I want to highlight is the GST which, despite the government’s view that it has been a highly successful tax—although I saw the Treasurer on the weekend qualifying that somewhat, very interestingly—and one that has not been the burden on Australian taxpayers that some predicted it would be, is still not without its problems. That point is underlined tonight by the very fact that we are again dealing with a schedule in a bill which again seeks to amend the GST and, to say the same thing, correct the GST as it applies to a particular area of business and the economy.

The GST does continue to pose a problem for our community, in particular for the small business community. I am very happy to accept that the government has worked very hard at improving the way in which small businesses remit GST—I think the business activity statement is much better than it was when first introduced—but it does not mean that there are not more opportunities for improvement. It certainly does not mean that that process—that is, the collection of the GST, the paperwork and the remittance of the GST—does not still pose big problems for the small business community. Let us never forget that, basically, while there may be some case for a broad based consumption tax—as an economy we find a greater contribution coming from the services sector—it is inherently regressive. A flat tax on everyone regardless of their ability to pay is inherently a regressive tax, even if it might be an essential one given the nature of our economy.

So these burdens on people still remain. And we should not forget the 2,000 small businesses that are being forced to the wall by the Australian Taxation Office as a result of their sometimes very aggressive pursuit of small business taxation debts. I am not suggesting for a moment that we can afford to be any less disciplined in our approach to small business debt. If we were to do that we would not be doing small business any favours at all because that would of course promote a more lazy approach and create a greater temptation for small business to use GST collections as a means of overcoming short-term cash flow problems.

Notwithstanding that, the fact remains that many small businesses do find it very tempting to use GST receipts as a means of dealing with short-term cash flow problems. Unfortunately, they sometimes get themselves into trouble by doing so, because another unexpected expense comes along and they find themselves at the end of the quarter unable to meet their GST obligations. We cannot have unqualified sympathy for these people, but we do need to take a reasoned and sensible approach to the collection of these debts. It is much better to have a small business still in operation with a debt to the tax office and receiving the interest on that debt than to have a small business go under and not contribute to the Australian economy and not employ people. This is a real concern for small business, and these concerns have been highlighted by the Inspector-General of Taxation, Mr Vos, in recent times. We cannot continue with this one size fits all approach to small business ATO debts. We have to take a more individual approach to dealing with small business and to working out how we can best get them through those difficult times.

The second area I want to go to is the cash economy. I like many today was surprised to learn that the ATO has basically run up the white flag on the cash economy, saying that it is impossible to accurately predict the value of the cash economy and that, therefore, if you cannot do it accurately there is not much point in doing it at all. I beg to differ on that. Ken Henry would tell us that he does not always get his forecasts on the budget right but that he still has to have a go, and it is not a reason not to have a go. Without some sort of forecast we do not have a benchmark against which to begin. I notice that in today’s Sydney Morning Herald there was a very good summary of this issue. We can see in that article, as we so often see, estimates that the cash economy might be costing Australian taxpayers some $3.4 billion annually. That is a huge amount of money. It is an area that we simply cannot afford to put aside and accept as being too hard to deal with.

I think we have to work much harder at that. In the Australian community all those people doing the right thing do not want to see the tax office declare that it is all too hard, that it is too hard to measure, and therefore we should not be setting ourselves goals. I do not think that is good enough. If you look at areas in the UK and in the US you can see they do things somewhat more enthusiastically. I think that, at a time when we are talking about a review of tax and international benchmarking, we should be making the effort to benchmark ourselves in that area as well.

I want to go back to my first point for a moment. We should also be striving to benchmark the tax burden and compliance burden on small business. This is a critical area, and it is important that we do that. We know how the comparative measures between nation states for big corporate tax and individual tax can be difficult. It is also difficult for small business. We do know that in some nations you have differential tax rates for small businesses when compared with their larger counterparts. There are all sorts of initiatives. In Australia we have the entrepreneurial tax offset, which is very tightly targeted at a very small end of town. In a sense that is a differential tax application in itself. It is an indication that the government is prepared to look at these things, and I think it needs to have a look at that situation as well.

The third point I want to raise is the compliance cost burden on individual taxpayers, which is enormously high. I am sure of one thing: the benchmarking study by Mr Warburton and Mr Hendy will show that the compliance cost burden for individuals in this country is much higher than it is certainly in the United Kingdom and much higher than it is in the United States. But we need to again have a good look at small business and what their compliance cost burden is.

I note that the New South Wales Chamber of Commerce has recently estimated that small business in Australia devotes about 40 hours a week to compliance measures, and that must be very high by international standards. It is a good time to remind ourselves on this 10-year anniversary of the Howard government that it was in the lead-up to the 1996 election that the now Prime Minister, Mr Howard, promised to cut red tape for small business by 50 per cent. What a farce that turned out to be. That must surely be a commitment that the Prime Minister now regrets.

The fourth thing I want to raise is the problem that the tax office is experiencing in an administrative sense. There is no doubt that the ATO is underresourced and that staff are overworked in key compliance areas. The removal of staff from the serious non-compliance unit to Operation Wickenby really highlights some of the pressures that the tax office is under. The recent funding injection for agencies in relation to this operation shows how underresourced the ATO has been in the area of investigation of major fraud involving overseas tax havens. There have been major inconsistencies in the ATO’s enforcement of settlement processes. The most obvious example of that in recent times is the treatment of Mr Rob Gerard in that recent debacle and controversy surrounding his appointment to the Reserve Bank board. We have seen no action taken in a legal sense against Mr Gerard, but we do see many small businesses on a regular basis being forced to the wall. We see many individual taxpayers aggressively pursued by the tax office, and we did not see too much sympathy for those victims of the mass-marketing schemes that I mentioned earlier. So consistency from Tax is very important, but we on this side acknowledge that we will only get consistency when the ATO is properly resourced.

As an extension of my attempt to portray the contrast between the treatment of some and the treatment of others, I note again what I think is a ridiculous proposal by the tax office to ring small business people at home at night time and at dinner time pursuing small business debts. There is a time and a place for the collection of those debts and that is during business hours and at the workplace from which people operate their small business. I accept that some people operate their small business from home, but there is a time and a place for contacting those who do not, and I have made this point before.

The reality is that most small business people have a partner, and often the partner at home or working elsewhere is not intricately involved in or aware of the operation of the small business. If a small business operator has a problem with the tax office, they do not deserve to have the tax office ringing them at home and informing their spouse or the partner of the difficulties when as far as we or the tax office know the partner may not be aware of the difficulty. It might be a difficulty the owner of the small business is very confident of getting through, and unnecessarily their partner is brought into the mix. That is very disappointing and for some families could be very distressing.

The fifth thing I want to touch on is the complexity of the Income Tax Assessment Act, now running to about 9,000 pages. Another early commitment from this government was to reduce the complexity of the tax act. It is at least one-third larger than it used to be. About a third of the tax act is now redundant and non-operational. That adds enormously to the complexity of the system. The government needs to go further in repealing both the inoperative provisions and the unnecessary operative provisions in the tax act.

The sixth thing I want to mention quickly is legislative fumbling, as I call it. I have been in this portfolio for just over a year now and in that period we have consistently seen errors coming from the government in technical terms as these complex tax bills come forward. In fact, a quick count by my office indicates that the government has found it necessary to repair about 14 tax bills after they have been introduced into this parliament. We are very happy to take the credit for pushing for some of those changes. We have been able to use the Senate committee process very effectively in teasing out the technical errors in these bills and forcing the government to correct them in this place. On that basis, I hope the government, despite its majority in the Senate, will not seek to constrain our capacity to use the Senate committee system as an opportunity to further delve into tax bills and to further test their integrity, their efficiency and their effectiveness, and therefore restrict our opportunity to push for changes as a result of those findings.

The seventh thing I want to talk about is the tax loophole that has come to light as a result of the AWB inquiry. I can foreshadow that during the consideration in detail stage of this bill I intend to move a technical amendment in an attempt to align the Criminal Code in this country with the Income Tax Assessment Act. At the moment, the Criminal Code in this country succinctly defines a facilitation payment by requiring that it be of minimal value whereas, unfortunately, the tax act makes no attempt to do so. Theoretically speaking, any ‘facilitation payment’ that successfully runs the gauntlet of the Crimes Act will almost certainly pass through the net of the tax act because there is no definition in that act.

The AWB case was a serious event involving some $300 million. We concede that the $300 million payment was not claimed as a facilitation payment; it is more likely that that payment was claimed as a trucking expense. But we are not dwelling on that in this amendment that I am foreshadowing; we are worried about the future. If we identify a hole in the tax act and put forward suggestions to close that hole, then it is appropriate that the government support us. I will be moving that amendment in the consideration in detail stage and I will be inviting the government to support that amendment. If they are not prepared to support that amendment—because they only support their own ideas—I invite them to come back later with their own amendment and the opposition will be very happy to support it.

On this matter, I have to remind the House that Australia is a signatory to the OECD antibribery convention of 1997, which calls on bribes to be made illegal and therefore not tax deductible. The convention raises significant criticisms of so-called facilitation payments. The words used in the convention are that such payments are ‘a corrosive phenomena’. Such payments are effectively small bribes used to smooth the wheels of government.

Earlier in the week when speaking on another tax bill I said that from an ethical perspective we probably should not be extending tax deductibility to any facilitation payments, because a facilitation payment is typically a corrupt payment to a corrupt official in another nation state to get something done that would not ordinarily be done or to get something done more quickly. Ethically speaking, by making these payments all we are doing is perpetuating those corrupt processes in those other nation states. Having said that, we accept that, in an imperfect world, facilitation payments are necessary for Australian corporations to do business in some of these other countries and we accept therefore that tax deductibility should be extended to them. However, we must define them. We must be true to our obligations under that OECD instrument. Therefore, as a nation and as a parliament we should be striving to do all we can to keep those facilitation payments in check, to keep them small and to confine them to areas that Australians generally would see as acceptable for what needs to be done to carry out business in those overseas nations.

I am happy to return to the schedules of the bill. As I have said, there are four of them, and the first one deals with the treatment of foreign earnings for temporary residents. This is designed to make it more attractive for temporary residents to come here to work and to make a contribution to our economy. On that basis, the opposition supports the schedule. Australia currently imposes somewhat tough measures on nonresidents or temporary residents who work in Australia but who have significant foreign sourced income. These provisions have had a negative impact on the sourcing of foreign executives and some skilled professionals like accountants, and of course engineers, which are so important at a time when we are experiencing high growth in the resources sector and the like.

Also under the current provisions, a resident who becomes a non-resident triggers a capital gains tax event, and deemed disposal rules apply when and if they leave the country. I think this is fairly draconian, and I am not surprised to see the government removing this provision. Therefore, the opposition is happy to support it. The schedule has three effects. Firstly, it removes the deeming disposal rules for temporary residents for assets without a connection to Australia without the five- or 10-year rule outlined above. Secondly, foreign sourced income for temporary residents is excluded for income tax indefinitely. On that point I should make it clear for those in the House not fully aware, up until this bill becomes law the exemption for tax on that foreign sourced income only lasts for four years. This bill will extend it indefinitely. Thirdly, as a result of the bill, temporary residents do not pay tax on interest income received overseas. These measures have the strong support of the business community. Moreover, their implementation will ease the current skills crisis we are facing as a nation. There are also economic benefits associated with reducing impediments to skilled foreign employees taking up positions in Australia. This will, in some measure, boost labour productivity in important sectors.

The second schedule relates to black hole expenditures. This is an interesting one. Schedule 2 targets black hole expenditures, which are those which are basically considered legitimate but fall outside the scope of the rules for deductibility. This bill really only extends deductibility for expenses associated with setting up a now defunct or changed entity. This is not a measure about the carrying forward of losses, of course, but about deductibility of expenses for an entity that is not now in existence. The expenses do not meet the carry forward loss provisions, so some tests need to still be met to claim the deduction.

What I find very curious about this schedule is that we are told on the quiet that this is about James Hardie and the compensation fund set up to compensate the victims of James Hardie, but there is no reference anywhere in the bill or in the explanatory memorandum that this is designed to help victims of James Hardie. There are a couple of things I will be doing when the Minister for Revenue and Assistant Treasurer sums up this bill. The first thing I will be doing is seeking assurances from the minister that this new provision is not loose in integrity terms. We have had a limited opportunity to look at these provisions. We do not want to stand in the way of anything that is required to be done to ensure that that compensation fund is in place and available to victims of James Hardie but, at the same time, we obviously see that this cannot be restricted to James Hardie. This is going to apply to any corporation, any business entity, that might be looking to make better use of black hole expenditures. We see very little in the EM or the bill that assures us that it has been done tightly and is not going to be open to abuse.

That is the first thing we will be asking the government to do: clarify some of the integrity issues for us. If we cannot get some decent answers on this then we might have to consider a Senate committee having a better look. We are not comfortable with letting things go through that could be open to abuse, but, if this is about James Hardie, we do not want to be doing anything to delay the bill. Maybe the minister when he sums up can put our collective minds at rest and give us some assurances that the integrity measures have been looked at closely and that it is not going to be open to abuse.

The other thing I would like the minister to do is to clarify whether this is about James Hardie. I think it is fair to say we have had the nudge and the wink, and every indication has been given to us that it is about James Hardie, but we have had no such assurance. I can only wonder if that is because the Treasurer in this place on 28 November 2005 made a great virtue of a commitment that he would not be changing any legislation to ensure that James Hardie is able to claim those compensation payments as a tax deduction. I will just share with the House what he said at the time:

The suggestion however that this parliament should pass a new tax law so that the taxpayer picks up some of the obligations of the directors and the shareholders of James Hardie will not be agreed to by the Commonwealth parliament. Passing a special law so that shareholders’ obligations are picked up by the Australian taxpayer is the equivalent of asking that the taxpayer pay a sum—which would be a much more honest way of doing it—to pick up the obligation of James Hardie’s shareholders. It is not the taxpayers’ obligation to pick up the obligation of the James Hardie shareholders or their directors. The James Hardie directors ought to accept responsibility for the victims ...

This is my theory: the Treasurer has come in here all pumped up and bolshie and made a very unequivocal statement to this place and to the Australian public that he would not be moving to amend the tax law to assist James Hardie in its attempts to secure tax deductability of its compensation payments. Yet we are told on a nudge and a wink that that is exactly what the schedule in this bill is designed to do. So I invite the Minister for Revenue to come clean. We are happy to support it with the relevant assurances on the integrity measures, but come clean: if it is about James Hardie, just say so. It is pretty simple. If the Minister for Revenue does not simply say, ‘Yes, it’s about James Hardie,’ he will have failed in his obligation to introduce transparency into this process.

The third schedule of the bill will be of interest to many members of this place, and that is a move to impose tough penalties on the promoters of mass marketing schemes. Up until now so many of us have had constituents who have fallen victim to mass marketing arrangements and who have received very limited sympathy from the tax office, but the promoters of the tax schemes—people who drew them into these inappropriate schemes—have been getting off scot-free. I want to say this again in here: I know there are a few around this place who do not have sympathy for these people. They generally expect people to be as clever as they are, and they like to rely on the old adage of ‘If it sounds too good to be true, it is too good to be true and you should not be involved in it.’

It is just not that simple for many of the people who were targeted by the promoters of these schemes. My electorate is a perfect example of this. It is an electorate where you have early school leavers who have secure, high-paying jobs in the coal mining industry. They were deliberately targeted by the promoters of these schemes. These guys are not financial gurus; they are hardworking coalminers. They saw rulings from the Australian Taxation Office, assuring them that these schemes were legitimate under the tax law. They sought assurance on those rulings and they signed up to those schemes. These people are not tax rorters. They are victims of some very corrupt people—people who are prepared to risk blowing the life savings of other people so that they can make a quid. This schedule is about going after the people who have done those terrible things to the many victims of those schemes. I have to say that it will not help the victims, but they might get some sense of comfort from the fact that the government is finally moving to ensure that those people are pursued.

The provision is not as tight as we would have liked it to have been. Under this new schedule there is a risk that it could pick up people who are not intended to be picked up—for example, an accountant who says, ‘Yes, I think this is a pretty good scheme; it looks safe for you and you should participate in it,’ but they do not constitute a person who is actively promoting the scheme. On that basis, the design of the provision has been left more loose than we would have liked it to have been, but we accept that the government is making a fair effort to address the issue. On that basis—certainly from opposition with our limited resources—we are not going to try to push for a harder system. I wish the government success, and I hope it works for the tax office’s purposes.

The fourth schedule is a technical amendment, which relates to prepaid mobile phone deals and whether the GST should apply to the face value of the phone or whether it should apply to the value of the plan that comes with the phone. I hope I have that right. I understand that it is a very technical amendment. The opposition does not have any difficulty with what the government is proposing there—except to reiterate what I said earlier, and that is that the GST is an evolving creature still. It was introduced in July 2000, and here we are moving on to July 2006. It is not part of the government’s 10-year anniversary celebrations, but six years is a significant milestone for the GST.

It is simply not true to say that the GST has not imposed a burden on the Australian people. It certainly has imposed a burden, particularly on low-income earners. It has also been an enormous burden on the many millions of small business people who still have the very hefty task of collecting the GST, taking responsibility for it in the interim—between collection and payment—resisting the temptation of using it for short-term cash flow crises, remitting it to the tax office and facing the prospect of some very hefty penalties in the event that they have been unable to meet those obligations.

Many small business people have come to see me about GST debts with the tax office. Some of them have been quite satisfied with the arrangements that they have been able to establish with the tax office, but some of them have been very disappointed with the unwillingness of the tax office to be more sympathetic to their situation. I want to make one quick point about those who enter into arrangements and then fail again. I know that we cannot relax our discipline on these people, but when they are meeting their obligations under the arrangements that they have entered into, it is pretty harsh on a small businessperson when, as a result of a minor misdemeanour on their next BAS, all the debt is called in. That is pretty tough on small businesses. (Time expired)

Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

I am pleased to speak on the Tax Laws Amendment (2006 Measures No. 1) Bill 2006. In particular, I would like to make some remarks following on from the member for Hunter, who spent the first 15 or 20 minutes of debate on this bill talking about every other thing that he could think of besides the substance of the bill at hand. An issue that the member for Hunter touched upon in his concluding remarks also reflected a great deal of the substance of the beginning of his remarks in this debate, and that was the GST and the complexity of the GST. I was a little amused, not at what he had to say but by virtue of the fact that it was the Australian Labor Party who were saying it.

What is particularly amusing is that the Australian Labor Party come into this chamber and lecture the government on the complexity of the GST. The Australian Labor Party refused to get behind a broad based, low rate GST tax by blocking it in the Senate. They forced the government to negotiate with the Australian Democrats on a whole range of different exemptions in order to get the kind of structural tax reform through that the government had sought and received a mandate from the Australian people to do.

It was the Australian Labor Party who led to this mish-mash of complexity that is the GST that Australia has today. That is not even to begin with the fact that the Australian Labor Party, for a great while under the leadership of the current Leader of the Opposition, consistently spoke about how they would roll back the GST if they won government. Now all those plans have gone out the window. We do not hear the member for Hunter saying anything about roll-back, because the roll-back policy was slightly just left to one side after the last election. No-one talks about it any more. If the member for Hunter were serious about complexity, then he would perhaps explain to the House why it is that the Australian Labor Party sought to be politically opportunistic and forever burden small businesses with compliance costs associated with myriad exemptions that apply under the GST today.

If the Labor Party were seriously concerned about the issue of compliance, they would not have done what they did back in 1999-2000. If the Labor Party were seriously concerned about small business and general household compliance with the GST and the costs associated with that compliance, they would not have forced the government to negotiate with the Australian Democrats in order to get the GST structural tax reform through.

This government believes in the GST. I also highlight that so did the Australian Labor Party, under the former Treasurer and subsequent Prime Minister Paul Keating, for a great number of years until they needed to differentiate themselves in the Australian political marketplace, so to speak. They suddenly jettisoned that idea and said that they did not support the GST. But they know, as indeed we know, that the GST is the structural tax reform that this country needs.

If there is any greater need for proof, Mr Speaker, then simply put your eyes on the Queensland Premier, Peter Beattie, and all of his state and territory Labor mates who rapidly ran up to sign the GST agreement knowing full well it delivers billions of dollars of GST funds to Labor state and territory governments. Despite the rhetoric, the Australian Labor Party have caused the greatest amount of complexity that Australian small businesses have to deal with. The Australian Labor Party have forced a great deal of the complexity that now takes up so many hours of time for small businesses. For example, there is the national franchise of independent businesses, of whom the president is based in my electorate on the Gold Coast and who, incidentally, runs a sandwich shop. This is exactly the kind of small business owner-operator that we are talking about—the kind who is forced to separate the items in his store that have GST levied upon them from those that do not. This is a consequence of the Australian Labor Party. If the Howard government’s original proposal had gone through, there would not be any need to undertake such complex actions.

Another point I would like to touch upon is the amendment that the member for Hunter foreshadowed—in particular, amendments that he seeks to include in section 50A, subsection 26-52(4). I notice that, as part of the foreshadowed amendment, the member for Hunter has included:

(4)

An amount is not a bribe to a foreign public official if

(a)

it is incurred for the sole or dominant purpose of expediting or securing the performance of a routine government action of a minor nature, and

(b)

the value of the benefit was of a minor nature, and

(c)

as soon as practicable after the loss or outgoing was incurred, the person made a record of the loss or outgoing and the record complies with section 70.4(3) of the Criminal Code Act 1995.

It would simply appear to me that the Australian Labor Party, with this amendment, is seeking to exclude bribes provided they are considered to be of a minor nature. I notice it says nothing about frequency in there. So the question is: is the Australian Labor Party coming before this House and effectively saying that it is okay to bribe foreign officials for the purposes of the Income Tax Assessment Act provided that you make lots of little payments? Is that the point of the Australian Labor Party? Perhaps it is simply through sloppy drafting by the ALP—I am not sure—but there is no reference at all to the frequency of payments, only this notion of ‘a minor nature’ and ‘a minor amount’. Of course, that is without definition in the amendment that the member for Hunter is putting forward. (Quorum formed)

We start to see the form of the Australian Labor Party. When I highlight that this amendment that they are seeking to introduce is an opportunity for the Australian Labor Party to go soft on bribes, they call a quorum. The Australian Labor Party cannot handle hearing the truth about how this amendment effectively makes the Australian Labor Party soft on bribes. As I said, there is no reference in this amendment to the frequency of payments; it simply says that the payment must be minor. It is incredible that the shadow minister would put forward this kind of drafting and say that he would like the government to support this amendment. It is poorly drafted, and I would suggest respectfully to the Minister for Revenue and Assistant Treasurer—a good friend of mine—that we not support this amendment.

Having made those remarks, I would now like to turn to the focus of the bill that is before the chamber today. The Tax Laws Amendment (2006 Measures No. 1) Bill 2006 effectively embraces four key principles: changes under schedule 1 to foreign income exemptions for temporary residents; schedule 2, for business related costs, or what are referred to as black hole expenditures; schedule 3, to promoters of tax exploitation schemes; and schedule 4, which is effectively little more than a technical amendment to GST and vouchers dealing with, for example, prepaid phone products. Dealing with the first schedule, it is very clear that Australia must remain globally competitive if we are going to continue to attract the very best that the world has to offer with regard to human capital, or what we might call skilled workers. It is very clear that Australia, like so many countries around the world, is unfortunately a victim of its own success in a number of regards—that success being the fact that our nation, with its high standard of living and high values, has seen a decline in the birthrate over the last several decades, which has resulted in our country having an ageing population.

A consequence of this of course is the fact that our labour force is diminishing in relative terms. On that basis, as our country continues to grow—and it has been growing very strongly under the Howard government—it is necessary for our companies and employers to turn their minds to other possible opportunities to employ people from offshore. Historically, it has been the case that, when Australian companies have gone abroad seeking to attract people—and seeking to attract the very best that the world has to offer—to come and live in Australia, despite our wonderful climate and our wonderful standard of living, many choose not to come simply because of how our income tax laws operated previously. Historically, and prior to the introduction of this bill—should it receive assent—it was the case that those foreign workers who came as temporary residents would have offshore income subject to taxation. Schedule 1 of the bill will operate so that it attracts internationally mobile skilled labour to Australia by exempting their foreign investment income from Australian tax, thereby reducing the cost to all Australian business of bringing skilled persons to work in Australia.

This measure was introduced twice in 2002 but, unfortunately, it failed to pass the Senate—a consequence, again, of the Australian Labor Party. I welcome the fact that the member for Hunter has indicated that the opposition will be supporting this particular schedule. I understand that it is subject to the caveat of further scrutiny in the Senate committee stage. Nonetheless, at least we have progressed further than we did previously. As was announced in the 2005-06 budget, this measure would originally have provided a four-year exemption on most foreign-source income. However, for the purposes of this bill the time limit has now been removed, as the government was of the view that it creates unnecessary disincentives and distortions for individuals wishing to remain working in Australia.

In addition, of course, temporary residents will be treated in the same way as nonresidents for the purposes of capital gains tax. This will remove an existing problem with the functioning of the CGT rules for those who are departing residents. This measure also does not disadvantage Australian employees when compared to temporary residents. Employment income and Australian-source income of temporary residents remains taxable. So those who may claim that, as a result of the operation of this bill—and in particular schedule 1—Australian employees will in some way be disadvantaged or in some way, relative to temporary residents, will not be in a situation where they can secure employment are incorrect. The reality is that earnings of Australian residents are taxed in the same way as they are for temporary residents.

The second schedule, as I mentioned, deals with black hole expenditures. This particular act provides a new five-year write-off to business capital expenditures not taken into account and not denied a deduction elsewhere in income tax law. Capital expenditure incurred in relation to a past, present or prospective business will be deductible to the extent that the business is, was or is proposed to be carried on for a taxable purpose. As part of a systematic treatment, more expenses can be included in the cost base and reduced cost base of capital gains tax assets and the elements of cost for depreciating assets. Additionally, there is a new five-year write-off for lease and licence surrender payments incurred in carrying on or in ceasing a business. Some of these payments were previously not recognised by income tax law.

This measure gives effect to the systematic treatment for business black hole expenditures that was announced in the 2005-06 budget. I certainly welcome this change. I notice that the member for Lilley is in the chamber, and I know how pleased he was when I announced previously that I humbly had received an award of being the small business and franchise politician of the year.

Wayne Swan (Lilley, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

You’ve been eating too many doughnuts!

Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

In that respect—and I see, once again, he is pleased for me—I am pleased to note that this particular change will be for the benefit of small businesses. I look forward to educating the member for Lilley on the needs of small businesses and franchises so that the Australian Labor Party may better reflect their needs in its policy such that those small businesses and franchises will be able to go from strength to strength, as indeed they have done under the Howard government for the past 10 years.

The third schedule of the bill details measures to deter the promotion of tax exploitation schemes. This schedule is arguably the most important schedule in this particular bill. Effectively, this measure will deter the promotion of tax avoidance and tax evasion schemes and will protect the integrity of product-ruling systems administered by the Australian Taxation Office. Promoters will now be at risk of civil penalties imposed by the Federal Court in situations where their clients are already at risk of penalties under the tax laws for participation in tax avoidance schemes.

The Commissioner for Taxation will be able to seek injunctions and to enter into undertakings with promoters to stop the promotion of unlawful schemes. The question will be asked: in what way is it possible to obtain such an injunction? In order for an injunction or penalty to apply, there are five key elements that will need to be established. Promoters will need to: (1) have marketed the scheme or encouraged growth or interest in it; (2) have received consideration for that conduct; and, (3) have a substantial role with respect to marketing and encouragement. Implementers are only affected if they implement a scheme promoted on the basis of and conforming to a product ruling in a materially different way. A tax exploitation scheme is a scheme to reduce tax whereby, one, it is reasonable to conclude that participants would do so for the sole or dominant purpose of obtaining a scheme that has a tax benefit and, two, it is not reasonably arguable that a scheme benefit is available at law.

This is important, because there have been many instances in the past where, unwittingly, a number of Australians have fallen for mass marketed tax effective schemes that promoters have put forward. Whilst, arguably, there may be some coverage through the operation of the Trade Practices Act, it is important—and I welcome moves by this government—to very definitively outline that that kind of conduct is unacceptable. I welcome the fact that people will be able to go forward with strength and certainty, knowing that in fact adequate measures are being put in place to help crack down on those promoters who would otherwise give rise to people—unwittingly, perhaps, or even in some cases knowingly—being in breach of the Income Tax Assessment Act and not meeting their tax liabilities.

Certainly, it is the case that there are many examples where people have breached the act in the past, and I welcome this measure because often it has been as a consequence of promoters pushing schemes onto them. Although this does not excuse those who seek to evade their liabilities, it certainly should also sheet home to the promoters a requirement to ensure that they do the right thing and not promote schemes that would otherwise be in breach of the act. The final element of the bill deals with prepaid phone products, which is a technical amendment, as I discussed earlier, and I do not intend to deal with it. To facilitate the House, I commend the bill to the House and conclude my remarks.

Debate interrupted.