Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

My question is to the Acting Prime Minister and goes to yesterday’s private members’ business debate on my motion with regard to the treatment of compensation payments from state and federal governments to ground water users in New South Wales as taxable income. At the end of the debate there was bipartisan support for these payments to be treated as the loss of a capital asset and taxed under the capital gains arrangements, not as income. Acting Prime Minister, given that this precedent is critical in terms of natural resource policy, where entitlements are removed or reduced for the environmental and/or public good, will the government now act to correct the anomaly in the tax act so that the full amount of compensation for the loss of a capital asset will flow on to benefit not only those in receipt of the payment but also the communities which support them?

Peter Costello (Higgins, Liberal Party, Treasurer) Share this | Link to this | Hansard source

I thank the honourable member for his question and indicate that I have had lots of representations on this matter. The member for Gwydir has been very, very active as a local member in relation to this, and I pay tribute to him for all of the wonderful work he does on behalf of people up near the Namoi.

Whether a sum is characterised as a capital sum or income depends on the application of case law. If it is characterised as a capital sum under the authorities, then you are eligible for this government’s discount rate on a capital gain. If it is characterised as a capital sum, it can be set off against capital losses. Whether that is advantageous or not will depend on a particular person’s taxation arrangements. If it is income—that is, if it is genuinely income—then it follows that it will be assessed as income under the Income Tax Assessment Act.

We are looking at this very carefully. This is a matter for the application of the law and the Commissioner of Taxation. The Commissioner of Taxation will make his decision. If there is anything arising out of that that warrants further action, then the government will carefully consider that and we will let the public know.