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. 2) Bill 2006 deals with amendments to various sections of the Income Tax Assessment Act 1997; it has six schedules, which I will deal with one by one. Schedule 1 to the bill deals with proposed ex gratia payments to be made to former maintenance personnel working on F111 aircraft upgrades. Apparently these one-off payments are being made to certain personnel who experienced a unique working environment while maintaining the fuel tanks of those aircraft. This measure follows concerns about adverse health effects on those maintenance personnel.

The government does not accept liability but is seeking to legislate to create the certainty that any payment received will be tax free in the hands of the beneficiaries. As capital items they should not be assessable, but they could potentially be deemed ‘income-in-kind’, as they relate to employment. While such special interest group legislation tends to add complexity to tax laws, the opposition supports this measure.

Schedule 2 will add two organisations to the list of those eligible for deductible gift recipient status. The first recipient group is Playgroup Victoria Inc., an organisation which offers valuable support to parents. Playgroups, of course, facilitate positive learning and social experience for children, and on that basis Labor supports its inclusion. The second group is St Michael’s Church Restoration Fund in Melbourne. This group is raising money for urgent restoration and critical repair work required to preserve the local church building.

Schedule 3 ensures the cost base for capital gains tax is extended to correct a previous error. The Tax Law Improvement Project was the government’s notoriously unsuccessful attempt to simplify the tax act. In what has become a familiar story under the Howard government, it resulted in a much larger act. The government is now seeking to correct an anomaly that was created as part of this process. The cost base for capital gains tax was adjusted in the 1997 act to include options for the disposal of assets and issuing of shares. However, it has now come to light that this has excluded certain types of options, most commonly those related to the issuing of options in a unit trust. These options and any payment to exercise them are now to be included in the capital gains tax cost base.

Schedule 4 of the bill retrospectively allows capital gains tax roll-over relief where assets are compulsorily acquired. When an asset is disposed of post May 1985, capital gains tax applies even if the asset is acquired as a result of Commonwealth law. In some cases where an asset must be disposed of, this means that the pre-1985 GST-free treatment is lost. The change in this bill ensures that the roll-over relief is provided when the acquisition is compulsory. This means that the CGT-free treatment will transfer to the new owner if the asset was purchased before the capital gains tax regime applied. Post-1985 assets will not incur capital gains tax until sold. This provision appears to be necessary to ensure compulsory acquisition occurs on just terms. The explanatory memorandum of the bill does not seem to make it clear exactly what types of contracts and acquisitions this bill is intended to cover. I call upon the minister in his summation to clarify this matter and provide more information to the House.

Schedule 5 of the bill narrows the scope of franking deficits tax. Under the simplified imputation system a company’s tax transactions operate through a franking account. Payment of tax is a credit, and the franking of a dividend creates a debit to the franking account. To ensure against successive dividend franking, a franking deficit tax applies if, at the end of the year, the franking account is in deficit. This tax is equal to the deficit. As the deficit tax is simply a bringing forward of a future tax liability, this tax can be offset against future tax liabilities under what is called the ‘franking deficits tax offset’. But this offset could also be a mechanism for excessive franking.

To protect against this, where a franking deficit tax liability is greater than 10 per cent of the franking credit in any given year, the deficit tax offset is reduced by 30 per cent. This can be a harsh provision where the variation in the franking deficit occurs due to something outside the control of the company concerned. This bill narrows the scope under which this reduction in the offset occurs so that, if the deficit is outside the company’s control, the offset is not reduced. The commissioner is given a new discretion to remit a reduction in this offset.

While on the surface this provision appears reasonable, the explanatory memorandum does not outline the cases in which it is expected to occur. There is a suggestion in the EM that this measure is required in the case of a reduction in PAYE instalments due to some downturn in profit. Again, I call upon the minister, when summing up at the end of the debate, to give us an example and to further clarify for the House what it will mean when given effect in those circumstances.

Schedule 6 overrides the requirement for a superannuation guarantee contribution to be made to a state fund if an employee nominates another fund. The superannuation choice regime allows an employee to nominate the fund where their superannuation guarantee payments are to be made. However, superannuation guarantee contributions to certain funds are mandated under state law. This schedule overrides such state legislation to specify that, if an employee specifies a fund, no obligation exists upon the employer to make the superannuation guarantee payments mandated under state law. I suggest that this is another example of the Commonwealth overriding state legislation and a further diminution of the federal compact, with more power going to the Commonwealth.  A further schedule in the bill corrects anomalies and errors in previous tax bills.

On 28 March, I rose in this place to raise the plight of two of my constituents, Debbie and Lance Beckett. They are the operators of a Cessnock cleaning business known as Callais Cleaning. They unfortunately found themselves heavily indebted to the Taxation Office over a period of a number of years. Although they concede that they made some errors, this was not entirely their own fault—there was a problem with an accountant. I will not go through the details again, but the tax debt was quite a large one—around $300,000. The Becketts are very good people. They have a great business, which employees 15 people. Currently, Lance Beckett is in Far North Queensland helping to clean up in the wake of Cyclone Larry, working hard and taking many of his employees with him.

Unfortunately, the tax office had gone to that stage where the calling in or enforcement of the debt was likely to cost the Becketts not only their business but also the family home. I made some comments last time I spoke about what I see as the sometimes all too aggressive approach of the tax office in recovering some of these debts. Last year, for example, the tax office sent some 2,000 small businesses to the wall as a result of their pursuit of these tax debts.

Today I have a happier story. Today I am here to thank the tax office and to congratulate them on their more sympathetic approach to the case of the Becketts. The Becketts had been paying some $5,000 every month in repayment of this debt—a substantial payment for any small business, as I am sure you would agree. They have a viable business, and I am sure their business will flourish in the future. It would have been a tragedy for the tax office to have gone forward with their enforcement, to have shut the business down, to have made the Becketts lose their house and to have made 15 people lose their jobs. I know we have to maintain strict discipline on small business—the last thing we want to be doing is relaxing discipline too far on small business and to have the tax office become the lender of last resort. That would result in small businesses getting themselves into greater difficulty. But there is a balance, and this one-size-fits-all approach is not always appropriate. In the case of the Becketts, that was proven to be the case. They are very genuine people, keen to work their way out of this situation.

The other point I made last time I spoke is that the Becketts were very confident that an amended assessment would be accepted by the tax office and that their liability to the tax office was likely to be significantly reduced—not overwhelmingly reduced but significantly reduced. That made the payments they were making even higher relative to the debt. Being a critic of the tax office from time to time, I want to take this opportunity to thank the Commissioner of Taxation and his agency’s staff for showing some flexibility in this case and making two constituents of mine and their family if not happy—because they have a lot of work to do before they get themselves out of the woods—then at least hopeful, saving the jobs of the 15 people who work for them and allowing Lance Beckett to stay in Far North Queensland and get on with the job of assisting with the clean-up in the wake of Cyclone Larry.

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

I am pleased to rise this evening to talk to the Tax Laws Amendment (2006 Measures No. 2) Bill 2006. This is a fairly technical bill containing a number of amendments to various acts with respect to taxation. In that regard, I do not intend to go into much detail on many components of it. Suffice it to say that among the various elements contained within this effectively cognate bill are changes to compulsory acquisitions, what is an extension to the scope of what is considered to be a compulsory acquisition for the purposes of capital gains tax roll-over and changes to the depreciating assets balancing adjustment offset. Similarly, there are changes to amend the Income Tax Assessment Act to update the lists of deductible gift recipients, DGR status being one of the primary limbs through which government is able to assist organisations to attract public support for their activities.

Additionally, there are changes to the franking deficit tax so as to limit the circumstances in which the franking deficit tax offset is reduced. Another element to the bill is changes to the way in which capital gains tax treatment of options is taken into account. The measure broadly reinstates the position under the ITAA in relation to the capital gains tax treatment of options exercised on or after 27 May 2005. The other thing I would like to quickly touch upon is the variety of technical amendments, general improvements and minor corrections to the taxation laws to ensure they operate as intended.

There are a number of technical aspects to the bill that I do not intend to go into much detail on—I will leave that to the minister or the Assistant Treasurer to make comments on—but there are two elements of the bill before the House today that I would like to touch upon. Last Friday I had the pleasure of the Minister for Veterans’ Affairs visiting my electorate and, in particular, hosting a roundtable in my electorate office. It is a roundtable that I convene with a number of ESOs, ex-service organisations, and a number of people who have served this country very proudly and have been willing to do so through the defence forces.

One element of this law which does have application to the roundtable that I convened of members of my very large veteran community on the Gold Coast is that part that provides for a tax exemption for F111 deseal and reseal ex-gratia lump sum payments. Effectively, this ensures that ex-gratia lump sum payments made to certain F111 aircraft maintenance personnel by the Department of Veterans’ Affairs are exempt from income tax so that those who receive this ex-gratia payment will receive the full benefit of the payment. The payment that is available to eligible personnel is in the amount of either $10,000 or $40,000. It takes into account, without admitting liability on the Commonwealth’s behalf, that there were people who were working in adverse circumstances when it came to the reseal and deseal of F111 aircraft, and so this payment was being made in recognition of the difficulties that those eligible personnel suffered in the environment in which they worked. It is very good that we are making this change. It is in accordance with the government’s intention and will and is another step that this government is taking to ensure that our veterans have made available to them one of the best repatriation systems that exist in the world today.

The other limb of this bill that I would like to touch upon is the changes that are being made with respect to choice of superannuation fund. This bill ensures that there is clarification that employers that are constitutional corporations and are making superannuation contributions for employees in accordance with state law do not have to contribute to the funds specified in state law if an employee has chosen an alternative fund after 1 July 2006. This, of course, is in strict adherence with this government’s policy of providing as much choice as possible to employees. Choice of superannuation has been a key plank of this government’s superannuation policy and I am very pleased to see that we are making these changes so that there are no more opportunities available to certain employers to utilise state laws so as to not have to provide choice of superannuation to their employees. This bill will ensure that those employees now also enjoy the opportunities that flow to them under choice of super laws. This is important in an area like the Gold Coast, which has the highest per capita percentage of small businesses in the country—the small business capital, as I call it. In this regard, I am pleased that this will be made available to various employees on the Gold Coast. I commend the bill to the chamber.

Chris Hayes (Werriwa, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2006 Measures No. 2) Bill 2006 for two reasons. Firstly, I will deal with the matters in schedule 1. Secondly, I want to touch on the issues applying to schedule 6, as my friend the member for Moncrieff just did. Schedule 1 provides for a tax exemption for lump sum payments of $40,000 and $10,000 to aircraft maintenance crew, I think stationed at Amberley, who worked on the F111 fighter bomber from 1972 onwards.

I agree with the government’s position on looking after our servicemen. I do not think you would find anybody at all in this place who would quarrel with the notion of looking after our servicemen, but I think you would find that people have some difficulty with the fact that it has taken so long to come to terms with addressing a matter such as this with regard to our military personnel. This is a cash payment to those officers or maintenance personnel not only in recognition of their working with contaminated material but also in recognition of the physical effects that have been accepted as a consequence of their working in and about the deseal and reseal applications of the F111.

This goes back to the defence inquiry that was conducted in 2001. It was at that stage that that ensuing report identified and blamed the toxic chemicals used in the aircraft maintenance for cancers and other health complaints affecting more then 400 service personnel working at the Amberley Air Force base. It has taken some time. This has probably got to being the largest inquiry that our military has undertaken, and it has taken from 2001 until now to work out precisely what we are going to do and how we are going to compensate these people.

In the minister’s second reading speech, he chose his words pretty carefully when outlining the reasons for this payment. The Assistant Treasurer said:

The payments are made in recognition of the difficulties eligible personnel suffered in the environment in which they worked, regardless of whether there is evidence of any adverse health impacts from that work environment.

I have to say that that is a very keen choice of words. It is a choice of words that was very clearly designed to make sure that the Commonwealth did not accept liability, which stands in pretty stark contrast to the words that were used by the former Minister for Defence, Senator Hill. He was reported on 27 October 2004 as saying:

It’s something we clearly regret and we accept our responsibility to properly support and, where appropriate, compensate those who have suffered.

I emphasise that the minister was indicating at that point in 2004 that the Commonwealth was prepared to accept its liability in relation to these personnel.

These are people who are obviously long-suffering. As I mentioned, the effects on their health are various forms of cancers, lung disease, depression, anxiety, memory loss, skin conditions and other dysfunctions of the body. I did see in a commentary on the report that, as a result of the problems that they have suffered due to their time working in and about the deseal and reseal applications of this aircraft, the majority of those affected in this way were regarded as being between the 20 and 30 per cent of the population who have the lowest quality of life.

I suspect that these are matters that need to be addressed. My concern is that it has taken so long to address them. My concern is not that the money is now going to be paid—I think that is good and it is appropriate—but, if anything, we have to learn and make some differences to the way we address issues as they relate to our military. They cannot be treated as the bastion of our government on security issues when they are required to stand up and be counted, yet when instances such as this occur be treated as second-class citizens.

I half wonder what would have been the situation if these people were represented by trade unions, for instance. I am sure that people would not have sat around since 2001 navel gazing, trying to work out how we can ensure these people are adequately compensated for the injuries that they sustained over that period. It is symptomatic of the government’s approach to occupational health and safety generally. You recall, Mr Deputy Speaker, that only this morning I tried to outline in the parliament how this government has moved to outlaw health and safety training where it is provided by a trade union, for instance. That is the sort of approach that has become symptomatic of this government. It has become so embedded with the ideals of being anti trade union that it does not see the positive aspects in something as fundamental as occupational health and safety being delivered by reputable organisations, and one of those reputable organisations could be, as it was in this case, a trade union. Having said that, I support the government’s position and I support the bill in allowing for taxability when making lump sum payments to those officers and maintenance personnel associated with the F111.

Another matter I want to quickly touch upon is schedule 6, which deals with the overriding requirements of superannuation guarantee contributions to be made by various state funds. There is no doubt that is an oversight. It is one of those things that has come about and I do not propose to stand in its way. I understand that it gives full effect to the government’s superannuation choice legislation. Having said that, as you will recall, Mr Deputy Speaker, I spoke against the government’s superannuation choice legislation. I spoke against it on the basis of what it did and how it imposed red tape and bureaucratic requirements on small business. In my electorate, small business is a huge employer of labour. In fact, down the track I see it being probably the sole generator of jobs in my community. Therefore, I would be silly if I did not have regard to the attitudes and views of small business.

Superannuation does pose and has posed administrative problems for small business, particularly businesses of fewer than five employees. I do believe that the government have failed to address the concerns of small business when bringing forward legislation—not only this legislation but other pieces of legislation of late. Small business is often quoted in this place. It has been quoted pretty extensively in the industrial relations debate. If you look through just about every speech delivered by government members during the debate you would be forgiven for thinking the impetus for their industrial relations changes is to bolster small business. That is not the case. Small business has not been the advocate for these changes.

If you look to see who has been the spokesperson of small business, you tend to find it is Mr Peter Hendy from the ACCI. You do not find small business people of Campbelltown, Liverpool or other areas that I represent calling for these changes. In fact, people in my electorate do not want to be forced into a race to the bottom. They do not want to be forced to have to compromise their work conditions and slash their workers’ wages simply to compete in a new emerging economy.

For that reason, I had a lot of sympathy for small business when they spoke to me about superannuation choice and about being genuine small business people in genuine small businesses. Small business, from the perspective of this side of the chamber, does not represent every company up to 100 employees. We have a very clear view of what a small business is and most people who operate businesses for a living have a similar view. Small businesses function with a view to survival. They try to make a profit, they try to expand and they try to look after their staff, but they detest being forced into a race to the bottom. This government has driven an agenda which compels them into that race—solely to survive, they have to be so ruthless that they will compromise their employees’ conditions of employment and working conditions. As I said from the outset, I do not oppose this bill. I support it and I commend it to the House.

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

I thank the members on both sides of the chamber who have taken part in this debate on the Tax Laws Amendment (2006 Measures No. 2) Bill 2006. The bill implements a variety of changes and improvements to the tax laws. Before I go into my summing-up speech proper, I want to address several questions that were raised by the member for Hunter. I understand that, as part of this debate, he asked a question on capital gains tax as it applies to compulsorily acquired acquisitions under schedule 4 and what kind of case the amendments will apply to. The amendments ensure that the capital gains tax compulsory acquisition rules now also apply to cases where a private acquirer such as a mining company compulsorily acquires an asset such as farming land. Rules have always applied to a compulsory acquisition by a government or government authority.

The member for Hunter requested a further example of the Commonwealth overriding state legislation in relation to schedule 6 on superannuation choice. The amendments only override the requirement to make contributions to the fund in state legislation if the employee chooses a fund. The fund nominated in the state legislation would be the default fund for those employees.

Finally, the member for Hunter asked for examples of the application of the discretion in relation to the franking deficit tax. The discretion will give the commissioner some flexibility to alleviate the impact of the franking deficit tax offset reduction. The application of the discretion will depend on the facts of the particular case. The explanatory memorandum gives one example where PAYG instalments are less than expected. The corrections to the EM, which I am circulating today, give some additional guidance on the operation of the discretion.

The first measure in this bill exempts from income tax certain ex gratia lump sum payments made by the Department of Veterans’ Affairs. This will ensure that those who receive the ex gratia payments will receive the full benefit. Eligible personnel are entitled to a lump sum payment of $40,000 or $10,000. The one-off ex gratia lump sum payments are being made to certain F111 aircraft maintenance personnel who experienced a unique working environment in the maintenance of F111 aircraft fuel tanks. The payments are being made in recognition of the difficulties they suffered in the environment in which they worked and will be made regardless of whether there is evidence of any adverse health impacts from that work environment.

The second measure in this bill adds two new organisations to the current list of deductible gift recipients. Deductible gift recipient status will assist those organisations to attract public support for their activities. Gifts greater than $2 made to Playgroup Victoria Inc. and the St Michael’s Church Restoration Fund from 24 February 2006 will be deductible. Gifts to the St Michael’s Church Restoration Fund will have to be made before 24 February 2007 to be deductible.

The third measure implements changes in relation to options to correct unintended consequences from the rewrite of the capital gains tax provisions completed as part of the Tax Law Improvement Project. On 27 May 2005 in a press release by the then Minister for Revenue it was announced that the government would amend the Income Tax Assessment Act 1997 so that the law operates essentially as it did previously under the Income Tax Assessment Act 1936. The kinds of options to which the amended provisions will apply are options exercised on or after 27 May 2005 for granting a lease or easement or for issuing units in a unit trust.

The fourth measure benefits individuals and businesses and allows them to obtain a capital gains tax rollover when an asset is compulsorily acquired. It also includes changes to allow balancing adjustment offset under the uniform capital allowances provisions when a depreciating asset is compulsorily acquired. The changes allow individuals and businesses to defer the taxing point for capital gains tax and uniform capital allowance purposes if a private entity such as a mining company compulsorily acquires an asset. This measure will operate in a way similar to when a government agency compulsorily acquires an asset, as I mentioned before. The amendments apply retrospectively, from 1999.

The next measure in the bill ensures that the reduction of a tax offset in relation to the payment of franking deficit tax applies only if a company has applied directly or indirectly a franked distribution in the relevant income year. In addition, the Commissioner of Taxation will have the discretion to disregard the tax offset reduction if the deficit in the franking account arose because of events outside the company’s control. Under the current income tax law a company is discouraged from passing excessive franking credits to shareholders by having the franking deficit tax offset reduced in certain circumstances. These changes will apply from 1 July 2002, which was when the simplified imputation system commenced.

The sixth measure in this bill allows employers that are constitutional corporations to make compulsory superannuation contributions to funds their employees choose rather than having to make those contributions to a fund that is nominated in a state law. This amendment will allow more employees to choose the fund to which their employer makes compulsory superannuation contributions on their behalf.

Finally, the last measure in this bill implements various technical corrections and amendments and also some general improvements to the law of a minor nature. These corrections and amendments are an important part of the government’s commitment to improving the taxation laws in this country. This bill provides improvements to the operation of the income tax and superannuation laws. For the reasons I outlined above, I commend this bill to the House. I would also like to present corrections to the explanatory memorandum.

Question agreed to.

Bill read a second time.

Ordered that the bill be reported to the House without amendment.