Tony Smith (Casey, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

The opposition supports the Tax Laws Amendment (2008 Measures No. 6) Bill 2008, which contains four schedules. I will, in summary, go through each of those schedules and address some of the detail in each of them. Schedule 1 of the bill amends the Income Tax Assessment Act 1997 to prevent a market value cost base being used when interests in an entity are acquired by another entity through a scrip for scrip capital gains tax rollover that is a restructure. Schedule 2 amends the Tax Administration Act 1953 to correct the legal and administrative barriers relating to debts that are removed from the foreign claims register. It also provides for certain types of payments to be made by the Commissioner of Taxation to other countries. Schedule 3 amends the Superannuation Guarantee (Administration) Act 1992, with the objective of expanding the time period in which an employer can make a late superannuation contribution and still elect to use the late payment offset to reduce their superannuation guarantee charge obligation. Schedule 4 is, in layman’s terms, a series of housekeeping measures that correct errors and anomalies within a number of tax laws to ensure their proper operation and original intention.

There has been a longstanding policy debate on schedule 1, which deals with the scrip for scrip CGT rollover. It was pursued in great detail by the former coalition government. In fact, we had made a number of announcements on that. The former coalition government recognised that certain entities were undertaking a scrip for scrip CGT rollover and obtaining a market value cost base for the shares in the acquired entity. The entities would then be able to use the consolidation tax cost setting rules to push the market value cost base into the underlying assets of the acquired entity. In a sense this mischief allowed entities to reduce the capital gains tax. What was able to happen was that, in tax terms, a mischief was allowed to occur where the tax assets were able to be sold and increases in the capital allowance deductions were able to occur beyond what had been originally intended. So in October 2007 the previous coalition government publicly announced it would introduce measures to prevent the intentional tax mischief, for want of a better term, relating to the resetting of tax values relating to scrip for scrip capital gains tax rollovers. The former government also announced a commitment to undertake consultation with the business community to ensure that the legislation, which of course is quite technical in this area, was framed properly and would operate well and with the correct intention. The announcement reflected a longstanding commitment to the integrity and correct operation of the tax system, and this side of the House welcomes the fact that the government agrees with that and has taken up the consultation and is introducing measures in this tax law amendment bill.

The schedule prevents entities from exploiting the scrip for scrip CGT rollover provisions to minimise their tax liability. Where a scrip for scrip rollover is taken to be a restructure, entities will not be able to apply a market value cost base. The schedule will prevent entities undertaking scrip for scrip CGT rollover restructures with the intent of reducing their capital gains tax liability from the disposal of the acquired entity’s assets. This is consistent with the intent of capital gains tax to apply to increases in the value of capital assets.

Schedule 2 addresses the legal and administrative issues arising from deeming debts being removed from the foreign claims register. The schedule also expands the types of payments the Commissioner of Taxation can make to other countries. It expands the types of payments from principal and general interest charge to allow the commissioner to pay other amounts that may need to be paid.

Schedule 3 amends the time within which an employer can make a contribution to an employee’s superannuation fund and be able to use that payment to offset the superannuation guarantee liability. This schedule will encourage employers to be timely in making superannuation contribution payments. Schedule 4, the final schedule in the tabled bill, will make a whole series of what can be described as housekeeping changes, corrections of anomalies, to ensure that confusion is cleared up and unintended mistakes are dealt with and that the law operates as was originally intended. This is a feature of all tax law amendment bills. It is through these bills that this sort of ongoing housekeeping work can be done.

I am aware that there will be a fifth schedule through an amendment that the Assistant Treasurer will move. I have been consulted on the substance of that and the Assistant Treasurer made a public announcement last night. In essence, as he will outline in the summing up of this debate, those amendments will clarify and ensure that donations for the Victorian bushfires in all the forms that they are being made do not attract tax, which is very sensible. From time to time the rules relating to tax deductibility mean that there have to be flexibility and announcements by governments of all persuasions in this regard. It is quite obviously fitting that he has made that announcement so that there is no uncertainty whatsoever. It is appropriate, given that this tax law amendment bill is before us this day, that at the earliest opportunity he moves the required amendment to be able to achieve that in a legislative sense. I know that will of course also have the unanimous support of the House.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of the Tax Laws Amendment (2008 Measures No. 6) Bill 2008, which is an important tidying up of some significant changes in corporate law and the CGT rollover situation. It is important that, when companies undertake restructures, they do not do it in a way that minimises return to taxpayers in a way that is unfair to the integrity of the taxation system. And it is important for taxpayers to know, when they pay tax out of their pay every week or every fortnight, that companies do the same and do it correctly with respect to corporate tax and CGT.

This is just the sort of provision that should have bipartisan support, and I am pleased that the coalition is supporting it. As the shadow minister mentioned, there will be some tidying-up amendments to this bill, which will make an important improvement with regard to the status of moneys given for charitable purposes for the recovery and reconstruction of the communities in Victoria and in Far North Queensland, which are so suffering at this time. Our thoughts are with them. I see that, tragically, the forecast for North Queensland is for rain yet again overnight. The people up there have suffered enormously in terms of dislocation, damage to property and injury to persons, as well as in terms of profit loss to business. It is just tragic what has happened to them, and they must not be forgotten.

The amendments in this bill are by way of schedule. I will deal with the first schedule very briefly. It relates to modification of the capital gains tax provisions for corporate restructures. Companies will not anymore be able to obtain a market value cost base for shares and certain other interests acquired in another entity following a scrip-for-scrip CGT rollover under an arrangement that is taken to be a restructure. That is important in terms of the integrity of the system. It is important that the government address this issue. The previous government attempted to address this in October 2007. They issued a press release in relation to the matter, but it caused more confusion in the marketplace than they intended.

The government is doing this reform because it is well targeted and well measured. There has been tremendous community consultation across the sector in relation to this measure. It will not impact on genuine commercial transactions. If companies engage in proper arrangements, then they are not going to be affected. This is about the integrity of the tax system. Companies will no longer be able to effectively rip off the Australian taxpayers by very elaborate corporate restructures in this way. So I am very supportive of this measure. I know my electors in Blair pay their tax. I am sure every member of this chamber hears from their constituents that they pay too much tax and do not necessarily get value for the tax dollars they pay, so it is important that companies, who are well financed—many of them—and who have access to good accountancy advice and accurate legal advice, are prevented from restructuring their corporate arrangements in this way. I am pleased that the coalition is supporting us on this measure.

The second schedule makes some minor amendments to assistance-in-collection provisions in schedule 1 to the Taxation Administration Act 1953, to get over some identification problems in relation to effective administration. The shadow minister outlined those provisions and I am not intending to go into them in any great detail. Suffice it to say that the measure will ensure that the collection provisions of the Taxation Administration Act operate with efficiency and effectiveness and ensure that we can as a country meet our obligations under the relevant international agreements that we enter into with other nations.

It is important that we as a country meet our existing and future treaty obligations with other countries in terms of a whole range of issues, whether it is in business, child support, trade or the collection of taxation debts. These are important measures in the circumstances. They are largely administrative in their character but they are important insofar as they significantly impact upon debtors resident in Australia or having assets in Australia and owing money in other countries. It is an important measure that shows what kind of goodwill and what kind of nature we have as a country that we will fulfil obligations and ensure that our citizens do the right thing by friendly countries and other countries in our region and beyond.

The third measure, schedule 3, is in relation to late offset for superannuation guarantee contributions. Again, this is an administrative measure but it will amend the Superannuation Guarantee (Administration) Act 1992 to tighten the period within which an employer can make a late superannuation guarantee contribution and still be able to use the late payment offset to reduce their superannuation guarantee charge liability and vary the calculation of the general interest charge on unpaid superannuation guarantee charges where the employer has elected to use the offset. This particular measure will encourage employers to pay the superannuation guarantee in a more timely way. It is important that employers fulfil their obligations. They expect their employees to fulfil their obligations in the workplace, and it is important that employers do the right thing by their employees. The offset, of course, allows an employer who makes a late superannuation guarantee contribution for an employee to use that contribution to offset against part of their superannuation guarantee charge liability which is charged if they do not pay the superannuation guarantee on time.

Currently, there is no actual time limit in which the employer is required to make the contribution, and the amendments will specify that an employer will be able to use the offset if they make the contribution before they are assessed with the superannuation guarantee charge liability. It is important also that it amends the calculation of the general interest charge on an unpaid superannuation guarantee liability where the offset is used. The explanatory memorandum and the information I have received from the Parliamentary Library suggest that we might be able to save about $25 million for the Australian Taxation Office in the current financial year, and that is not to be sniffed at—$25 million in this current climate is an important saving. These three schedules are important; they are worth noting; and they are worth bipartisan support. I am pleased that it is receiving that support.

The final thing I want to talk about is the amendments which the Minister for Superannuation and Corporate Law has foreshadowed in the circumstances and which the shadow minister for financial services, superannuation and corporate law also mentioned. They are the amendments to ensure that charities collecting donations for bushfire victims are tax-deductible. It goes beyond that, of course, to other disastrous circumstances. Curiously, the Australian Taxation Office has taken the view, as I understand it, that we need legislative change because of problems with the definition of what is a charitable donation, what is a charity and what should get tax concession status. Currently, according to what I have read in relation to this matter, there is a need for amendments to our tax laws to ensure that those persons who make donations for long-term recovery and reconstruction of the community infrastructure in Victoria in these terrible times should receive the benefits of tax deductibility.

So what we are doing here in this regard is specifically listing the Red Cross’s and the Victorian government’s 2009 Victorian bushfire appeal as a tax-deductible gift recipient for a five-year period, and that will allow tax-deductible donations for that purpose. We are also doing more than that: we are allowing further concessions to be made and amending the disaster relief category to allow a Treasury minister to declare a disaster for tax purposes, and it goes on. So there are some important amendments in this regard which will help to allow donations and assistance which have been given in circumstances of fire, flood and other disasters to be used for the benefit of people such as those in Victoria and North Queensland.

I want to say briefly in relation to that that the Red Cross are to be commended for the work they have done in Victoria and also in Queensland. I have heard about what they have done, and the Red Cross are such a wonderful organisation, deserving of the kind of assistance the Australian people have given them. The kind of legislative change that the minister has circulated will help the Red Cross in their operations.

The minister has said that the bill amends various tax laws to implement a range of improvements to Australia’s tax legislation. I have to say that I agree with him. I think that that is the case with these amendments. Having gone through them carefully, I think that the bill makes our tax system more efficient and effective and gives it greater integrity. It also gives the kind of security that we need to ensure that our tax system operates in a way which is fair to our citizens and also deals with other countries in such a way that they know we are prepared to do our bit when it comes to international tax collection.

Finally, I want to pay tribute to the Red Cross workers who will get so much benefit from these deductions which are foreshadowed in the amendments. They have come to my electorate in the last few months to help us with the storms and floods which there have been in South-East Queensland, including in my electorate of Blair. I have to give a tribute to the five Red Cross workers from Bendigo who came up to help us. Their enthusiasm, compassion and humanity were on display for all to see. I took the Minister for Human Services to the recovery centre in Ipswich. The mood was infectious, and I want to say that the Red Cross have done a marvellous job. Anything we can do in terms of amendments to our tax laws to help the Red Cross is of great merit. I want to pay tribute to them and thank them for the wonderful work they have done locally in the federal electorate of Blair, in Victoria and in North Queensland with our sisters and brothers, our fellow Queenslanders, who have suffered so much at this time. I commend the bill to the House.

Judi Moylan (Pearce, Liberal Party) Share this | Link to this | Hansard source

I am very pleased to have the opportunity to speak on this bill. As the member for Blair said, it is a bill that is supported by both sides of this House. The Tax Laws Amendment (2008 Measures No. 6) Bill 2008 has the primary function of precluding taxpayers from inadvertently obtaining a tax benefit from capital gains tax rollovers where the transaction was a restructure rather than a takeover. That is one of the main aspects of this bill, but there are some other important changes too.

Tax law is extremely complicated. I remember studying it quite a few years ago and thinking, ‘I think what we should do is put it all in a great big pile, burn it and start from the ground up again,’ because it is extremely confusing and difficult for many people out there in the community. From time to time, when legislation is passed in this place, loopholes are found. If we want to maintain the integrity of the tax system then it is our responsibility to make sure that appropriate amendments are made as we see those needs arise.

This is one of those situations where we are trying to ensure the integrity of the taxation system. If we do not do that and corporates can escape their responsibilities and the legitimate intent of these bills, it means that the average taxpayer out there has to pick up the slack. We do have a considerable responsibility and obligation at all times to make sure that there is clarity within the tax system, that the integrity of the tax system is maintained, that it is fair to everyone in the community—this is most important—and that everyone is pulling their weight.

The first schedule to this bill modifies the capital gains tax rules to prevent entities from perhaps avoiding tax under certain circumstances. This is where they would use a market value cost base for acquired interests following scrip for scrip rollover that is considered to be a restructure. The schedule amends the scrip for scrip CGT rollover provisions related to the cost base valuation for restructures. There are some rules around this. The new provisions will apply under the following conditions: that it is reasonably expected that a scrip for scrip rollover will be obtained, that the common stakeholder test is satisfied and that the acquisition arrangement is deemed to be a restructure. An arrangement is deemed to be a restructure if the market value of the scrip issued by the acquiring entity to the stakeholders in the target entity is more than 80 per cent of the market value of all interests on issue by the acquiring entity after the arrangement takes place. As I said, this is to ensure that the original intentions of the tax laws are adhered to in order to maintain the integrity of our tax system and of these measures in particular.

Schedule 2 of the bill amends the Taxation Administration Act 1953 with regard to issues with the assistance of collection provisions. The provisions of interest were enacted by the International Tax Agreements Amendment Bill (No. 1) 2006 and enabled the Commissioner of Taxation to collect or conserve tax debts that an individual or company may owe in foreign jurisdictions where they are resident in Australia or where they have resources that are located in Australia. Currently, the debt that is recorded on the foreign claims register that is removed or reduced is deemed as ‘never to have been payable’. According to the explanatory memorandum, this could ‘significantly frustrate any proceedings that the commissioner has commenced or finalised to collect the debt’. Rather than being deemed ‘never to be payable’, debt that has been removed or reduced will, under this bill, be treated as a credit. This schedule will also clarify that the role of the foreign claims register is to transform foreign debt into Australian tax debt.

Schedule 3 of the bill amends the Superannuation Guarantee (Administration) Act 1992 with regard to the late-payment offset and should be of benefit to many of those small and medium enterprises that are out there, some of which are doing it tough in the current financial difficulties. This amendment will, according to the explanatory memorandum:

… vary the period within which an employer can make a superannuation contribution after the due date for a quarter and still elect to use the late payment offset to reduce their superannuation guarantee charge liability for the quarter.

Currently, an employer is required to pay the prescribed superannuation contribution on a quarterly basis to avoid paying superannuation guarantee charges. An employer that has not paid superannuation on time is currently allowed to make a late payment at any stage before the superannuation guarantee charge is payable and then claim a late payment offset against their superannuation guarantee charge. So it is a bit of a convoluted kind of process. I guess the intent of this is to try to streamline it a bit. Further, it provides no incentive for an employer to pay the superannuation as close as possible to the original due date. The bill will amend the period in which late superannuation can be paid while still claiming a late payment offset to provide such an incentive.

Now to what is perhaps one of the most pressing aspects of the bill: the measures contained in schedule 1 to do with the CGT—that is quite a mouthful. These amendments were first proposed under the former government, and there were some criticisms levelled at the coalition by the then opposition, who alleged that some aspects of it caused uncertainty. That really is a bit of hypocrisy at its worst, because this government unleashes uncertainty on the Australian business community almost as readily as it breaks election promises. I suppose nothing could be more obvious than the confusion unleashed on small businesses in particular because of the original decision to provide unlimited bank guarantees, in a knee-jerk reaction to the international financial crisis. We all know that it is a very serious matter and governments do have to act, but that was a rather rash decision made in haste, and it has caused a lot of difficulty for the business community out there trying to raise loans to keep their businesses running. We have seen references to this in recent times on Four Corners. To level this criticism about creating uncertainty at the coalition is pretty hypocritical.

The part that I suppose has been a bit controversial was raised by Mr Davidson, a partner at PricewaterhouseCoopers, in an article in the Australian Financial Review:

“So people could be doing deals thinking we’re safe,” Mr Davidson said, “but all of a sudden we’re caught by these provisions.”

He was actually talking about the first measure that I discussed, which was schedule 1 of this bill. This is exactly the confusing behaviour that businesses do not need. In fact, industry can now be satisfied that the matter is clarified. What caused the confusion was that on 13 May there was an announcement that these changes to the capital gains tax scrip for scrip rollover provisions would apply to takeover arrangements entered into after 13 May. The government published an explanatory memorandum and the ATO website reiterated this position. Then the draft bill was released and the wording relating to takeover bids was changed slightly. The change to the bill would apply to those listed companies who conducted a takeover that was completed after 13 May rather than entered into after 13 May. We do not have a problem with this. It needed clarity; there is clarity now, and I think Mr Davidson can be satisfied that this matter has now been made quite clear to Australian businesses who might be caught up in this provision.

I was pleased to hear both the member for Casey and the member for Blair mention, and also to see the media release by the Assistant Treasurer announcing, that donations to the 2009 Victorian bushfire appeal would also be affected by an amendment to this bill so that they would not have their current tax concessional status affected by those monies that are used for longer term recovery and reconstruction. We on this side certainly welcome the addition of this amendment to the bill, should it be agreed to by this House. As both the member for Casey and the member for Blair have said, many organisations and people have raised a considerable amount of money to assist those people caught up in these terrible fires in Victoria, and this amendment will give greater clarity to the tax treatment in this case. We need to ensure that the Australian Taxation Office is in a position to make sure that these donations are not caught up and taxed inadvertently.

This piece of legislation will also provide greater clarity for the status of organisations collecting donations in response to a disaster. There may be other disasters that take place, but it will certainly apply to the 2009 Victorian bushfires. The mechanism will provide a means to ensure that donations to organisations in support of victims of such disasters can be used for immediate relief or for reconstruction. Like the member for Blair, I would also like to take the opportunity to pay tribute to the incredible work of many organisations; for the moral, physical and practical support that they have offered and also for their tremendous fundraising efforts. We have seen this incredible outpouring of generosity from the community and we know that the Red Cross has been at the very forefront of that. We appreciate the work that they do and the last thing that any of us in this place would want to see is those donations, and the ability for those donations to help rebuild people’s lives, interfered with or detracted from by having them taxed. I think this is a welcome amendment to this bill.

There is a fourth schedule, but it is a bit of housekeeping, so I am happy to say that we can support the measures in this bill.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I rise to address the Tax Laws Amendment (2008 Measures No. 6) Bill 2008, and would like to begin by endorsing the generous words of the member for Pearce, especially with regard to the bushfire situation and the generosity of Australians. It is commendable, and I would particularly like to note those people in Far North Queensland who were undergoing their own difficult circumstances with the floods but who were still able to support the Victorian bushfire victims.

That is obviously a common-sense amendment in terms of looking after those donations, and this bill before the House is all about common sense. It contains lots of common-sense amendments to three areas of tax law. Firstly, it adjusts the capital gains tax provisions for corporate restructures, which is very timely and necessary in the current climate after the global financial crisis; secondly, it amends the provisions enabling collection of tax debts owed in another country; and, finally, it improves the late payment offset for superannuation guarantee contributions.

Deputy Speaker Burke, I do not intend to dwell on any of these amendments in any great detail. I know that will disappoint you and the member for Corio, because I know about the enthusiasm that you and the member have for complex areas of tax law. Instead, I am just going to go over a couple of other things. Nonetheless, I will look firstly at the changes to capital gains tax rollovers for corporate restructures.

Back in 1999, then Treasurer Peter Costello introduced scrip for scrip rollover provisions as part of the New Business Tax System (Capital Gains Tax) Bill 1999. Under the scrip for scrip rollover system, if you are an investor and the company in which you own shares is taken over and you receive new shares in the takeover company, you are entitled to roll over capital gains. In other words, the rollover allows the taxpayer to disregard the capital gains from the original shares, and the replacement shares are considered to have been acquired for the cost of the original interest. Surprise, surprise—some people have exploited that situation. Unfortunately, under the member for Higgins’s system, these provisions were exploited by some companies for tax minimisation. I have no problem with lawyers and accountants finding ways to be gainfully employed—obviously those private school fees do not pay themselves—but this is a common-sense amendment. Some companies were able to gain significant tax benefits through restructures where an original company joins a new holding company to attract the scrip for scrip rollover without any significant change in the ownership of the assets.

This bill will prevent companies from obtaining a market value cost base for shares and certain other interests acquired in another entity under an arrangement that is taken to be a restructure. A takeover or a merger that meets certain criteria will be considered a restructure and the cost base for membership interests will reflect the cost bases of the underlying net assets of the original entity. This measure is about ensuring companies are not able to shirk their tax obligations. As I said, it is a common-sense approach to the exploitation of a Higgins loophole. Australian workers who flog their guts out to pay off their mortgage, care for their families and pay their taxes are fed up with wealthy companies ripping off the tax system under the veil of tax minimisation. The government should act to close these loopholes, and I am pleased that this bill will restore greater integrity when it comes to these capital gains elements of tax law. This measure will not impact genuine commercial transactions and will deliver on the original intent of the provisions, which was, as Peter Costello said in his second reading speech, to ‘free up the market for competitive takeovers’.

This bill also amends the Taxation Administration Act 1953 to improve the administration of the collection of tax debts owed in another country where the debtor resides or has assets in Australia. Particularly, these amendments will address a number of issues which affect the commissioner’s ability to collect tax debts. They will also ensure Australia can meet its treaty obligations relating to mutual assistance in collection of tax debts. This bill clarifies that the role of the foreign claims register is to transform foreign tax debts into Australian tax debts. This enables the commissioner to engage in debt collection and make the payments to the foreign country.

Finally, this bill amends the Superannuation Guarantee (Administration) Act 1992. It places a time limit on the period in which an employer can offset any contribution to an employee’s late superannuation guarantee against part of their superannuation guarantee charge liability. The charge liability is paid if employers do not pay the superannuation guarantee on time. However, there is currently no specified time limit in which an employer is required to make the contribution. Employers will be able to use the offset if they make the contribution before they are assessed for the superannuation guarantee charge liability. The inclusion of a time limit will encourage employers to more quickly make their contributions to take advantage of the offset. These measures are expected to achieve about $25 million in savings for the ATO. The Assistant Treasurer consulted widely and this measure has been positively received by genuine, good corporate citizens. I commend the bill to the House.

Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

in reply—I thank the members who have contributed to the debate on the Tax Laws Amendment (2008 Measures No. 6) Bill 2008. Schedule 1 of this bill modifies the capital gains tax provisions of the Income Tax Assessment Act 1997 for corporate restructures. Companies will be prevented from obtaining a market value cost base for shares and certain other interests acquired in another entity following their scrip for scrip capital gains tax rollover under an arrangement that is taken to be a restructure. An arrangement will be taken to be a restructure if, broadly, the market value of the shares and certain other interests issued by the acquiring entity under the arrangement in exchange for similar interests in the original entity is more than 80 per cent of the market value of all the shares in other interests issued by the acquiring entity. If an arrangement is taken to be a restructure then the cost base for the shares and other interests that the acquiring entity acquires in the original entity will reflect the tax costs of the underlying net assets of the original entity rather than its market value.

This is an important integrity measure, which the former government announced its intention to deal with in October 2007. However, the former government’s proposal was poorly targeted and effectively stopped scrip for scrip arrangements, causing disruptions in the market. The government’s measure has been refined through very extensive consultation and will effectively target the mischief. The amendments will apply to arrangements entered into after 7.30 pm Australian Eastern Standard Time on 13 May 2008 and will prevent companies from gaining significant unintended tax benefits by restructuring. I commend the bill to the House, this schedule and the other schedules noted therewith.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.