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

The Tax Laws Amendment (2009 Measures No. 4) Bill 2009 was introduced into the House on 25 June this year and contains various technical aspects amending the taxation law. I say at the outset that the coalition will be supporting the passage of this bill through the House and through the Senate when it arrives there. I will go through each of the schedules in some detail.

Schedule 1 will increase the research and development expenditure cap for the R&D tax offset from $1 million to $2 million. The R&D tax offset allows eligible entities to receive a tax credit rather than a deduction for expenditure relating to R&D activities. This R&D tax offset was introduced by the former coalition government to assist innovative small businesses that do not benefit from the R&D tax concession, especially those that are in a tax loss position. The former coalition government recognised the cash flow difficulties of small businesses undertaking R&D, especially during the initial start-up and growth phases. The introduction of the R&D tax offset is an example of the coalition’s understanding of small business and the unique issues they face. I note that the amendments in this bill that increase the cap are only an interim measure for the 2009-10 income year. The government committed in the budget to introducing a new R&D tax incentive regime from 1 July of next year to replace the current system. On behalf of the coalition, I look forward to working with the government to ensure that the new regime is available for Australian businesses from 1 July 2010.

Schedule 2 of the bill will provide increased regulatory control of prescribed private funds to the Australian Taxation Office. The changes will effectively mean that such funds will be treated similarly to other fundraising organisations known as public ancillary funds. To reflect these changes in schedule 2, prescribed private funds will be renamed as private ancillary funds. The schedule also includes provisions for the Treasurer to issue guidelines governing the creation and regulation of these funds. The schedule also introduces a range of administrative penalties that may be applied to enforce those new guidelines. Many in the not-for-profit industry have been concerned that changes to the mandatory distribution rate may severely affect the ongoing nature of these funds. This schedule does not deal with the mandatory distribution rate; the rules regarding that will be contained within guidelines to be introduced into parliament by the Treasurer later in the year. We note here on this side of the House that Treasury, on behalf of the government, undertook consultation on draft guidelines in July of this year, and we encourage the government to listen very carefully to industry concerns and suggestions to avoid these funds having any of the problems that can arise when a government does not undertake that consultation process properly. I say that because there have been a range of budget measures—employee share schemes come to mind—where the government has monumentally mangled the implementation of technical policy issues.

Schedule 3 provides capital gains tax relief to members of friendly societies when a friendly society demutualises. It will ensure that friendly societies are treated in the same way as stand-alone private health insurers or life insurers should they decide to demutualise. For members of friendly societies that demutualise into a for-profit entity, this means they will not be liable for capital gains tax if they receive shares. The schedule also makes amendments to ensure that those who receive cash through demutualisation are treated in exactly the same way as those who receive shares and immediately sell them. This schedule ensures that members of friendly societies are treated in exactly the same way as members of stand-alone private health insurers or stand-alone life insurers, as I said earlier.

Schedule 4 makes a retrospective change to the consolidation regime from the beginning of the consolidation regime from 1 July 2002. It allows for losses to be transferred within a consolidated group from an insolvent joining entity to the head company under certain circumstances. The amendments will allow the head company to use the tax loss to reduce a net forgiven amount derived under the commercial debt forgiveness rules, reduce any capital allowance that has been adjusted using the limited recourse debt rules or reduce any capital gain in the situation where a capital gains tax event L5 occurs when the joining entity then leaves the consolidated group.

Finally, schedule 5—as is often the case with tax law amendment bills, the final schedule in this bill—makes a number of minor changes to the existing tax law to ensure its intended operation. It also amends the fringe benefits tax law to ensure that donations made to deductible gift recipients through salary sacrifice arrangements do not result in an FBT liability. On behalf of the coalition, I commend the bill to the House and reiterate that it will have our support through this House and through the Senate.

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

I speak in support of the Tax Laws Amendment (2009 Measures No. 4) Bill 2009. Like the previous speaker, I do not intend to speak for very long in relation to the matter except to say that these reforms are long overdue and welcome. They improve the integrity of the tax system, they make the situation with respect to philanthropy better, they are beneficial to the taxpayer, they provide relief to business and they improve the potentiality for investment in R&D. So they are welcome changes to the tax system.

Once again, they do this by schedule. Schedule seems to be the way in which we deal with taxation amendments. They are important in the circumstances. Anything we can do to reduce the complexity of our tax system to improve its overall effectiveness and operation is a good thing, particularly as nothing infuriates business and individual taxpayers more than dealing with complex tax laws that you can measure by weight rather than by word. So I speak in support of those, and I will go very briefly through the schedules as the previous speaker, the shadow minister, did.

The first schedule overcomes a truly weird situation which resulted in a perverse outcome, as the minister said, with respect to R&D tax offsets. The situation was that the $1 million cap really meant that some companies could keep their expenditure in such a way that they could claim the R&D tax offset, effectively getting a cash payment back in circumstances where the whole purpose of the legislation and the whole purpose of R&D tax deductibility was to ensure that we gave an incentive to companies to invest in R&D.

So the lifting of the expenditure cap from $1 million to $2 million will provide a boost, we believe, to pre-profit companies to invest in research, and I think that is a good thing. It is an interim measure which goes ahead of the introduction of the new R&D tax incentive which operates from 2010 to 2011. In the circumstances, anything we can do to boost investment and boost R&D is a healthy thing for our economy, good for small business, good for big business, good for jobs and good for infrastructure.

Schedule 2 deals with prescribed private funds. These were established in 2001 and were a creation of statute. We have seen about $1.3 billion put into these funds and distributions of over $300 million in that time. PPFs are really a form of ancillary trusts established by companies, by businesses, by families and by individuals who are interested in philanthropy. We really do not have enough of a culture of philanthropy in this country. The Americans seem to put in a great deal of time and effort and have a culture with respect to philanthropic generosity. In our culture we do respond wonderfully well. We saw the floods in north Queensland and we saw the bushfires in Victoria, and Australians came to the party contributing hundreds of millions of dollars when it came to relief for their fellow citizens. When people are injured, when people die, when property is damaged, when communities are devastated, Australians are very quick to provide generous assistance to their fellow Australians. But the idea that a company or a law firm or a business might engage itself in philanthropy is something that is not widely thought of. Some big law firms in this country have a partner or a lawyer who might do some pro bono work, but really we do not see much by way of systematic attempts at charity, at giving back to the community in the public interest.

The PPFs are a good thing and they should be encouraged. We are rebadging them and renaming them with a different title: ‘private ancillary funds’. It involves a change which means they will no longer be prescribed in the legal sense. There is a movement in terms of their administration under the authority of the Commissioner of Taxation. We are giving the Treasurer some power to provide legislative guidelines to maintain them after they are established and we are giving the Commissioner of Taxation some powers to impose some penalties on trustees who might do the wrong thing by way of failure to comply with the guidelines. And, of course, we are giving the commissioner some power to remove and suspend trustees and noncomplying funds. Sadly, with superannuation funds, people sometimes do not ensure compliance. These changes in schedule 2 were announced in the budget of 2008-09, and we are going to provide some legislation which will improve the overall operation and integrity of the PPFs. Anything to encourage philanthropic involvement is a good thing and I warmly welcome this schedule.

Schedule 3 deals with capital gains tax and amends the income tax law to ensure that there is relief from capital gains tax for demutualisation operations. In this country we have many organisations which have undertaken demutualisation. AMP was one. We saw others involved in this process and, according to the explanatory memorandum, there are currently about 70 friendly societies operating in Australia, with about 1.6 million members, and about 24 friendly societies conducting life insurance businesses. So there are a lot of people involved and a lot of organisations involved. We have seen demutualisation of private health insurance, and many Australians would have received a cheque in relation to MBF. I know my wife did when that demutualisation took place.

So what we are doing in relation to this is to effectively ensure that there is relief in the demutualisation process so that those organisations associated with friendly societies are not treated in a disadvantageous way. We want to make sure that they are relieved of capital gains tax in the circumstances. We do not want them to be disadvantaged in any way in relation to that.

Demutualisation is quite a complex problem and challenge for the organisations involved. It is particularly interesting because what it really involves is the participants in a common fund who have contributed to that fund giving up their rights to participate in that fund in the future. It is an interesting phenomenon: people giving up rights. There is nearly always a distribution of any accumulated surplus as a result of the demutualisation, and that is where the cheques go back to the Australian citizenry. We are making sure that CGT relief for members and policyholders of friendly societies is the same as any other institution, such as life insurance and private health insurance organisations. This is a beneficial change. It has been warmly welcomed by key stakeholders in the circumstances. We saw support for the measure during what was an extensive consultation process. It is a worthwhile piece of legislation and amendment.

I will not deal the schedule 5 as it is really quite minor in terms of the maintenance and operation of the tax system. There is very little change there, and it is quite uninteresting in the circumstances. Schedule 4 deals with amending the tax law to ensure loss is transferred to a head company of a consolidated group, or a multiple entry consolidated group, by a joining entity in the circumstances that it is insolvent at the time of joining and can be used by the head company in certain circumstances. These amendments have some benefit to the Australian taxpayers. They ensure that losses, which can be wasted in the joining process and in the lodging of tax returns, are not wasted but are beneficial and that companies will benefit. There is a retrospective aspect to this, and it does affect one taxpayer according to the research that I have undertaken: Transfield Holdings Pty Ltd, which sought the retrospective application of this legislation in the circumstances. The amendments will apply from 1 July 2002, so the retrospectivity of the legislation is quite long.

Overall, these laws improve the efficacy of our tax system, they help taxpayers, they help the operation of our tax system—they improve it and make it easier to understand—they treat taxpayers fairly, they improve the demutualisation process and we hope that they will result in greater research and development by companies and individuals. They also improve the operation of philanthropic trusts and funds. I support the legislation and am happy to speak on it.

Luke Simpkins (Cowan, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2009 Measures No. 4) Bill 2009. As we have heard, there are five schedules in the bill. Schedule 1 deals with increasing the research and development expenditure cap for determining eligibility for the R&D tax offset from $1 million to $2 million. It is known that the R&D tax offset is available for certain companies that undertake expenditure on eligible R&D activities totalling less than $1 million per year. Schedule 2 is about improving the integrity of prescribed private funds. This schedule will see the administration of a prescribed private fund, a PPF, ensuring complete regulatory control over the PPF by the ATO. PPFs are prescribed by the Governor-General, but this change will remove the need for the Governor-General to do so and will rename PPFs to private ancillary funds, known as PAFs. The schedule will result in these funds being placed under the same regulations as other public fundraising bodies.

Schedule 3 is about providing capital gains tax relief to members of friendly society that demutualise. Friendly societies are bodies that provide a combination of services such as private health insurance, life insurance, aged care and other services for members of the society. In the case of insurers demutualising, members are given cash or shares and are not subject to capital gains tax. Those arrangements are not the same for friendly societies that, when paying cash or providing shares upon demutualising, have no protection from CGT. This schedule will change that and extend the capital gains tax protection to those benefiting from the demutualisation of friendly societies. Schedule 4 will allow for the losses of an entity joining a consolidated group to be transferred to the head company of that group. Schedule 5 has simply minor tax amendments addressing errors and anomalies within existing tax legislation.

I would like to speak specifically on Schedule 1, with regard to the research and development achievements in this country. I have obtained some information from local Cowan business Tieline Technology. Tieline are a leading research company meeting world market demands with modern technology, and they have been doing so for more than 10 years. They have a strong commitment to research and that has been rewarded with their market position. Risk is always a major factor for all research companies. There are always many hurdles to jump, and these come at a huge cost in time to market and in money. R&D taxation schemes are essential aspects of helping business mitigate the risks involved. Tieline employ a team of specialist software and hardware engineers to develop products that are sold into the world broadcast radio and television markets. The team has been responsible for attaining a key award at the 2009 show of the National Association of Broadcasters in the US for a new product that it calls Bridge-IT. Bridge-IT will enable users to transmit broadcast quality low-delay audio between two units anywhere in the world using the internet as a carrier. Two awards were granted in recognition of the Bridge-IT product.

Tieline is a very good local company, and I appreciate their boss’s views on the needs of business. He has told me that while he appreciates any extra R&D support, the business remains subject to staff costs, new government regulations in the work environment and this government calling only firms of fewer than 15 employees small businesses. In fact on this point he believes that 30 employees should be the mark. He also raises the very interesting point that turnover of less than $10 million should be the mark for a small business, that between $10 million and $100 million should be the mark for a medium business and that above that should be the mark for a large business. Above all, this is a business that just wants the government to stop their intervention and allow it to get on with innovation, creativity, jobs and economic prosperity for Cowan, Perth, Western Australia and Australia.

I also received the perspective of David Lockett, of the Western Australian Tourism and Accommodation Guide. They are Western Australian software developers and have developed worldclass software applications and are preparing for sales around the world. Mr Lockett tells me that they have for years been heavily involved in research into new technology, together with the social and economic implications of that technology. They are not alone in this research and development but have worked with other technology developers both here and overseas to identify the best practices and the markets for those products now and into the future. That being said, I thought that I would relay the views of David Lockett regarding research and development in Australia. They have determined that there is a potential multibillion dollar global market available to innovative Australian software developers. David has also formed the view that most successful Australian software developers will probably relocate overseas because the Australian government and business sectors are far too slow in adopting new technology. He attributes this loss, and the potential loss to Australia, on a culture in which those of influence, including influential organisations, fail to take seriously the need for change and often appear to be unaware that significant changes have taken and are taking place. He attributes this to a society that has relied on protectionism and long-established, near monopoly media organisations delivering information and educating the population about important developments that are taking place around the world. He also comments that senior career public servants and politicians who do not possess relevant experience frequently have the attitude of ‘we know best’ and in effect listen to no-one other than themselves and their closest advisers.

Although Mr Lockett’s attitude towards Australia’s willingness to embrace innovation is concerning, it is probably held by many others. Their applications are being developed and tested in Western Australia although they are planning to target overseas markets after testing and the trials have been completed over the next few months. He believes that breaking into Australian markets and changing entrenched local attitudes is very difficult when compared to overseas markets, where individuals are often more effectively educated about important global developments and where individuals and organisations are frequently more open to new information. This will probably mean relocating his business overseas in order to access an environment that is more innovative, is more investment friendly and is less taxation unfriendly, thereby causing Australia to miss out again on the long-term benefits obtained by countries that are serious about developing substantial technology-based economies.

David Lockett provided me with examples of Australia’s failure to embrace innovators and inventions, losing them overseas. Although I did not know it, the aero wing profile used by the Wright Brothers was actually invented in Australia by Mr Hargraves. Similarly, the first feature movie ever made was made in Australia in the early years of the 20th century. Interestingly, the original copy of that Australian made movie was recently discovered in a vault in New York, where it is thought to have laid untouched for almost 100 years. The movie, either indirectly or directly, contributed to the establishment by Samuel Goldwyn of Hollywood, in California—California at that time having a tiny population, only marginally larger than the population of New South Wales—while today in Australia the movie industry remains little more than a hobby for many participants. This is to say nothing of Australia’s contribution to early cartoon animation, which also had to be taken to America in order to be developed by Americans such as Walt Disney. Another instance is the famous Australian-invented Sunshine Harvester. This was possibly the basis on which the massive Canadian based International Harvester company was founded after the original Australian based inventors sold out to overseas investors, apparently because of a lack of support in Australia.

David Lockett’s view is that the only possible reasons for these types of events can be the insular mentality of Australian bureaucrats, politicians, industrialists, investors and the monopolistic Australian media, who today have far too great an influence over what many Australians think, know and say. David believes that by the time the federal government actually gets around to encouraging, organising or authorising the development of substantial high speed internet broadband connections in Australia, it is likely that the technology promoted by the federal government bureaucrats will be obsolete and Australia will then fall even further behind already more technologically advanced countries, such as New Zealand and Taiwan, in the adoption and application of new technology.

I thank David Lockett and Tieline Research for bringing these points to my attention and allowing me the opportunity to relay their perspectives to the parliament. As I said at the outset, I support any efforts to promote research and development; however, it is of concern that the broad range of government policies are not streamlined to achieve the best in this field. It is also of concern, as David Lockett has suggested, that this country has a disturbing history of resting on its laurels and permitting a culture that is contrary to a high technology future. Tax benefits aside, it appears that our greatest challenge is to create a culture across media, business and government that embraces and honours innovation, research and technology while reducing red tape, thereby getting our innovators, researchers and developers into world markets—but from here, not by exporting expertise. This has not yet been achieved and it appears we have a great distance to go.

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

I, too, rise in support of the Tax Laws Amendment (2009 Measures No. 4) Bill 2009. This bill implements a number of budget measures and other reforms to the tax system to benefit business, to improve philanthropic trust funds and to provide capital gains tax relief for policyholders of friendly societies that demutualise. It also makes a range of other minor amendments to tax laws contained in schedules 4 and 5, which I will not go into in any great detail.

In my view, one of the key chapters in the success story that is the Australian economy was the budget assistance provided to Australian small and medium businesses. Measures like the 50 per cent tax break for eligible assets, the $10 million to help small business go online and the changes to PAYG instalments to ensure better cash-flow for small business are all helping to bolster business. They are supporting the economy and, most importantly in the current climate, they are protecting jobs.

The bill before the House implements another budget initiative to support business by boosting R&D tax credits. It was quite instructive to hear the comments from the member for Cowan relating to the comments from his constituent David Lockett about the years of malaise and how Australia had not taken every opportunity, especially of late, to progress research and development opportunities—instead they have fled overseas. When you combine that with the set of government opportunities that were handed over to the Rudd government on election night, the one that screams out to me is that productivity was at an all-time low—at zero, basically.

Why was this so? It was because the previous government had not invested in R&D and some of the opportunities that existed to make the economy leaner. What had they done? They had a full-on attack down the low-wage road in terms of what was really a political strategy rather than a realistic attempt at economic reform. It was attempted political sabotage rather than real economic reform. As any economist will tell you, productivity is the real measure of a healthy economy. Building on the comments of the member for Cowan, one of the ways that you can improve productivity is investing strategically in R&D, not trying to drive wages down—that is not the way to success for Australia.

The boost to R&D credits in the legislation before the House lifts the research and development expenditure cap from $1 million to $2 million from 1 July this year. Companies that spend on eligible R&D can choose to receive a tax offset instead of a deduction. This is a great benefit to companies in a tax loss position. The tax offset is equal to 37.5 per cent of expenditure. The higher cap on expenditure will encourage more companies to invest in R&D to encourage research intensive industries to do more research and to help get Australian businesses working smarter. I have a slightly more optimistic view of Australians’ ability to be competitive in the world when it comes to developing new technologies and developing business strategies that can take on the rest of the world—without relying on low wages as the way to do it.

This bill also implements the 2008-09 budget commitment to legislate guidelines to improve the integrity of prescribed private funds. Prescribed private funds, or PPFs, provide a way for businesses, families and individuals to start their own trust funds for philanthropic purposes. PPFs are income tax exempt and donations to PPFs are tax deductible. PPFs are only able to donate to deductible gift recipients, which are mostly charities. Since they were first set up in 2001—and I commend the Howard government for this initiative—they have received more than $1.3 billion in donations and distributed more than $300 million to charities, $300 million that has been used for the benefit of Australian society.

However, more transparency is needed to ensure the ongoing accountability of PPFs. Currently they have minimal reporting requirements and very little is known about their operation. This bill will increase the regulatory powers of the ATO by moving the administration of PPFs, logically, under the tax commissioner. It also gives the Treasurer power to legislate guidelines and gives the tax commissioner greater power to enforce these guidelines. This is not the heavy hand of government. I understand that the sector is very supportive of these changes and in fact looks forward to greater certainty as to its philanthropic obligations.

I know people often compare Australia’s philanthropic inclinations with the United States, which is not always a fair thing to do because we have slightly different marginal tax rates. Also, what we can be proud of as Australians is the fact that our philanthropic inclinations go across the board. In fact, I recall some surveys that showed that the poorer we are the more generous we are in terms of the percentage of our income that we are prepared to give. Anything that the government can do to support this philanthropic sector is to be commended.

Thirdly, I turn to the demutualisation of friendly societies. This aspect of the bill largely mirrors the legislation concerning the demutualisation of private health insurers which was debated in this House last year and which I spoke on. The demutualisation of a private health insurer or friendly society has a surprising bonus for policyholders. Any accumulated surplus from the fund is distributed to existing members of that fund, usually on the basis of the length of time they have been a member. The downside, especially if you are a long-time member, is that recipients of this surplus are subject to capital gains tax. These amendments ensure that members and policyholders of friendly societies are not subject to capital gains tax when their friendly society demutualises and becomes a for-profit entity, so we will ensure that Mr Swan receives only what is appropriate.

Policyholders who have received shares or a cash payment under these demutualisations would have had to include a capital gain in their 2008-09 tax return. However, as these amendments are retrospective, people who have lodged their return before this legislation is enacted will be entitled to have their assessments amended. This gives certainty to members and policyholders of friendly societies that have demutualised. They can have confidence that they will not face any capital gains tax on shares or payments they have received.

Friendly societies provide life insurance, private health insurance, aged care and other services to their members and policyholders. In the Brisbane area there are friendly societies such as the Sureplan Friendly Society in Spring Hill and the CUA Friendly Society in Brisbane, which are both in the electorate of the Hon. Arch Bevis, and the Family Care Friendly Society, which is based at the Mater in the electorate of Griffith, represented by the Prime Minister, the Hon. Kevin Rudd. This bill will benefit their members by ensuring they do not incur capital gains tax as a result of demutualisation. Potentially up to 1.6 million members around Australia will appreciate the changes that the Rudd government has brought to the House.

This bill also contains a range of other minor amendments to the tax system to correct drafting errors or technical flaws. Such amendments include ensuring that gifts to deductible gift recipients, such as bushfire relief funds, do not result in an employer having a fringe benefits tax and that the foreign income tax offset and foreign loss rules apply as intended. I will not elaborate on these as other speakers have covered them quite adequately, especially the member for Blair. I commend the bill to the House.

Andrew Laming (Bowman, Liberal Party) Share this | Link to this | Hansard source

Speaking in favour of the elements of the Tax Laws Amendment (2009 Measures No. 4) Bill 2009 today, I would like to touch briefly on the R&D tax offset, which is an important bridging measure. As a result of the Cutler review, we will see significant changes after 2011. But, in the meantime, the lifting of the cap from $1 million to $2 million removes a significant perverse element whereby many businesses were restricting their R&D development expenditure to below $1 million in order to qualify for the tax offset. It is important to see that that change has been made.

I want to go to schedule 2 of this bill, which identifies the private entities for which tax-deductible donations can be made by companies and individuals. As has been noted in this debate already, just over 700 of these entities exist. They are an important element of reforms that were made under the previous government in response to the business and community partnerships working group into tax reform in 1999. What that has potentially unleashed is the enormous power of donations to the non-profit sector through these tax vehicles, and there is a very good example of this working very well in my electorate of Bowman. The benefits of being able to invest as an individual or a company in this way are seen in the workings of Redlands Young Champions. This is, as it sounds, an opportunity to fund the efforts of young Australians in my electorate. Recipients have to be of school age. Whether they be participating in sport or non-sporting activities, such a vehicle gives them the potential to fund their dreams to go to the places they wish to go and to fulfil their endowments. It may well be a single event and it may well be interstate or overseas. But it is not limited to sport. What has been occurring through Redlands Young Champions, particularly for lower socioeconomic groups, is that students have a chance to travel for any kind of activity. They can be as young as six or seven years of age, when students first find themselves travelling with sporting teams. They may then go on to orchestras and drama groups. As we move into the teenage years there is the Duke of Edinburgh scheme, science and maths olympiads and exchange programs that may even run overseas.

The first of these announcements of travel bursaries were made in my electorate only two months ago, and I would like to recognise some of them. Ruby Fuller, a student from Cleveland District State High School, has as part of a cultural exchange received assistance to fulfil her dream to travel to the UK later this year through a tax vehicle such as we are discussing today. Jaimie Buckridge has had assistance from Redlands Young Champions to go to the netball interregional championships. Jessica Brown won the Alana Haines Australasian scholarship competition and, to fulfil her dream, was able to rely on an investment from Redlands Young Champions. Claire Innes was also part of the cultural tour to Europe. Amanda Olorenshaw is part of the wind orchestra at Alexandra Hills State High School. I would also like to mention two very impressive young Redlanders—Rylie Holland, who plays netball, and Sarah Chlonta, who collected a bursary to attend the Australian national scout jamboree.

That unlocking of the dreams of young Australians to attend events like these, which are often very costly, is achieved through the changes that were made in 1999 and the further amendments that are being made here today. There are another 20 or 30 winners from that first round, so obviously this is a very large foundation. The benefits are that, through a sponsorship, a company or an individual can make a payment and, without directing how that payment is disbursed, payments can be made to other non-profit entities. So there is an enormous opportunity here for young people right around the country to benefit if these donations are promoted. That is exactly what has happened in Redlands. I should make the point that it is a rolling application procedure, so it does allow people from the age of six to 18 to apply at any time—and, in a rather innovative model, they are judged by members of the community. Once again, that is an arms-length process that allows community members to determine both who receive these scholarships and the size of the awards.

But the final message from this fairly innovative process is that it does not matter what the activity is. We have had so much support for sporting travel—and, of course, people who play sport typically have an entire sporting club behind them to help with fundraising. But what we are seeing here, with the unlocked potential of the Redlands Young Champions program, is that you may be a single person who wishes to attend a science or maths olympiad or a chess championship and there is no club behind you to help you fundraise and pay for that travel. Through the innovative changes that have been made in this area for private and tax-deductible entities to make these kinds of donations, we are seeing a method for both individuals, through both bequests and donations, and also for companies to be able to support their local community. That is one element of this legislation that I wanted to highlight.

Steven Ciobo (Moncrieff, Liberal Party, Shadow Minister for Small Business, Independent Contractors, Tourism and the Arts) Share this | Link to this | Hansard source

I am pleased to rise to speak to the Tax Laws Amendment (2009 Measures No. 4) Bill 2009. In particular, in my capacity as shadow minister for small business, I welcome schedule 1 of the bill, which sees an increase in the R&D tax offset threshold cap from $1 million to $2 million as of 1 July this year. This is a welcome addition. I think it will be positive for small businesses across Australia. The government has the support of the opposition with respect to this legislation. From my perspective I think it is important that we as a nation recognise the need to provide as much incentive as possible for small businesses across the length and breadth of this country to engage in productive, value-adding research and development expenditure.

There is no doubt that in many parts of Australia—and I would mention in particular those small businesses engaged in R&D activities on the Gold Coast—the increase in the cap from $1 million to $2 million will afford them extra opportunity to take advantage of the R&D tax offset in such a way as to be supportive of their research and development efforts. This is important in a place like the Gold Coast because it is in every measure Australia’s ‘innovation city’. ‘Innovation City’ is a term given to our city by the Gold Coast City Council. It is much more than simply a slogan; it underscores the approach that is adopted by all three levels of government—both government and opposition—with respect to our approach to supporting the SME sector on the Gold Coast.

The fact is that, for many of the thousands of small businesses in my city and those that I have the pleasure of representing in my city of Moncrieff, research and development into new technologies, research and development into the commercialisation of technology and research and development into all sorts of goods and services in the future will underpin their continued prosperity into the future. Of course, that continued prosperity is crucial to ensuring that there are opportunities to broaden and deepen the economic base of the Gold Coast. The fact is that, if we broaden and deepen the economic base of the Gold Coast, we will also ensure continued opportunities for there to be sustained employment outcomes in our city as well. So from both a parochial point of view in my role as a representative for the people of Moncrieff and at a national level this is a positive measure and it is certainly one that I believe will be of benefit to small businesses across Australia into the future. With those few words I will confine my remarks to schedule 1.

Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Link to this | Hansard source

in reply—I thank those members who contributed to the second reading debate on the Tax Laws Amendment (2009 Measures No. 4) Bill 2009, in particular the members on the government side. I thank the shadow small business minister for his support for the bill at large but in particular for schedule 1. Schedule 1 lifts the expenditure cap for access to the existing research and development tax offset from $1 million to $2 million with effect from 1 July 2009. This measure provides a further boost to small pre-profit companies in research-intensive industries ahead of the introduction of the new R&D tax incentive in 2010-11. It also mitigates the incentive for firms to keep their R&D spending below the current expenditure cap. That is why we are lifting it from $1 million to $2 million.

I will foreshadow the further reform very briefly. This is really a transition from the old system to a new system, which will be an R&D tax credit. It was announced in the budget, but it was to come in not immediately, from 1 July 2009, but in 2010-11. It is a tax credit that, in effect, is equivalent to the 150 per cent R&D tax concession that was introduced by the previous Labor government but then cut back to 125 per cent in 1996 or 1997 by the incoming Howard government. That did damage the incentive to invest in research and development.

What we are doing here is restoring that incentive but also making it available to small businesses that do not have the taxable income to claim the traditional R&D tax concession. When a tax credit is provided, it is immaterial really, in terms of incentives, whether those businesses have the necessary cash flow or not. That is why it is an initiative that is targeted at small businesses and especially targeted at start-up small businesses. This schedule 1 is a transition to those longer term arrangements that come into effect later. It is all part of the Rudd government’s support for research and development in this country, its support for innovation and creativity.

Schedule 2 honours the government’s 2008 budget commitment to improve the integrity of prescribed private funds and to provide the trustees of such funds with greater certainty as to their philanthropic obligations. The government recently consulted on draft guidelines, which will shortly be made by legislative instrument. Following a thorough public consultation process, the bill amends the Income Tax Assessment Act 1997, the Taxation Administration Act 1953 and the A New Tax System (Australian Business Number) Act 1999 to improve the integrity of prescribed private funds.

Schedule 3 amends the income tax law to provide relief from capital gains tax to members and insured entities of friendly societies that have either a life insurance business or a private health insurance business, or both, when the society demutualises to a for-profit entity. Depending on how the friendly society chooses to demutualise, these entities do not necessarily easily fit within the existing demutualisation regimes. These amendments will provide a broadly equivalent capital gains tax outcome for members and insured entities of these friendly societies relative to that which members and policyholders of a stand-alone life insurer or private health insurer would receive if the insurer demutualised.

Schedule 4 amends the Income Tax Assessment Act 1997 to ensure that losses transferred to the head company of a consolidated group, or a multiple entry consolidated group, by a joining entity that is insolvent at the joining time are not wasted. The head company will be able to apply the transferred losses in one of three ways—that is, the losses can be applied to reduce a net forgiven amount under the commercial debt forgiveness rules; alternatively, they can be applied to reduce a capital allowance that is adjusted under the limited recourse debt rules or to reduce a capital gain that arises when the joining entity subsequently leaves the group.

As the amendments are beneficial to taxpayers, they apply from 1 July 2002—that is, from the commencement of the consolidation regime.

Finally, the bill includes minor amendments to the tax laws. The amendments ensure that the law operates as intended by correcting technical or drafting defects, removing anomalies and addressing unintended outcomes. The minor amendments are part of the government’s commitment to the care and maintenance of the tax law. Minor amendment packages now include addressing minor legislative issues raised by the public through the recently introduced tax issues entry system. I commend the bill to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.