Luke Hartsuyker (Cowper, National Party, Deputy Manager of Opposition Business in the House) Share this | Link to this | Hansard source

I welcome the opportunity to speak on the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. The bill introduces a number of measures, the majority of which are supported by the coalition. The bill introduces protection to the deductions made by investors in forestry managed investment schemes. Previously, investors have been able to make deductions only after the interest is held for four years. These provisions will allow deductions where the four-year rule is not satisfied due to factors outside the investor’s control, such as the collapse of a forestry MIS, the death of the investor and where trees have been damaged by, say, natural disaster.

In the wake of collapses such as Timbercorp, these reforms are welcomed by the coalition as measures to improve investor confidence in forestry schemes by protecting them in unforeseen circumstances. The legislation also makes changes to the rules surrounding managing investment trusts. The government is amending the law to allow managed investment trusts to make an irrevocable election to apply capital gains tax on the disposal of certain assets such as shares and real property. Currently, when investments are disposed of, the proceeds can be classified as capital or revenue depending on the nature of the asset, business and investment activity.

The coalition support these changes because we believe they will provide certainty to investors by allowing MITs to make a one-off choice to apply the capital gains tax rules to the disposal of certain assets. If the MIT does not choose to apply the capital gains tax rules then the proceeds of the disposal will be classified as revenue.

The bill makes changes with regard to the entrepreneurs tax offset. The bill will introduce an income test for those seeking to access the offset. This was originally announced by the government in the 2008-09 budget and deferred. The amendments introduce an income threshold of $70,000 for singles and $120,000 for families. Above these thresholds the maximum offset that can be claimed is reduced by 20c for every dollar of income above the threshold. Whilst the coalition are concerned that these amendments will provide disincentives for entrepreneurs to create and access the offset, we are supporting this government’s budget decision and will monitor its effects.

The legislation also makes some minor amendments, addressing errors and anomalies within existing tax legislation. These changes will ensure the correct operation of existing taxation legislation by clarifying unclear provisions of the consolidation regime addressing incorrect terminology, outdated definitions, grammatical errors and punctuation errors. My colleague the shadow Assistant Treasurer will consider in more detail the elements of the bill I have just outlined.

However, incorporated in the bill are provisions that are of concern to the coalition. These provisions relate to the government’s policy to implement a superannuation clearing house for small business. The superannuation clearing house was promised by the government during the Prime Minister’s 2007 budget reply speech when he was opposition leader. The clearing house will allow small businesses to pay their superannuation guarantee contributions in a block to an approved clearing house at no cost to small business. The clearing house then splits that single payment into individual payments and remits them to each employee’s respective superannuation fund account. The service will be available to employers with fewer than 20 employees. The Labor Party in opposition argued that the Howard government’s superannuation choice policies, as introduced in 2005, increased compliance costs for small businesses, which in many cases were now required to make separate superannuation payments for each individual employee. This situation was a bi-product of the success of superannuation choice—that so many employees chose their own superannuation fund after the policy’s implementation.

The coalition support measures to lower the compliance costs of super guarantee payments to small business. We support the availability of a superannuation clearing house to small business. However, the superannuation clearing house represents an example of another broken promise by this Labor government. Firstly, the government promised that the clearing house would be implemented by 1 July 2009. Early actions by the government indicated they were trying to meet this target. The then superannuation minister, Senator Sherry, released a discussion paper in November 2008 asking for submissions on its implementation. Over 12 months then went by without so much as a word of what the government intended to do with their promise to deliver clearing house services to small businesses by 1 July 2009. Well, 1 July came and went, and surprise, surprise, we did not hear a word. The superannuation industry was left doubting whether the government would actually implement their policy and their promises. But this is a standard pattern for the government in this portfolio—to review and issue discussion papers and then to discuss industry-changing policies that leave the industry guessing what the regulatory environment may be in six months or 12 months time.

This is a government that hit the ground reviewing. Nobody knows what will happen with the Cooper review. The government refuses to release Henry. As for Ripoll and Johnson, the government cannot decide what it wants to commit, and it leaves the industry hanging in the balance—uncertain and potentially confused. We are all constantly waiting for random announcements by the government that may or may not follow recommendations and may or may not even follow its own policy promises.

That brings me to the second promise which was broken by this government with regard to its superannuation clearing house. That was Kevin Rudd’s promise to contract the government clearing house to the private sector. Then opposition leader Rudd issued a media release on 10 May 2007 clearly stating that the clearing house would be contracted to the private sector. On 11 May, Senator Sherry argued very strongly that the policy would not create a new bureaucracy because the clearing house would be contracted to a private operator. The 2008 discussion paper also asked the industry to make submissions on the basis that the contract would be awarded to the private sector. Then something happened in the 12 months that the government sat on its review. What made it change its mind? In November last year, without any warning and without any explanation, the Minister for Superannuation and Corporate Law announced the clearing house would be awarded to Medicare. There were those in the industry acting on the misrepresentation that they could tender for the contract. They have now been cut out of the process with no explanation as to why. As the company, Payment Adviser, said:

When Minister Sherry appealed to the industry to develop a solution for small business, and then put out a discussion paper, we all responded.

As they might!

We did not hear from Treasury or anyone associated with the Government after putting in our submission. We worked to develop this solution and a few other people looked at what they could do to provide a solution to small business. And it was quite a shock late last year for a press release to say that the Government was going to give it to Medicare.

In the Senate inquiry, Medicare claimed that they have completed costings, but refused to publicly release what these were. Medicare admitted in the inquiry that they have not finalised their system for data processing and the types of payments to be accepted.

Medicare have not developed key performance indicators for the scheme, they have no plans for how to deal with errors and they did not consider if anything could be outsourced. Medicare admitted to the inquiry that they have no targets for business take-up; they only have targets to develop the system and to get the system up and running by the due date. They are using all the resources merely to implement a scheme by the government’s timetable so Prime Minister Rudd can be seen to be meeting an election promise—$16.1 million over four years to be provided to Medicare to operate the clearing house. This amount was budgeted when the government were planning to send the scheme to the private sector.

So the government are paying $16.1 million for a clearing house and have not provided how this will be spent. How much will it cost to develop and implement the system? How much will it cost to process each transaction? How much would be spent on labour costs? How much would be spent on system maintenance? These are all questions to which we have no answers at the moment. How will these costs fluctuate depending on the take-up? With no plan for how many small businesses will actually use the clearing house, Medicare cannot answer these important questions. How will Medicare deal with the quarterly massive peaks in workload created by the operation of the clearing house? How will this be staffed? How will this impact on Medicare’s core responsibility to assist in the delivery of health services?

When asked by Senator Bushby if responses from the consultation paper into the clearing house were made available to Medicare for their consideration in terms of building and delivering the system, Ms Hughes from Medicare admitted, ‘We have not asked for any of these documents.’ How can Medicare even understand the concerns of industry if they did not seek these submissions? Medicare will be under no obligation to make superannuation transactions within a minimum time period. The general manager of Medicare told the inquiry that they could not commit to a time because they did not know if there would be ‘issues with matching and some requirement for us to do follow-up work’. Surely, the speedy remittance of funds to a member’s superannuation account is an important element in the selection of a superannuation clearing house, yet that does not appear to be a concern to the government. Funds not remitted in a timely fashion will have an adverse affect on returns to fund managers, yet the speedy remittance of funds does not appear to be a priority for this government.

Existing private clearing houses have systems in place to process transactions. They know how much each transaction costs and they could implement the government’s policy in a relatively short time span with a full business plan. These businesses are being told that they have lost out to a government agency that has not finalised its plan, that has no regard for industry concerns and that does not even know if there will be ‘issues with the matching of some requirements for them to do follow-up work’, as was admitted by the General Manager of Medicare. Craig Osborne, Managing Director of MicrOpay, has made some interesting comments on the announcement:

Medicare is not looking at the full detail that needs to be achieved when there are adequate private enterprise solutions out there ... To run with a government agency that doesn’t have a track record in collecting this information and collecting these sorts of funds, and doing the disbursements and matching and cross-checking that’s needed to ensure the system is efficient, has not been addressed or even contemplated.

So when this government is planning health reforms that may see the workload of Medicare increased it is also handing Medicare responsibility for superannuation payments. Why would the government award the contract to Medicare, which has no experience in superannuation? After the government has received overwhelming evidence that the private sector could easily handle the additional transactions at a fraction of the cost proposed, why would the government announce without warning that it was going to award the contract to Medicare? According to Treasury’s evidence to the inquiry, the decision was made on the basis of risk management. We know how well this government manages risk. We have seen that in action with the insulation affair. It has very interesting risk management procedures.

The legislation provides that employers will be able to discharge their superannuation guarantee obligations by making a bulk payment to the approved clearing house on the 28th day of the month in each quarter when the payment is required. This is different to the current system where employers need to have the payment arrive at the superannuation fund trustee by the 28th of the month when the payment is due, regardless of whether they use a clearing house or not.

The government is now arguing that changing the super guarantee obligations for an approved clearing house will increase the risk of using a clearing house to process superannuation fund payments. Because the employer discharges his or her obligations before the payment reaches the fund, Treasury argues that the risk of processing the payment moves from the employer to the employee. But aren’t employees always at risk with their superannuation guarantee payments? There are, for example, the risks that employers may not make payments on behalf of the employees and that their entitlements may not be respected by an employer. Life is full of risk and it is matter for government to properly manage and assess risk. I must say that when it comes to risk management this government has a very poor record.

At the end of the day, it is employees’ money that is being transferred and risk management is important, but Treasury have not made the case for Medicare. They have made an excuse. They have not made the case; they have made nothing but an excuse. Why this Labor government is worrying about the risk for the clearing house when it undertakes so many risky policies is beyond me. We have seen this government turn policies that have little risk into very risky projects due to its inability to listen to experts. Once again, the Home Insulation Program is the perfect example of that.

We know that the government refused to listen to the experts on home insulation and now it is refusing to listen to the experts in superannuation and payment processing with regard to the clearing house. I ask the government: why do you have so many reviews into superannuation and finance if you refuse to listen to the views of experts? The Investment and Financial Services Association told the Senate inquiry that private clearing houses are well regulated through prudential reporting requirements and that private clearing houses must hold an Australian financial services licence. IFSA told the inquiry that the risk involved with private clearing houses was very low and that the use of private clearing houses provides ‘certainty’.

ASIC requires clearing houses to issue product disclosure statements which must detail the terms and conditions of the facility, any fees and charges, how the transactions are made and authorised, and any risks associated with the facility. Medicare will be exempt from this regulation. If the government is suggesting that companies with this level of regulation are risky, then the minister is suggesting that the current level of regulation is insufficient.

The largest private clearing house provider, SuperChoice, is processing around 20 million contributions each year on behalf of 50,000 employers; 40,000 of these have fewer than 20 employees. If the Minister for Financial Services, Superannuation and Corporate Law, Mr Bowen, is suggesting that SuperChoice and other private clearing houses are risky, then he is telling millions of employers and employees that superannuation payments are already at risk if they are being processed through a private sector clearing house.

All government promises have an element of risk about them. It is up to Treasury to implement these promises whilst mitigating the risk. In this instance, where private clearing houses are well regulated and operating at acceptable levels of risk, it is not good enough for the government to hide behind the risk argument for failing to meet its promise to tender the operation of the clearing house to the private sector. In ignoring its commitment and awarding the contract to Medicare, the Labor government is also giving Medicare a competitive advantage compared to privately operated clearing houses.

Private clearing houses currently operating will still be forced to process their payments by the 28th of the month in which the payment must be made, which requires employers to pay their bulk payments in advance of that date. On the other hand, employers will be able to pay the Medicare clearing house on the 28th, when the payment is required. Under these conditions, why would any employer not choose Medicare as its clearing house?

I remember one of the last acts of the Keating Labor government was to sign an agreement with the states on the principles of competitive neutrality. Competitive neutrality is overseen by the Productivity Commission and requires all government agencies to compete on a level playing field if they are competing with private industry. As a principle, the coalition believes in competition and efficient markets. Competitive neutrality is a favoured principle in legislation and will impact on the private sector. This legislation enshrines principles that contradict those of competitive neutrality. Medicare will have a clear advantage over private sector clearing houses. As ASFA have argued, the government’s scheme ‘has the potential to deliver commercial damage to existing providers of clearing house services’.

The industry are questioning whether this was a rushed Rudd government decision to give Medicare the contract so that it could announce that it was meeting its clearing house commitment before the next election. Who knows? Mr Osborne of MicrOpay says:

Like the home insulation debacle, it begs the question of why did the government not listen to the experts in this area—payroll, banks, super funds?

Peter Philip, CEO of SuperChoice, puts the issue plainly by saying:

We certainly feel that what the Government is proposing will create distortions in the market ... how could it not when they’re funding with public money a clearing house that will be a significantly advantaged competitor to existing clearing houses?

The bill as drafted misses a real opportunity to implement an efficient superannuation clearing house market by extending the definition of an ‘approved clearing house’ to privately operating clearing houses holding an AFS licence and subject to prudential requirements. This would level the playing field and allow employers to make their superannuation guarantee payments to a number of clearing houses with the same deadlines. These changes would increase competition and lower fees in the sector.

Private sector clearing houses have worked to meet the needs of the market. They have been operating efficiently without issue. The bill as drafted will damage this market. As Mr Osborne says, the provisions are:

… certainly a substantially larger investment than what has been earmarked and that does beg the question: ‘Does the Government really understand the complexity and nature of what they are trying to achieve?’ And the answer has to be no.

This entire clearing house exercise has been another example of waste and mismanagement. The government is showing a reckless regard for the companies backing Australia’s retirement system.

In conclusion, $16.1 million has been allocated to the clearing house over four years and we still do not know if Medicare is able to deliver an effective scheme within the allocated budget. Private sector clearing house operators have delivered efficient and low-risk services to employers for many years. The legislation as drafted will give Medicare a significant competitive advantage against private sector operators, who have found a need in the superannuation market and developed innovative technologies to fulfil that need.

I await the outcome of the Senate inquiry with interest. I foreshadow that the coalition will be moving amendments in the Senate to provide for competition in the market, to make the provision of a government funded clearing house contestable. We will certainly be moving amendments in the Senate which would place all clearing houses on a competitive footing.

We have support for some elements of this bill, but we have major reservations with regard to the impact of the proposed government funded clearing house. It has been a retrograde step by this government to depart from its promise to have a service that is provided on a contestable basis. We have no problem with the allocation of the job of the government funded clearing house to Medicare if Medicare is able to compete with private sector operators and put in a bid that is price and service competitive and offers the same degree of amenity or better amenity than is being offered by private operators. But there is a very distinct possibility that we are going to squander large amounts of government money and see a more expensive solution and a less customer orientated outcome. We will see small business being the loser out of this. We will see the taxpayer being the loser out of this. What does the government have to lose by putting this issue out to public tender, allowing the private sector to compete for a service and allowing this market to operate on an arms-length basis without a government preferred operator in the field? I have real concerns with this legislation, and we will be moving amendments in the Senate in that regard.

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

I speak in support of the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. I hope that small business operators across Australia listened to the nonsense that the member for Cowper just went on with. We took this commitment about the superannuation clearing house to the people in 2007. It was part of our policy, we took it to the people and they voted in the Rudd Labor government. We are trying to implement our policy. Those opposite, in their typical obstructionist way, today are saying that they are opposing it. There are three-quarters of a million small businesses in this country, employing about four million people. Those people need assistance. They are burdened with the kind of regulation that the Common Market in Europe has, because of the idiocy and eccentricity of our federal system and because governments of both persuasions over decades have increased the burden on business. We are trying to assist small business. We took this to the people. They voted for us and they voted for this policy.

The member for Cowper says in this House that the opposition want Medicare to be a superannuation clearing house like other private operators. So they want Medicare, a government entity, to be in the market with respect to the superannuation clearing house industry. But that is a bit inconsistent with a policy that has been enunciated by those opposite with respect to private health insurance. As I understand it, they want to privatise Medibank Private, effectively a competitor, which is government owned. They want to privatise it and are against the government being involved in the private health insurance sector. But they want Medicare, a government operated entity, to be involved not just in the assistance of people with respect to health issues and not just in the superannuation clearing house area but competing in the marketplace as well. That is what I understand the opposition are saying. If their policy was to support some sort of superannuation clearing house, when, during nearly 12 years tenure on this side of the House, were they going to do it? When were they going to help small business operators? They did not. We never saw their legislation during their time on the treasury bench.

What we are trying to do here is support small business. Every single person who is a small business operator takes a risk. Deputy Speaker Slipper, I know you were in business before you came to this House and I know the member for Dawson, who is in the chamber, was also in business. He knows the risks involved. When you are involved in business you do not get much protection. You do not get sick pay or holiday pay, annual leave, leave loadings or penalty rates. You take a risk every day trying to achieve commercial success. Running a small business is tough, and we need to give assistance to small businesses, as I have said many times. We recognise and applaud the sacrifices of small business operators, because they are the backbone of the economy; they are the major employers in our economy. They are vital to the economic prosperity and financial security of the people of regional and rural Queensland, whom I represent. The contribution of small business to the nation’s prosperity and to job creation, particularly with the nation-building and stimulus package, can never be underestimated. It is immense. What we are doing in schedule 1 of the bill is introducing an operation which will assist small business.

The introduction of the choice of superannuation schemes in this country has been a positive thing for employees. It has given them greater control over financial security for their retirement and over the way in which their retirement savings are invested. Those things are crucial to their future. But we need to ease the administrative burden that is imposed on small business. Providing employees with choice has created another administrative burden, so to assist small business the idea of a superannuation clearing house is important. It will reduce the time and compliance costs for small businesses, which is crucial for their future. Payments will be made to a central location. The clearing house—and we think the appropriate entity is Medicare Australia, for reasons I will outline—will handle all forms of filing, checking and distribution and receipt of contributions. As we have said before, the superannuation clearing house service will provide these things free of charge for businesses with fewer than 20 employees.

Contrary to what the member for Cowper said, we have kept our promise. We have decided that Medicare Australia is the most appropriate entity, and I agree. We have kept that promise and we have committed $16.1 million over the next three years to implement it. We think it is important for small business, as I have outlined. The Minister for Financial Services, Superannuation and Corporate Law, the Hon. Chris Bowen, in his media release of 6 November 2009, said:

Medicare Australia is well placed as one of the Commonwealth Government’s key service delivery agencies—with significant electronic and payment processing capacity whilst ensuring the privacy of information and the security of funds.

He said that in the context of explaining why we have chosen Medicare Australia to be the entity that operates as the superannuation clearing house. As I said, the service will be available for small businesses with fewer than 20 employees from the middle of 2010.

This is another brick in the wall, another instalment, in our strong reform process to assist small business. The key features, as the minister said in his press release, will be that the superannuation contributions made to numerous funds will be electronically paid to a single location, the clearing house, which will process the transactions. Small businesses that choose to use the clearing house service will have their legal obligation fulfilled when they pay those moneys to the superannuation clearing house; namely Medicare Australia. As I said, it will be offered free of charge to small businesses with fewer than 20 employees. The superannuation clearing house will manage employers’ choice of fund obligations.

This is an important reform to assist small business. Those opposite present themselves and posture as the party that help small business. They do not. They say it but they do not put it into practice. If they believed in the reform that the member for Cowper was talking about, they would have introduced their version of this amendment during their long tenure on the treasury bench. They did not. It has always been left to Labor governments to be the reformist governments of this country. When it comes to business changes, we are the ones who brought in the superannuation industry, reduced tariffs and internationalised and opened up the economy. We did it all. From Whitlam’s day, through Hawke and Keating and now under Rudd, we are the ones who do it, not those opposite.

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

The honourable member for Blair ought to refer to the Prime Minister by his title.

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

I am happy to refer to the Prime Minister by his title: the Hon. Kevin Rudd, member for Griffith. As I said, this will reduce the burden for small business and is worthy of support. It is a great shame that those opposite do not support schedule 1.

This legislation, as is usual, deals with amendments to the tax legislation by way of schedules. Schedule 2 of the bill deals with investment in forestry managed investment schemes. When I was in private practice as a lawyer I dealt with a number of these types of schemes in the context of marriage break-ups and in the context of other business arrangements. Investors in forestry managed investment schemes can claim an immediate tax deduction for expenditure incurred in the scheme, subject to certain conditions, and that is why people enter into these arrangements. There is a four-year holding rule, which effectively means that, in order to claim and retain the deduction, what is required is that there is not a capital gains tax event which occurs during that four-year period. If, for example, something happens that results in a capital gains tax event emerging, then there are problems with respect to the deduction, and the Commissioner of Taxation disallows it—and the commissioner has no discretion in relation to it. So schedule 2 amends the tax law to protect the deduction of investors in these types of schemes from being denied for reasons which are genuinely outside of the investor’s control. The member for Cowper outlined some of those changes—and I agree with him actually—for example, insolvency or where trees were destroyed by fire, flood or drought.

Schedule 3 deals with managed investment trusts and the capital treatment in taxation of those interests. It amends the tax laws to change the way gains and losses on the disposal of certain investments are treated, and these were announced in the 2009-2010 budget. In effect, the changes in schedule 3 allow an eligible managed investment trust—that is, a person—to irrevocably elect a capital account treatment for gains or losses on the disposal of certain assets from the previous financial year. Investors are entitled to claim the capital gains tax concessions and eligible taxable gains, distributed of course by managed investment trusts. If an eligible managed investment trust does not make an election to have the capital account treatment, then gains or losses and disposal of shares or units are treated as revenue and are therefore taxable. Schedule 3 ensures that tax law will clarify that the distribution or gains on carried interest units in a managed investment trust are treated on the revenue side.

The government announced in the 2009-10 budget that it would amend the tax laws to allow gains or losses on disposal of certain Australian managed investment trusts to be subject to a capital gains tax regime, and that will assist investors—because they will be winners in the circumstances of this legislation. It will allow the eligible managed investment trust to make an irrevocable choice to apply the capital gains provisions as the primary code for assessing gains or losses and disposal of eligible assets—as I said, shares, units or real estate. That will provide certainty, and that is part of the government’s strong efforts to ensure that the Australian market, whether it is in the area of shares or property or managed investments, is attractive to not only Australians but to those eligible non-resident investors as well. We think that is important as we compete with the likes of Singapore, Hong Kong, Tokyo and Beijing.

The other amendments are fairly minor. They deal with the entrepreneur tax offset, which provides eligible taxpayers with a maximum tax offset of 25 per cent on their income tax liability which is attributable to their net small business income for that financial year. The ETO amount phases out over time. It phases out at aggregate turnovers of $50,000, and eligibility ceases when aggregate turnover reaches $75,000. The introduction of an income test here into the eligible criteria ensures that the measures are targeted better for taxpayers’ purposes and provide additional assistance to small businesses.

The final schedule is schedule 5, and that just deals with consolidation and various technical amendments. I will not go through all of those, but they, of course, improve the operation and clarification of certain aspects of tax law and they reduce compliance costs. Those savings arise as the result of amendments relating to the way units, managed trusts and rights to future income are treated. So, while they are not particularly interesting to the average person, they do improve business, they improve the profitability of business and they assist with the certainty of business operations with respect to taxes. Professional and business groups have been consulted on the draft legislation and, contrary to what the member for Cowper said, there has been significant support in industries for what we are doing here. I commend the legislation to the House.

Sussan Ley (Farrer, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I am pleased to make some brief remarks on the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. My colleague the member for Cowper has covered the first schedule well. It deals with his area of operations, superannuation. I would like to make some comments on schedules 2 to 6.

Schedule 2 implements the announcement by the Assistant Treasurer on 21 October 2009 that the government would amend the law to protect the deductions of investors in forestry managed investment schemes where the scheme collapses before the four-year rule is satisfied. The four-year rule requires investors in forestry managed investment schemes to maintain their investment in a scheme for four years. Currently, if a taxpayers’ interest in a scheme is not held for four years, the investor cannot claim a deduction. The amendments in this schedule allow investors to claim deductions if the four-year rule is not satisfied because of factors outside the investor’s control. This is an important measure, because there are factors that have been occurring outside of the investor’s control. Principally, we have seen in recent years the insolvency of several MISs, and the effect that has had on investors has been in some cases quite devastating. According to their current interpretation of the law, the tax office have not had the ability to allow the deduction, even though the facts around the ending of the MIS have been quite clear and clearly beyond the control of the investor. The law does not, as it currently stands, allow that scope.

Situations that could be genuinely outside the initial investor’s control that are noted in the explanatory memorandum include the accidental death of the initial investor, the interest in the scheme being compulsorily transferred because of marriage breakdown or compulsory acquisition by a government, the initial investor becoming insolvent, the interest in the scheme being cancelled because of trees being destroyed by fire, flood or drought, and the insolvency of the manager of the scheme leading to the winding up of the scheme. Those are some examples. The amendments in this schedule do have a retrospective application from 1 July 2007 and will provide some welcome relief to those particularly who were caught up in the ending of many MISs over the last two years due to the firms going into liquidation.

Schedule 3 amends the tax law to give effect to a measure announced in the 2009-10 budget. In the last budget the government announced that they would amend the law to allow managed investment trusts to make an irrevocable election to apply capital gains tax on the disposal of certain assets such as shares and real property. Through our ongoing consultations with businesses and tax agents, I know that the amendments in schedule 3 will provide certainty to investors. The amendments will have effect from the 2008-09 income year.

Schedule 4 introduces an income test for those seeking to access the entrepreneurs’ tax offset. The introduction of an income test was first announced by the government in the 2008-09 budget and later deferred until the 2009-10 budget. The entrepreneurs’ tax offset was introduced by the former coalition government and took effect from 1 July 2005. It was intended to provide an incentive for very small businesses in the early stages of business development. The entrepreneurs’ tax offset provides a maximum tax offset of 25 per cent of their income tax liability that is attributable to their small business. The amendments in schedule 4 introduce an income threshold of $70,000 for singles and $120,000 for families to take effect from 1 July 2009.

Schedule 5 amends the tax law relating to the consolidation regime. The consolidation regime has undergone continuous improvement since it began in 2002. In 2007 the then Assistant Treasurer, the member for Dickson, announced that the then government would amend the law relating to the consolidation regime to clarify certain unclear provisions and to improve the consolidation regime’s interaction with other areas of the tax law. The then government began to undertake extensive consultation with industry stakeholders on the amendments. Schedule 5 contains the amendments to the consolidation regime initiated by the former coalition government.

Schedule 6 contains housekeeping amendments, as is common in many of these tax law amendment bills. It makes a number of minor changes to the existing tax law to ensure they operate as was intended. The bill was introduced into this place on 10 February 2010 and contains various technical aspects amending tax law. As such, I commend the bill to the House.

Sharon Grierson (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

I rise to support the Tax Laws Amendment (2010 Measures No. 1) Bill 2010, which amends various taxation and superannuation laws to implement a range of improvements to Australian tax laws. Those improvements will give more clarity and more certainty around tax law, something the Rudd government have committed to. It is also an incredibly important bill for the thousands of small investors, mum and dad investors throughout Australia, who certainly saw some link between taxation law and their readiness to invest. This bill seeks to renew stability for managed investment trusts following the collapse of Great Southern and Timbercorp early last year, and therefore to pare down and modernise the tax system and to deliver on our government’s election promises. It attempts to rebalance the scales of business investment and manage risk.

This is a bill I have had some connection with as a voting member on the Joint Parliamentary Committee on Corporations and Financial Services. I was involved in the inquiry into agribusiness managed investment schemes which was the basis for some of these amendments. The corporations and financial services inquiry and this subsequent legislation have been a rapid and, hopefully, effective response to what was a very real problem. It is estimated that Great Southern and Timbercorp had 43 per cent of all managed investment scheme businesses in Australia within their portfolios and MISs accounted for 100 per cent of their business. The schemes collapsed in April and May last year taking with them over $3 billion from 60,000-plus investors. The investors were attracted by the offer of an immediate tax deduction on their investment combined with the possibility of a long-term return. However, a number of intervening factors that were out of their control, such as drought, the global financial crisis et cetera, meant that many high risk factors that investors had not anticipated resulted in a devastating financial blow to individuals who had no other means nor in some cases the business acumen to deal with them. This legislation amendment, taking into account the findings of the inquiry, aims to prevent such an event happening again.

The bill’s amendments are divided into six schedules. Schedule 1 of the bill delivers on our 2007 election commitment to introduce an optional superannuation clearing house service free for eligible small businesses. Last year the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, announced that the superannuation clearing house service would be implemented through Medicare Australia. It will become available in July 2010 and businesses will be able to register for the scheme from May 2010 onwards. The clearing house will cut the red tape for small businesses and it will remove the time and paperwork burdens arising from the need to pay contributions into numerous superannuation funds. I remember that in the last parliament the House of Representatives Standing Committee on Economics, Finance and Public Administration, chaired by Bruce Baird, looked at maximising participation in superannuation. This was one of the areas it did suggest and recommend, so it is great to see that it has been taken up.

Schedule 2 amends the existing tax regime to protect the deductions of around 19,000 investors in forestry managed investment schemes from unintended and adverse tax outcomes. It strikes a balance between protecting certain investors’ deductions and discouraging the kind of excessively risky behaviour that led to the collapse of Great Southern and Timbercorp in April and May last year. As I have said, that collapse cost over 60,000 investors in the order of $3 billion. It also ensures that taxpayers are not unfairly affected as a result of those events outside their control.

Bob Katter (Kennedy, Independent) Share this | Link to this | Hansard source

You realise it’s a tax dodge in a protection bill, don’t you?

Sharon Grierson (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

I think the previous bill had that element in it. Schedule 3 builds on the amendments contained in schedule 2 of the bill and changes the way in which gains and losses on disposal of specific investments by Australian managed investment trusts are taxed from the financial year ending June 2009 onwards. The bill also clarifies the position of the law with respect to the disposal of eligible assets by managed investment trusts. The current arrangement was developed under the auspices of the common law and is at present unclear and unnecessarily complex. Under the current law, gains and losses may be recorded on revenue or capital accounts, depending on the circumstances, including the nature of the business or investment activity. The bill provides certainty to Australian managed investment trusts and allows eligible managed investment trusts to make an irrevocable choice to apply the capital gains tax provisions as the primary code for assessing gains and losses on disposal of eligible assets. This is a bill that will assist investors, and of course very many investors at the moment are trying to recover from their losses and plan for their retirement and their future.

Schedule 4 amends the Income Tax Assessment Act 1997 to introduce an income test threshold into the entrepreneurs tax offset, with a view to facilitating small business growth. The amendment targets the benefits of the offset for small businesses that do not earn additional income not referable to the relevant small business. It does this by beginning to phase out the tax offset on a graduated scale at an aggregated turnover of $50,000, and the entrepreneurs tax offset ceases at an aggregated turnover of $75,000. By restricting the eligibility of single individuals whose income is over $70,000 and members of families whose incomes are over $120,000, the entrepreneurs tax offset builds on our government’s commitments to means testing.

Schedule 5 similarly amends the Income Tax Assessment Act 1997 in response to practical issues arising from the implementation of the consolidation regime since its introduction in 2002. This schedule has the explicit support of business and professional groups seeking greater certainty in the consolidation regime. Several of the amendments will improve the cost effectiveness of the restructuring of consolidated groups into multiple entry consolidated groups and vice versa. In particular, the amendments minimise the tax consequences of restructuring and clarify the operation of the tax cost-setting rules which apply when an entity joins or leaves a consolidated group.

Schedule 6 includes miscellaneous amendments which remove anomalies arising from implementation and correct drafting defects. These amendments stem from feedback from tax professionals and the general public provided through the Tax Issues Entry System.

When I spoke to the House on the financial services committee’s report on agribusiness I commented that I hoped the matters raised would result in a regulatory framework that puts more emphasis on consumer protection, and I think this bill does that. I congratulate the minister for that, and of course the committee chair, Bernie Ripoll. It does show that we are committed to improving processes and making sure that there is clarity and that investors have confidence and certainly will not be in a situation, as we have recently seen, of great loss. The amendments do illustrate the government’s commitment to the continual process of review and modernisation of the Australian tax system.

Another inquiry held by the Joint Parliamentary Committee on Corporations and Financial Services is of relevance too—its inquiry into the operation of Australia’s franchising code of conduct last year. I note that Australian franchises employ more than 400,000 people and turnover is around $130 billion a year. However, some elements of the code, in particular its provisions on unconscionable conduct, in some cases failed to stop unethical conduct by big businesses and franchisors towards small businesses and franchisees. This week the Minister for Small Business, Independent Contractors and the Service Economy, the Hon. Craig Emerson, announced sweeping changes to that code in light of this committee’s inquiry as well as a number of other inquiries that have been held by the states. It is good to see that this government is serious about making sure we respond to the needs of business and the needs of investors as well. These are people who put their income and their future on the line.

I have also talked in the House about issues around phoenix companies. We have had a quite distressing experience in Newcastle. Another important announcement affecting small business was made in November of last year by the Assistant Treasurer, Senator Nick Sherry, who released a package of proposals that aimed to crack down on businesses who rip off their workers and the general taxpaying community. This has been an issue of particular relevance in my electorate of Newcastle and the surrounding region. Too often, particularly in the construction and development industry, there have been examples of companies engaging in questionable and dishonest behaviour, leaving former employees being owed considerable amounts of back pay and superannuation, and causing misery to contractors, suppliers and other workers on those sites. This government certainly is very serious about its commitment to corporate responsibility. It is committed to clearly defining the roles and responsibilities of the key players in the corporate and commercial sectors, and giving some confidence that a framework is in place to protect investors and other people involved.

At the same time, the Rudd government understands that it is vitally important to maintain conditions that allow businesses to prosper of their own accord, that reward entrepreneurship and that foster economic wealth. Catering for the demands of two considerations is not always easy, but they are not mutually exclusive. With legislative amendments like the ones before the House today, we can strike a balance between accountability and prosperity. The Rudd government understands how important its role is in attending to the care and maintenance of tax laws. They do need intervention if they are left too long—the complexities grow and the uncertainty grows. We are committed to assisting compliance cost savings, with a strong financial and taxation framework. I commend the bill to the House.

Debate (on motion by Mr McMullan) adjourned.