Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Link to this | Hansard source

I rise on behalf of the opposition to address the Tax Laws Amendment (2011 Measures No. 5) Bill. I want to briefly do two things—to run through some of the detail of the five schedules in the bill, and to address a related issue on one aspect of one of those schedules. The opposition will not be opposing this tax law amendment bill. The five schedules deal with, as you would expect, a range of aspects—some of them are rectifications to the tax law; others are to implement budget decisions. While the coalition obviously have varying views on each of the schedules, ultimately we will not be opposing the bill.

As was outlined by the Assistant Treasurer in the second reading speech some days ago, and as is detailed in the explanatory memorandum, this tax law amendment bill has five schedules. Two of them deal with trust law, and I will deal with both of them together. The first schedule deals with changes to trust law regarding income averaging and farm management deposits. As we know, income averaging is used to smooth primary production income over time. Under tax ruling 95/29, a beneficiary of a rural trust was considered to be carrying on a rural enterprise in a year when the trust suffered a loss and could thereby continue to average their income and maintain their farm management deposits.

In a 2010 High Court case, Commissioner of Taxation v Bamford, it was decided that a beneficiary to a rural trust could not be presently entitled to a share of trust income if there was no income to be distributed. This had the flow-on effect of the beneficiary losing status as a primary producer and therefore, naturally, the ability to retain farm management deposits. In essence, as outlined in the government's second reading speech and in the explanatory memorandum to the bill, the effect was to overturn the substance of that tax ruling. As sometimes occurs, this schedule reinstates the law to the place where it was before the Bamford case, and we on this side of the House acknowledge that that will be welcomed by rural businesses that use trust structures.

Schedule 2 deals with trust income streaming and affects trusts in receipt of capital gains or franked distributions. The changes within the schedule are also a result of that same decision which altered some of the legal definitions of trust beneficiaries. In particular, it raised fundamental issues regarding the mismatch between the amount beneficiaries can be assessed for tax purposes with the amount they are entitled to under the tax law. This mismatch, according to the explanatory memorandum, could result in the potential for tax manipulation and avoidance. The government asked the Board of Taxation for advice on what changes were required immediately, pending a broader review of trust taxation. The measures in the bill flow from that advice. The government released a discussion paper back in March. The consultation resulted in the inclusion of specific anti-avoidance rules and a carve-out for managed investment trusts. The new law allows trustees to stream capital gains and franked distributions to specific beneficiaries. It also introduces the concept of a specific entitlement to ensure a beneficiary's share of this stream reflects their entitlement under the trust deed and it introduces specific anti-avoidance rules so that income cannot be sheltered in exempt beneficiaries. We are told through the explanatory memorandum that the financial impact of both of these first two schedules is nil.

Schedule 3 makes some technical amendments to the National Rental Affordability Scheme. I will not elaborate on that beyond what has already been pointed out. Schedule 4 and schedule 5 deal with two budget announcements. The first is the phasing out of the dependent spouse tax offset, which was announced just a few weeks ago. The dependent spouse tax offset will not be available for spouses 40 years old or younger, meaning that it will be phased out over time as fewer and fewer people are eligible to claim it. The budget announcement dressed this up as a measure to remove the disincentive for younger dependent spouses without children to remain out of the workforce, but given the financial impact it is obvious for all to see that this is a savings measure that the government has jumped on at the first opportunity. Whilst it was in the budget, it was not identified by the government itself at any prior point in time.

The final schedule deals with fringe benefits tax rules for motor vehicles. This has received a significant airing. All of the legislative changes for this measure will have an ongoing gain of nearly $1 billion in revenue over the forward estimates. We are told that it will be $961.9 million precisely over the next four years. The member for Fremantle and I will check in four years time to see whether it is $961.9 million precisely, but that is what we are told in the explanatory memorandum. It obviously occurs from significant changes to the way that FBT works for motor vehicles. It was well aired in the days after the budget. It will mean those who drive fewer than 15,000 kilometres a year will pay less FBT. We are told that those who drive 15,000 to 25,000 kilometres a year will pay about the same, and those who drive more than 25,000 kilometres will, in all likelihood, pay more fringe benefits tax. I will not go through all of the details other than to say that it is obvious that the government has also grabbed this measure to raise as much revenue as it can. The increase in revenue is actually over five years, so the member for Fremantle and I will have to wait a little bit longer. Most of the gain is in 2014-15, so it is mostly over the forward estimates. We are told in the table of revenue gains that there will be a small gain in 2010-11.

I did say at the outset that there was another issue I want to address and that relates to trusts. As I said in relation to the first measure, the coalition welcomes the changes in the bill which make improvements in laws relating to primary production trusts. However, coalition senators in particular have identified other taxation laws relating to primary production trusts which should be improved. Under the Income Tax Assessment Act 1997 primary production trusts can defer taxation liabilities on profits from the sale of livestock in years where they have been affected by drought, flood, fire or disease, but if the beneficiary of a trust dies this is considered a disentitling event. Tax liabilities cannot continue to be deferred after a disentitling event. As a result, tax deferrals cease and the trust is liable for tax on profits deferred in the year that the death occurs. That is all outlined in section 385/163(3) of the 1997 act.

I am told that under the previous tax law the Commissioner of Taxation had discretion and under the current act that discretion does not exist. The coalition was prepared to move a second reading amendment to this bill to give it an airing and to try to have that matter rectified. There were discussions with the Independents and with the government. The coalition recognises and appreciates those discussions which were led by my colleague Senator Cormann. As I said, those discussions were not only with the crossbenchers but also with the government. Following those discussions, the coalition has decided not to move an amendment to this bill on this issue as a result of the fact that the government have agreed to make the necessary legislative changes to rectify this issue in the near future. On behalf the coalition, I say that we take the government and the Assistant Treasurer at their word.

We welcome the government's comm­itment on this important issue which was identified in the recent Senate estimates hearings, I am told. We look forward to the government and the tax office bringing forward the relevant amendment—no doubt in a future tax law amendment bill that will come before this House in the not-too-distant future.

Melissa Parke (Fremantle, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of this legislation and the provisions it makes in relation to the fringe benefit tax on employee vehicles and the tax amendments to the Rental Affordability Scheme. This reform is a small but significant part of the government's steady, thorough progress towards creating a sustainable energy future for Australia. That can only be achieved by ensuring that policy settings across the board provide incentives for energy efficiency in all areas of the Australian economy and of Australian life, and on the other hand, by removing what might otherwise have functioned as unnecessary incentives for inefficient energy use. This relatively small piece of tax reform achieves that by removing a tax calculation that had the effect of rewarding those who drive company vehicles more than they otherwise would. The amended approach will instead encourage a more conservative, energy efficient approach to car use for work purposes.

This is also an example of the government's willingness to reform the tax system in the interests of ensuring that the structure of tax assessments and concessions is actually working to achieve appropriate economic and wider policy outcomes. Where that is not the case and where there is a setting that forgoes revenue or makes a support payment that is unnecessary and ineffective, or even, as in this case, travelling in the wrong direction, it is absolutely right for government to say, 'We are going to make savings and we are going to apply government funds and concessions so that they work to achieve the positive reform that Australia needs right now and in the long term.'

Under the existing FBT regime, an employee issued with a company vehicle would be liable to pay fringe benefit tax according to one of two separate cost calculations: the operating cost method and the statutory formula method. The proposed changes will not affect the operating cost method of calculating FBT which still allows for the use of log books to maintain a record of personal and work related travel. This bill addresses inadequacies in the statutory formula method by removing factors that encourage higher vehicle usage and rep­lacing them with a single, fixed percentage fringe benefit tax calculation. Using the statutory formula method, an employee's fringe benefit tax liability is calculated using a sliding scale of cost per kilometre, with the cost declining as the number of kilometres travelled increases. The original rationale for this approach was based on the assumption that personal usage would remain static and that any additional travel would be work related. That assumption, however, no longer reflects the current state of vehicle usage data, which in fact indicate that the FBT calculation is having the general effect of increasing vehicle use irrespective of work related transport needs.

According to Australia's future tax system, commissioned by this government, the incentive in the current FBT arrangements for employees to use their vehicles more regularly in order to reduce their tax liability, is in turn leading to more road congestion and higher pollution, which of course increase carbon emissions and undermine the effort to address the causes of dangerous climate change. As I understand it, something like 80 per cent of all transport relies on petroleum based fuel. In making the transition to a more sustainable energy future, we must keep in mind that the range of renewable energy resources, while good for producing low or zero emission electricity, are generally not an appropriate replacement transport fuel. That is why we need to keep our focus on the energy demand side of the equation when it comes to transport and on the pursuit of energy efficiency in personal, business and particularly freight transport.

This bill helps to move Australia towards a more transport energy efficient future by removing a tax assessment calculation that has had the effect of encouraging people to use company supplied vehicles more than they otherwise would and for no additional social or economic purpose. Not only has it had the effect of rewarding what in many cases was unnecessary car use; in so doing, it has also inevitably dissuaded people from choosing to car-pool or to use more sustainable modes of transport such as trains, buses and bicycles.

The changes that this bill represents are eminently sensible. The bill reforms the FBT calculations as they apply to work vehicle use so that there is no unnecessary incentive in our tax system for excessive work vehicle use. It will also no doubt mean a reduction in single work vehicle use and a rise in the use of shared travel and public transport and, finally, it represents an important cost saving to government.

Other important measures in this bill include the tax law amendments to the National Rental Affordability Scheme. These amendments are designed to simplify the scheme and make it less restrictive, which will result in an increase in affordable rental housing available to Australian families. This change has even more significance at a time when families are struggling with record high rental rates, especially in Western Australia. For all these reasons, I support the bill and I commend the minister for his work in continuing the difficult but critical task of tax reform.

Andrew Leigh (Fraser, Australian Labor Party) Share this | Link to this | Hansard source

The great achievement of the Labor government has been a serious ongoing commitment to tax reform. It is with taxes that we build society and a hallmark of this Labor government has been focused and consistent attention on tax reform. We, of course, commissioned the Henry review, a root and branch tax review, which has for the first time in a generation looked across the tax system at how to make it work more effectively. As the Henry review in its opening noted:

A 21st century tax and transfer system should meet its purposes efficiently, equitably, transparently and effectively. Critically, it would support per capita income growth rates at the upper end of developed country experience by encouraging high workforce participation, a more efficient pattern of saving, and stronger investment in education and physical capital.

The Henry review noted that revenue raising should be concentrated on four robust and efficient tax bases: personal income; business income; private consumption through broad, simple taxes; and economic rents from natural resources and land.

The Henry review has underpinned much of what the government has done on tax reform. Commentators, I think, have missed one of the big stories about the recent budget, which is that it contains substantial tax reform, not the sort of tax measures that we saw all too frequently during mining boom mark-1—recycling revenue into badly targeted measures—but measures that focus on how to make our system more efficient and more equitable, and operate on a simpler basis. It is for that reason that this government is going about putting in place a minerals resource rent tax, a tax that will ensure that Australia's big mining companies at last pay their fair share, a tax that sits very much in the tradition of the progressive side of politics of ensuring that taxes are paid by those who can best afford them and that taxes impose a minimum deadweight cost on the economy. Growth is a Labor value. Increasing the size of the Australian economy is absolutely critical and the minerals resource rent tax will see us do that. Another substantial tax reform is carbon pricing. We are recognising, through a fixed carbon price and then an emissions trading scheme, that the best way of dealing with dangerous climate change is to go to the heart of the problem, which is dangerous carbon pollution. At the moment, polluters can put as much carbon pollution into the atmosphere as they like. They do not pay for carbon pollution. Carbon pricing has been presented as an environmental reform but it is of course also an economic reform. The most effective way of getting carbon abatement in the Australian economy is to put a price on carbon, not through the coalition's grab bag of subsidies for polluters but going straight to the issue, putting a price on pollution and bringing about a smooth transition to a cleaner, greener economy, taking Australia from its current position as the most carbon intensive country in the developed world to a position where we are able to compete effectively for the green jobs of the future.

The Gillard government is also putting in place substantial reform on fossil fuels through legislation which is finally enacting reforms originally foreshadowed by then Treasurer Peter Costello in the 2003 budget. What is tragic about these fuel reforms is that the coalition, at the last moment, have walked away. For the best part of the last eight years they have been in the cart on this fundamental economic reform but at the last moment saw a populist slogan and leapt out of the cart. I am pleased to see the Assistant Treasurer here in the chamber. I am sure he would be as pleased as I am at the passage of those reforms through this House in the most recent session.

When crisis has hit, Labor has also used taxation reform exactly as economists would have us do. We put in place a modest flood levy to deal with the rebuilding cost required from the natural disasters of the most recent summer. Looking back further to the economic downturn, we used a fiscal stimulus that was timely, targeted and temporary, recognising that household payments and infrastructure investments were the most efficient way of getting the economy going again. On each of the tax reforms I have listed, Labor listened to the economic mainstream. While the coalition were listening to who knows what zealots, we were there focused on the economic mainstream and on delivering real reforms.

And it is those real reforms that lie at the heart of Tax Laws Amendment (2011 Measures No. 5) Bill—reforms recognising the importance of phasing out outdated payments. One of the key reforms in this legislation is removal of the dependent spouse tax offset. The dependent spouse tax offset existed at a state level prior to the 1930s but was first introduced at a federal level in 1936. During the second reading debate, one member justified the measure saying he felt it was the duty of a husband to maintain his wife and therefore it was right and proper that a husband would receive a deduction for it. I do not think that such a sentiment would be shared by most 30-somethings in the labour force today. Most families without children would not think feel it is the duty of a husband to maintain his wife and in an era in which we are trying to boost labour force participation, in which we hear much talk of skills shortages, it is important that we remove disincentives to work.

As the dependent spouse tax offset phases out, it imposes an effective tax rate in the phase-out range. If a dependent spouse earns more than $282, under the current program the entitlement reduces by $1 for every $4 the dependent spouse's income is above the threshold. The effect of this is to put in place another 25 per cent tax rate in addition to the current marginal tax rates for the first $10,000 earned by a so-called dependent spouse.

We are steadily phasing out this measure. It will be phased out for taxpayers born after 1971, recognising that some of those who have been recipients of this payment may now be in a position where it is not straightforward for them to enter the workforce. Taxpayers who are invalids, permanently unable to work or are carers will not lose this benefit. The phase-out is applying to able-bodied taxpayers, those aged under 40 and those who—certainly from the discussions I have had with my electors—would not have the social norms that were expressed in this place when the dependent spouse tax offset was put in place. This measure modernises the Australian tax system. It brings the Australian tax system up to speed with contemporary values and it boosts labour force participation—an absolutely critical measure.

We are also making the Australian tax system simpler and fairer for business and the community. It has long been recognised that the entrepreneurs tax offset is poorly targeted for small businesses. There is little evidence it has acted to encourage the establishment of small businesses. More than 80 per cent of small businesses were eligible for the offset. Rather than allowing a small business to grow, the entrepreneurs tax offset encourages businesses to structure affairs in a particular way, despite the market opportunities that might be present.

The assistance is provided at a fairly low level to very small businesses. The maximum claim is $2,500, but the average entrepreneurs tax offset claim was less than $500, with 70 per cent of claims being below $600—a fair bit of paper work for a relatively small sum of money. The entrepreneurs tax offset is difficult to administer and adds to the complexity of our current tax system. There are better ways and more effective ways to help small businesses. The $5,000 immediate deduction, which will come into place from 2012-13, is a far more efficient and effective way of helping our small businesses grow and so boosting employment in this critical sector.

The budget also puts in place important reforms to fix the current system of fringe benefits taxation for cars. This is a system which is both inequitable and inefficient. The existing statutory formula method for determining the taxable value of car fringe benefits delivers a greater tax concession the further the car is driven. Car fringe benefits arise when an employee uses salary sacrifice for an employer provided car for private use. Under the statutory formula method, the person's car fringe benefits are determined by multiplying the relevant statutory rate by the cost of the car. The current statutory rates are designed so that a person's car fringe benefit decreases as the distance travelled by their vehicle increases. People can therefore increase their tax concession by driving their vehicle further. The Henry tax review reported evidence showing that this is exactly what people do.

Anecdotally, in my electorate one hears stories that, as the end of the tax year approaches and as a taxpayer feels that they are not necessarily going to be in the most favourable mileage bracket, they will lend the keys of their car to a teenage son to drive to the coast for the weekend. Their child might otherwise have caught a bus to the coast. These sorts of environmentally unsound practices are effectively encouraged by a poorly structured tax concession. So we are reforming the statutory formula method, replacing the current statutory tax rates with a single rate of 20 per cent that applies regardless of the distance travelled. The reform will only apply to new vehicle contracts entered into after the announcement on budget night so, of course, it will not affect people who have already entered into contracts. That shift to the single standard 20 per cent rate will be phased in over four years. Naturally, people who still use their vehicle for a significant amount of work related travel will be able to use the operating cost or log book method to ensure that their car fringe benefit excludes any business use of their vehicle. Over the forward estimates this measure will result in an increase in revenue of nearly a billion dollars, and this is additional revenue which is then available for more efficient and more equitable tax reforms.

I am very proud to be part of a Labor government which is committed to good economic management and important tax reforms, tax reforms that I hope will outlive many of us in this place, tax reforms that reflect the understanding of those of us on this side of the House that it is important to draw on the best evidence available and tax reforms that recognise that the Henry review has laid down much that we can draw on in the future. I commend the bill to the House.

Michelle Rowland (Greenway, Australian Labor Party) Share this | Link to this | Hansard source

I am very pleased to rise in support of the Tax Laws Amendment (2011 Measures No. 5) Bill 2011, which affirms this government's ongoing delivery of improvements to Australia's taxation regime. These are reforms which have been welcomed across the financial services sector, and a diverse range of interests across our economy stand to benefit from the passage of this bill.

I would like to turn to the key elements of the bill, which comprises five schedules that respectively address the ability for trust beneficiaries to continue using primary production averaging and farm management deposits in a loss year from the 2010-11 income year; provisions which permit capital gains and franked distributions of trusts to be streamed to beneficiaries for tax purposes; technical amendments to the National Rental Affordability Scheme which will provide certainty about the entitlements of parties participating in the scheme; the phasing out of the dependent spouse tax offset; and reform of the statutory formula for determining the taxable value of car fringe benefits and replacing it with a simplified, single rate of 20 per cent, irrespective of the number of kilometres travelled.

Schedules 1 and 2 of the bill in particular deal with the outcomes that ensued as a result of the 2010 decision of the High Court in Bamford v Commissioner of Taxation. And it is these provisions which I will primarily address this evening. I turn first to the nature of trusts themselves. In understanding the relevance of these proposed amendments, it is instructive to firstly consider the nature of trusts and their prevalence in the financial arrangements of many small businesses today, particularly rural interests. It was with much pleasure that, in preparing these comments, I harked back to my well-worn edition of Jacobs' Law of Trusts and refreshed myself on the four essential elements of a trust; namely, the trustee, the trust property, the beneficiary and a personal obligation attached to the property.

As highlighted by Meagher and Gummow from the outset, a trust can be described as 'an institution developed by equity with its own peculiar characteristics'. However, to define the juristic nature of a trust is more complex, and it is often easier to criticise attempts at such a definition and define what it is not rather than what it is. Nevertheless, today trusts are used in many contexts in the Australian landscape. Indeed, our superannuation system is characterised by funds which are structured as trusts and, according to recent APRA statistics, these trusts are responsible for close to $1.4 trillion of money under management.

Trusts are also a common vehicle for small to medium business enterprises. Many family trusts, by definition, rely on trust structures. Family trusts are an example of a discretionary trust. This where the distribution of the trust property is subject to the discretion of the trustee. When one considers that there are in fact hundreds of thousands of trusts in operation in Australia in some form, the magnitude of the implications of the provisions of this bill become clear. As the Australian Taxation Office itself has noted:

Traditionally, the use of trust arrangements was seen as a vehicle largely used by wealthy families and businesses for asset protection purposes and legitimate tax minimisation. In recent times, the use of trusts has become more widespread.

I would like to turn to the implications of the decision in the High Court case of Bamford v Commissioner of Taxation. The response of the Australian Taxation Office is significant and affects every trust in Australia. In essence, it affects how the distribution provisions of those trust deeds need to be drafted to obtain the optimal tax outcomes—subject of course to the anti-avoidance rules in the tax legislation.

Prior to the decision in Bamford v Commissioner of Taxation, the Australian Taxation Office applied Taxation Ruling TR 95/29, which dealt with the applicability of averaging provisions to beneficiaries of trust estates carrying on a business of primary production. The effect was that the ATO regarded a beneficiary as presently entitled to a share of the trust income provided there was some gross trust income and the trustee exercised their discretion in favour of the beneficiary. In cases where there was no gross trust income, the ATO regarded a beneficiary as presently entitled to a share of trust income where they had a vested and indefeasible interest in trust income, and were therefore deemed to be presently entitled to trust income. The practical effect of these provisions meant that a beneficiary could be taken to carry on a primary production business that was actually carried on by the trustee in a year where the trust had a loss for trust law purposes. Thus, such a beneficiary continued to be eligible for income averaging and was not required to have their farm management deposits repaid to them and included in their assessable income.

However, the High Court in Bamford held that a beneficiary cannot be presently entitled to a share of income of a trust if there is no income legally available for distribution. As a consequence, the ATO ruling was incorrect at law and withdrawn. In its decision impact statement on the High Court's ruling, the ATO made several observations including: a number of issues concerning division 6 of the Income Tax Assessment Act remained unresolved; there remained at issue the effect for taxation purposes of a re-characterisation clause that requires or permits the trustee to treat capital that is otherwise received as income—the ATO noted that these were not facts before the court in Bamford; and the income of a trust estate for trust law purposes and its income for tax purposes are two different subject matters which do not necessarily correspond.

I would like to turn to the process of reform, which has led to this bill before the House today. Clearly, these developments have necessitated legislative action on trust tax law—an issue which the Assistant Treasurer rightly identified as an ongoing area of concern, where reform is necessary to simplify the system, rewrite some rules and provide more certainty to the tens of thousands of small businesses and farmers who utilise trusts. With this in mind the Assistant Treasurer announced in December last year a public consultation process with a view to seeking input from industry, individuals and peak organisations and to updating the trust income tax provisions of the Income Tax Assessment Act.

It is a reflection of this government's consultative approach that the Assistant Treasurer's announcement emphasised the role of private sector expertise in the development of its consultation paper. As the Assistant Treasurer further noted:

Any options will seek to ensure that net taxable income of a trust is assessed primarily to beneficiaries. Trustees will continue to be assessed only to the extent that amounts of net taxable income are not otherwise assessable to beneficiaries. The options will not include the taxation of trusts as companies, which would be a major departure from the current law.

In March this year the Assistant Treasurer released the discussion paper, 'Improving the taxation of trust income', and in his speech to the national convention of the Taxation Institute of Australia he announced the adoption of two recommendations to clarify the tax law for over 600,000 trusts in Australia. The two key recommendations from the Board of Taxation addressing those key areas of uncertainty for trusts were the better alignment of the concept of 'income of the trust estate' with 'net income of the trust estate'. This is indeed an area of challenge, which was noted in the consultation process, and the concerns in this area were taken on board in the legislative drafting process and the enabling of the streaming of capital gains and franked distributions. Again, the rationale for the implementation of the Board of Taxation recommendations was to enable the large number of businesses and individuals using trusts to continue to do so with confidence and greater certainty. The consultation process received thoughtful input from a range of reputable industry and interest groups including the Financial Services Council and the Law Council of Australia.

In April a further public consultation process was announced for the exposure draft legislation to give effect to these important reforms. As can be clearly seen the process undertaken to arrive at this point has been thorough, transparent and based on invaluable industry and private sector knowledge. Importantly, the amendments contained in schedule 1 of the bill were rightly described by the Assistant Treasurer as very welcome news for approximately 23,000 Australian farmers with trusts, with these amendments introduced to the House before 30 June as promised, so that beneficiaries can continue to use the primary production averaging and farm management deposit provisions in a loss year.

I will conclude with some comments on the dependent spouse tax offset in schedule 4 of the bill, which amends the Income Tax Assessment Act to implement the budget measure of phasing out the dependent spouse tax offset. This reform will mean that, from 1 July, taxpayers with a dependent spouse born on or after 1 July 1971—a great year may I say—will no longer be eligible for the dependent spouse tax offset. This means the DSTO will be gradually phased out as the population ages.

It is important to understand the nature of the dependent spouse tax offset. This government is focused on removing disincentives for people to remain out of the workforce, including younger dependent spouses without children. It is quite obvious that the dependent spouse tax offset is an outdated measure that reflects old-fashioned gender roles. In fact, it has been around since the inception of the Income Tax Assessment Act in 1936.

As well as modernising our tax and transfer system, schedule 4 of the bill reflects this government's focus on encouraging workplace participation—something we all know we urgently needed in our skills-short economy. On this point the bill recognises the unique circumstances that do affect some people in our community who would otherwise be caught by this change. Consequently, Australian taxpayers where the dependent spouse is a carer, who is an invalid or permanently unable to work, and taxpayers eligible for such measures as the overseas civilian tax offsets will not be affected by this change.

In addition families with a dependent spouse and young children are not affected by this measure because they would receive family tax benefit part B and would be ineligible in any event to receive the dependent spouse tax offset. This reform recognises that a bigger workforce is vital for the strength of our economy and the living standards of our community. I commend the bill to the House.

Bill Shorten (Maribyrnong, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I thank those members who have contributed to this debate. In particular I acknowledge the contribution of the member for Greenway, who has been influential in a lot of the thinking on these matters. I also acknowledge the work of the opposition, who would appear on this matter to be constructively working with the government and I will refer a little bit more to this in some of the schedules.

Schedule 1 allows trust beneficiaries to continue to use primary production averaging and farm management deposit provisions in a year where the trust has a loss for trust law purposes. The Gillard government has broadly restored in this bill the position that existed before the High Court decision in Commissioner of Taxation and Bamford. That decision necessitated the Commissioner withdrawing a public ruling that in certain circumstances a beneficiary could be eligible for the primary production averaging and farm management deposit rules in a trust loss year. This schedule secures continuity for taxpayers because the amendments apply from the 2010-11 income year and the Commissioner's ruling applies up to and including the 2009-10 income year.

As I said earlier, I acknowledge that there have been productive discussions with the opposition about identifying an agreed further reform to this area, and I concur with the remarks of the member for Casey on this matter. The amendments in schedule 2 ensure that where permitted by the trustee the capital gains and franked distributions, including any attached franking credits of a trust, can be effectively streamed to the beneficiaries for tax purposes by making them specifically entitled to those amounts. The amendments also introduce specific anti-avoidance rules to address the potential opportunities for tax manipulation that can result from the inappropriate use of exempt entities as beneficiaries. These amendments will provide more certainty for the trustees and beneficiaries of trusts that stream capital gains and franked distributions, including any attached franking credits, while the government continues to progress its broader review of the taxation of trust income.

Schedule 3 amends the provisions in the taxation law related to the National Rental Affordability Scheme tax offset provisions. The amendments simplify the operations of the NRAS—the National Rental Affordability Scheme—for participants by introducing the concept of an NRAS consortium, which allows a broader range of arrangements to participate in the NRAS. The amendments provide some additional flexibility to the NRAS participants and how the incentive is shared between members of the NRAS consortium. These amendments do this by establishing an election to allow approved participants to relinquish their entitlement to an NRAS tax offset in favour of other members of the NRAS consortium. These amendments also address some minor technical issues that have arisen from the interaction of the tax law and the National Rental Affordability Scheme Act 2008. They also ensure that certain payments provided under the NRAS indirectly, such as through an NRAS consortium, are treated as non-assessable, non-exempt income.

Schedule 4 implements the government's budget measure to phase out the dependent spouse tax offset for dependent spouses currently aged less than 40 or, in other words, people who were born from July 1971 onwards. The dependent spouse tax offset originates in the initial Income Tax Assessment Act 1936 and it needs to be reformed to allow for Australia's modern and growing economy. This reform is an important measure to help encourage more Australians into paid employment by removing the disincentive for younger dependent spouses without children to remain out of the workforce. Dependent spouses aged 40 or over will not be affected by this measure, nor will dependent spouses with children or taxpayers whose dependent spouse is a carer, an invalid or permanently unable to work. Taxpayers eligible for the zone, overseas force or overseas civilian tax offsets are also not affected by this measure.

Schedule 5 amends the tax laws to reform the current statutory formula method for determining the taxable value of car fringe benefits. The changes will replace the current statutory rates with a single statutory rate of 20 per cent, regardless of kilometres travelled. Under the current statutory formula method, the calculated fringe benefit from a salary-sacrificed car decreases as the distance travelled by the vehicle increases. People can therefore increase their tax concession by driving their vehicle further. This schedule removes the current incentive for people to drive salary sacrificed and employer provided vehicles further to increase their tax concession and, in the process, burn more fuel. The reform implements yet again another recom­mendation of Australia's Future Tax System Review, also known as the Henry review, and will apply the commitments made after the budget announcement of 10 May 2011. It will be phased in over four years. This bill deserves the support of the parliament. I commend the bill to the House.

Question agreed to.

Bill read a second time.

Message from the Administrator recommending appropriation announced.