Deborah O'Neill (Robertson, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Parliamentary Joint Committee on Corporations and Financial Services I present the committee's advisory reports on the committee's inquiries into the Tax Laws Amendment (Clean Building Managed Investment Trust) Bill 2012 and the Personal Liability for Corporate Fault Reform Bill 2012.

In accordance with standing order 39(f) the reports were made parliamentary papers.

by leave—I present the committee's report into the provisions of the Personal Liability for Corporate Fault Reform Bill 2012. On 20 September 2012, the House of Representatives Selection of Bills Committee referred the bill to the joint committee for inquiry and report. The committee received four submissions and held a public hearing in Sydney on 22 October. At the hearing, the committee took evidence from the Law Council of Australia, Chartered Secretaries Australia, the Commonwealth Treasury and the New South Wales Department of Premier and Cabinet.

This bill implements the Council of Australian Governments' directors' liability reform, which aims to harmonise the imposition of personal criminal liability for corporate fault across Australian jurisdictions. The Directors' Liability Reform Project is part of the COAG National Partnership Agreement to Deliver a Seamless National Economy.

This bill commits all Australian jurisdictions to a nationally consistent and principled approach to the imposition of personal criminal liability on directors and corporate officers for corporate fault. It aims to remove regulatory burdens on directors and corporate officers that cannot be justified on public policy grounds and to minimise inconsistency between Australian jurisdictions in the way personal liability for corporate fault is imposed in Australian laws.

Accordingly, the bill proposes to amend a number of commonwealth acts: to remove personal criminal liability for corporate fault where such liability is not justified; to remove the 'reverse onus of proof', where the directors themselves must establish a defence to a charge; to replace personal criminal liability for corporate fault with civil liability where a non-criminal penalty is appropriate; and to clarify the circumstances where personal criminal liability is justified.

The reform in this bill is the culmination of earlier reviews into the area of personal liability of directors. These reviews noted an 'increasing tendency for personal liability provisions to be introduced in Australian law as a matter of course and without robust justification'. As a result, in some cases a director could face a criminal penalty for a breach of the law by a corporation when he or she had no knowledge of or control over the breach. Further, imposing personal liability without proper justification has been inefficient. The argument has been put that the threat of excessive risk of personal criminal liability has led directors to take a cautious approach to their strategic and entrepreneurial responsibilities.

All witnesses to this inquiry recognised that the bill's reform will reduce the level of risk for directors and the burden to corporate officers, while at the same time providing greater certainty. It will focus attention on key areas of liability laws, while reducing the burden of these laws to enable greater focus on corporate performance. When the reforms are implemented by all jurisdictions, the number of laws containing directors' liability provisions nationally will be significantly reduced. New South Wales, for example, anticipates that the number of its statutes with personal liability provisions will be reduced from 1,000, currently, to around 150. These are significant adaptations for improving productivity. Importantly, the reform will retain laws that are necessary to ensure that company directors and other corporate officers take reasonable steps to ensure that their companies comply with their obligations under the law.

The committee is confident that this bill—and the wider reform agenda—will provide greater certainty for company directors and will reduce red tape. A reduction in the number of offences that include directors' liability provisions will provide for a significant reduction in the legislative and regulatory burden, and it will focus directors' minds on those offences that do warrant personal liability.

The committee is satisfied that the bill fulfils the Commonwealth's obligations to the reform of personal liability for corporate fault. The COAG principles and guidelines have been developed through a comprehensive consultation process, the states and territories have thoroughly reaudited their legislation to ensure compliance with COAG principles, and the states and territories have begun passing legislation to reduce the number of personal liability provisions within their statutes and have put in place clear administrative arrangements for those rare cases where new personal liability provisions should carry a reverse onus of proof. I commend the report to the House.

On behalf of the committee I also report on the Tax Laws Amendment (Clean Building Managed Investment Trust) Bill 2012. I am pleased to report that the inquiry sent invitations to 36 organisations offering them the opportunity to make a submission by Wednesday 24 October 2012. The committee received six submissions.

This bill reduces the final rate of withholding tax on fund payments from Australian Clean Building Managed Investment Trusts made to foreign investors in 'information exchange countries'. For fund payments made to these investors, the bill cuts the withholding tax rate from the current rate of 15 per cent to 10 per cent. For the concessional 10 per cent rate to apply, the managed investment trust must invest in new energy-efficient office, hotel or retail buildings that commenced construction on or after 1 July 2012. The trusts may hold limited assets incidental to these buildings, such as car parking facilities, telecommunications infrastructure or advertising billboards. To be treated as an energy-efficient building, a building must obtain and maintain either a five-star Green Star rating or a 5½-star NABERS rating. The government has announced that these criteria will be reviewed after three years 'to ensure that the measure continues to apply to buildings that are above the average level of energy efficiency'.

Stakeholders strongly supported the incentive that this bill provides for foreign investors to invest in Australian clean buildings. Indeed, their main concern is that the bill is pitched too narrowly and that foreign investment in all Australian building stock should be subject to the same concessional 10 per cent withholding tax rate.

In its report the committee makes the following three points about the bill's clause limiting the concessional rate to buildings constructed on or after 1 July this year. First, the proposed legislation is only a disincentive in relative terms. Second, since 2008 the overall level of withholding tax for an investor in an information exchange country has been reduced from 30 per cent to 15 per cent. This is a proud and important achievement of this government. Third, the government is aware that the vast majority of building stock is comprised of existing older buildings and already has in place a suite of programs to promote retrofitting and more efficient energy use in established buildings.

The committee believes that the five per cent safe harbour is appropriate and that assets such as car parking facilities, telecommunications infrastructure and advertising infrastructure should fall within this safe harbour.

The committee strongly supports the provisions of the bill. It promotes Australia as a place that provides foreign investors with a tax based incentive to invest in energy-efficient commercial buildings. The bill is an excellent example of this government's determination to achieve a competitive taxation framework with beneficial environmental outcomes.

I conclude by noting the comments of the Canada Pension Plan Investment Board, which recently decided to invest in the Barangaroo South office development in Sydney:

We believe this Bill will provide investors the certainty they need when making decisions to invest in new Clean Buildings. In particular, we welcome changes in the Government's final Bill that:

•   clarify what constitutes a Clean Building;

•   allow Managed Investment Trusts to derive income incidental to the Clean Building; and

•   allow a holding trust to hold investments in both Clean Building Managed Investment Trusts and non-Clean Building Managed Investment Trusts.

I commend the bill to the House.