Steven Ciobo (Moncrieff, Liberal Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

This bill amends various taxation laws to implement a range of improvements to Australia's tax laws.

This bill delivers on the government's election commitment to introduce a tax receipt for individual taxpayers and continues the government's work in restoring the integrity of the Australian tax system.

Soon after the government was elected, we were advised that 96 tax and superannuation measures had not been legislated.

This backlog created significant operational uncertainty for businesses and consumers.

We acted swiftly to clean up Labor's mess, and to provide certainty and reduce red tape for all taxpayers: investors, small business and corporate Australia.

This bill furthers the government's commitment to eliminate uncertainty, and to restore simplicity and fairness to the Australian tax system.

Schedules 1 to 3 of this bill implement measures announced but never developed or legislated by the previous government.

Schedule 1 will improve the integrity and the fairness of Australia's taxation system by tightening and improving the thin capitalisation rules.

The thin capitalisation rules are designed to prevent multinationals from profit shifting by allocating a disproportionate amount of debt to their Australian operations, and claiming excessive debt deductions in Australia, thereby reducing their Australian taxable income. If the Australian operations are funded by excessive debt, they are said to be 'thinly capitalised'.

The rules consist of a number of statutory debt limit tests which calculate the maximum debt deductions allowed to be claimed for a multinational's Australian operations. The current limits were set in 2001.

This bill amends the statutory debt limits to bring them more closely into line with commercial debt levels or to regulatory requirements in the case of banks and non-bank financial entities. Bringing the limits more closely into line with commercial debt levels reduces the incentive for multinational enterprises to allocate excessive levels of debt to their Australian operations, and claim excessive debt deductions in Australia, thereby reducing their Australian taxable income.

It also introduces a new test for inbound investors to restrict tax deductible gearing of the Australian operations to the level of gearing of the group worldwide. We are assisting those in the small and medium enterprise sector that have overseas operations by reducing the cost of determining whether they comply with the thin capitalisation legislation. The threshold for complying with the regime will be increased from $250,000 to $2 million of total debt deductions.

Schedule 2 will reform the tax exemption for foreign non-portfolio dividends paid to Australian corporate taxpayers. This exemption helps ensure Australian investments in offshore subsidiaries are able to compete on an equal footing with other businesses located in that country. The reforms will both modernise the rules to provide broader access to the exemption and improve the integrity of the tax system by ensuring the exemption only applies to returns on instruments treated as 'equity' for tax purposes.

This removes a significant tax-planning opportunity that has arisen from a flaw in the current tax law. This flaw has allowed multinational taxpayers to claim a tax exemption for interest income from loans to offshore subsidiaries, whereas this income should be assessable.

The government believes that the reforms contained in schedules 1 and 2 strike an appropriate balance between encouraging business investment to grow Australia's economy and protecting Australia's tax base.

Maintaining a secure and sustainable tax system is central to the government's efforts to repair the budget. The changes to thin capitalisation rules and the exemption for foreign non-portfolio dividends are expected to provide the government with $755 million over the forward estimates period.

Schedule 3 to this bill amends the income tax laws to improve the integrity of Australia's foreign resident capital gains tax (CGT) regime by preventing the double counting of certain assets under the regime's principal asset test.

The principal asset test applies to determine whether an entity's underlying value is principally derived from Australian real property.

Removing the double counting of certain assets will ensure that a foreign resident's interest in an entity that derives its value principally from Australian real property remains within Australia's tax net.

Under Australia's taxation laws a foreign resident is subject to CGT only either where the CGT asset disposed of is a direct or indirect interest in Australian real property or where the asset is used in carrying on a business through a permanent establishment (for example, a branch) in Australia.

The amendments in this bill extend the original 2013-14 budget announcement to include interests in unconsolidated groups as well as in consolidated groups held by foreign residents to ensure the principal asset test operates as intended.

Schedule 3 also makes a technical amendment to references to the permanent establishment definition to ensure the foreign resident CGT regime applies where assets are used in carrying on a business through a permanent establishment in Australia.

Schedule 4 to this bill amends the tax law to require the Commissioner of Taxation to issue a tax receipt to individuals following their income tax assessment.

During the last election, the coalition committed to introducing a tax receipt for individual taxpayers.

From 1 July 2014, the Australian Taxation Office (ATO) started issuing tax receipts to individual taxpayers in Australia.

It is expected that around 10 million tax receipts will be issued. Up to 15 July 2014, the ATO had already issued over half a million receipts.

To make tax receipts a formal, ongoing feature of the system, the government is now introducing legislative amendments to the taxation law that are included in schedule 4 of this bill.

The tax receipt is a concise one-page personalised and itemised receipt which shows, in dollar terms, how much of a person's tax bill was spent on each area of the budget. It will also show information about the level of gross government debt.

In most circumstances, the tax receipt will accompany the taxpayer's notice of assessment.

The government understands that every dollar the government has it holds on trust for taxpayers. We believe taxpayers deserve transparency so they know how their tax is being spent and what the level of government debt is.

After $123 billion of Labor deficits, debt was projected to reach $667 billion in the medium term. This debt has to be paid back, and it is dead money the government cannot use to help families or to cut taxes.

This government is committed to living within its means. It is not sustainable for a government to continue to borrow money to pay for consumption today at the expense of generations of taxpayers into the future.

Our first budget outlined a path to return the budget to a more sustainable footing.

Because of this plan, in our first four years to 2017-18, deficits are now estimated to total $60 billion.

Our policies aim to reduce debt by almost $300 billion over the next decade.

These tax receipts enshrine the coalition's commitment to provide further transparency to taxpayers as we undertake this task to repair the budget. This initiative will ensure all governments are held accountable for spending tax revenue wisely and for the levels of government debt they maintain.

Costs for the issuance of the receipt will be met by the ATO.

Schedule 5 makes a number of amendments to ensure the law operates as intended by correcting technical or drafting defects, removing anomalies and addressing unintended outcomes.

Full details of these measures are contained in the explanatory memorandum.

I commend the bill to the House.

Debate adjourned.