Kelly O'Dwyer (Higgins, Liberal Party, Minister for Revenue and Financial Services) Share this | Link to this | Hansard source

I present a supplementary explanatory memorandum to the bill and I move government amendment (1):

(1) Schedule 1, item 2, page 3 (line 18) to page 4 (line 13), omit section 23AB, substitute:

23AB Meaning of base rate entity passive income

(1) Base rate entity passive income is assessable income that is any of the following:

(a) a distribution (within the meaning of the Income Tax Assessment Act 1997) by a corporate tax entity (within the meaning of that Act), other than a non-portfolio dividend (within the meaning of section 317 of the Assessment Act);

(b) an amount of a franking credit (within the meaning of the Income Tax Assessment Act 1997) on such a distribution;

(c) a non-share dividend (within the meaning of the Income Tax Assessment Act 1997) by a company;

(d) interest (or a payment in the nature of interest), royalties and rent;

(e) a gain on a qualifying security (within the meaning of Division 16E of Part III of the Assessment Act);

(f)a net capital gain (within the meaning of the Income Tax Assessment Act 1997);

(g) an amount included in the assessable income of a partner in a partnership or of a beneficiary of a trust estate under Division 5 or 6 of Part IIIof the Assessment Act, to the extent that the amount is referable (either directly or indirectly through one or more interposed partnerships or trust estates) to another amount that is base rate entity passive income under a preceding paragraph of this subsection.

(2) However, if an entity has assessable income that is interest (or a payment in the nature of interest):

(a) treat the assessable income as not being interest (or a payment in the nature of interest) of the entity for the purposes of paragraph (1)(d) if:

  (i) the entity is a financial institution (within the meaning of section 202A of the Assessment Act); or

  (ii) the entity is a registered entity (within the meaning of the Financial Sector (Collection of Data) Act 2001) that carries on a general business of providing finance (within the meaning of that Act) on a commercial basis; or

  (iii) the entity holds an Australian credit licence (within the meaning of the National Consumer Credit Protection Act 2009), or is a credit representative (within the meaning of that Act) of another entity that holds such an Australian credit licence; or

  (iv) the entity is a financial services licensee (within the meaning of the Corporations Act 2001) whose licence covers dealings in financial products mentioned in paragraph 764A(1)(a) of that Act (securities), or is an authorised representative (within the meaning of section 761A of that Act) of such a financial services licensee; or

  (v) the entity is an entity of a kind specified in a legislative instrument made under subsection (3); and

  (b) treat the assessable income as not being interest (or a payment in the nature of interest) of the entity for the purposes of paragraph (1)(d) to the extent that it is a return on an equity interest in a company.

(3) The Minister may, by legislative instrument, specify one or more kinds of entities for the purposes of subparagraph (2)(a)(v).

This amendment will provide additional certainty that passive investment companies cannot access the lower company tax rate. It does this by tightening the definition of 'interest income' in the bill. This amendment is of a technical nature and responds to an issue identified by the Australian Taxation Office. The amendment modifies the definition of 'interest' for the purposes of the passive income test so that all interest is treated as passive, except if earned by genuine moneylenders. Specifically, this means that interest will be passive unless earned by authorised deposit-taking institutions or cooperative housing societies, non-ADI lenders that report data to the Australian Prudential Regulation Authority, Australian credit licensees or representatives, certain Australian financial services licensees or their representatives, or other categories of entities prescribed by legislative instrument. The ability to prescribe additional categories of entity by legislative instrument will mean the provision can be expanded, if necessary, to ensure genuine moneylenders can get access to the lower company tax rate.

Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

It's important that the House realises what the government is doing with this amendment. The bill itself is a patch-up. The government is responding to an issue raised in September 2016 which they initially dismissed, an issue which has caused significant consternation among Australia's small business community. Now, as the government brings in its own patch-up, the minister at the table has just patched the patch-up. They are amending their own amending legislation.

How have we got to this point? It is because the government is so fixated on looking after millionaires and multinationals that they can't get the basics right. They can't ensure that a small business tax cut which enjoys bipartisan support is implemented clearly and in a straightforward manner. Small businesses have better things to do than to deal with the stumbling and bumbling of this government. Tax practitioners warned the government in September 2016, but it took the government a year to act. Then when they acted, they didn't get it right. It's so characteristic of this government—a government which has staggered from crisis to crisis, which has talked about raising the GST, which has talked about the 'excesses' in negative gearing and failed to do anything.

The minister at the table can't work out whether Labor's negative gearing policies will drive up house prices or drive down house prices. I was a little disappointed that, in the vote we had just now on the second reading amendment, we didn't get the minister's support, as indeed we'd received for a second reading amendment that I'd moved previously. A government that can't get the basics right on tax implementation is a government that is failing to deliver the economic leadership that we were promised. Don't forget, when Prime Minister Turnbull rolled then Prime Minister Abbott, his chief reason for so doing was the need for economic leadership. If you can't get the basics right, you're not providing economic leadership to the nation. If you are patching up your patch-up job, if you've mucked up your fix-up, then you're not able to command the credibility to which Australia's tax professionals and the small business community are entitled. Labor will support this bill, but we do so with a shake of our heads, as do the broader community, at a government unable to get the basics right.

Question agreed to.

Bill, as amended, agreed to.