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

I move:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the bill a second reading, the House calls upon the Government to demonstrate it is completely committed to clamping down on phoenix activity by introducing legislation for a Directors Identification Number".

This bill deals with five relatively uncontroversial matters: an issue on regulatory reform allowing the tax commissioner to pay certain superannuation amounts to individuals with a terminal medical condition, extending tax relief for merging super funds, increasing the APRA levy to cover funding for SuperStream gateway governance, transferring responsibility for the early release of superannuation from the Department of Human Services to the Australian Taxation Office, and payment of GST on taxable supplies of certain real property. I will restrict my comments on this bill to two schedules: schedule 3 and schedule 5.

Schedule 3 will amend the APRA Act to enable the government to recover the ongoing cost of the governance of the superannuation transaction network, SuperStream, from the supervisory levy. It was Labor that first introduced SuperStream, following on from the 2010 Cooper review. SuperStream transmits money and information consistently across the superannuation system between employers, funds, service providers and the Australian Taxation Office. Before it existed, many transactions were processed manually, and the cost could be $5 or $10 a transaction. Nowadays, over 80 million transactions a year are processed in a standardised digital form, connecting around 800,000 employers, 200 APRA regulated funds and 350,000 self-managed superannuation funds. SuperStream allows employers to make all their contributions in a single electronic transaction, including to multiple superannuation funds. It allows contributions and rollovers to be processed faster, more efficiently and with fewer errors, and it allows people to be more reliably linked to superannuation, reducing lost superannuation accounts and unclaimed money.

The review conducted last year into SuperStream found that it had led to lower costs, ease of operation in the superannuation system and increased retirement savings. Members could now complete a rollover in three days, compared to an average of 45 to 60 days previously. There is greater ease in rolling over and consolidating member accounts, as account consolidations can now be performed online within minutes. There'd been a reduction in unnecessary accounts and a recovery of lost and unclaimed moneys, leading to a reduction in lost member accounts of around 90 per cent over the last six years, representing around five million accounts recovered. There have been stronger protections for members' retirement savings through reduced fees from consolidations and faster allocation of members' money into their account. It improved the employers' experience, saving around $400 million in ongoing efficiencies by simplifying the sending of communications. It improved a superannuation fund's experience through widespread automation—automation rates are now over 85 per cent in contributions and rollovers—and improved the quality of key data holdings and the simplification of data transfer between employers and the funds. These efficiencies have been estimated at about $400 million a year for employers, as I said, and another $400 million a year for funds, and the savings for members are at around $2.4 billion per annum. I acknowledge the work of the Australian Taxation Office and industry on the introduction of SuperStream and the benefits that it has brought to the community.

I turn now to schedule 5, which deals with phoenixing in development projects by amending the Taxation Administration Act 1953, the Income Tax Assessment Act 1997 and the GST act to require purchasers of new residential premises and new subdivisions of potential residential land to make a payment of part of the purchase price to the Australian Taxation Office.

Currently supplies of new residential premises are generally subject to GST, and the supplier remits the GST to the ATO in the next BAS. This can be up to three months after settlement. The withholding tax being collected in this manner fits with existing conveyancing processes. One of the main forms of noncompliance with these obligations involves developers selling properties for a purchase price that reflects the GST obligations but then dissolving their businesses before the next BAS lodgement to avoid remitting the GST. This is, of course, a form of phoenixing. Phoenixing to avoid paying GST has grown significantly over the last decade. As at November 2017, the Australian Taxation Office had identified 3,731 individuals actively involved in this activity over the last five years. These individuals controlled over 12,000 insolvent entities responsible for $1.8 billion in debt that has been written off. These insolvent entities also claimed $1.2 billion of input tax credits between 2013 and 2017. The cost of phoenixing was estimated in 2012 at $3.2 billion annually. This is probably an underestimate. The government has received updated costs of phoenixing as at 2015 but is yet to publicly release them.

As the second reading amendment makes clear, the government has been lax in its action on phoenix activity more generally. The member for Gorton and I announced in May last year that Labor would crack down on dodgy directors through putting in place, among other things, a director identification number. Despite the government announcing that it would introduce a director identification number, we are yet to see the government take action. We have had a suite of organisations from across the political spectrum calling on this government to act urgently on a director identification number. When the Australian Institute of Company Directors, the Australian Small Business and Family Enterprise Ombudsman, the Productivity Commission, the Tax Justice Network, the Australian Chamber of Commerce and Industry, Master Builders Australia, the Australian Council of Trade Unions, the Australian Restructuring and Turnaround Association, the Australian Institute of Credit Management and the Phoenix Project from the University of Melbourne's law school and Monash University's business school call upon the government to introduce a director identification number, you've got to wonder when they are finally going to act.

Australia needs action on phoenixing, not announcements. We need a government which is willing to step forward and put in place a director identification number. If the Turnbull government had acted on director identification numbers when we called on them to do so in May last year, they would be law already; and phoenix directors would no longer be engaged in the dodgy activity of burning their firms and hurting workers, taxpayers and honest small businesses. Cracking down on phoenixing is a pro small business measure because it is honest small businesses that are worst hurt. The estimates are that the cost of phoenixing puts the largest cost on honest businesses—those who supply the phoenix firms and don't get paid when the dodgy directors burn their companies.

While we support the government's measures on phoenixing by developers to avoid GST, we urge them to go further and crack down on phoenix inactivity, as the Australian community demands, and reduce the cost of this to the community and the heartache that it imposes on workers, taxpayers and honest businesses.

Rob Mitchell (McEwen, Australian Labor Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Brendan O'Connor (Gorton, Australian Labor Party, Shadow Minister for Employment and Workplace Relations) Share this | Link to this | Hansard source

I second the amendment and reserve my right to speak.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Link to this | Hansard source

I am speaking in support of the amendment moved by the member for Fenner. I want to make some brief comments in respect of two elements of this bill that have been dealt with by the member for Fenner—most notably, the reforms relating to the phoenixing of companies and super stream changes as well. Schedule 5 of this bill highlights once again the dithering on regulatory reforms by the Turnbull government that are costing our economy billions of dollars. This hands-off approach to tackling what is basically plain daylight theft—also known as phoenixing—means that workers are losing entitlements, losing redundancies and losing superannuation. Why is this occurring? It's because the Turnbull government isn't interested in being tough on corporate scammers and going after dodgy directors. Instead, it's being distracted by cooking up a scheme to give big corporate business a tax cut, rather than seeking to stop some of these outrageous activities.

Schedule 5 of this bill amends the Income Tax Assessment Act and the GST Act to require purchasers of new residential premises and new subdivisions of potential residential land to make a payment of part of the purchase price to the ATO. Currently, suppliers of new residential premise are generally subject to GST and the supplier remits the GST to the ATO in their next business activity statement. This can be up to three months after settlement. The withholding tax being collected in the manner proposed fits with existing conveyancing practices and is a simple and well-understood mechanism. However, one of the main forms of non-compliance with these obligations—indeed, in some respects it's a scam—involves developers selling properties for a purchase price that reflects their GST obligations, but then dissolving their businesses before their next BAS lodgement and thus avoiding remitting the GST. It's a form of phoenixing and it's robbing Australian taxpayers of important revenue.

Phoenixing to avoid paying GST has grown significantly over the last decade. As of November 2017, the ATO has identified 3,731 individuals who have actively engaged in this activity over the last five years. These individuals controlled over 12,000 insolvent entities responsible for $1.8 billion in debt that's been written off. The insolvent entities also claimed $1.2 billion in their input tax credits between 2013 and 2017. The last publicly available phoenixing figures, which were from 2012, estimated that this practice cost between $1.8 billion and $3.2 billion annually. The accompanying estimates on the form of tax avoidance by phoenixing targeted in this bill indicate that it's up to one-fifth of all phoenix activity, or that the cost of phoenixing is underestimated.

It was only in September 2017 that the Turnbull announced it was taking action on phoenixing activity, including that it would finally introduce a director activity number to take action on illegal phoenixing activity. Because of the slow-coach nature of the Turnbull government on implementing this reform, directors have been able to continue scamming honest businesses, employees and taxpayers. Phoenixing has already cost our economy too much, while workers have lost entitlements, lost redundancy, lost superannuation and lost other benefits. Enough is enough. The Turnbull government hasn't clarified whether acquiring a director identification number will require a 100-point identity check, a fundamental aspect of the proposal that was announced by Labor in May last year.

The Turnbull government keeps missing deadlines on the register of beneficial ownership, something they're yet to commit to publicly, and questions remain over the public release of updated modelling of the costs that dodgy directors impose through phoenix activity. The Turnbull government is continuing to use figures from five years ago, despite receiving updated costs in 2015. The 2012 estimate put the cost of phoenixing activity at $3 billion a year. No doubt it's risen since then. Labor's been calling for the introduction of director identification numbers since May last year. For the sake of Australian taxpayers, workers and honest businesses, the Turnbull government must implement a director identification number.

I want to turn now to looking at some of the other measures in this bill. Most notable is schedule 3, which will amend the APRA Act to enable the government to recover the ongoing costs of the governance of the Superannuation Transaction Network, or SuperStream, from the superannuation supervisory levy. SuperStream is the network that transfers superannuation payments and messages for superannuation contributions and rollovers. It facilitates connections amongst approximately 800,000 employees, 200 APRA regulated funds and over 350,000 self-managed superannuation funds. Before SuperStream, many of these transactions were still processed manually, with an estimated cost of between $5 and $10 per transaction. Today, though, through SuperStream, over 80 million transactions per year are processed in a standard digitalised form.

It's important to note that the SuperStream reforms were commenced by the previous Labor government and established this gateway network governance body. They, of course, followed the review that was conducted into the superannuation system in 2010 by Cooper. Last year, the review of SuperStream found that it had led to lower costs, ease of operation in the super system and increased retirement savings. It's estimated that the released efficiencies from SuperStream are approximately $80 million over a year. More significantly, it's estimated savings for members from their investments to be $2.4 billion per year.

So the introduction of SuperStream has been a significant project, and it's important to acknowledge the work of the ATO and the industry in implementing this reform. This bill will amend the APRA Act to allow ongoing costs of the gateway governance body to be funded by APRA through a levy and for these funds to be retained to consolidated revenue. There are some other changes contained in this bill that I won't go into, but once again I support the amendment moved by the member for Fenner and commend the bill to the House.

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

Firstly I'd like to thank those members who've contributed to this debate. Schedule 1 to the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 forms part of the government's ongoing regulatory reform agenda by making a number of regulatory improvements to Treasury portfolio laws. The schedule continues the government's focus on renewing our existing regulatory systems to ensure that they remain fit for purpose, flexible and capable of adapting to new business models as and when they emerge. It will reduce compliance costs for both individuals and business.

Schedule 2 to this bill extends tax relief for merging superannuation funds. This measure is important for the efficiency of the superannuation system and to protect members' balances when mergers take place.

Schedule 3 to this bill enables the government to provide ongoing funding on a cost recovery basis for the governance and maintenance of the superannuation transaction network through the existing superannuation supervisory levy.

Schedule 4 to this bill transfers the regulator role for early release of superannuation benefits on compassionate grounds from the Chief Executive Medicare, Department of Human Services, to the Commissioner of Taxation, Australian Taxation Office.

Schedule 5 to this bill tackles tax evasion by companies that phoenix. It delivers on the 2017-18 budget commitment to address GST integrity in the property development sector. The measure has a start date of 1 July 2018. Schedule 5 to this bill protects GST revenue by making purchasers of new residential premises or new residential subdivisions remit the GST on the purchase price directly to the ATO as part of the settlement process.

I commend the bill to the House.

Rob Mitchell (McEwen, Australian Labor Party) Share this | Link to this | Hansard source

The question is that the amendment moved by the member for Fenner be agreed to. A division is required. In accordance with standing order 133, the division is deferred until after the discussion of the matter of public importance.

Debate adjourned.