Helen Coonan (NSW, Liberal Party, Minister for Communications, Information Technology and the Arts) Share this | Hansard source

I thank all senators who have taken part in the debate on the Tax Laws Amendment (2005 Measures No. 6) Bill 2005. I do not propose to go through all of the schedules, but I do want to say something about the principle of mutuality. By way of background to the second schedule, mutuality is a legal principle based on the proposition that a taxpayer cannot derive income from itself. Under the principle, if members contribute to a common fund created and controlled by them for a common purpose and those contributing members are essentially the same as those who participate in the fund, the member contributions and receipts for member dealings are not subject to tax. Under the principle, essentially all the contributions to a common fund must be entitled to participate in any surplus of the common fund.

The Australian Taxation Office’s longstanding practice has been to treat the mutuality principle as applying to not-for-profit community organisations, despite the inclusion of clauses in an entity’s constituent documents that prohibit the distribution of surplus funds to members. The decision of the Federal Court in Coleambally called this into question. As we know, the government announced on 30 May 2005 that it would amend the income tax law to ensure certain not-for-profit organisations would not be subject to tax on mutual receipts as a result of the Coleambally Federal Court decision. The court’s decision potentially affected between 200,000 and 300,000 not-for-profit entities, including clubs, professional organisations and some friendly societies. The government’s amendment today restores the longstanding benefits of the mutuality principle that applied prior to the court’s decision.

Senator Sherry has foreshadowed a couple of amendments that I will address, including item (b) of his foreshadowed amendment, which relates to unnecessary delays in bringing forward key changes to defend the mutuality principle. The government rejects the claim that there have been unnecessary delays in the government restoring the mutuality principle that led to unnecessary uncertainty for the clubs. The government recognises that many clubs and community associations make an important contribution to local communities. To that end, the government gave the clubs industry a clear commitment during the election that it would preserve mutuality benefits for clubs.

I also want to address Senator Murray’s foreshadowed amendment but, before I do so, I will mention item (e) of Senator Sherry’s second reading amendment—that being the proposal to align the definitions of facilitation payments in the tax act with the definitions in the Criminal Code. Senator Sherry had asked at Senate estimates whether, from the ATO’s perspective, slightly different definitions contained in the code and the Income Tax Assessment Act present any practical problems. Mr Monaghan, the Deputy Commissioner of the serious non-compliance area in the ATO, responded:

We do not believe so. Our view is that the policy intent is reflected in the wording. In terms of our legislation, it is about a tax deduction and whether or not that is allowable. The Crimes Act is about a criminal matter. You might expect there to be more precision in that wording. So we do not believe there is any particular issue in that.

The government, having thought about this, considers that the income tax law is sufficiently robust to ensure consistency with the Criminal Code and therefore denies deductions for bribes paid to foreign public officials. I will now briefly deal with Senator Murray’s foreshadowed second reading amendment.