Andrew Murray (WA, Australian Democrats) Share this | Hansard source

The Tax Laws Amendment (2006 Measures No. 4) Bill 2006 is comprised of four schedules, each with their own purpose. Schedule 1 modifies the provisions relating to capital gains tax and implications associated with asset disposals arising from marriage breakdowns. The proposed amendments extend the marriage breakdown CGT rollover to assets transferred to a spouse or former spouse. Currently the rollover applies automatically to a relevant CGT event arising from a court order under the Family Law Act or a corresponding foreign law; a court approved maintenance agreement under section 87 of the Family Law Act; or a corresponding agreement approved by a court under a corresponding foreign law or a court order under a state, territory or foreign law relating to de facto marriage breakdowns.

The proposed amendments extend the operation of the marriage breakdown rollover provisions to an additional three situations: a financial agreement binding under the Family Law Act; an arbitral award made under the Family Law Act; or a written agreement that is binding because of a state, territory or foreign law relating to de facto marriage breakdowns. According to the explanatory memorandum the financial impacts and compliance costs are expected to be ‘minimal’.

Schedule 2 contains amendments to the consolidation provisions in the Income Tax (Transitional Provisions) Act 1997 so that the integrity provision requiring certain rollovers to be ignored for tax cost setting purposes does not apply to a consolidated or multiple entry consolidated group that forms after a demerger provided that company that received the rolled-over asset does not join the same consolidated or MEC group as the company that transferred the asset.

The operation of the integrity provision is also clarified, another amendment to what I would broadly describe as the consolidation regime. The explanatory memorandum claims that the anticipated cost to revenue will be $20 million for the financial year 2006-07 and $5 million for the financial years 2007-08 to 2009-10, totalling $35 million. Despite that cost, I think that amendment is valid and necessary, and it is consistent with the intentions of the consolidation regime.

Schedule 3 contains amendments to the imputation system relating to Australian and New Zealand companies. The proposed amendments in schedule 3 aim to solve the so-called triangular tax problem and will ensure that franking distributions by a New Zealand company which are exempt or are non-assessable, non-exempt income can be passed on by the Australian company on a pro rata basis to its shareholders. The explanatory memorandum estimates that the financial impact will be zero, with minimal compliance costs, and I think that is a useful rationalisation of the arrangements between Australian and New Zealand companies.

Schedule 4 contains amendments relating to capital gains tax and its operation in connection with foreign residents. It contains proposed and consequential amendments to the Income Tax Assessment Act 1997, the Income Tax Assessment Act 1936 and the Financial Corporations (Transfer of Assets and Liabilities) Act 1993. The bill will amend the CGT regime such that the capital gain or loss made by a foreign resident from a CGT event—the event by which a capital gain or loss arises—is disregarded unless the event relates to an asset that is ‘taxable Australian property’. Previously, the asset needed a ‘necessary connection with Australia’.

Broadly, ‘taxable Australian property’ will include taxable Australian real property, which is any real property situated in Australia, plus mining, prospecting and quarrying rights; indirect Australian real property interests, which are interests held by an interposing entity or entities; assets used in carrying on a business through a permanent establishment in Australia; an option or right to acquire one of these interests; and any CGT assets covered by section 104.165(4) of the Income Tax Assessment Act 1997. Additionally, the bill defines ‘indirect Australian real property interests’ as being those interests that pass the non-portfolio interest test—a non-portfolio interest is held by a foreign resident if the direct or indirect interest held by the foreign resident and associates is 10 per cent or greater—and the principal asset test, which is satisfied when the market value of an entity’s taxable Australian real property is more than 50 per cent of the market value of the entity’s assets.

Schedule 4 also contains consequential and other amendments arising from the proposed changes to the CGT regime relating to managed fund provisions, currency calculation provisions and interests in active foreign companies. According to the explanatory memorandum, the cost of the proposal is expected to be $50 million for 2006-07 and then $65 million for each of the following years 2007-08 to 2009-10, a total of $245 million. I famously—I hope!—described that as a thumb-suck. It might be an educated thumb-suck, but it is a thumb-suck.

Before discussing some of the specific concerns raised by the various schedules of amendments, I would just like to express my concern about the apparent lack of informed public awareness of the bill, although there has been some useful commentary in the more creditable newspapers and magazines. In the Senate Standing Committee on Economics inquiry into the provisions of the bill, only four submissions were received in total, all of which came only from industry bodies and associations and all of which expressed support for the bill. As I said, there has been some media coverage; but, given that schedule 4 alone has a cost to revenue of $245 million over the years 2006-07 to 2009-10, I find the low-ish level of public awareness concerning, particularly since I think the consequences of this change will be dramatic for Australia with respect to a rapidly increased rate of foreign takeover and quite an amazing reduction, I expect, in revenue—far beyond what the government has calculated.

In terms of controversial issues, the bill is split fairly evenly down the middle. Schedule 3 relates to a technical taxation matter that was not dealt with in previous legislative efforts relating to trans-Tasman taxation arrangements. Schedule 2 is also relatively uncontroversial, although the validity of the forecast costs to revenue is always questionable in these matters. My view is that estimates by Treasury, whilst more educated than anyone else’s, are still only estimates. As those who have heard my remarks on consolidations over the years know, I have been consistently of the view that it will cost more than we anticipated. But that cost was actually necessary and justified, so there we are.

It is schedules 1 and 4 to which I wish to devote the majority of my attention, as they raise issues which merit further consideration. Schedule 1 extends the operation of certain marriage breakdown rollover provisions in relation to capital gains tax. However, as Bills Digest No. 16 notes at page 4:

Parliament may note that the measure will make no changes to availability of the roll-over relief: only heterosexual couples, married or in de-facto relationships, will benefit from the expansion of the relief. It will continue to be unavailable to same-sex couples.

As most of my Senate colleagues will be aware, under my portfolios—economics, finance, tax and those sorts of portfolios—I have long campaigned to eliminate discrimination against same-sex couples in our tax, superannuation and property laws, although unfortunately not only have these efforts not borne much fruit so far but they have gone unrecognised by the larger community. So, to anyone who thinks that these are politically motivated efforts, I can assure you I get absolutely no political benefit from them.

In my view, I have also been moving these sorts of amendments consistently with the government’s support. As I understand it, according to coalition government policy and as enunciated by the Prime Minister, the coalition does not support the continued discrimination against gay and lesbian Australians with respect to property matters. Prime Minister John Howard, in a press conference at the Commonwealth Parliamentary Offices in Sydney on 22 December 2005, said that he was strongly in favour of removing any property and other discrimination that exists against people who have same-sex relationships. Well, that strong support does not translate into policy, so I am afraid I am not impressed.

As I stated during the Senate Standing Committee on Economics inquiry into the provisions of Tax Laws Amendment (2006 Measures No. 4) Bill, the continued discrimination against homosexuals is contrary to the way in which the government is moving. It is contrary to the remarks of the Prime Minister and the minister for finance and contrary to the view of most parliamentarians I know. It may also infringe international law. Some countries such as Canada allow marriage of same-sex couples, and this discriminates against those who are married overseas.

This bill continues to exact the sort of discrimination which the Prime Minister declares he is against. This is a new rule which further entrenches discrimination against same-sex couples in tax treatment and, when the government is forced to change its position and end this discrimination, this will be yet another rule on top of the already myriad number that exist which will need to be amended. Discrimination in our tax laws against people based on their sexuality is a serious concern for the equity of the system. In this bill the government was presented with an opportunity to begin changing this position and that they chose to do nothing is frustrating. I can only hope that in time the government starts an action that will change it. There is overall community and parliamentary support for changing real property rights with relation to homosexual people.

Schedule 4, on the other hand, demonstrates that the government is able to come good on promises made to reform other aspects of our tax laws. The amendments in schedule 4 are the result of a promise by the Treasurer to deliver capital gains tax reform before the end of the 2005-06 financial year. The government contend in the explanatory memorandum that the CGT measures in the bill will further enhance Australia’s status as an attractive place for business and investment by addressing the deterrent effect for foreign investors of Australia’s current broad foreign resident CGT tax base. While this may be so, I have my doubts about the merits of this justification, especially in the light of comments by John Edwards, chief economist at Hong Kong and Shanghai Banking Corporation. Drawing on an International Monetary Fund report, Mr Edwards observed:

... over the last few years business investment in Australia has been markedly higher as a share of GDP than in the UK, the US, Germany or Japan ... Though widely believed to in a mining boom, Australia has actually been experiencing an investment boom.

It is interesting to note that all of the submissions not only expressed their support for the bill—mind you, I say all the submissions but ‘all’ was only four—but also seemingly had no reservations as to the potential negative impacts of the bill. All emphasise that the changes would bring us into line with international practice, with the Institute of Chartered Accountants also citing that the amendments will encourage greater investment, enhance our competitiveness and encourage global companies to enhance their Australian operations.

While I am always able to support measures which aid the economic wellbeing of Australia—I have a long history in this place of having done so and my party has done so—I am concerned that changes to CGT of this sort as it relates to foreigners may be giving foreigners an unfair advantage, and that is an unfair advantage over Australians. It is an issue of equity. While most of our trading partners probably do have similar tax regimes to Australia in many respects, can Treasury guarantee with any certainty that no foreigners investing in Australia will be receiving an unfair advantage over Australian investors? The answer appears to be not yet.

Treasury has so far provided no modelling, no empirical evidence, no illustrative cameos to support their claims that non-Australians will not be given an unfair competitive advantage over Australian citizens and residents. In that respect, I want to support here in the Senate the remarks made by the Labor shadow minister with respect to the unwillingness and inability of Treasury to provide the sorts of answers to questions that were asked for.

I have a view of Treasury that they are very bright, very competent and highly professional and therefore their failure to provide that sort of response is a failure as a result of political direction, not as a result of failure of the policy officers to be able to deliver such information. It is an affront, as the shadow minister rightly said, to the official opposition of the parliament and to the people of Australia when the government and its principal economic agency start to treat the parliament as if we are mushrooms, as if we do not deserve to be properly informed. When this law goes through, as it is going to, given the way in which the numbers sit, we legislators will bear the consequence of this law. We bear the responsibility, not Treasury—we bear it. Therefore we are entitled to ask to be as fully informed on these matters as possible. With respect to this particular bill, I want to record my strong displeasure and disapproval at the way in which the committee and the Senate have been treated.

It is too easy, by the way, to label concerns about schedule 4 and the possibility of foreigners being given taxation advantages over Australian residents—both foreign and Australian citizens—as ‘economic xenophobia’, as one witness did. Apart from being completely wrong with respect to my and the Democrats’ huge contribution to supporting laws, which have modernised and internationalised Australia with respect to its tax regime and the way in which it operates internationally, we recognise that foreign investment is an important part of a modern and globally integrated economy. But the Democrats and I are deeply concerned that, when we change our tax rules to give foreigners advantages our own citizens and residents do not have, it is a basic measure of equity. Once again, this is about equity and capital gains treatment of Australian citizens and noncitizens. Australian tax law must not have the effect that foreign-born residents of Australia or Australians are treated less favourably than non-Australian residents abroad. This is foolish and would be inequitable.

When these questions were put to the Treasury officials they answered, ‘We disagree; we don’t think it will be inequitable.’ The problem is that they were not able to substantiate that opinion. They were not able to provide any empirical data, any cameos or any illustrative comparisons that would enable us to accept their assurance. As bright as they are, we know from the history of this country that Treasury have got it wrong in the past. They are not perfect. We know from the history of this country that governments have got it wrong. They are not perfect. And we know from the history of this country that at times the legislature has got it wrong. We are not perfect. Therefore, we are all entitled to be given the maximum information that enables us to make a considered decision. In this case you did not provide it and therefore you have not allayed my fears. Judging by the remarks of the shadow minister, despite the fact that Labor will end up supporting this bill, they share those broad fears and are concerned at the sort of treatment we have been given.

I am unable to give this bill full Democrat support without the CGT marriage and de facto breakdown provisions being amended so that they at least remove the discrimination against de facto homosexual couples. I understand that, if they are married, the law prevents that happening. But with respect to real property issues, de facto homosexual couples should not be discriminated against. I cannot give this bill full Democrat support without addressing the schedule 4 capital gains tax issues that we are concerned with. That was my position throughout the Senate inquiry into this bill. The inquiry did not allay my concerns and my fears, and therefore it remains my and the Democrats’ position now.