John Watson (Tasmania, Liberal Party) Share this | Hansard source

Recently I was involved in a conference in the Canberra Convention Centre when in-depth consideration was given to international accounting standards and the GAAP/GFS harmonisation project, which aims to develop principles whereby accountants, statisticians and economists can reliably analyse standardised financial statements of government entities. During my preparation for the paper, I discovered a new accounting standard, AASB 120, which I noted with some interest because it requires that government grants be apportioned to the future years benefiting from that grant. I believe that is a very sensible standard.

I would therefore like to draw the Senate’s attention to some related matters. Reported profit for public entities seldom equates to taxable income—for example, adjustments are always required for such matters as long service leave and holiday pay accrued but not paid. The significant differences between taxable income and reported profit have again been highlighted as a result of Australia’s adoption of this new accounting standard AASB 120, which requires that government grants are to be apportioned for corporate law purposes over the period of future years which benefit from the grant.

However, for income tax purposes, where a grant is received by a corporate entity the whole of the grant must be brought to account in the year in which the grant is received. Perhaps it is time for a harmonisation of tax and corporate law reporting. This would be a useful and practical project. Earlier this year the federal government provided some very generous grants to encourage the private sector to upgrade plant to ensure that Australia had an internationally competitive timber conversion industry. Unfortunately, the current state of the tax laws requires that such a grant be assessable in the year of receipt. On the other hand, the dilemma for those likely to accept the grant is that, on the expense side, the deduction is limited to the depreciation or the reduction in value of the effective life of that particular plant. Therefore, tax-wise, the benefit of the grant is severely diminished because of the tax cash flow implications.

The purpose of my contribution tonight is to seek to encourage the government to follow the lead of the international accounting standards in relation to grants by actually changing the Income Tax Act by an amendment which would apportion the tax benefit of the grant—that is, the income—to the future years to which the benefit would apply. By adopting such a recommendation, there would be a better matching of revenue with costs incurred through an effective life apportionment with the income tax expense. As a result of that, I believe that the value of the grant would therefore not be diminished through the application, as we have it, of the current taxation laws.

In conclusion, my recommendation is that the grants could be much more attractive to industry, and there could be a greater incentive to invest in modern equipment and to take up the very generous grants offered to industry by the government. But to effect this recommendation what would be required would be an amendment to the income tax act.