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

We are dealing with four bills cognately. I think that is wise, given the pressure we are under to complete our consideration of a large number of bills this week—although I would have preferred that TLAB 5 be dealt with separately, it is appropriate that it is dealt with cognately here. Dealing first with the Tax Laws Amendment (2007 Measures No. 4) Bill 2007, it is an omnibus bill containing eight schedules. It is accompanied by the Taxation (Trustee Beneficiary Non-disclosure Tax) Bill (No. 1) 2007 and the Taxation (Trustee Beneficiary Non-disclosure Tax) Bill (No. 2) 2007, which introduce amendments to complement the proposed changes in schedule 4 of what I will describe as TLAB 4 by providing mechanisms to introduce a 46½ per cent nondisclosure tax on certain income.

Schedule 1 of TLAB 4 introduces new income tax offset rules. The income tax law will be amended to abolish foreign loss and foreign tax credit quarantining and to streamline the remaining foreign tax credit rules. This is achieved by repealing the existing foreign loss and foreign tax credit quarantining rules and replacing them with new simplified foreign income tax offset rules. These rules also allow taxpayers to claim relief for foreign income taxes paid on an amount included in their assessable income. Transitional rules for the treatment of existing quarantined foreign losses and credits are also included. Such an amendment provides a mechanism to allow the Commissioner of Taxation to give effect to Australia’s tax treaty obligations to provide relief from economic double taxation arising from transfer pricing adjustments. These changes will commence on 1 July 2008, following royal assent. The cost to revenue of this measure is expected to be $40 million per annum over the forward estimates period.

Changes to the foreign income tax offset rules in schedule 1 of this bill are reflective of systemic changes to the taxation system that have removed the original stimulus for the present foreign income tax provisions. The ultimate purpose of these changes is to prevent double taxation for Australian income tax payers, both individuals and corporations, who may earn foreign income. Thus, the changes are equitable and to be supported. I also agree with the government’s view that these changes will reduce compliance and administration costs and increase Australia’s attractiveness as a source of capital investment and as a viable home base for international and regional organisations with both Australian and foreign income streams.

It should be noted that the nature of the offset only enables Australian taxpayers to reduce their income tax liability to zero. There is no mechanism to enable tax rebates through this system. If that had happened, it would have been a concern. In a submission to the Senate Standing Committee on Economics inquiry into this bill, the Australian Bankers Association highlighted a number of inconsistencies with the way double taxation is relieved in respect of offshore banking and non-offshore banking income, a view supported by the Australian Financial Markets Association. In the committee’s view, the bill adequately deals with the ABA’s concerns related to the schedule. I support the committee’s view that trusts with such potential inconsistencies shall be monitored by Treasury with a view to correction should any matters of significance arise.

Schedule 2 proposes capital gains tax rollover relief for medical defence organisations, or MDOs, with proposed amendments to the Income Tax Assessment Act 1997. The rollover will generally be available when a membership interest in an MDO is replaced with a similar membership interest in another MDO and both MDOs have companies limited by guarantee. These amendments apply to capital gains tax events that happen on or after 14 February 2007. There are no forecast costs associated with these changes. This rollover aims to provide a better allocation of the nation’s capital resources by removing capital gains tax as an impediment to mergers and takeovers in MDOs to help facilitate consolidation in the industry where required and/or desired. Those who have followed my career as the tax portfolio spokesperson for the Democrats know that I have tried to assist mergers and acquisitions improvements at every opportunity, because I think a highly flexible market is in the interests of Australia.

Schedule 3 enables investment in instalment warrants by superannuation funds. The amendment as proposed removes a borrowing restriction contained in the Superannuation Industry (Supervision) Act 1993 to allow superannuation funds to invest in instalment warrants of a limited recourse nature over any asset the fund would be permitted to invest in directly. The in-house asset rules contained in the Superannuation Industry (Supervision) Act 1993 are also amended to provide that an investment and related trust forming part of an eligible instalment warrant arrangement will only be an in-house asset where the underlying asset itself would be an in-house asset of the fund if it were held directly. These amendments will apply from the day the bill receives royal assent and are forecast to be a considerable cost to revenue of $350 million over the forecast estimates period, with these costs expected to escalate each year after that. Notwithstanding the cost, the Democrats support them.

Strict rules naturally apply to the operation of superannuation funds to minimise the financial risks such funds are able to undertake. Superannuation has historically been viewed and regulated as a lower risk investment because of the importance of protecting individuals’ life savings and retirement funds. One such risk that has been consistently and justly prohibited is any form of leverage—that is, superannuation funds are prohibited or restricted from borrowing money to invest. This schedule proposes widening a form of asset superannuation funds are able to invest in by including limited recourse warrants within the basket of available assets. Warrants are a form of derivative security which derives its value from an exercisable option on an underlying asset. Some instalment warrants incorporate a borrowing and thus have not been allowed under current restrictions. The AFMA, which I mentioned earlier, welcome the change, and in the aforementioned committee report, they assert that regulatory standards are not eroded by the proposed changes. But I note that they said:

It seems strange that instalment arrangements that feature a borrowing enjoy a broader exception than those which do not. Accordingly we recommend the subsection 10(1) definition be expanded.

Such a proposal seems common sense to me, and the amendments suggested by the AFMA, despite Treasury comments to the contrary, are worthy of future consideration.

Schedule 4 introduces new trustee beneficiary reporting rules by proposing amendments to the Income Tax Assessment Act 1936 so that trustees of closely held trusts are not required to report to the Commissioner of Taxation the details of the ultimate beneficiaries of trust income. Instead, trustees of closely held trusts may be required to report the details of trustee beneficiaries that are presently entitled to certain income of the trust and tax preferred amounts. These amendments will apply to the first income year starting on or after the day in which this bill receives royal assent and in later income years. The financial costs are unknown. Schedule 4, in effect, substitutes the reporting requirements for closely held trusts from the requirement to report ultimate beneficiaries to a trustee beneficiary statement. This clarifies and simplifies the reporting requirements for applicable trusts by ensuring that all trustees entitled to a share of the trust net income and tax preferred amounts are reported. I am always wary of anything that conceals the identity of ultimate beneficiaries where there are just a few key persons. That always means that there is a desire to be hidden from scrutiny, and the question is: why? What is there to be hidden? Obviously, that is not the case when trustees represent a great number of people or represent minors. Then it is appropriate that the ultimate beneficiaries are not exposed. Notwithstanding the clarification in legislation, such trust vehicles still represent a significant tax avoidance tool, which the Democrats have consistently opposed. I remain wary of this area of tax law.

Schedule 5 introduces a number of legislative updates to the new simplified superannuation system. The bill amends various acts to assist in the smooth transition to the simplified superannuation regime. This schedule limits strategies which could circumvent the minimum draw-down requirements for account based pensions, facilitates the provision of tax file numbers to superannuation and retirement savings account providers, and revises the application provision for small business capital gains tax relief under the regime. ‘Well done’ is what I say. The readability of provisions rewritten as part of the reforms has also further improved to ensure the policy intent underpinning the provisions is clear. The simplified superannuation regime commenced on 1 July 2007. However, an individual’s tax file number is taken to have been quoted by the individual for notices given to superannuation and RSA providers by the Commissioner of Taxation from 1 June 2007. The amendments to prevent individuals circumventing the minimum draw-down requirements for account based pensions will result in a revenue gain of $20 million over the forward estimates. These amendments clarify the operation of draw-down limits to ensure that the concessional nature of the new simplified superannuation system tax-free status only applies to income stream assets and not assets quarantined for investment purposes. This is a desirable clarification that closes a potential loophole in superannuation law.

The retrospective application of capital gains tax exemptions for small business sale profits invested into super is likewise an equitable and worthwhile amendment. My remarks now are directed to the government advisers so that they can take note of this. I have discovered that people writing to superannuation funds giving their tax file number and signing the letter with their proper signature have not had that advice accepted until such time as they fill in a form which is designated by the superannuation company. I think that is a dangerous practice because if people have taken the trouble to write in with their TFN and their signature, that is prima facie compliance with the law and I would ask you to be aware of that.

Schedule 6 to this bill amends the Income Tax Assessment Act 1997 to update the list of deductible gift recipients to include the Australian Peacekeeping Memorial Project incorporated from 30 April 2007 until 31 December 2008 and Social Ventures Australia Ltd from 4 May 2007 with a forecast cost to revenue of $9.82 million over the forecast estimates period.

Schedule 7 makes technical corrections and other minor amendments to the taxation laws. Schedule 8 increases flexibility for family trusts by amending the trust loss regime in schedule 2F to the Income Tax Assessment Act 1936 to allow family trust elections and interposed entity elections to be revoked or varied in certain limited circumstances. These amendments also broaden the definition of ‘family’ in section 272-90(5) in schedule 2F to the ITAA 1936 to include lineal descendants of family members. In addition, spouses, former widows, widowers and former stepchildren are exempted from the family trust distribution tax by including them in the definition of family group in section 272-90 in schedule 2F to the ITAA 1936. Changes take effect from the start of the income year in which the bill receives royal assent and is forecast to cost $24 million over the estimates period. While these changes to improve the legislation governing such provisions have the Democrats’ support, the Democrats remain opposed to the use of family trusts to avoid or unjustly minimise tax obligations.

I want to turn to my committee stage amendments and to discuss them briefly in my speech to the second reading motion. My amendments, circulated to the chamber, aim to implement the Human Rights and Equal Opportunities Commission’s report Same-sex: same entitlements recommendations. My amendments are drafted in the absence of government initiatives to address those recommendations. This is the first tax bill that I could amend following the HREOC report. I say to the government that I would be delighted were the government to substitute their own amendments for mine, but there is no sign of that moral courage as yet. I move these today because this issue is urgent and this unwarranted discrimination is overdue for correction. Fifty-eight federal laws were identified by HREOC as needing similar amendments. Specifically, I propose to implement the HREOC de facto relationship definition. Those amendments are in line with HREOC’s preferred approach, wherein a dual system of acknowledgement is able to operate—in this case in tax law—one which recognises heterosexual and marital relationships as one set and one which recognises homosexual non-marital relationships as a parallel set.

HREOC has identified 58 acts as needing amendment to end this unjust discrimination. The Democrats agree with this and have followed HREOC’s suggested form as closely as we can. My amendment proposes to remove this discrimination. If the government decides not to support the Democrats amendments, it will be because it does not support the removal of clauses in taxation legislation that discriminate on the basis of sexual preference. That will mean the coalition will be continuing to uphold homophobic laws. Given the strong cross-party support for ending unjust discrimination, including from a great many members of the cabinet and the coalition, I remain optimistic that the government will recognise the strength of these arguments. At this moment I see no cause for delay whatsoever.

The tax portfolio holder we are dealing with here is the Treasurer. I do not know where the Treasurer stands on these matters. I do not know whether he supports official homophobic policy or not. I do know that if he really insisted that this unjust taxation discrimination should end, it would end. He is, after all, the most senior minister in the government and the deputy leader of the Liberal Party.

I am told by insiders that most Liberal ministers favour ending this unjust discrimination, so the buck stops with the Prime Minister. And the finger will be pointed at him if the coalition policy of homophobia continues after that damning HREOC report, because that HREOC report has said there is no justification for the discrimination that occurs in tax superannuation and other laws. The flip side of tolerance is hatred. Extremists of many religions and many religious and political sects hate homosexuals. Such extremists undoubtedly support the present coalition policy of inequity in tax matters like these. The coalition and the Treasurer will be keeping terrible company if they keep homophobic tax laws on their books, and I do hope they will have the courage to accept my amendment or to offer amendments of their own.

I now turn to the Tax Laws Amendment (2007 Measures No. 5) Bill 2007. It has 12 schedules. Schedule 1 covers asset financing for public-private partnerships. Schedules 2 and 3 deal with thin capitalisation. Schedules 4, 7 and 8 are capital gains tax rollover changes. Schedule 5 deals with income tax and the Prime Minister’s prize. Schedule 6 is the same business test cap removal. Schedule 9 covers gift recipients clauses. Schedule 10 covers film production offsets, schedule 11 covers the 175 per cent R&D tax deduction extension and schedule 12 covers Innovation Australia.

I must compliment the government on its reaction to the report of the inquiry of the Senate Standing Committee on Economics into this legislation. I note that there are a number of amendments which directly address matters which were raised in that inquiry. I think the government is very wise to have moved rapidly to address issues which were of concern to a number of the witnesses. Obviously, the government has recognised that it was legitimate concern. So another ‘well done’ for you.

The Tax Laws Amendment (2007 Measures No. 5) Bill 2007 has a big price tag—in excess of $640 million over the forward estimates. The two big-ticket items are a comprehensive rewrite of the current tax subsidies and incentives for Australian film production and the removal of the same business test cap. Schedule 1 amends the income tax law to modify the taxation treatment of leasing and similar arrangements between taxpayers and tax preferred end users, such as tax-exempt entities and nonresidents, for the financing and provision of infrastructure and other assets.

The principal application of the law is intended for what are known as PPPs—the public-private partnerships. These changes to tax laws, which are aimed at encouraging investment in Australian infrastructure, must be considered in the context of some high-profile failures in public-private partnership infrastructure investments. In some ways I think it is hard to criticise governments on public-private partnership arrangements because they have had to learn on the job. But what they have had to learn, I think, is to be extremely careful of some of the actions and activities of some private operators who have had somewhat of a lend of the public sector. Whether or not such past failures affect the future of these schemes I do not know, but I am convinced that there is still a place for purely public sector activity and for public-private sector cooperation and activity.

Schedules 2 and 3 relate to the thin capitalisation rules and their anti-avoidance mechanism, which continues to be of importance. This amending legislation corrects this discrepancy and upholds the original intention of the law. It is supported by the Democrats. I notice my time is up. I wish I could talk much more about tax, Madam Acting Deputy President, but I will have to leave it there.