Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Hansard source

in reply—I thank senators for their contribution to this debate. The Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 represents an important reform of Australia’s financial taxation system. Firstly, the passage of this bill will enhance efficiency in financial decision making by taxing financial arrangements according to their economic substance rather than their legal form. Secondly, it will reduce tax distortions to managing financial risk by introducing extensive tax-timing and character-hedging rules. Thirdly, it will reduce compliance costs by increasing the certainty of tax treatment of financial arrangements and by more closely aligning tax and financial accounting outcomes. The TOFA rules will not be applied on a mandatory basis to individual and small-business taxpayers, except where significant tax deferral is involved.

The bill has benefited from extensive consultations with industry and professional associations and is much anticipated by the business sector. As Senator Coonan touched on in her contribution, the bill had its genesis under the former Liberal government. We acknowledge the extensive work that commenced, as I recall from Senator Coonan’s contribution, as far back as 2003. So there have been some five to six years from the original announcement of these proposals through to the very extensive consultation. One of the results of recent consultation was the government’s decision to implement a soft and hard start date. Entities keen to receive the benefits of the reduction in compliance costs can elect to apply the new tax rules for the income year starting on or after 1 July 2009. Other entities may need more time to prepare for the new rules, which will apply to affected entities on a mandatory basis for income years starting on or after 1 July 2010.

This is a significant bill which will provide improved and needed coherence to the tax treatment of financial arrangements. As has been pointed out by Senator Coonan and other contributors to this debate, the bill is a complex one, and it will need very careful monitoring. There are likely to be issues that need to be considered. Certainly industry in their consultation, while broadly welcoming and supporting the legislation and the detail, nevertheless rightly pointed out that, as is often the case with changes to tax treatment, there is a series of complex issues that will need careful consideration. The government understands this and industry understands it. Those who wish to apply the rules do understand the complexities of the process that is going to flow as a consequence of this legislation.

I think it was Senator Joyce—I was not here but Senator Coonan flagged it and I want to take this opportunity to discuss the issue—who expressed the concern of the coalition, the Liberal and National parties, whilst supporting this particular piece of legislation, of the broadening of the aggregated turnover threshold test and the related issue of the compliance application and the impact that would have on business as a consequence of the broadening of that aggregated turnover threshold test.

Debate interrupted.