Annette Hurley (SA, Australian Labor Party) Share this | Hansard source

I do not think it can be denied that the Labor Party have always been very strong on the pursuance of tax avoidance, but I think it is also important to make a distinction between tax avoidance or evasion and tax minimisation. I do not think Kerry Packer, for example, would have said that he minimised his tax by avoiding tax. I think he would have argued that he used legitimate minimisation methods. Certainly tax avoidance and evasion have always been strongly pursued by the Labor Party, using all of the regulatory bodies, the Australian Taxation Office and the tax laws. I think it is Project Wickenby, which the Australian tax office has involvement in, that is chasing several prominent Australian figures through the courts over a range of matters, including overseas holdings in, for example, Swiss banks.

I think that offshore tax havens do indeed deserve to be looked at very carefully by regulatory authorities and governments around the world. I do have to say, though, that, perhaps as a result of that kind of pressure, Swiss banks have opened up and provided information where it has been proved that their activities are illegal or part of tax evasion measures. I would like to see that happen further. I would like to see those tax havens be much more open where the host country does suspect some form of tax avoidance or evasion.

I go back to the subject of tax minimisation. This is an ongoing issue and governments continue to make tax laws and deal with the changing corporate and taxation environment. There are companies that continue to look at the tax arrangements and try to legitimately minimise the amount of tax they pay. That is a reasonable proposition. Sometimes companies go a bit further and devise quite tricky schemes to minimise that tax. That is exactly one of the measures that we are looking at today in the Tax Laws Amendment (2008 Measures No. 6) Bill 2009, specifically in schedule 1.

Schedule 1 modifies the capital gains tax provisions of the Income Tax Assessment Act 1997 for corporate restructure. The current provisions allow that, where there is a corporate takeover and there is a scrip-for-scrip arrangement as part of that process, there is a capital gains tax rollover. This means that shareholders are not unduly penalised if a scrip exchange is part of the takeover arrangement. It is entirely appropriate to allow for normal competitive takeovers and restructuring in the market and not have shareholders unduly penalised by that arrangement where it is simply a transfer of that shareholding. As the ATO describe in their tax sheet:

Some takeover or merger arrangements involve an exchange of shares. In these cases, when you calculate your capital gain or capital loss, your capital proceeds will be the market value of the shares received in the takeover or merged company at the time of disposal of your original shares.

If you receive a combination of money and shares in the takeover or merged company, your capital proceeds are the total of the money and the market value of the shares you received at the time of disposal of the shares.

The cost of acquiring the shares in the takeover or merged company is the market value of your original shares at the time you acquire the other shares, reduced by any cash proceeds.

That simply meant, for example, that, where a taxpayer held shares in one corporate entity that were replaced by shares in another entity, as in a company takeover, that taxpayer was allowed to disregard the capital gains on the original shares. The replacement shares were then taken to have been acquired for the cost base of the original interest in shares. That arrangement was put in place by the former government in 1999.

However, there were some unintended consequences arising, including the tax minimisation practices. As has been described before, some companies sought to gain significant tax benefits by restructuring in such a way that the company in which shares were held joined a new holding company but ownership was essentially unchanged. No capital gains tax was payable and the intent of the legislation was therefore subverted. One such arrangement was described in the explanatory memorandum:

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7   For example, some entities have entered into schemes that involve the insertion of a new holding company above the original entity (known as ‘top hat’ schemes).  The schemes are designed to attract a scrip for scrip roll-over.  As a result, the holding company obtains a market value cost base for the shares it acquires in the original entity under the scheme even though there is no significant change in the underlying ownership of the assets.

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8   Where the original entity subsequently joins the holding company’s consolidated group, the consolidation tax cost setting rules apply to push this market value cost base into the underlying assets of the original entity.  This effectively allows the tax costs of the original entity’s assets to be reset which, in turn, can lead to an increase in capital allowance deductions and a reduction in capital gains that arise on the disposal of those assets.

It is this market value cost base which is the fundamental basis of what is happening here. The measures in schedule 1 of this bill deal with it. Companies will be prevented from obtaining a market value cost base for shares and certain other interests acquired in another entity following their scrip-for-scrip capital gains tax rollover under an arrangement that is taken to be a restructure. This is the crux of the change here. We are not dealing with straight takeovers or substantial restructures where one larger company takes over a smaller company. Generally and loosely speaking, an arrangement will be taken to be a restructure if the resulting entity has more than 80 per cent of the market value of the previous arrangement.

This measure will not only address this problem of this type of tax minimisation but also provide more certainty for markets when dealing with takeovers and restructuring. The feedback from the market is that a lot of scrip-for-scrip deals that may have been put in place have in fact been halted in the business markets because there is some uncertainty about what is being allowed by the legislation and what is not. Therefore, there is some hold-up of a lot of these scrip-for-scrip offers. That is particularly important in the current global financial market because it is, of course, harder and harder for straight debt capital raising. It becomes more and more important that the opportunities for dealing with scrip and shareholdings are available so that, where there is a restructuring of the entire market and one company merges with or takes over another company, there is this possibility of scrip for scrip rather than borrowing the money and paying out the shareholders of another company. Although I do not believe that that was the impetus for this bill, it certainly provides even more impetus at this time. This was borne out in comments from Ernst and Young and PricewaterhouseCoopers on these proposed changes, as quoted in the Financial Review in December 2008:

“Scrip takeovers are likely to re-emerge, particularly in the current environment; where obtaining debt finance for acquisitions can be very difficult,” Ernst & Young partner Don Green said.

“Existing companies, seeing an attractive target company, will be able to undertake scrip takeovers and will know the tax implications with certainty, rather than relying on government announcements without legislation.”

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PricewaterhouseCoopers tax partner Mike Davidson said: “They have gone back to the underlying theme of only trying to target a certain type of transaction which is really just an internal restructure, which is quite good.”

So the markets generally are quite supportive of the change mooted in schedule 1 of this bill. It will certainly address those issues of tricky rearrangements of companies in order to minimise tax through the use of that capital gains tax exemption.

Another measure in this bill of some note is in regard to the superannuation guarantee payments. Superannuation payments are payable each quarter. From 1 July 2008 the minimum will be nine per cent, which is the standard superannuation guarantee payment. If these payments are not made by the employer at the end of each quarter a charge applies. If the superannuation guarantee payment is not returned to the tax office within 28 days of the end of each quarter, a superannuation guarantee charge is applied. This can be offset against ongoing payments under certain conditions. These conditions allow an employer who makes a contribution into an employee’s fund after the due date for a quarter to elect to use the contribution to offset part of their superannuation guarantee charge liability with respect to the employee for the quarter.

Prior to these amendments, the employer could make the contribution at any time after the due date and still be eligible for the offset. There was no required time limit for that offsetting of the superannuation guarantee charge. The changes foreshadowed in this bill limit the time during which an employer may defer payment of the superannuation guarantee charge obligation and, consequently, limit the potential interest charges that are part of that superannuation guarantee charge. This is a sensible and practical measure that is part of the ongoing review of superannuation and has been supported by the opposition as well. The Australian tax office expects that the measure will save around $25 million, and that was foreshadowed in the budget papers last year.

The other significant schedule that it deals with is foreign tax debt. It enables the collection or conservation of tax debts owed in another country where the debtor is resident in Australia or has assets in Australia. Again, this is tidying up another part of the system. This refers to the International Tax Agreements Amendment Act (No. 1) 2006, which enables the tax commissioner to meet Australia’s existing and future treaty obligations for mutual assistance in the collection of tax debts. We are in a global market where money moves around quite freely. Unfortunately it has not been moving upwards in the last six months or so, but hopefully we will get back to a time when we will again see growth in our financial markets and the money that is moving around will not be to cover outstanding obligations but to produce growth around the world. I guess this harks back to what Senator Bob Brown was saying: now that money is moving freely around the world and we have these tax treaties in place, we do have treaty obligations to better monitor what is happening with money moving around the world—often quite large amounts of money. It is quite difficult to monitor what is happening with all of the different types of financial instruments that are available, so it is very important that Australia clarifies and meets its obligations and also that it collects the money that is due to be collected from those people who are resident in Australia and have overseas interests or have substantial assets in Australia and tax obligations that need to be met.

There are a number of other measures in this bill. It is quite generally supported. The addition of schedule 5, which provides assistance in emergency situations, has been dealt with extensively by Senator Cameron. I will not go into that except to say that clearly this is a very important measure and one which will provide support to those people affected by emergencies like bushfires and floods. It will make life a little bit easier for those people who are undergoing such difficult times at the moment. I support the bill as a whole.