Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition (Social and Community Affairs)) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2007 Measures No. 1) Bill 2007 and the Tax Laws Amendment (2006 Measures No. 7) Bill 2006. I say at the outset that Labor will be supporting both bills. Labor welcomes the government backflip in removing schedule 2 of the Tax Laws Amendment (2006 Measures No. 7) Bill 2006, which was the subject of an inquiry by the Senate Standing Committee on Economics. I note that the government has taken up Labor’s recommendation that schedule 2 be removed from the bill. Schedule 2 proposed amendments to the Income Tax Assessment Act 1936 to supposedly clarify the types of financial instruments which are eligible for the exemption from withholding tax. Tax is withheld from the payment of interest to nonresidents, subject to some exemptions. The exemptions exist to reduce the cost of Australian companies obtaining capital. Schedule 2 proposed to restrict the range of debt interest eligible for this withholding tax exemption. Schedule 2 proposed to introduce a regulation-giving power to sections to allow the minister to specify which instruments would qualify for the exemptions and which would not. Labor was certainly concerned that this change was more than a clarification and would change what could be claimed as an exemption in a substantive and substantial way and impede the ability of Australian companies to raise cost-effective finance.

Schedule 2 of the bill was referred to the committee at the insistence of Labor. In his summing up speech in the House of Representatives, the Minister for Revenue and Assistant Treasurer stated that he would not refer the bill to a committee—but we witnessed a backflip on that, with the bill referred the very next day. As evidenced by the submissions to the committee, there were concerns that the amendments might particularly affect the ability of Australian firms to participate in syndicated loans, for example. As noted in the submission by the Australian Bankers Association:

... the Bill will unreasonably impede access by borrowers to international debt markets ... the proposed amendments will prejudice the ability of Australian firms to participate in the syndicated loan market ...

Labor was also very concerned about the lack of consultation that had gone into framing this schedule. The economics committee report demonstrated Minister Dutton’s total failure to properly consult with key stakeholders on changes to tax laws, resulting in what really was substandard legislation. The ABA’s submission noted:

... a breakdown occurred in the consultation process in relation to the proposed IWT amendments.

This comes after Minister Dutton’s failure to consult with affected industries over the taxation treatment of non-forestry managed investment schemes. It is incredible that we had to insist that this schedule be referred to a Senate committee to conduct the consultations that the government should have conducted itself. As a result of Minister Dutton’s failure to consult, flawed legislation was brought to the parliament. It was thanks to Labor’s insistence that it was referred to the Senate committee and that key stakeholders had the opportunity to express their concerns with the legislation.

The committee heard that the government’s proposed changes could cause widespread damage and uncertainty to the loan market, impacting on the ability of Australian companies to raise finance. The committee also heard that the proposed legislation would have imposed high compliance costs on business—this from a government that claims to cut red tape and be pro business. The inquiry also highlighted that the bill might have a retrospective application. ABA’s submission stated:

... the Bill will be retrospective and will effectively impose cost (via interest withholding tax “gross up” clauses) on Australian borrowers who negotiated loan arrangements in good faith based on current law.

I will go to the report of the committee. The uncertainty that was demonstrated by the witnesses who appeared before the committee was based on the fact that the regulations that the government was going to rely upon were not available, even in draft form. So it was very unclear as to what debenture and debt interests were going to be excluded from and entitled to the interest withholding tax exemption.

This was a very frustrating process and the Australian Financial Markets Association argued that such a scenario would create uncertainty and generate additional compliance costs, which, contrary to the statement in the explanatory memorandum, would not be negligible. That was a very serious point of debate during the committee hearings. As a result, Labor members of the economics committee recommended with the support of Senator Murray that the Assistant Treasurer withdraw this schedule from the bill. The government members of the committee recommended that the Senate pass the bill. Today we see an amendment put to the Senate to remove schedule 2 of the bill—effectively agreeing with Labor’s position. Thank heavens that the Assistant Treasurer has actually seen some sense, after listening properly to affected parties, but it should have been done before the legislation was introduced.

I will now turn to the schedules of the bill that remain. Schedule 1 deals with an expansion of the small business exemptions for capital gains. These largely arise out of the Board of Taxation review of 2005, and are supported by the opposition. These recommended changes show that the process of having the Board of Taxation review elements of the tax act is a worthwhile process. Item 39 of the bill proposes to replace the current controlling individual 50 per cent test with a new significant individual 20 per cent test. That is to say, an individual will no longer have to own 50 per cent of the enterprise to gain the capital gains tax concession but will now only need to own 20 per cent of the enterprise. The 20 per cent participation percentage does not need to be entirely direct holdings but can include indirect holdings. These changes will certainly increase the availability of the small business concessions. The new significant individual test would enable up to eight taxpayers to access the small business capital gains concessions. More people with a substantial interest in a small business will be eligible for the concessions, which is good for the small business sector.

The bill also proposes changes to the maximum net asset value test to determine eligibility for the small business concessions. This test is satisfied if the sum of the net value of all capital gains tax assets of the taxpayer, an entity connected with that taxpayer, any small business capital gains tax affiliate of that taxpayer or entities connected with that person’s small business capital gains tax affiliates does not exceed $5 million. The proposed amendments to the maximum net value test would allow more small businesses to become eligible for the concessions by allowing more liabilities to be included in calculating whether the business breaches the $5 million threshold.

There are other changes which make it easier to gain the small business tax concession included in this bill. The definition of an active asset is clarified and the restrictions on the ownership of an asset for which a 15-year exemption is claimed are eased. In respect of the small business rollover concession, which allows a taxpayer to defer the making of a capital gain from a capital gains tax event happening in relation to a small business asset if the taxpayer acquires replacement assets, the proposed changes will abolish some of the current prerequisites for the rollover to make the rules to access this concession clearer and extend this concession to more taxpayers.

Proposed section 152-80 will make rules for the treatment of the capital gains tax assets that are part of the estate of a deceased person. Currently no rules exist. A legal personal representative of the beneficiary will now be allowed to access the same concessions that would have been available to the deceased. These are measures which improve the availability of the small business capital gains tax exemption, and Labor supports them all.

Of course, small business is deserving of the support of parliament and the treatment of small businesses when they are sold for either retirement or to be rolled over into new small businesses is an integral part of that support. Accordingly the Labor Party has no hesitation in supporting these changes.

Schedule 3 proposes amendments to remove the requirement for certain deductible gift recipients to maintain a gift fund. It also aims to standardise and improve integrity arrangements for deductible gift recipients. Further, Schedule 3 proposes changes to provisions in the Tax Administration Act 1953 to enhance the DGR integrity arrangements. Proposed changes will provide the Commissioner of Taxation with the power to request information from both endorsed and listed DGRs, thus aligning the integrity arrangements applicable to both types of DGR. Currently, the commissioner can only review endorsed DGRs to determine if they continue to meet the requirements for holding DGR status. Listed DGRs cannot be reviewed. These are sensible changes, which both reduce the compliance burden on charitable organisations and improve the integrity measures available to the ATO. Labor is happy to support these measures too.

Schedule 4 proposes amendments to extend the periods during which deductions will be permitted to certain DGRs. These include the Dunn and Lewis Youth Development Foundation, the Rotary Leadership Victoria Australian Embassy for Timor-Leste Fund, the St George’s Cathedral Restoration Fund and the St Michael’s Church Restoration Fund. Labor supports these measures and wishes these bodies well.

Schedule 5 proposes amendments to insert a statutory cap of 6⅔ years for tractors and harvesters used in the primary production sector. The commissioner is currently reviewing the effective life of assets in the primary production sector and, therefore, may increase the current safe harbour effective life of tractors and harvesters, which would be disadvantageous to taxpayers claiming the decline in the value of these assets for a deduction. By adding a statutory cap for tractors and harvesters, taxpayers who choose to have the effective life of these assets determined by the commissioner will be limited to an effective life of 6⅔ years.

I note that this measure is inconsistent with the recommendations of the Ralph Review of Business Taxation, which abolished accelerated depreciation. We do not oppose this measure. Farmers deserve all the support and certainty that they can get in this difficult time. However, it does need to be noted that this measure is contrary to the recommendations of the Ralph review and, if the government does go on making changes to the effective life regime in an ad hoc way, it will be undermining the integrity of the Ralph reforms and will add complexity to the tax law by treating certain assets differently.

The bill proposes to make changes to the Farm Management Deposits scheme to increase farmers’ eligibility for this scheme. The bill proposes to increase the threshold of non-primary production income from $50,000 to $65,000 and increase the deposit limit from $300,000 to $400,000. The FMD scheme allows primary producers to, in effect, shift income from good to bad years in order to deal with adverse economic events and seasonal fluctuations. The scheme allows primary producers to claim a deduction for farm management deposits made in the year of deposit, and to reduce their PAYG instalment income accordingly. When the farm management deposit is withdrawn, the amount of deduction previously allowed is included in both their PAYG instalment income and their assessable income in the repayment year. Labor supports the proposal to allow more primary producers to become eligible for the FMD scheme to assist in times of drought. The income threshold and deposit limit have not been increased since 1999.

The final schedule in this bill relates to capital protected borrowings. The changes would prevent a taxpayer from claiming a deduction for the part of the expense of a capital protected borrowing that is attributed to capital protection. Capital protected borrowings allow people to borrow money to buy shares and then, in effect, sell the shares back to the lender at a price no lower than what they paid for them should the price of the shares fall. The lender charges a premium on the interest rate to deal with this transfer of risk.

The ATO has previously taken the view that interest payable on capital protected borrowings used to purchase shares is not allowable to the extent that it exceeds the amount of the benchmark interest rates set out on the ATO website—that is, that the premium charged for risk transfer is not deductible. This view was successfully challenged in the case of the Commissioner of Taxation v Firth in 2002. The government announced that it would make changes to override the Firth case in April 2003. The interim methodology was announced by the then Minister for Revenue and Assistant Treasurer in May 2003.

It is extraordinary that the government could announce legislative changes in 2003 and yet it is 2007 before we are debating them. It is true that the government flagged these changes and that the ATO warned people that the government would be legislating retrospectively, but for the government to wait four years before providing certainty and introducing this legislation is gross incompetence. This government has taken legislation by press release to a new level. It is simply not good enough. Labor will be supporting this measure, which comes much too late but which should be supported. The amendments provide certainty about the tax treatment of CPBs, and for that reason and because this is an integrity measure Labor supports the amendments.

Labor support the bill. We are not happy with the government’s performance on schedule 2 but we will not be standing in the way of the significant benefits which will flow to small business in this bill, and we will support it. However, the government will need to account for any adverse effects on the ability to raise capital that flow from these changes.

Labor is also supporting the second bill before us, the Tax Laws Amendment (2006 Measures No. 7) Bill 2006. Schedule 1 makes amendments to the secrecy and disclosure provisions of the Taxation Administration Act 1953 to allow the Commissioner of Taxation to disclose taxpayer information to Operation Wickenby task force officers and to officers of future compliance operations.

Operation Wickenby is a multi-agency crackdown on offshore tax fraud. It was established in 2004 and is led by the ATO. Other agencies involved are the Australian Crime Commission, the Australian Federal Police and the Australian Securities and Investments Commission. Allowing the commissioner to share information with other government agencies involved in Operation Wickenby should help compliance task forces investigate tax evasion and enforce the law. The amendments will allow the commissioner to disclose information to officers of Operation Wickenby task force agencies for any purpose related to the task force; allow the commissioner to disclose information to officers of the agencies of any future prescribed task forces established to protect Australia’s revenue; and allow an officer of any task force agency who receives such information to disclose the information to other task force officers and legal counsel. A sunset clause restricts the ATO from disclosing information to the agencies of the Operation Wickenby task force after 30 June 2012 as this is when funding for the task force runs out. Labor supports Operation Wickenby and other efforts by the ATO to address tax avoidance and evasion to increase fairness in the tax system and protect revenue.

The government has made a significant financial commitment to Operation Wickenby. Over $300 million has been allocated to the project over seven years. The 2006-07 budget estimates increased revenue as a result of the operation to $323 million over four years. I note that taxation commissioner Mr D’Ascenzo stated in additional estimates two weeks ago that he is confident the $323 million figure will be reached through increased compliance as a result of the operation. Labor hopes this is the case.

Schedule 2 of the bill proposes amendments to the Superannuation Guarantee (Administration) Act 1992 to enable the Commissioner of Taxation or an ATO officer to provide information to an employee in response to a superannuation guarantee complaint against their employer. The secrecy provisions of the superannuation guarantee act prohibit the disclosure of information about the progress of any action in relation to any person. This prevents the ATO from providing information to employees on the progress of their superannuation guarantee complaints. The amendments will allow the ATO to provide information to an employee in response to the employee’s complaint that their employer has not complied with its superannuation guarantee obligations. The information the ATO may provide under the amendments is: steps taken to investigate the complaint, actions taken in relation to the complaint, and steps taken to recover any superannuation guarantee charge from the employer. Labor supports the proposal.

Schedule 3 of the bill proposes amendments to a number of tax acts to extend employee share schemes and related capital gains tax treatment to stapled securities. The amendments allow the ESS concessions to apply to stapled securities and rights to acquire stapled securities that include an ordinary share listed on the ASX. The capital gains provisions that refer to ESS shares and rights will apply to stapled securities. Fringe benefit tax treatment of stapled securities provided under ESS will also be made consistent with the treatment of ESS shares and rights. Labor recognises that these are two important financial pieces of legislation that, having been amended, are deserving of support in the interests of good fiscal management and transparency of taxation arrangements. Mr Dutton has saved himself and many stakeholders a great deal of angst. I certainly look forward to considering what will come before us again as amended schedule 2 in a new form when it is finally recommitted to the Senate.

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

The Tax Laws Amendment (2006 Measures No. 7) Bill 2006 and the Tax Laws Amendment (2007 Measures No. 1) Bill 2007 propose changes to the 1936 and the 1997 Income Tax Assessment Act, the Income Tax (Transitional Provisions) Act 1997 and the Taxation Administration Act 1953. Additionally, the Tax Laws Amendment (2007 Measures No. 1) Bill 2007 proposes legislative amendments to the Administrative Decisions (Judicial Review) Act, the Freedom of Information Act, the Superannuation Guarantee (Administration) Act, the Fringe Benefits Tax Assessment Act and A New Tax System (Goods and Services Tax) Act 1999.

The measures proposed by the Tax Laws Amendment (2007 Measures No. 1) Bill 2007 are contained within three schedules. Schedule 1 pertains to Project Wickenby. Schedule 2 addresses disclosure of information relating to superannuation guarantee complaints. Schedule 3 proposes changes to employee share schemes and stapled securities.

Schedule 1 amends secrecy and disclosure provisions to enable the Commissioner of Taxation to lawfully make disclosures of taxpayer information to Project Wickenby task force officers and in so doing empowers the task force to undertake their investigative duties to their full capacity. Many millions of honest, hardworking Australians pay their taxes and in so doing fulfil their social responsibility to the state and its people. Many millions of taxpayers means that the overwhelming majority of Australians affected by tax law are lower and middle-income earners. Whilst I am sure that paying taxes is not everyone’s favourite pastime, it is done and we all pay them because it is a universal experience. When it comes to the payment of taxes, ‘we are in it together’—just as, when it comes to deriving the benefits of taxation, all Australians enjoy them together.

Wickenby targets those high-income earners, those lucky few Australians, who can actually afford to pay their taxes and still be left with plenty in the bank but see themselves as above and beyond this universal experience. Many wealthy Australians expend vast amounts of energy and resources in an attempt to limit the amount of taxation they have to pay, and sometimes this activity turns out to be unlawful. Investigating tax avoidance and evasion involving the use of offshore entities by a number of high-income earners in Australia has been the focus of Project Wickenby. Project Wickenby has my full support, and I hope that the outcome of this endeavour is a timely reminder to those affluent Australians who do this sort of thing that amassing a fortune does not separate and isolate oneself from the crowd to the extent that one is above other Australians and therefore exempt from taxation.

Schedule 2 is a non-contentious amendment to the Superannuation Guarantee (Administration) Act 1992 that, similar to schedule 1 of this bill, proposes changes to taxation disclosure laws to enable the Commissioner of Taxation to update employees about the progress of superannuation guarantee complaints. This is a much needed new responsive service, and I am grateful to the government for doing this.

Schedule 3 proposes extending extant taxation and capital gains tax provisions that apply to employee share schemes to stapled securities. Employee share schemes are an excellent means of encouraging Australian employees to invest, save and participate in the ownership and therefore the wealth of the companies for whom they work. It is a proposal that has the Democrats’ support.

The Tax Laws Amendment (2006 Measures No 7) Bill 2006 is a conglomeration of amendments arranged into seven schedules. Schedule 1 deals with amendments to small business capital gains tax concessions and compliance costs. Schedule 2 proposes changes to interest withholding tax exemptions, while schedules 3 and 4 update the status of deductible gift recipients and their associated compliance requirements. Changes to depreciation rules and farm management deposits of primary producers are contained in schedules 5 and 6 respectively. Finally, a clarifying amendment to capital protected borrowings is included in this bill as schedule 7. A genuine omnibus bill, in other words.

Schedule 1 proposes amending the 1936 Income Tax Assessment Act, the 1997 Income Tax Assessment Act and the Income Tax (Transitional Provisions) Act 1997 in order to increase the availability of certain capital gains tax concessions and to reduce compliance costs of small businesses. Specifically, the bill proposes reducing the business ownership test from 50 per cent to 20 per cent, thereby increasing the number of small business owners who can validly take advantage of this tax concession. This proposition represents a further concession to a number of small business owners who will therefore be able to avoid capital gains tax on the sale of the business or sale of capital invested in the business, assuming that the maximum net asset threshold of $5 million is not exceeded. As with the original concession, the question that remains is whether this provision is equitable and appropriate, giving, as it does, a number of individuals a generous provision with its associated cost to our tax revenue base. According to the explanatory memorandum, the financial impact of these amendments will be a cost to revenue of $303 million during the period 2007-08 to 2009-10, but I would suggest that this is a very conservative figure. It is a high cost.

Considering the window of opportunity that is about to open with the assent to the government’s simplified superannuation legislation, whereby superannuation investors are able to invest up to $1 million into their super funds before 1 July 2007, I would not be surprised to see a large number of existing business owners trying to cash in on this short-lived potential windfall. While I have always been supportive of measures that ensure small business owners do not bear an unfair tax burden and are properly incentivised, I do not automatically support large windfalls for a small section of the community because of circumstances knowingly designed by the government of the day, for it does fall upon the remainder to carry the cost.

In a broader context, this change to the small business CGT percentage ownership test is part of the government’s $52 billion mixed bag of tax concessions that have been announced and which in part are designed to shore up support in various sections of the community. Looking at the age demographic that ultimately stands to gain from a number of these concessions—that is, older and wealthy Australians of or around retirement age—it is upon the backs of younger Australians that the burden of any cost to tax revenue will often fall.

One of the greatest challenges facing future governments will be how to sustain their revenue base. I would hope that future governments do review the merit of each and every tax concession on a periodic and regular basis. Broadening the base does have the merit that you can then lower rate. That is why I will hesitate to automatically support measures that establish tax concessions as it is this form of legislation that we will have to revisit as parliamentarians whenever we have to rectify unforeseen leakages. In my view it is not the specific legislation that is ever the problem but, rather, the underlying policy and extent supporting the multitude of tax concessions that now exist throughout our taxation system.

For more than a decade the Democrats have argued that welfare for the wealthy must end—that is a large part of what broadening the base means. The Democrats’ five-pillar structural income tax reform plan consists of raising the tax-free threshold significantly, indexing the rates, broadening the base and reforming the tax/welfare intersects, and only after that is done considering issues such as raising the top tax threshold.

Schedule 2 of this bill amends the Income Tax Assessment Act 1936 to clarify sections 128F and 128FA, which both relate to interest withholding tax exemptions. These amendments will ensure that financial instruments eligible for interest withholding tax exemption status are correctly classified as a debenture for the purposes of the 1936 act. These measures were intended to protect the integrity of the tax system, which the government believes is open to some abuse through the liberal interpretation of what constitutes a debenture.

Thankfully, this schedule was the subject of a Senate committee hearing. It was here I was persuaded that schedule 2 may negatively affect Australian firms’ ability to participate in syndicated loans and impede access by borrowers to international debt markets. The submissions also raised concerns that significant compliance costs would be imposed on business as a result of uncertainty, producing risk pricing. The Labor senators and I said that schedule 2 should be pulled and reintroduced once the issues raised in the committee were resolved. The government senators rather recklessly said: ‘Pass the bill.’ The Treasurer was smarter than that and has pulled the schedule. Well done, Treasurer; well done, Treasury.

Schedules 3 and 4 of the bill pertain to the regulation and status of deductible gift recipients respectively. Schedule 3 amends both the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953 in order to streamline the regulatory arrangements of deductible gift recipients and thereby reduce their compliance costs. The ITAA 1997 amendments will remove the requirements for entities that are DGRs to operate a separate gift fund. Entities that only operate as DGRs will still be required to operate a separate gift fund but they will be allowed to consolidate multiple funds into a single gift fund.

Administratively this legislative amendment is a positive step since excessive red tape can be an onerous duty and an added expense for any DGRs. However it should be noted that DGRs and the not-for-profit sector in general are poorly regulated and open to serious abuse by unscrupulous organisations. The whole area of charities, not-for-profits and so on is unfinished business and I hope that the next government will tackle this area with some comprehensive plan.

The trade-off inherent in this schedule, as it applies to DGRs, is a reduction in onerous administrative duties but it does represent an increased risk of a misuse of funds. Since the organisation that functions exclusively as a DGR will only be required to maintain a single fund but may operate several contemporaneous and discrete not-for-profit activities each receiving donations via DGR status, funds received on the premise of being used in one particular project may still be misappropriated for another unrelated project. When people make donations to organisations they assume that the money given will be used for the purpose it is donated. If it is donated to build wells in Africa, then most people would prefer to know that it is actually used for that purpose rather than to rent offices in the CBD of a large Australian city. Research by the organisation Giving Australia supports the contention that most people like to know where their money is going and preferably how it is going to be used when they donate it. Some people take it as a matter of faith that the money will be used to support a specific cause. They do not assume it will go to ancillary services provided by a DGR.

However, DGRs in general are not legally required to provide such financial information—and I will draw the attention of the chamber to a very good report last September by the Institute of Chartered Accountants, which tried to lift the standards with respect to financial statements by DGRs and charities. For every organisation that provides relevant financial information there are many that do not, so Australia has a lightly regulated not-for-profit system where some organisations take their financial responsibilities and reporting to donors and grantors seriously while others fall in the middle and still others take for granted their donors’ faith that their money is being used appropriately and do not report as they should. Donors to DGRs must know where their money is going. Whether it is going to produce CDs or build a church, provide water to African people who are in difficulty or lobby for change to free trade agreements to protect a section of rainforest—or even if it is dedicated to electing a member of parliament—donors must know where their money is going.

Currently there are few ways for a donor to find out how their money is used and no way to assess whether the organisation to which they donate uses it more or less effectively than another organisation doing the same type of work—in other words, there is no benchmarking. This needs to change. Freeing up DGRs from the regulatory burden of maintaining independent gift funds is a positive move as it reduces administrative expenses, but I must reiterate that in isolation this move just compounds the general difficulty with the not-for-profit sector, which in general requires much improved, much more consistent and much simplified regulatory controls.

Bearing this thought in mind, I acknowledge the amendments to the TAA 1953 proposed by this schedule, which expand the powers of the Commissioner of Taxation to review the activity of DGRs. More specifically, the Commissioner of Taxation will be able to review all DGRs, as opposed to only ‘endorsed DGRs’ as is presently the case, to determine if they continue to meet the requirements for holding DGR status. In other words, it is a move to try to keep them honest. Similarly, schedule 3 also contains amendments requiring all DGRs to maintain adequate accounting records, and in that respect I remind the chamber that the Australian Accounting Standards Board is currently looking at an accounting standard which will be specific to not-for-profits. This is a welcome amendment which, in conjunction with the relaxed regulatory environment, sends a positive message to DGRs, which is that, in return for providing greater flexibility, these increased powers will be used to check on DGRs that do not play by the rules.

As I have stated, schedule 4 also relates to DGRs. It amends the ITAA 1997 to extend the period for which deductions are allowed for gifts to a number of specific funds that have time-limited DGR status. They include the following named ones: Dunn and Lewis Youth Development Foundation Ltd, Rotary Leadership Victoria Australian Embassy for Timor-Leste Fund Ltd, St George’s Cathedral Restoration Fund and St Michael’s Church Restoration Fund. While I am not a strong adherent to religion, nevertheless I do very much enjoy the results of the funds invested in restoring these magnificent buildings. They are great assets to many cities. The extension of time to operate with DGR status will enable these organisations to complete their work. According to the explanatory memorandum, the financial impact will be a cost to revenue of $4.3 million over the years 2007-08 to 2009-10. There are not any expected compliance costs.

Schedules 5 and 6 are concessions to farmers affected by drought. On an equity basis, other small businesses have not received the same level of financial support as farmers even though they are in the same regions but, considering the exceptional circumstances created by drought, these measures may indeed be warranted. Australia will continue to be prone to drought. Very few people begrudge exceptional, emergency or shorter term aid to these regions and their farmers, but many ask whether taxpayers should continue to support that minority of marginal farmers and businesses in the longer term in this way.

Schedule 5 amends the ITAA 1997 by applying a capped effective life of six years and eight months to tractors and harvesters used in the primary production sector. This amendment preserves the current period over which tractors and harvesters used in the primary production sector are depreciated.

Schedule 6 amends the ITAA 1936 to increase the non primary production income threshold from $50,000 to $65,000 per income year and the total amount a primary producer can hold in a farm management deposit from $300,000 to $400,000. The explanatory memorandum says that the financial impact of schedule 6 will be a cost to revenue of $72 million for the years 2006-07 to 2010-11 and that there will be ‘small transitional costs’—for the Australian tax office, tax agents and software developers—‘but no increase in ongoing compliance costs’.

Schedule 7 amends the ITAA 1997 in relation to the taxation of capital protected borrowings, or CPBs. Currently, a borrower with a CPB that does not have a separately identifiable capital protection feature is able to gain an income tax deduction for what might actually be a capital cost. The amendments seek to implement equivalent tax treatment of capital protection on a CPB whether or not the capital protection is explicitly or implicitly provided for. To do this, schedule 7 also includes methodologies to determine the amount reasonably attributable to the cost of capital protection. The explanatory memorandum says that the financial impact is nil and that the compliance cost impact should see a reduction in compliance costs for both issuers and borrowers of CPBs. The clarifying amendment ensures that certain capital protected borrowing costs, a form of equity investment with a guaranteed downside protection, that are not expenses and are of a capital cost nature cannot be claimed as a tax deduction. This closes a potential tax loophole and has my and the Democrats’ support. In conclusion, I indicate that with both these bills you should take into account the note of caution I have outlined, given my concerns as to unfinished business and some wariness about the costs of these measures. Nevertheless, the Democrats will support these bills.

David Johnston (WA, Liberal Party, Minister for Justice and Customs) Share this | Link to this | Hansard source

I want to thank Senator Stephens and Senator Murray for their hard work on this piece of legislation and for their contributions in the Senate today. These two measures involve a number of alterations to the tax legislation, none of which are opposed, so on that basis I will take the opportunity to be brief.

Firstly, the Tax Laws Amendment (2006 Measures No. 7) Bill 2006 amends the capital gains tax legislation so that small business concessions are increased, to make them available to more small businesses and to reduce compliance costs. I foreshadow, as has been acknowledged by senators, that the government will be moving amendments such that schedule 2 will be removed from the bill. Whilst the interest withholding tax measure has been developed in close consultation with industry stakeholders and that consultation has gone on for a long time, further issues have been brought to the government’s attention following the introduction of the bill to parliament. The government would like more time to more fully consider those issues before implementing this measure.

The bill also gives effect to the government’s budget announcement that it will enhance philanthropy in Australia by streamlining the integrity rules and reducing the compliance costs applying to deductible gift recipients, or DGRs. Additionally, the bill amends the list of deductible gift recipients in the Income Tax Assessment Act 1997 by extending the time period for which four particular entities can receive tax deductible donations. Extending their deductible gift recipient status will assist those organisations to continue to attract public support for their very worthwhile activities, as mentioned by Senator Murray.

With the drought affecting farmers and their families across Australia, the last thing they need is a change in the tax treatment of their valuable farm equipment. That is why the government has implemented a statutory cap which will mean no change to the income tax treatment of harvesters and tractors. The bill also amends the Farm Management Deposits scheme to increase the non primary production income threshold from $50,000 to $65,000 and the total deposit limit from $300,000 to $400,000. Increasing these thresholds will assist primary producers to cope in this time of hardship.

The bill also provides certainty in the tax treatment of capital protected borrowings. Under a typical capital protected product, the investor is protected from a fall in the price of the shares as the loan facility includes a capital protection feature that gives the investor the right to transfer the shares back to the lender for the amount outstanding on the loan. These amendments will ensure that part of the expense on a capital protected product is attributed to the cost of the capital protection feature and that it is not interest and is not deductible where the cost is capital in nature.

I turn to the second of the bills, the Tax Laws Amendment (2007 Measures No. 1) Bill 2007. As set out by senators, schedule 1 of this bill amends taxation secrecy laws to assist in the coordinated enforcement of Australia’s laws by Project Wickenby and future similar task forces. These amendments preserve the general protection of taxpayer privacy. They speak for themselves. Obviously, the very worthwhile and important work of the ACC and the Australian Taxation Office through Project Wickenby needs the assistance of these amendments.

Schedule 3 amends the tax law to extend the employee share scheme tax concessions to certain stapled securities. Currently it is difficult for employers with stapled securities on issues to provide their employees with access to the employee share scheme concessions. For obvious reasons, these amendments are welcomed by senators on all sides of the chamber. I commend the bills to the Senate.

Question agreed to.

Bills read a second time.