Helen Coonan (NSW, Liberal Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

The opposition will support the Tax Laws Amendment (2008 Measures No. 2) Bill 2008 and I want to speak briefly to it. It is almost identical to the coalition’s bill last year that lapsed because of the election, and it has bipartisan support. It has also been amended, as I understand it, in the lower house by also including non-controversial schedules 2 to 6 from Tax Laws Amendment (2008 Measures No. 1) Bill. I wish to speak briefly to the bill.

As I said, it contains schedules relating to tax law reform. The first schedule relates to amounts misappropriated by an employee or agent. This measure fills a gap in the existing tax laws. It is a measure that the coalition announced in May 2007 and addresses the inequity of a taxpayer effectively being taxed on an amount that the taxpayer has not received. Typically, the situation could happen where the taxpayer sells an asset that has been depreciated for tax purposes. Under the measure, the taxpayer still includes the excess in their assessable income but, in recognition of the fact that the proceeds have been misappropriated by the employee or agent, a deduction is allowed for the amount of the sale proceeds. Where the asset is not eligible for depreciation or similar relief but is taxed under the capital gains tax—the CGT rules—a sale would ordinarily result in the proceeds being taken into account in calculating the amount of the gain. Under the measure, the amount of the proceeds will be reduced by the amount that was misappropriated by the taxpayer’s employee or agent. Specific rules are being introduced to cater for the situation where the taxpayer has calculated their tax position as a result of a misappropriation but later recovers all or some of the amount misappropriated.

The second schedule that is supported relates to extending the superannuation guarantee late payment offset. When announcing the change to the superannuation guarantee late payment offset, the Minister for Superannuation and Corporate Governance appears to have made a mistake. He appears not to have been aware of a press release that had been issued by the former Assistant Treasurer, the member for Dickson, that initially announced the decision to change the offset. The measure addresses the situation where an employer is late in paying their compulsory super and thus has a contribution shortfall. The employer who is late in paying a superannuation contribution for an employee must also pay the same amount to the ATO as part of the superannuation guarantee charge. Under this measure, the employer who pays a late superannuation contribution will be able to offset that payment against the liability for the superannuation guarantee charge. Thus the employer pays the amount of the super contribution only once. The employer will still be liable for interest and an administration charge for not making payment of the employee’s super on time.

The third supported schedule in Tax Laws Amendment (2008 Measures No. 2) Bill 2008 is the capital gains tax market value substitution rule for interests in widely held entities. It is another measure that my colleague the member for Dickson announced last year. It is a sensible measure which we support. It will ensure that shareholders in widely held companies and unit holders in widely held trusts are not disadvantaged when their interests in the entity are cancelled. The current position is that the market value substitution rule will replace the actual market proceeds received, say on a cancellation, with the market value of the equity where the capital proceeds are more or less than the equity’s market value. What the former coalition government wanted to ensure was that the equity owner would be taxed on a capital gain based on the amount agreed to be paid to them, not on some other value that they did not receive following the cancellation. The measure will also simplify the current legislation that applies to transactions or dealings covered by this type of capital gains tax event.

The fourth schedule supported is the Endeavour Research Fellowships and Executive Awards. Both the research fellowships under the Endeavour Awards and the amounts received under the Endeavour Executive Awards comprised a number of payments. The tax rules resulted in some complexity. I will not go through it all in great detail, but under this measure, which as I said we support, amounts received from research fellowships under the Endeavour Awards or from the Endeavour Executive Awards will be exempt from tax from 2007-08 regardless of whether the recipient is a full-time student.

The fifth schedule deals with early completion bonuses for apprentices. The coalition gave strong support to apprentices and technical education. In government we recognised that a trade or a technical career should be seen as a highly valuable, satisfying and rewarding career. When we came to government back in 1996, there were some 154,800 apprentices in training. By March 2007 the number of apprentices in training had risen to 414,300, an increase of 168 per cent. We had established 21 Australian technical colleges around the country. The Australian technical colleges allowed students to complete their final years of high school while at the same time starting down the track of an apprenticeship that would allow them to work towards a successful and rewarding career. This support for apprenticeships was backed by an increase in investment in vocational and technical education from $1.1 billion to $2.9 billion, an 87 per cent increase in real terms. As further evidence of this support, which I think it is fair to record, the coalition announced in 2007 that the first $1,000 of an early completion bonus paid to an apprentice would be exempt from tax. The measure in schedule 5 of the bill will carry this decision into effect. It was part of the suite of measures we had designed to support technical education.

Early completion bonuses are payable under schemes offered by a state or territory. A bonus serves to reward an apprentice who completes their apprenticeship more quickly than normal and the bonuses should also go some way to reducing skills shortages in the trades. Regulations will prescribe what kinds of occupation are eligible for the early completion bonus tax exemption so that skills shortages are addressed in the relevant time frame. I note that currently an early completion bonus is available only from the Queensland government and I note that the government intends to list the Queensland early completion bonus scheme in regulations as soon as the bill receives royal assent.

The sixth schedule relates to deductible gift recipients. I will not go through each of them, but each of the deductible gift recipients named in the schedule is very worthy of public support and, as I have said, we support this measure.

I now want to turn very briefly to the additional non-controversial elements of the original Tax Laws Amendment (2008 Measures No. 1) Bill. They also contain very sensible measures, which we are pleased to support. These measures also had been introduced by the former government last year but had lapsed due to the election. The first one is tax-free super for the terminally ill. I am particularly pleased to support the taxation exemption for superannuation payments to the terminally ill. When the member for Dickson announced this policy last year, he stressed that it is very important for parliament to seek to remove as many stresses and challenges as possible for people who are facing this terrible prospect. In particular, he mentioned the story of Christina Fiddimore, who unfortunately passed away recently because of breast cancer. She had wanted to ensure that she was not a financial burden on her family during her difficult fight with breast cancer but could not access her superannuation tax free. The government and the opposition were very cooperative and there is strong bipartisan support for this measure. I take this opportunity to extend condolences to Ms Fiddimore’s family. This measure will mean that when someone is faced with a terminal illness they will be able to access their superannuation in the form of a tax-free lump sum.

The next schedule deals with capital expenditure for the establishment of carbon sink forests. We are pleased to support this measure, which provides for the establishment of a deduction for capital costs incurred in establishing carbon sink forests. This will provide an incentive for the planting of trees, which is, I think we all agree, a very welcome development.

The next schedule is a tax offset for those affected by the equine influenza outbreak. It provides for an extension of the beneficiary tax offset to equine workers. The measure will help support those many low-paid workers and sole traders who have lost their jobs and have lost substantial income because of the equine influenza outbreak last year. The purpose of this measure is to add a tax offset to the wage supplement that was given. This will mean that those affected by equine influenza will be able to receive ongoing support.

There are two more schedules. One deals with tax relief for grants issued under the Tobacco Growers Adjustment Assistance Program, which is also very important. Where a tobacco grower undertakes to exit the industry, the grant that they will receive for doing so will be tax free. The grants will be up to $15,000. It is a measure that was introduced earlier but had lapsed because of the election.

Finally, there is the Farm Management Deposits scheme. This is a largely administrative measure that seeks to better realign tax law with other government guidelines as to which geographical areas and which primary producers in those areas are subject to exceptional circumstances. I believe that those clarifications are needed and it is important that they are now made.

These omnibus bills are always quite complex in the way in which they have to be dealt with, put together and thought through. It is very important that the tax law continues to be amended to either address anomalies or to make provision for circumstances such as some of the ones that I have outlined in my brief remarks. I am very pleased to see these bills brought to the Senate, and the opposition wholeheartedly supports them.

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

The Tax Laws Amendment (2008 Measures No. 2) Bill 2008 is an amended bill. We have a revised explanatory memorandum and there are some amendments coming through in the committee stage. But it is one of those measures that wrap up a lot of outstanding elements with respect to taxation law. Taxation law is such that it does continually need finetuning and adjustment. These measures are welcome as they update and improve the areas they address.

The schedules that are covered in the bill include amounts misappropriated by an employee or agent, extending the superannuation guarantee late payment offset, capital gains tax market value substitution rule for interests in certain companies and trusts, income tax exemption in the Endeavour executive awards and research fellowships under the Endeavour awards, early completion bonuses for apprentices, the usual update of deductible gift recipients, payment of a superannuation lump sum to a person with a terminal medical condition, capital expenditure for the establishment of trees in carbon sink forests, extension of beneficiary tax offset to the equine workers hardship wage supplement payment, tax-free grants for certain tobacco growers, and farm management deposits. That is a list that you can see is very eclectic. There is not much interrelationship between each of those; they stand on their own.

Schedule 1 proposes changes to the Income Tax Assessment Act 1997 to correct the inconsistent treatment of amounts misappropriated by an employee or agent following the disposal of an asset that has been dealt with under the uniform capital allowance provision, which, under current law, fails to recognise the loss of economic benefit experienced by the taxpayer arising from the misappropriation. These amendments will effectively enable CGT events and uniform capital allowances to be written down to reflect the misappropriated loss. The explanatory memorandum says the compliance cost impact will be negligible and the financial impact is unquantifiable. With that, we should not be frightened that it is going to cost a motza; it will not. These measures will only apply to amounts misappropriated in the 2007-08 and later income years.

Schedule 2 is welcome. It extends the superannuation guarantee late payment offset to remove the double-payment provision that currently exists within superannuation law. Under present conditions, employees who make late superannuation guarantee payments are penalised by being required to pay a superannuation guarantee charge, which includes a contribution shortfall amount, a nominal interest component and an administration charge. However, late payments cannot presently be used to offset the contribution shortfall amount included in the superannuation guarantee charge, thereby heavily penalising late paying but well-intentioned employers. According to the EM, the financial and compliance costs are expected to be negligible. This is a fairness and equity measure.

Schedule 3 proposes amendments to the Income Tax Assessment Act 1997 to exclude the market value substitution rule from capital gains tax events involving holdings, in widely held companies or unit trusts, which are cancelled, surrendered or brought to an end in similar ways. This ensures that there is an equitable taxation outcome for affected individuals, who would otherwise potentially face a tax bill larger than the proceeds of the aforementioned cancellation. Small compliance costs are expected from this amendment and ongoing compliance costs are forecast to be minimal. The EM again says that the financial implications are unquantifiable. Again, I would suggest that you not fear that statement. It does not presage a high cost. And again I say to you that this is both an equity and a fairness measure, and it will simplify the law.

Schedule 4 amends the Income Tax Assessment Act 1997 to facilitate the income tax exemption of scholarship funds received through the Endeavour executive awards, including research scholarships. This award is an internationally competitive, merit based scholarship program, administered by the Department of Education, Employment and Workplace Relations, for bringing leading researchers, executives and students to Australia to undertake study and research and professional development, with reciprocal arrangements abroad for Australians.

Schedule 5 amends the Income Tax Assessment Act 1997 to exempt early completion bonuses paid by state or territory governments to apprentices for the early completion of apprenticeships in skill-shortage occupations. The forecast cost to revenue over the forward estimates is $8.7 million. The logic behind the exemption of an apprenticeship bonus from income tax is questionable in light of the fact that an early completion of a course facilitates the apprentice to work for higher wages. Thus one could argue that there is sufficient financial motivation for early completion, besides the payment of a bonus. The loss of revenue associated with this schedule could arguably be better used in promoting greater uptake of apprenticeship positions, or in the financing of additional apprenticeship places. So, I am lukewarm about this schedule but I am certainly not going to oppose it. I think it is probably unnecessary, but the apprentices will love it because it gives them some extra dough.

Regarding the deductible gift recipients list, the proposals have retrospective application but that is of benefit to those concerned so I have no objection. But I would take this opportunity, while briefly commenting on schedule 6, to recommend to both the government and the opposition that they look carefully at the Democrats notice of motion in my name and in the name of Senator Allison, which is to be considered later today. It deals with referring the issue of not-for-profits and charities to a Senate inquiry. This area of law to do with the administration and management of not-for-profits and deductible gift recipients, I think, needs reform. The previous government thought it needed reform and failed with its attempts at that time. A Senate review process is a proper one to re-address this issue. I would recommend, particularly to the opposition, since they have the numbers and control of the Senate—and I hope the shadow minister, Senator Coonan, is listening to me carefully—is she?

Helen Coonan (NSW, Liberal Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

Absolutely.

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

Good. I recommend they take an active interest in the proposal we have put to the chamber.

Moving on to schedule 7, dealing with superannuation lump sums paid to a person with a terminal medical condition, this is a wonderful initiative and we support it. Schedule 8 deals with capital expenditure for the establishment of trees in carbon sink forests. There is much one can say about these matters, but this is just tidying up existing policy so I am not going to indulge in the topic. Schedule 9, dealing with the extension of the beneficiary tax offset to the equine workers hardship wage supplement payment, merely tidies up an existing problem, and schedule 10 does the same thing. We already have an adjustment assistance program for tobacco growers. It is underway for those who wish to exit all agricultural enterprises, and this is a measure to assist in that matter.

Last is the farm management deposits area, where schedule 11 to the bill amends the Farm Management Deposits scheme to align the laws with the guidelines for declaring either all primary producers in a geographical area or specified classes of primary producers within a geographical area to be in exceptional circumstances. This is actually a very intelligent technical amendment which will be of great assistance to those affected, and we certainly welcome it. I recall that in 1996, when I was first campaigning to go into the Senate, the chief policy officer for Western Australia’s Pastoralists and Graziers Association first outlined to me the proposals for the Farm Management Deposits scheme, which he was promoting. If my memory is accurate, his name was Mr Price. I was taken with the scheme and I was therefore pleased when later on the coalition government embraced and introduced it. I think it has had material benefits in equalising income for a notoriously cyclical industry, the agricultural industry. What is interesting is that I never foresaw or understood quite how much money would end up in those deposits. Again, if my memory is accurate—and perhaps the shadow minister would remind me, if it is not—I understand there is well over a billion dollars these days. So it was certainly a very significant policy.

With those brief remarks, I indicate to the government that the Australian Democrats will be supporting this bill.

Jan McLucas (Queensland, Australian Labor Party, Parliamentary Secretary to the Minister for Health and Ageing) Share this | Link to this | Hansard source

First of all, I thank Senator Coonan and Senator Murray for their contribution to the debate on the Tax Laws Amendment (2008 Measures No. 2) Bill 2008. The bill makes a number of improvements to Australia’s tax and superannuation laws. All the measures in this bill are seen to be relatively uncontroversial.

Schedule 1 addresses a technical inconsistency in the tax law when an amount is misappropriated by an employee or agent after they dispose of an asset on behalf of a taxpayer. Schedule 2 removes an anomaly in the superannuation guarantee system by extending the superannuation guarantee late payment offset. To reduce the incidence of employers having to pay the same superannuation amount twice, once as a penalty and once the actual superannuation payment has been made, the period within which an employer can make a contribution for their employee after the due date for making the payment and still be eligible to use the late payment offset is extended.

Schedule 3 amends the tax law to ensure that the market value substitution rule does not apply to certain CGT events. This will provide consistency with C2 CGT events and result in a fairer treatment of taxpayers who may otherwise end up with a tax bill larger than the proceeds of a cancellation of shares. Schedule 4 provides an income tax exemption for the Endeavour executive award and for all research fellowships under this award. Schedule 5 exempts from income tax the first $1,000 of eligible early completion bonuses paid by state and territory governments to apprentices where certain conditions are met.

Schedule 6 amends the list of deductible gift recipients in the Income Tax Assessment Act 1997. They include the AE2 commemorative Foundation Ltd, Ian Thorpe’s Fountain for youth, Wheelchairs for Kids Inc., the Amy Gillett Foundation, the Spirit of Australia Foundation, the World Youth Day 2008 Trust, the Memorials Development Committee Ltd, the Council for Jewish Community Security, Playgroup Australia Inc., the Dunn Lewis Youth Development Foundation, the Finding Sydney Foundation and Australia for United Nations High Commissioner for Refugees.

Amendments in the House added five schedules to the bill. These five schedules are identical to schedules 2 to 6 in the Tax Laws Amendment (2008 measures No. 1) Bill. These amendments were necessary to ensure that certain measures of benefit to taxpayers that were in TLAB 1 are passed before the end of the income year.

Schedule 7 makes tax free superannuation lump sums payed to persons with a terminal medical condition. This important change assists in relieving financial stress which terminally ill persons and their families may be suffering due to their situation. The amendments will have effect for payments made on or after 1 July 2007.

Schedule 8, which like schedules 10 and 11 was introduced by the former government in Tax Laws Amendment (2007 Measures No. 6) Bill, provides a concession for the costs of establishing a carbon sink forest. This measure will encourage the establishment of carbon sink forests and in turn make an important contribution to carbon sequestration.

Schedule 9 extends the beneficiary tax offset to the equine workers hardship wage supplement payment. Schedule 10 provides tax-free status to grants under the Tobacco Growers Adjustment Assistance Program 2006 to tobacco growers who undertake to exit all agricultural enterprises for at least five years. The grants are being paid following the loss of a market in Australia for domestically grown tobacco.

Schedule 11 makes minor technical amendments to the early withdrawal provisions to the Farm Management Deposits scheme. This amendment will improve the Farm Management Deposits scheme by ensuring that all primary producers who are eligible for early withdrawal due to exceptional circumstances will retain the tax benefits.

I would again like to thank those who participated in the debate and I commend the bill to the Senate.

Question agreed to.

Bill read a second time.