Helen Coonan (NSW, Liberal Party, Shadow Minister for Finance, Competition Policy and Deregulation) Share this | Link to this | Hansard source

By arrangement with the minister, I seek leave to incorporate my speech in the second reading debate.

Leave granted.

The speech read as follows—

Mr  President, I rise to speak in response to the proposed Tax Laws Amendment (2009 Measures No. 2) Bill 2009.

The Bill before us amends various taxation laws and has 3 Schedules, and at the outset I would like to state that the Coalition will be supporting the passage of this Bill.

SCHEDULE 1: CHANGES TO EMPLOYEE SHARE SCHEMES

Schedule 1 of the Bill before us in the Senate today deals with the infamous ‘Budget Night Stuff Up’, which was the government’s ill-conceived crackdown on employee share schemes, which had the legitimate objective of stopping high end revenue leakage, but was so poorly designed that it froze the industry overnight.

Originally the government informed everyone that there was a non-disclosure problem due to some taxpayers not fully disclosing their receipts on shares and options granted to them, which the government sought to fix with its raft of employee share scheme changes announced that evening.

The solution, or in reality the major stuff-up which we witnessed on budget night, forced every single employee in the country who received shares from their employer, to pay tax upfront on potential benefits which they may not receive for years, or may never receive at all.

To reflect on just how out of its depth this government was in relation to the changes which it sought to implement, we only have to hear some of the ludicrous comments from the Minister for Finance and Deregulation, who stated that the changes were needed to stop a tax rort by those “at the very big end of town”.

So in going for the kill on high-end revenue leakage the government thought it would take its ideological sword to all taxpayers.

This change not only brought the entire industry to its knees overnight, and adversely affected hundreds and thousands of Australians from all levels of employment, it took this Government over 5o days from the original budget night announcement to finally recognise their mistake.

That 5o days of uncertainty amounted to wasted time, money and resources for businesses left in the lurch, and unnecessary stress to employees who were potentially exposed to large tax bills as a result of these ill-conceived changes.

All this from an arrogant government which couldn’t be bothered to sit down and properly consult with business before bringing in such changes, evidenced through comments from Gail Hambly, company secretary of Fairfax Holdings who said, “it looks as though they haven’t a clue what they’ve done”.

Turning our attention for a moment from the government’s incompetency and actually looking at what is contained within Schedule 1 of this Bill, we can see that the original budget night announcement that removed the tax deferral option for employees who participated in an employee share scheme and limited the $1,000 upfront concession to those on taxable incomes of less than $6o,000 has been changed to more reasonable levels.

Of course this change came about in two stages. First on 5 June this year, the Treasurer announced that the income threshold would be increased from $6o,000 to $150,000, as well as the introduction of a limited deferral taxing point for schemes where there is a ‘genuine risk of forfeiture’, with a number of other changes.

Then on 1 July this year, the government wheeled the Assistant Treasurer out to inform everyone that the government had now decided to increase the income threshold from $15o,000 to $18o,000, as well as a raft of other changes all of which are now encompassed in amendments contained in Schedule 1, which implement the policy statement released by the Government on 1 July 2609.

At every stage of the employee share scheme debacle the Coalition has called on the government to fix the problem it created, and whilst the legislation before us today is by no means perfect, it is certainly preferable to the frozen mess employees and businesses were belted with back on Budget Night.

The Coalition notes that the Board of Taxation is due to provide a report on employee share schemes in February next year, as well as the tax review currently underway by Dr Ken Henry, and the Productivity Commission’s report on executive remuneration, both which are due to be handed down at the end of this year.

As explained in the outset of my address on this BM, the Coalition will not be opposing its passage through the Senate, however the Coalition acknowledges the incompetence the government has demonstrated in its handling of this issue, and the undue stress placed on employees and businesses across the country as a result of its inability to appropriately address tax reform in this area.

SCHEDULE 2: DEDUCTIBILITY OF NON-COMMERCIAL LOSSES

The second schedule of the Bill before us today deals with rules relating to non-commercial losses, which were also announced on budget night.

Non-commercial loss rules originated under the former Howard government, and were designed to address integrity issues regarding particular unprofitable activities being carried out by a small number of taxpayers.

The changes which were brought in meant that non-commercial losses were only deductible against assessable income if they met one out of the four tests, which remain in place today.

Under changes which are before the Senate today, for those with an income of $250,000 or greater, a non-commercial loss will only be deductible against assessable income if they have been granted

discretionary exemption from the Commissioner of Taxation.

Therefore under these changes before us today taxpayers with an income greater than $250,000, who wish to offset non-commercial losses will now need to apply to the Tax Commission for discretionary exemption.

I would now like to note the report which was handed down by the Senate Standing Committee on Economics on 16 November 2009, and highlight areas of concern which have been raised by Coalition Senators in relation to this schedule.

The first of those concerns relate to the nominated $250,000 income threshold, and whether or not that threshold should be indexed so that over time operators who do not fit under the threshold, are not squeezed over the line. This would be a simple adjustment to the legislation, and indeed a sensible one, as there are numerous thresholds throughout our taxation law which are in fact indexed.

Other concerns have been raised in relation to the Commissioner’s discretion, and what advice the Commissioner would take on board when granting discretionary exemption. Examples were given in the report as to various industries which developed out of hobby farms that took advantage of these non-commercial loss provisions Had such provisions not been available, some of these industries might not exist today.

Retrospectivity was another area where Coalition Senator’s have noted that they firmly believe it would be unfair to impose tax changes retrospectively. Evidence was heard to the effect that there should be time for industries and individuals to get their affairs in order, in time for the implementation date of this legislation, being 1 July 2009.

Along with these, further concerns were also raised in relation to the potential impost on rural communities, and doubts were expressed over the projected revenue expected to be raised from such changes to the deductibility of commercial losses, and whether the projected revenue targets will actually be realised.

Whilst the Coalition will not be voting against the passage of this BM through the Senate, concerns have been raised as to whether these measures may inhibit the growth of new industries from developing in the future, and Coalition Senators believe further consideration must be given to the effectiveness of this measure by comparing the projected revenue expected to be raised, against the potential economic and social costs of its implementation.

SCHEDULE 3: LOST MEMBERS’ SUPER TO ATO

The third and final schedule contained within this Bill is basically a housekeeping measure which requires superannuation funds to transfer lost member’s superannuation to the Australian Taxation Office.

If the balance of these accounts are less than $20o and have been inactive for at least five years, and the superannuation fund is satisfied they will not be able to find the owners of the accounts, then funds are to be transferred to the ATO.

CONCLUSION

As I have noted from the outset of this Bill, the Coalition will be supporting its passage through the Senate today, however attention must be drawn toward the government’s deficiencies when it comes to policy creation.

As mentioned earlier, the bungled implementation of changes to employee share schemes, and its immediate flow on effect to Australian employees and business is only one embarrassing example of just how inept this government is when it comes to policy creation and implementation.

I hope in the future that such changes (like those we have witnessed in relation to employee share schemes) are

more prudently considered so as to not inhibit industry in the way we have witnessed this year.

I again confirm the Coalition’s support for the Tax Laws Amendment (2009 Measures No. 2) Bill 2009.

Mr President, I commend the Bill to the Senate.

Nick Sherry (Tasmania, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I thank Senator Coonan and the opposition for their cooperation. I seek leave to incorporate my speech in the second reading debate.

Leave granted.

The speech read as follows—

Firstly, I would like to thank those members who contributed to this debate.

Schedule 1 amends the tax laws to improve the fairness and integrity of the taxation rules that apply to shares or rights granted under an employee share scheme.

Tax on the discount for shares and rights acquired under an employee share scheme will be paid upfront except where there is a ‘real risk of forfeiture’, or where it comes from a capped salary sacrifice based scheme, and the scheme satisfies the existing conditions for a qualifying employee share scheme.

These reforms will better target the employee share scheme tax concessions to low and middle income earners and decrease taxpayers ability to evade or avoid tax. The new rules will also protect Commonwealth revenues needed to support jobs and invest in vital nation-building.

The changes will boost integrity through, amongst other changes, reporting. Employers will be required to report shares and rights acquired under an employee share scheme at issue, and at an employee’s taxing point.

The new measures better target support to low and middle income earners by introducing an income test to the upfront concession.

The $1,000 upfront tax exemption will be means tested and only be available to taxpayers with an adjusted taxable income of less of than $180,000, in line with the top marginal tax bracket.

Corporate governance will be improved by requiring schemes to feature a real risk of forfeiture to gain access to the deferral tax concession. Eligibility for the deferral treatment will flow from the structure of the scheme rather than from a choice made by an employee. Removing the employee’s election to defer will decrease their ability to avoid tax.

The Government has consulted extensively on these reforms, and worked with stakeholders to develop the most effective and workable reforms, while maintaining the current support for employee share ownership schemes, particularly for low and middle income workers.

Schedule 2 protects the integrity of the taxation system by preventing abuse of the non-commercial losses rules. This measure was announced by the Treasurer in the 2009-10 Budget.

Taxpayers with an adjusted taxable income over $250,000 will no longer be able to automatically apply losses from non-commercial business activities against their other income. They will now have to apply to the Commissioner of Taxation for a discretion;

demonstrating that their business is commercial in nature.

discretion, and what factors the Commissioner will look at to work out if a business is commercial in nature.

The Income Tax (Transitional Provisions) Act 1997 is also amended to clarify the status of discretions granted before the commencement of this schedule, and to recognise the Government’s small business and general business tax break.

Schedule 3 requires superannuation providers to transfer the balance of a lost member’s account to the Commissioner of Taxation where the account balance is less than $200, or where the account has been inactive for a period of five years and the provider is satisfied it will never be possible to pay an amount to the member. This measure excludes accounts that support or relate to a defined benefit interest.

The first transfer will occur early in the 2010-11 income year.

Currently, lost account balances are only paid to the Commissioner in very limited circumstances.

This measure will help to address the growing problem of lost superannuation accounts, potentially reducing the number of such accounts by 40 per cent.

This measure also assists providers as they will no longer need to administer or apply member protection to small accounts that are transferred. This will improve equity for other fund members.

Individuals who have their accounts transferred to unclaimed monies will be able to reclaim these amounts from the Commissioner.

The mechanism proposed to achieve the payment of lost superannuation accounts to unclaimed money is similar to that currently used for the payment of unclaimed money from superannuation providers to the Commissioner of Taxation.

This measure will result in a gain to Government revenues, estimated at $238 million over the forward estimates, by bringing forward the payment to unclaimed monies of accounts which are unlikely to be claimed.

I commend this Bill to the House.

Question agreed to.

Bills read a second time.