Mitch Fifield (Victoria, Liberal Party, Shadow Parliamentary Secretary for Disabilities, Carers and the Voluntary Sector) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2009 Measures No. 6) Bill 2009 which the coalition is supporting. Principally, this bill seeks to amend various aspects of tax law relating to the removal of the capital gains tax trust cloning exception and the introduction of limited fixed trust rollover, loss relief for merging superannuation funds, rules relating to income derived from exempt annuity businesses of life insurance companies—try saying that three times quickly—updates to the list of deductible gift recipients, income tax exemption for the income recovery subsidy payments made to eligible recipients affected by the north-western Queensland floods and excise on spirits used for industrial purposes.

Schedule 1 of this bill refers to the abolition of the exception known as trust cloning to capital gains tax events E1 and E2 and replaces it with a limited CGT rollover. CGT event E1 is when a trust is created over a CGT asset and CGT event E2 is when a CGT asset is transferred into an existing trust. Mr Acting Deputy President Forshaw, I will be checking afterwards if you can recite that without reading it.

Michael Forshaw (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I hope you will not be asking for a committee stage.

Mitch Fifield (Victoria, Liberal Party, Shadow Parliamentary Secretary for Disabilities, Carers and the Voluntary Sector) Share this | Link to this | Hansard source

The current law contains a CGT exception for assets that are transferred from one trust to another where the beneficiaries and terms of the trust are the same. This is known as trust cloning. One of the great joys of non-controversial legislation, Mr Acting Deputy President, is that you are always learning something new. I was previously completely oblivious to the concept of trust cloning. I do not know how I got by without having that knowledge, but I feel the better for it at this time. I do not have a lot of personal experience with trusts. I know there are many opposite who have far greater experience of trusts of one kind or another than I do, so this may have greater personal meaning for them. If that is the case, I hope this is of interest and assistance to them.

This bill will remove the CGT trust cloning exception to CGT events E1 and E2. However, the schedule will introduce a limited CGT rollover provision for the transfer of assets with the same beneficiaries and same interests in each trust. It does not remove the other exception to CGT events E1 and E2 for taxpayers who are the sole beneficiary of a trust that is not a unit trust and are absolutely entitled to the asset. Under these amendments changing a trustee of a single trust will continue to not trigger a CGT liability. I note that the Treasury has undertaken an extensive consultation on the removal of the exception and it appears there is general agreement that the original provisions were too broad, which opened the prospect of some avoidance of CGT.

The other main section of this bill, schedule 2, seeks to remove income tax impediments to mergers between superannuation funds by allowing the rollover of capital losses and the transfer of revenue losses. Generally, when superannuation funds merge, the assets of one fund are transferred to another. If the transferring fund has a capital loss, then the loss would not be able to be transferred. This was creating a situation where the merged entity would not be able to use the losses to offset against future capital gains. This measure was originally announced as a short-term measure with an expiry date of 1 July 2010 but has now been extended to 30 June 2011. Many in the industry would perhaps like this to be extended again, but the government has decided to stick to the sunset clause because it wants to review this measure after it has considered the findings of the Henry review. How much of the public policy consideration of this nation is currently awaiting the findings of the Henry review.

Through the consultation process and during a Senate inquiry the superannuation industry has been broadly supportive of this measure. However, we on this side of the chamber are concerned that we do not know whether this measure will continue or not and that we will only find out when the government stops dragging its feet on its response to the Henry review. We on this side of the chamber believe that could act as a disincentive for any mergers that superannuation companies might be considering. I might make a prediction. I could well be wrong—and, indeed, I hope I am wrong—but the Henry review will probably not see the light of day until the budget is delivered. We may well get a release of the Henry review and the government’s response to it at that time. If that were to be the case, that would be quite a cynical approach on the part of the government to try and bury that document and its response in the context of the budget. I am sure that the government would not want to do that with something which was to be a root-and-branch reform of the tax system. I do hope that I am proved wrong and the government is not that cynical.

The third schedule in this bill is intended to clarify the rules relating to income derived from exempt annuity businesses of life insurance companies. An annuity business is a business that supports life insurance policies that are payable. As the life insurance policy holder is liable for income tax on the annuity they receive, the life insurance company is exempt from income tax to prevent double taxation. The schedule seeks to ensure the intended operation of the original provisions and also updates the language of the tax law to reflect the significant reforms made to the superannuation regime by the former coalition government.

Schedule 4 of this bill is one which I think we are all fairly familiar with. It updates the deductible gift recipient list to include two new entities—two very happy and grateful new entities, I am sure—and to reflect the name change of an entity already on the list. The two new entities are the United States Studies Centre, which I am sure we are all very well aware of, at the University of Sydney. The second new entity is one which I was not previously familiar with—the Green Institute Ltd. I am a naturally curious person, so when I read something about an organisation of which I was previously unfamiliar I do what most of us do and google it. So I googled the Green Institute and found that it is an organisation which undertakes what you would call green advocacy and green activism and also some green workshops. There are some interesting titles for the green workshops undertaken by the Green Institute, which I am sure that Senator Bushby would find particularly interesting given his interest in economics. One of the workshops available through the Green Institute is called ‘Prosperity without growth’. I think they must have discovered a new economic theory that allows you to have prosperity without growth. That would certainly be an interesting one to attend. Another of the workshops is called ‘Gender, climate and the green new deal’. You never know quite where you are going to uncover gender aspects in public policy, but clearly there is a gender aspect to climate and the new green deal.

Mr Acting Deputy President, I do not know how you would take to this but the next workshop is called ‘How to eat your way to an equitable, cool and ecologically appropriate society’. I am not sure if they mean cool as in the concept of being funky or cool as in a globe with a lower temperature, but that is another interesting one. The next workshop, which DGR status will be helping to support, is entitled ‘Inclusiveness now! Practical ways to reach working class voters’. It goes on to explain:

With climate disaster on our doorstep, can we afford to keep green politics trapped in a middle-class inner-city terrarium?

I should actually have checked what a terrarium is. I failed to do that, so I cannot—

Kerry O'Brien (Tasmania, Australian Labor Party) Share this | Link to this | Hansard source

It’s like a fish tank.

Mitch Fifield (Victoria, Liberal Party, Shadow Parliamentary Secretary for Disabilities, Carers and the Voluntary Sector) Share this | Link to this | Hansard source

A fish tank. A middle-class inner city fish tank.

Ursula Stephens (NSW, Australian Labor Party, Parliamentary Secretary for Social Inclusion and the Voluntary Sector) Share this | Link to this | Hansard source

For plants.

Mitch Fifield (Victoria, Liberal Party, Shadow Parliamentary Secretary for Disabilities, Carers and the Voluntary Sector) Share this | Link to this | Hansard source

For plants, thank you.

The Acting Deputy President:

Thank you, Senators; I am indebted to you for that information. I draw your attention to the legislation, Senator Fifield.

Mitch Fifield (Victoria, Liberal Party, Shadow Parliamentary Secretary for Disabilities, Carers and the Voluntary Sector) Share this | Link to this | Hansard source

That is great, we have learnt something here today. When we are looking at DGR status it is helpful to look at the nature of the activities that that status is supporting. I make the serious point that a lot of extremely worthy organisations seek DGR status. It is not always an easy thing to get and from time to time you do have to ask yourself why some deserving organisations do not get DGR status and others, over which perhaps there is a question mark, do. I thought that was interesting to note, Mr Acting Deputy President.

Schedule 5 provides an income tax exemption for the income recovery subsidy payments made to eligible recipients affected by the north-western Queensland floods. The income recovery subsidy is available to those who suffered a loss of income directly caused by the north-western Queensland floods of January and February 2009 and, I am sure, we would all spare a thought for those in Queensland who have been subject to the more recent floods. I know Senator Joyce is in Queensland at the moment rendering assistance in those areas.

Schedule 6 provides an income tax exemption for the income recovery subsidy payments made to eligible recipients affected by the north-western Queensland floods—as I have mentioned. This is intended to clarify the excise treatment of high-strength neutral spirit. I note that this schedule deals with pure ethanol and does not deal with ethanol used for beverages or consumption. Schedule 6 also covers that aspect. Currently, high-strength neutral spirits that are used for industrial, manufacturing, scientific, medical, veterinary or educational purposes are free from excise duty when they are manufactured domestically. However, the same spirit attracts an excise when it is imported. The current practice is for importers to blend imported spirit with domestically produced spirit. The blended spirit is then treated in the same manner as domestic spirit under the concessional spirits regime, and this is the same excise treatment applied to other fuels. The existing tax law does not have a provision deeming the blending of spirit as constituting domestic manufacture; however, the law does have provisions that relate to other fuels. This schedule brings the excise treatment of high-strength neutral spirit in line with other fuels by clarifying the law to ensure the intended operation of the law and allowing that the current industry practice can continue with greater certainty.

I acknowledge that the government has undertaken extensive consultation throughout the development of this bill and that there is broad support for these changes. The opposition will be supporting the bill.

Ursula Stephens (NSW, Australian Labor Party, Parliamentary Secretary for Social Inclusion and the Voluntary Sector) Share this | Link to this | Hansard source

Thank you, Senator Fifield, for your comments and your support for the Tax Laws Amendment (2009 Measures No. 6) Bill 2009. As Senator Fifield will discover, we spend a lot of time in this chamber dealing with tax laws amendment bills, usually with a number of schedules, all of which reflect the complexity of our current tax framework. That is a reason why the Henry review is so important and should not be rushed. Senator Fifield has gone through each of the schedules and made a few observations about them. I want to touch on them quite specifically because it is quite important to understand the intent of the changes that are contained in the schedules.

Schedule 1, as he suggested, abolishes the exemption to capital gains tax events E1 and E2, known in the industry as ‘trust-cloning’ exemption, which is quite consistent with the policy principle of taxing capital gains that arise where there is a change of ownership of an asset. This schedule also provides a limited capital gains tax rollover for the transfer of assets between fixed trusts with the same beneficiaries, each of which has the same interests in each trust. This will ensure that capital gains tax considerations are not an undue impediment to the restructure of those trusts but will ensure that the subsequent changes to manner and extent to which beneficiaries can benefit from the trusts are also subject to appropriate tax consequences.

Schedule 2 amends the tax law to remove significant income tax impediments to mergers between complying superannuation funds by permitting the eligible entities to roll over capital losses and revenue losses under the merger and to transfer previously realised capital losses and revenue losses. This will preserve the offsetting value of the losses, thereby removing a potential barrier to superannuation fund consolidation. The loss relief will be available for complying superannuation funds that merge with another complying superannuation fund with five or more mergers, which will assist in maintaining a robust and safe superannuation sector. This is a temporary measure in the light of uncertain conditions in the global economy and the global financial market turmoil that existed around the time the measure was introduced. It has a limited period of application, from 24 December 2008 until 30 June 2011. There is no evidence or indication that any delay in releasing the Henry review will have any impact on merger plans between superannuation funds.

In relation to concerns regarding the operation of the provisions in respect of directly held assets, I can confirm that the amendments permit merging superannuation funds to access loss relief for losses in respect of directly held assets where the fund also holds assets that are a complying superannuation first home saver account, life insurance policy or units in a pooled superannuation trust. The government certainly appreciates the contributions of industry stakeholders and the Senate committee in developing those provisions.

Schedule 3 amends the Income Tax Assessment Act 1997 to clarify the operation of the income tax law for life insurance companies that conduct immediate annuity business. Life insurance companies are exempt from tax on income derived in respect of immediate annuity policies that satisfy the annuity conditions. These conditions are designed to prevent the unreasonable deferral of income, so the amendments clarify the operation of the annuity conditions and ensure that they are consistent with the former annuity conditions in the 1936 tax act. Immediate annuity policies offered by life insurance companies often provide for superannuation income streams and the amendments will ensure that the annuity conditions do not apply to policies that provide superannuation income streams. As a consequence, life insurance companies will be taxed on this business in the same way as all other superannuation income stream providers.

I would like to focus a little more comment on Schedule 4, which amends the Income Tax Assessment Act 1997 to make certain organisations deductible gift recipients. Taxpayers can claim an income tax deduction for gifts to organisations that are registered as deductible gift recipients. This schedule, as Senator Fifield said, makes the Green Institute and the United States Studies Centre deductible gift recipients and changes the name of one organisation currently listed from Dymocks Literacy Foundation Ltd to Dymocks Children’s Charities Ltd. Making these organisations deductible gift recipients will assist them in attracting public support for their activities.

Senator Fifield might have enjoyed a moment of glory in commenting on the work of the Green Institute, but organisations who apply to the government for specific listing as a DGR are subject to a rigorous assessment process prior to receiving ministerial approval. There is a longstanding practice of research organisations associated with major political parties being listed in the tax law as DGRs. Under this convention the Menzies Research Institute, which is the research arm of the Liberal Party of Australia; the Chifley Research Centre, which belongs to the ALP; the Page Research Centre, which is the research organisation of the National Party; and the Don Chip Foundation have been listed as DGRs. The Green Institute is in fact a think tank associated with the Australian Greens, and it is equitable to list that institution alongside the other party affiliated research organisations. The institute will provide a forum for education exchange, research and debate on subjects related to its founding principles of environment, social justice, nonviolence and democracy.

Schedule 5 makes the income recovery subsidy payments for the north-west Queensland floods of January and February 2009 income tax exempt. Those payments were made to people affected by the floods early last year, including Australian resident employees, small business persons and farmers who experienced loss of income as a result of the floods and who received those payments. The government is certainly pleased to be able to remove any potential tax burden from the recipients, consistent with the others who have received disaster payments in the same spirit.

Schedule 6 maintains the status quo for importing high-strength spirits. Senator Fifield gave us chapter and verse on why all of that was so important. It ensures that when imported product is blended with domestically produced high-strength spirits the blends will remain free of duty. I commend this important bill to the Senate.

Question agreed to.

Bill read a second time.