Chris Evans (WA, Australian Labor Party, Leader of the Government in the Senate) Share this | Link to this | Hansard source

I table a revised explanatory memorandum relating to the bill and move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

Tax Laws Amendment (2010 Measures N

This bill amends various taxation and superannuation laws to implement a range of improvements to Australia’s tax laws.

Schedule 1 implements the Government’s 2010-11 Budget changes to the superannuation co-contribution.

The Government co-contribution scheme matches personal contributions made by eligible low to middle income earners. Currently, eligible personal superannuation contributions are matched at a rate of 100 per cent up to a maximum co-contribution of $1,000.

We are keeping a generous co-contribution, worth up to $1,000 per year and matching eligible contributions dollar for dollar. For the 2010-11 and 2011-12 income years, the lower and higher income thresholds will remain at $31,920 and $61,920 respectively.

Current indexation arrangements will recommence for the 2012-13 and later income years.

The Government also will permanently maintain the superannuation co-contribution matching rate at 100 per cent and the maximum co-contribution payable at $1,000.

These changes are not expected to have a significant impact on the level of superannuation contributions. The co-contribution scheme will continue to provide eligible individuals with a very generous dollar for dollar contribution incentive.

These amendments deliver a fiscal saving of $645 million over the forward estimates.

The Government will be substantially boosting the superannuation savings of lower income Australian through its Stronger, Fairer, Simpler superannuation reforms announced on 2 May 2010.

From 1 July 2010 the Government will provide a contribution of up to $500 for workers with incomes up o $37,000. This will directly assist 3.5 million Australians with incomes up to $37,000 who currently receive little or no concessions on their compulsory superannuation guarantee contributions.

In contrast, only 20 per cent of eligible low income earners benefit from the existing co-contribution scheme; the Government will still provide the co-contribution of up to $1,000 to assist them.

These changes form part of broader superannuation reforms. In addition to the superannuation contributions tax rebate, the Government will increase the superannuation guarantee rate from 9 to 12 per cent which will directly address issues raised by our ageing population and boost private and national savings, bringing broader benefits to the community and nation. It will also increase the annual concessional superannuation contributions cap to $50,000 for individuals aged 50 and over with superannuation balances below $500,000. This doubles the cap of $25,000 which is scheduled to apply from 1 July 2012 and will allow these individuals to ‘catch up’ on their superannuation contributions when most able.

The Government’s Stronger, Fairer, Simpler superannuation measures will cost around $2.4 billion over the next four years.

Schedule 2 amends the operation of the thin capitalisation rules for authorised deposit-taking institutions to take into account the January 2005 adoption of the Australian equivalent to International Financial Reporting Standards.

This measure formed part of the Governments’ 2009-2010 Budget announcement and clarifies the treatment of treasury shares, the business insurance asset known as EMVONA which is the excess market value over net assets, and capitalised software costs.

Transitional provisions have applied to allow authorised deposit-taking institutions to elect to use the accounting standards that applied immediately before January 2005.

This Schedule amends Division 820 of the Income Tax Assessment Act 1997 to broadly retain this transitional treatment for those specified assets for the thin capitalisation calculations of authorised deposit-taking institutions.

The amendments apply to income years commencing on or after 1 January 2009.

Schedule 3 amends the Taxation Administration Act 1953 to remove the possibility of conflicts arising between Australia’s national security interests and obligations imposed by Commonwealth tax laws.

It does that by empowering the Director-General of Security and the Director-General of the Australian Secret Intelligence Service to declare that Commonwealth tax laws do not apply to specified transactions in relation to specified entities.

When such a declaration is made, tax liabilities, obligations and benefits will not apply in relation to the specified transactions. As a result, there will be no obligation to provide information about those transactions to the tax authorities and no power to seek that information. That will ensure that information that bears on the operational activities of Australia’s security and intelligence agencies, which should remain secret in the interests of national security, will not be disclosed.

The power to make these declarations is potentially wide, so it is important that the Directors-General must be satisfied before making a declaration that is necessary for the proper performance of the functions of the relevant agency. Exercises of the power will also be overseen by the Inspector-General of Intelligence and Security and, more generally, by the Joint Parliamentary Committee on Intelligence and Security.

Schedule 4 amends Division 6 of the Income Tax Assessment Act 1936 so that the unexpended income of a Special Disability Trust is taxed at the relevant principal beneficiary’s personal income tax rate rather than automatically at the top personal tax rate plus the Medicare Levy.

This measure delivers on the Government’s commitment to help support people with severe disability, their families and carers. It will further assist immediate family members and carers to make private financial provision for the care and accommodation needs of people with severe disability by ensuring that taxation is not a disincentive for the establishment of a Special Disability Trust.

Schedule 5 amends the definition of a managed investment trust (a ‘MIT’) to more closely align the definition for withholding tax, with the definition for the MIT capital account treatment (which has recently passed both Houses of Parliament). These changes to the definition of a MIT were first announced on 10 February 2010.

This Schedule amends the definition of a MIT in Subdivision 12-H of Schedule 1 to the Taxation Administration Act 1953 and makes consequential amendments to Division 275 of the Income Tax Assessment Act 1997, which deals with capital account treatment afforded to MITs.

This measure extends the MIT definition to cover certain wholesale managed investment schemes and government-owned managed investment schemes, commonly referred to as wholesale funds. The amendments ensure the rules apply appropriately to both retail funds and wholesale funds that are widely held collective investment vehicles undertaking passive investments — while ensuring that any changes to the definition for withholding tax purposes do not unfairly disadvantage existing investors and funds.

Consistent with the original policy objectives underpinning the MIT withholding tax rules — to support the Australian funds management industry — this measure will limit the operation of the MIT withholding tax rules to funds that carry out their investment management activities in Australia.

The changes made by this Schedule are in line with the Government’s objective to secure Australia’s position as a financial services centre. This will support the Australian funds management industry.

Full details of the measures in this Bill are contained in the explanatory memorandum.

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 (2010 Measures No. 3) Bill 2010. This bill makes changes to the superannuation co-contribution scheme, thin capitalisation rules for authorised deposit taking, financial transactions involving security and intelligence agencies, the taxation of unexpended income of special disability trusts and the definition of a managed investment trust. In speaking on this bill, I firstly touch on the changes to special disability trusts, which make up schedule 4. Special disability trusts were established by the former coalition government in 2006 at the instigation of then senator Kay Patterson and the intention was to assist families and carers in making financial provisions for the current and future care of a family member with a severe disability. The former government provided incentives to open up such trusts by ensuring they received gift concessions up to $500,000 and an assets exemption up to $551,750, which is indexed annually.

However, the unexpended income of those trusts was taxed at the top marginal tax rate, as is the case with other trusts. The changes in this bill, outlined in schedule 4, will reduce the tax rate of unexpended income of a special disability trust from the highest marginal rate to the beneficiary’s personal tax rate. The coalition is supportive of moves to provide additional incentives for families to set up special disability trusts and to meet the financial challenges in caring for a person with a severe disability. Special disability trusts are by no means the answer for all families with a child with a severe disability. They will be of great assistance for some but certainly they are not the solution for all.

As I think is becoming more widely known in Australia, regrettably, the level of support that you receive if you have a disability is determined not so much by the need that you have but by the manner in which you acquired your disability. If, for instance, you were in a motor vehicle accident, a transport accident scheme will probably look after your long-term care needs. If you are in a workplace accident, a workers compensation scheme will probably cover you. However, if you acquire your injury by falling off the roof at home or if you are born with a disability, the level of support that you receive is significantly less. There is a fundamental inequity. The solution for many families and for many individuals who have a disability is to shift from a system which is based on rationing, more often than not, to one which is based on meeting the need that a person has. A shift to a new system is, I think, ultimately the way that a solution will be found for many Australians with a disability. That is something which is, as I mentioned before, very much in the public domain at the moment. The Productivity Commission is currently undertaking an inquiry to look at the concept of a national scheme, and the coalition has indicated that when the Productivity Commission reports in the middle of next year we will consider very seriously the recommendations of the Productivity Commission review.

This legislation also seeks to remove the indexation of the superannuation co-contribution income thresholds for the 2010-11 and 2011-12 financial years, as outlined in schedule 1. Schedule 1 also removes the legislative increase in the maximum co-contribution. Currently the maximum co-contribution amount was scheduled to increase from $1,000 to $1,250 in 2012-13 and to $1,500 in 2014-15. The amendments in schedule 1 will mean that the maximum co-contribution amount will remain at $1,000.

Schedule 2 amends the thin capitalisation rules for authorised deposit-taking institutions to reflect the new accounting treatment of certain assets under the Australian equivalents to International Financial Reporting Standards that the industry adopted in January 2005. Those assets that are affected are Treasury shares; the value of business in force component of the excess market value over net assets, MVONA; and capitalised software costs.

Schedule 3 will allow the Director-General of Security and the Director-General of the Australian Security Intelligence Service to exempt certain financial transactions from Australian tax law. Schedule 3 will allow certain transactions to certain entities to be exempt from tax law to ensure that information related to national security remains secret.

Lastly, schedule 5 expands the definition of a managed investment trust in relation to the withholding tax rules to provide a closer alignment between the withholding tax rules and the capital account election rules that were passed by the parliament with the support of the coalition earlier this year. The MIT withholding tax definition will be expanded to include wholesale managed investment schemes and government-owned managed investment schemes. The changes will also amend the MIT withholding tax definition to introduce a trading business test for trusts that would otherwise qualify as an MIT and will clarify the operation of the definition where there is only one member. The opposition supports this legislation.

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

This is an issue that I have been passionate about for some time. In fact I initiated the Senate inquiry into special disability trusts that I think has led—along with the very strong community campaign—to the government putting forward the Tax Laws Amendment (2010 Measures No. 3) Bill 2010. On the whole we support this legislation. We are pleased that the government has taken up the recommendations and I encourage them to look again at some of the recommendations they have not taken up—and they know very well that I was going to say that! I remind the government that those recommendations had cross-party support. The report from the committee was unanimous and it also had the support of parents, particularly parents of children with a disability. So we are pleased with this bill on the whole and we are supporting it.

We do have a concern around schedule 4. We discussed this in estimates and I am aware that the government knows that there are some parents who have concerns. As has been articulated, it makes changes to the taxation of unexpected income for special disability trusts. Schedule 4 amends division 6 of the Income Tax Assessment Act so that unexpected income from special disability trusts is taxed at the relevant principal beneficiary’s personal tax rate rather than automatically at the top personal rate plus the Medicare levy. While the lowering from the top tax rate to the beneficiary’s personal marginal rate for unexpected income is a step in the right direction and we acknowledge that, another change in the bill means that unexpected income would now be grossed up from the expanded STD income instead of only the expended income being attributed to the beneficiary for assessment purposes, as is currently the case. While we acknowledge that overall it benefits more people—which is why we are supporting the legislation—it does not benefit all people. We are aware that there are a group of people who have some concerns about this, so I did want to put it on the record and ask the government to do something. This particular change will mean that beneficiaries who have a personal income may have to pay tax when they previously did not, or they may pay an increased tax or be forced into a higher tax bracket—which of course will have an impact on them. I would ask the government and the department to keep an eye on whether this is having an adverse impact on a particular group of people, because there are concerns that it may put some people off setting up trusts—and, of course, these changes are designed to encourage more people to take up the trusts.

Former health minister Kay Patterson established the special disability trusts. She did a lot of hard work on this and is very passionate about this concept. We initiated the Senate inquiry because people were not taking the trusts up at the rate we expected. That is why the inquiry was held—to identify the barriers. We acknowledge that the government has understood the fact that there were some barriers. We are a little concerned that the changes may be a barrier to a particular group of people and we ask that the government monitors that and in the future considers taking some further action if it is proved that the changes are a significant barrier. I want that on the record because it has been raised with me. I know it has been raised with the government and I am pretty certain it has also been raised with the opposition. We ask that the government follow that up. I thank the government and ask them to review those amendments which have not been followed up. The Greens will be supporting the bill.

Joe Ludwig (Queensland, Australian Labor Party, Manager of Government Business in the Senate) Share this | Link to this | Hansard source

Thank you. I will take on board what Senator Siewert has said and ask the relevant minister to review those amendments. I thank those who made contributions to the debate on the Tax Laws Amendment (2010 Measures No. 3) Bill 2010. I commend the bill to the Senate.

Question agreed to.

Bill read a second time.