Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

The Tax Laws Amendment (2010 Measures No. 5) Bill 2010 makes a number of changes to Australian taxation law. The bill extends the main residence capital gains tax exemption to a capital gains tax event that is a compulsory acquisition of part of the adjacent land or structure of the main residence without the compulsory acquisition applying to the dwelling. The bill also allows non-profit subentities to access goods and services tax concessions available to a parent entity, including the higher registration turnover threshold available for non-profit bodies. It also provides that it will not be mandatory for the Commissioner for Taxation to apply a payment credit for running a balance account surplus against a tax debt that is a business activity statement amount unless that amount is due and payable.

The previous two issues flow from recommendations made by the Board of Taxation in its review of the legal framework for the administration of the GST. The bill makes two further changes to the eligibility criteria for accessing the film tax offsets, reducing the qualifying expenditure threshold for the post digital and visual effects offset from $5 million to $500,000 and removing the local production expen­diture requirements for films between $15 million and $50 million.

The bill also changes the rules surrounding deductions in relation to benefit for terminal medical conditions, allowing costs associated with providing terminal medical condition benefits to become tax deductible. Furthermore, the bill includes school uniforms and a range of eligible expenses for the education expenses tax offset from 1 July 2011. The measures I have listed so far are measures which the coalition will support.

We have a further aspect to this bill which involves a broad variety of issues. The final change that is proposed in this bill is a change to the benchmark interest rate for capital protected borrowings. This issue was first proposed in the 2008 budget. This is another issue where the government made a real mess of things by not thinking things through properly. After the government decided to reduce the benchmark interest rate for capital protected borrowings in the 2008 budget, this particular segment of the market just completely collapsed. It is, again, an example of where the government did not think things through before acting. The consequences in the marketplace were immediate. We know that this government is addicted to new and ad hoc tax increases. This is just another one of those examples.

Capital protected borrowings are generally associated with the purchase and holding of shares, units in a unit trust or stapled securities such as instalment warrants. These financial products allow an investor to borrow money to purchase shares, units or stapled securities. These then become security for the loan. These products are used almost exclusively by individuals to access the equity, mainly Australian, or unit trust markets in a relatively prudent way. Industry, yet again, had not been consulted at all about the change and has made strong representations to the government post the May 2008 budget to have the original decision changed.

Since then the government has delayed proposing legislation to implement the change on a number of occasions—in effect, for a period of three years now. In the May 2010 budget, the government then undertook to amend its proposal, changing its preferred benchmark rate by increasing it by 100 basis points. At current interest rate levels, this would be about nine per cent—about six percentage points below the personal unsecured lending rate. This measure, according to the budget papers, cost the government $28 million.

Schedule 2 of this bill amends the Income Tax Assessment Act 1997 and the Income Tax (Transitional Provisions) Act 1997 to adjust the benchmark interest rate used to determine the cost of capital protection on a capital protected borrowing. The benchmark rate is to be the RBA's indicator lending rate for standard variable housing loans plus the 100 basis points, as I have mentioned. The change would be effective for capital protected borrowings entered into from 13 May 2008, although there have not been all that many of them, given the absolutely incompetent way in which the government sought to introduce the proposal back in 2008.

Stakeholders understand that apportion­ment of deductible interest expenses involves a measure of discretion and subjectivity, but they maintain that the housing loan rate, even plus 100 basis points, is way too low. There is evidence, as I have mentioned, that capital protected borrowings have completely dried up since May 2008, which in turn has impaired the ability of individual investors to access the share market. The Senate Economics Committee inquired into this issue and its report was tabled on 25 March 2011. I want to commend the work done, in particular, by Senator David Bushby, in putting together a very sound argument in the coalition senators' dissenting report as to why what the government is proposing to do is not in the public interest. Evidence from Mr Duncan Fairweather, Executive Director of the Australian Financial Markets Association, revealed the scale of the collapse in these types of financial products. He said 'capital protected loans have fallen by over 45 per cent since the May 2008 budget announcement'.

It is clear that the benchmark rates will be set at an arbitrary threshold. The govern­ment's 2008 budget decision was clearly wrong, which is why they have subsequently walked away from it. The 100 basis point change contained in this legislation is an attempt by the government to salvage a mess that they have created by offering some sort of compromise. However, as I mentioned, stakeholders and experts in the industry argue that it is set way too low to reflect the economics of this market. The Tax Institute, in its submission to the inquiry, argued that the government's approach 'could produce inequitable and distortive outcomes'. More persuasive is the establishment of a benchmark rate at the midpoint between the indicator rates for standard variable rate housing loans and personal unsecured variable rate loans, as was recommended by the Australian Financial Markets Association.

The amendment that the coalition will seek to move during the committee stage is an attempt to set a level for this benchmark interest rate under capital protected borrowings that equates the cost of the component required for capital protection equivalent to the cost of acquiring separate protection. Given that this was the original goal of the legislation in establishing a threshold, it would seem to the coalition to be the more sensible approach. I appreciate that this is all very technical. However, the consequences in the marketplace have been real and immediate. It is not in our national interest for this sort of gung-ho, ad hoc approach by government to prevent people from accessing the share market in a prudent way where they essentially provide insurance for themselves in the context of their investments. The coalition amendment would establish that the benchmark interest rate for capital protected borrowings would be at the midpoint between the indicator rates for standard variable rate housing loans and the personal unsecured variable rate loans as published by the Reserve Bank. We think that this is a more appropriate compromise position between the status quo and what the government has been trying to do since May 2008.

Evidence presented to the inquiry by Treasury suggests that the government's revenue estimates in relation to the original proposal and this amendment are highly overstated and unlikely to be achieved. In an exchange between Senator Bushby and Treasury, Senator Bushby asked:

Have you done any seat-of-the-pants calculations on what you think the impact that might have?

Dr Lynch said:

… we advised Treasury in 2008, that the market would fall back substantially. It has done that.

So the government knew that the market was going to fall back substantially and they still pressed ahead. Dr Lynch continued:

Further, the level of activity in the income generator within that part of the industry has declined commensurately. Also the number of people employed in that part of the industry has been reduced. For a variety of reasons we think revenue certainly will not meet the expectations that are in the forecast. We cannot be precise with those numbers because I do not have the full basis behind the Treasury estimates.

Dr Lynch further said:

Looking at the longer term, if the market continues in the direction it is going at the present, there will not be very much revenue collected at all through this process.

As such, the fiscal impact of the proposed coalition amendment is assessed as minimal, which is consistent with the AFMA's evidence to the committee. I appreciate tax laws amendment bills are mostly very technical in nature. This bill deals with a broad cross-section of issues. All but one will be supported by the coalition. We will seek to make an amendment to the benchmark interest rate for capital protected borrowings, consistent with what I have outlined.

Annette Hurley (SA, Australian Labor Party) Share this | Link to this | Hansard source

Capital protected borrowings are indeed a useful tool for conservative investment in the market. The government has recognised this and seeks to put in place a schedule of this TLAB 5 that does continue this type of investment on reasonable grounds. John Murray's excellent definition of capital protected borrowings from the Parliamentary Library Bills Digest on the Tax Laws Amendment (2010 Measures No. 5) Bill 2010 is:

Capital protected borrowings (CPBs) are financial products used for investing in shares. A CPB usually consists of a limited recourse loan and a put option. Under the terms of a limited recourse loan, a lender cannot recover more than the value of the shares if the borrower defaults on the loan. If the value of the shares has increased over the term of the loan and exceeds the loan amount, the borrower pays back the loan amount in cash. Under the ‘put option facility’ if the value of shares has decreased and is less than the loan amount, the borrower transfers the securities back to the lender in full satisfaction of the loan. The borrower’s capital (the amount invested in the product) is therefore protected against a fall in the value of the securities.

This has some loose similarity to the margin loan type system, but it protects the capital while not protecting the interest expense. Under the previous system, both the capital and the interest expense were deductible. The Australian Taxation Office moved to change this. There are very, very few investments where your capital is a deductible expense and the ATO moved against this overly generous system. Indeed, it was overly generous and the popularity of these products was high—and for very good reason: it was a tax system that was far more generous than most. The initial proposal in the 2008 budget caused a reaction against that. The government listened to the concerns in the financial market; they went back out and consulted about the proposals and came back with a different proposal. That proposal was that the interest expense would be looked at under a different way: the variable housing loan rate plus 100 basis points. This was a way to get a midrange that would reflect both a normal interest rate deductibility plus that 100 basis points that recognised the peculiar nature of added expenses in the setting up and running of these types of loans. That is a fairly reasonable rate.

The committee had a look at that and recognised that the margin loan rate was a measure that could be looked at. In the majority report of the committee, we recommended that the rate be set at between the RBA variable housing rate and the margin loan rate. The government has produced a graph that shows that the rate in this bill, of the variable housing loan rate plus 100 basis points, is at the moment exactly in the middle of that variable housing loan rate and the margin loan rate. The government makes the point that, as those rates will tend to come together as the markets settle down, the variable housing rate plus 100 basis points will actually tend towards the more generous end of the system. I take the government's point in that and also the point that the 100 basis points will continue on the more generous end. Although I see some merit in coming closer towards the margin loan rate, I accept that these two rates will converge and that the 100 basis points will be quite a generous outcome for most investors.

It is well known that in our tax system investors will go to wherever they can legally reduce their tax rate. I have no problem with this. The government has no problem with this. But we cannot create distortions in the market by being overly generous in the tax treatment. This is what the Australian tax office realised in the beginning when they withdrew this deductibility. A court case overturned that, and the government has responded in a measured fashion. Again, we have the coalition seeking to be negative about any government proposal; in fact, in this proposal it has taken the outer end of what the industry wants—the very outer end.

My understanding is that industry have indicated that they are happy with the margin loan rate as the indicator. Currently the rate proposed by the government is about 100 basis points below that and, as I have said before, it will probably come closer to the margin loan rate in the end. So the coalition have not only accepted that but have gone to the outer limits of what the industry have proposed as the outcome they wanted. This is not a sensible solution and again shows the coalition treading a more populist path. They are in opposition; they do not see any need to be responsible. I am sure they would have a different view if they were in government.

Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

We were in government; we put a better rate.

Annette Hurley (SA, Australian Labor Party) Share this | Link to this | Hansard source

The coalition have put in the outer limit of what the industry wanted. The industry have indicated that they would be satisfied with the margin loan rate, which, as of April 2011, was just under 10 per cent. The rate that the coalition are looking for is nearly 12 per cent, which is two per cent above the margin loan rate. So it is an extreme position, done to garner a bit of support and to tread the populist line, when in fact there is a sensible solution.

I am sure that the government position will be supported by an increase in the amount of these capital protected borrowings that come about. Of course we want to make it a possible option, but we do not want to make it so attractive that it is used for tax evasion, and that is the whole point of this schedule. As I said, the committee leaned towards the possibility of bringing it up towards the margin loan rate, but in the end I am happy to accept that what the government has done is a more practical and reasonable solution. It gives certainty to the markets, and it does give that little bit of recognition of the extra expense and uncertainty in setting up these kinds of financial instru­ments. I am happy that this is a reasonable bill and that schedule 2 is a reasonable response to industry concerns. I commend the government for not proceeding with its original proposal but listening to industry response and coming back with a measured compromise.

Before I finish my remarks I want to commend the government on another part of the schedule of this TLIP 5 bill, and that is the tax deductibility of school uniforms. Additional education expenses have mounted considerably over the years, certainly since I went to school. Even in public schools, a lot of parents find themselves paying extra in school fees, extra in excursions, extra in a number of other areas, and this creates a great deal of pressure on families. The expenses tend to occur at the beginning of the year, when it is quite difficult because of expenses arising from school holidays and the Christmas festive period. Parents are hit with a number of expenses at the beginning of the school year and, indeed, all through the school year. I am very pleased that the Gillard government, in recognition of its election policy, has put in place the tax deductibility of school uniforms. It is not only private schools that have school uniforms now; most public schools have school uniforms. My son went to what was then Elizabeth Fields Primary School in the Davoren Park area. It was a public school, and at that time the schools were working very hard to get their children to buy school uniforms.

First of all, it does give that sense of school pride and school identification, which is extremely good for a school. Secondly, it means that to a large extent there is no difference in the dress of the pupils in the school. So it sounds like a very small measure, but it can be very important to pupils. The Elizabeth Fields school that my son went to was in a very low socioeconomic area—one of the lowest in the state, if not the country—but, nevertheless, there were still a range of income levels in the school. There were working parents, single parents who did and who did not work—there was quite a range.

These days there is quite a lot of competition—I suppose there always has been—between children about how they are dressed and whether they are dressed in the latest clothes advertised on TV and so on. I think a school uniform provides equality between children and takes away one of those aspects that can cause embarrassment to children. So I am a big supporter of school uniforms. I think they are a very valuable part of a school and I really think they contribute to the sense of school pride. I have noticed more and more public schools—certainly in the northern area—tend to go towards having school uniforms.

The tax deductibility, of course, benefits those people who are working. The tax deduction applies only to them. But non-working parents get other supports that have been put in place for families of schoolchildren. So I think it is a reasonable response. When we talk about working families in some of the lower socioeconomic areas, we are talking about people often on an income of perhaps only around $30,000 a year. I think it is clear to all of us here what a difficult struggle it is. There are a number of people in the area where I used to live—in and around Davoren Park and Andrews Farm—who are on incomes of around $30,000, $40,000 or $50,000 a year. They are buying a house or paying rent and they are paying their rising utility bills on that amount of money, and it is a difficult struggle to keep going. Tax deductibility of school uniforms will be a great help to them.

I think it generally reflects the Gillard government's commitment to education. Julia Gillard herself, of course, is demonstrably committed to equal opportunity in education and to the improvement of our education system. It gives me great satisfaction to work under a Prime Minister who has that commitment. It is very important, not just in social terms but in economic terms as well, that we have a well-educated population. With the increasing level of robotics and computer aided technology in all areas, including manufacturing but extending right throughout our working life, and with the increased demands of occupational health and safety and training, it is very important that we have a well-educated population. Therefore, it is critical that our government have that focus on education. Small measures such as tax deductibility do add up to a very important demonstration of support for education and support for families to continue to encourage their children to go as far as possible in their education.

So I am delighted to see this measure in this bill. Generally speaking, I think the other measures are pretty uniformly non-controversial, and it is good to see that the government is tidying up areas such as the film tax offsets. We take great pride in this country in the quality of our filmmaking. There is always debate about how best to do it. In fact, when we were in opposition one of my first economics committee meetings was a debate about the change in the tax arrangements for supporting filming in Australia. It is quite interesting that this will perhaps be one of my last contributions as well. This film tax offset will indeed make things easier and clearer for the film industry.

The other measures in schedule 3, 4, 5 and 6 are general tidying up of the tax system that the economics committee looks at regularly. I want to thank the other members of the committee and the secretariat for the work that they did on these hearings. Many people find these tax issues quite dry. We on the economics committee enjoy them immensely and enjoy going through some of this detail. We are very well assisted by members of the financial community. They are very generous in giving their time and explaining to members of the committee in their hearings some of these tricky details of how the system works. I thank them for their contribution and their assistance in all these measures.

Doug Cameron (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Firstly, if you would allow me, Mr Acting Deputy President, could I just indicate to Senator Hurley—and I am sure this is on behalf of all the members of the Senate Economics Legislation committee—our thanks for her very competent and very effective chairing of the economics committee over, anyway, the three years that I have been involved. Senator Hurley, you and I have had our moments at the economics committee, but you have always been very true to your views. You have always been extremely keen to make sure that the committee operates in a way that ensures that the issues that are before the committee are dealt with effectively, and it has meant that you have slapped me down on a number of occasions—and I have to say to you that you were right every time you did it. So thanks, Senator Hurley, for the work that you have done over that period of time. I, with the other senators, wish you all the best for your future. Certainly you will not have to continue dealing with these dry issues—or maybe not—that come before the Senate economics committee. You said everyone enjoys them immensely. I think you were being a bit over the top when you said that, but that was a nice way to finish your contribution to the economics committee.

The Tax Laws Amendment (2010 Measures No. 5) Bill 2010 has seven schedules. Schedule 1 relaxes certain eligibility requirements for the film tax offsets, with the aim of enabling more companies to benefit from these offsets. It reduces the minimum qualifying expenditure threshold for the post, digital and visual effects offset from $5 million to $500,000, and it removes the requirement for films with qualifying expenditure of between $15 million and $50 million to have at least 70 per cent of the film's total production expenditure as qualifying Australian production expenditure in order to qualify for the location offset.

I think supporting the Australian film industry is extremely important. The Australian film industry does for this country what the film industry does for many countries, and that is that it actually pushes our culture out to the rest of the world and says, 'This is where we are at; this is what we stand for.' I think it is good that the government continues to support the film industry. The film industry is one of those areas where you cannot measure what the productivity is to the economy, but if you simply look at the economy as being an economy and not a culture as well then you tend to forget these issues. What the government is trying to do here is to make sure that our culture is recognised around the world—a culture that we can be proud of and that is about ensuring that the struggles and tribulations that are in place in this country are recognised around the world. How we have overcome those struggles and tribulations is extremely important, and our film industry is important in doing that. I reckon there are some pretty crook films made from time to time as well, but there are some really good films, and we should be supporting the film industry in this country. Some of the most talented actors around the world come from Australia, and that is because the government took the view that we need to protect and support our culture and promote our culture around the world with the film industry. So I am very supportive and very pleased that the government has removed the requirement for films with qualifying expenditure of between $15 million and $50 million to have at least 70 per cent of the film's total production expenditure as qualifying Australian production expenditure. I think that is a very good part of this bill, and it is extremely important that we continue to support the Australian film industry.

Schedule 2 amends division 247 of the Income Tax Assessment Act 1997 to adjust the benchmark interest rate used in the capital protected borrowings provisions to the Reserve Bank of Australia's indicator lending rate for standard variable housing loans plus 100 basis points for capital protected borrowings entered into, amended or extended after 7.30 pm Australian Eastern Standard Time on 13 May 2008—that is, the budget time. The schedule also amends division 247 of the Income Tax (Transitional Provisions) Act 1997 for transitional arrange­ments for capital protected borrow­ings entered into at or before the 2008 budget time to 30 June 2013. This allows capital protected borrowings entered into at or before the 2008 budget time to apply to the benchmark interest rate used prior to the 2008 budget time until 30 June 2013 or for the life of the product, whichever is earlier. Senator Hurley said we deal with some dry issues. There is one of the dry issues that we deal with, but it is an important issue that the government has tackled in schedule 2.

Schedule 3 amends the income tax law to extend the main residence capital gains tax exemption—the CGT exemption—to a CGT event that is a compulsory acquisition or other involuntary realisation of part of a main residence. The extended exemption will apply where part of a main residence—the part being some or all of the dwelling's adjacent land or structure—is compulsorily acquired or subject to a similar arrangement without the dwelling itself also being compulsorily acquired or subject to the similar arrangement. So this is an important amendment to ensure that there is fairness in relation to this application of income tax law.

Schedule 4 amends the Income Tax Assessment Act 1997 to allow super­annuation funds and retirement saving account providers—RSA providers—to deduct the cost of providing terminal medical condition benefits to members. It also amends certain sections of the ITAA 1997 to reflect the drafting convention that the term 'individual' should be used when referring to a human being. I think there is much more work to be done in relation to superannuation. Superannuation is absolutely fundamental to the ongoing economic growth of this country. The Labor government, when it introduced super­annuation, had a long-term vision to ensure that no-one should have to retire in poverty and that there should be some equality between different groups of workers, different classes of workers, in this country to have access to decent retirement benefits. I remember that when I became a union official in 1981 one of my jobs was to go out and try to get superannuation entitlements for workers around the country, because workers were not getting a fair go on superannuation. What this is about is to make sure we continue to grow the super­annuation industry, make the superannuation industry more flexible in a fair and reasonable way and make sure it is relevant to working people in this country, a rele­vance that is extremely important given the benefits that superannuation has not only to the individual worker but to the overall economy as the basis of providing funding to banks, to investors and to driving this economy.

This is a minor amendment to the operation of superannuation funds, but we should never forget that the superannuation industry is absolutely fundamental and important to working people and the broader economy. This might be a minor amendment but it is an amendment that fits in with the overall growth of the superannuation industry and is so important to making sure that people who need access to their superannuation funds can get access for properly determined issues. And what can be more important than deducting the cost of providing benefits to members with a terminal medical condition. Many workers who have worked in the power industry, as I did, and in the shipbuilding industry, as I did, have ended up with mesothelioma and with their life coming to a horrible and tragic end. We should be doing whatever we can to support those workers and their families as they deal with this great challenge of work related death.

It is important to make sure that people can get access to the best aspects of their superannuation through that period. I take the view that we must continue to monitor the operation of superannuation; we must continue to monitor the effectiveness of superannuation in the Australian economy and we must ensure that every worker gets a fair go when it comes to superannuation. That is why it is so important that when we are introducing the mining tax we ensure that we can increase superannuation for workers in this country. It is about building not just an economy but a good society, a fair society. These are the issues that arise from superannuation.

Schedule 5 amends the GST law to allow non-profit subentities to access the GST concessions available to their parent entity, including the higher registration turnover threshold for non-profit bodies. This amendment confirmed the Commissioner for Taxation's current approach in interpreting the law to allow non-profit subentities to access these concessions.

Schedule 6 amends the Taxation Adminis­tration Act 1953 to provide that it will not be mandatory for the Commissioner for Taxation to apply a payment, credit or running balance account surplus against a tax debt that is a business activity statement unless that amount is due and payable. The amendment applies on and from 1 July 2011.

Schedule 7 expands the education tax refund to include school uniform expenses incurred from 1 July 2011. This was announced by the Prime Minister on 13 July 2010 and will cover expenditure on school uniforms which are required or are otherwise approved by a school, including optional school uniforms and sports or physical education uniforms. The ETR allows eligible families to claim 50 per cent of their eligible education expenses to the maximum claimable amounts which are indexed each year. In 2009-10 the maximum claimable amounts were $780—that is, the maximum refund of $390—for each primary school child and $1,558—that is, a maximum refund of $779—for each secondary school child.

This is an important initiative of the government in ensuring that there is a good society, that there is some fairness and equity out there, and that government recognises the cost of education for families. There is no point in just talking about an education revolution or talking about building a good society if we do not actually focus on the issues that are important for families, many of whom are doing it pretty tough.

In the NSW electorate of Macquarie, in which I live, which covers the Windsor and Blue Mountains areas, we have a great range of schools. We have private schools that are very well resourced and where the families can predominantly afford to look after their kids in the way they want to look after them, but there are also areas in the Macquarie electorate where the families are doing it really, really tough. And, when families are doing it really tough, it is important that the government recognises that and does what it can to help those families. What could be more important than ensuring that children in disadvantaged areas can go to a school with decent facilities and not have to have what happened recently when I was in the Windsor area? It was two degrees in the morning and what did we have? We had an open playground area, where all the school children had to be in order to open up new school buildings for the BER. It was not covered and it was nowhere big enough. It is not a good thing for kids to be out in the open air when it is two degrees on a winter morning in Windsor. There is still much more to be done in the Building the Education Revolution program. There is still much more to be done to ensure that we can have our kids well and truly looked after in the public school system. I am a great supporter of the public school system and I would like to see more funding going into the public school system. What this does is make sure that everyone gets a fair go across both the public and private school systems.

There is a lot more to be done. This initiative will help families in the areas that I look after, in the electorate of Macquarie, that are doing it tough. Parents will look forward to getting this money to ensure their kids have access to a school uniform, even if the family is doing it tough. In these debates in here we sometimes forget that families really do it tough from time to time. We want to make sure that kids can have decent facilities in schools and that they have access to school uniforms.

When I was down at Windsor there were two school kids there with polo shirts on in a temperature of two degrees with the wind blowing off the mountains absolutely freezing. But I do not think it was because their families did not have the money to do anything about it; it was because the kids did not think the school jumper was 'cool'. So we have to make sure that when we do this the school jumpers are 'cool' and the kids actually keep themselves warm.

This part of the bill importantly ensures that we also give our kids access to sport and physical education uniforms. It is a great thing in the seat of Macquarie, where I live, to see the school students out there looking after the sporting facilities and out there proud to be representing their school in their school uniforms and sports uniforms.

I am very pleased with this bill. I think this is another demonstration that the Gillard government has got it right on a range of issues in education: Building the Education Revolution, making sure kids have access to decent technological equipment and more computers into the schools—computers that actually deliver for the generation that is computer savvy, the generation that will leave us for dead in computer skills and the generation that can do work anywhere in Australia or anywhere around the world because they are computer literate. Building the infrastructure that brings schools in this country into the 21st century is a massive benefit to the education system in this country. Everywhere I go people are saying they want more, not less, and I think the combination of amendments, especially the part on school education, in this bill is very important.

Jan McLucas (Queensland, Australian Labor Party, Parliamentary Secretary for Disabilities and Carers) Share this | Link to this | Hansard source

First of all, I thank those senators who have contributed to this debate on the Tax Laws Amendment (Measures No. 5) Bill 2010. Schedule 1 increases access to film tax offsets. It reduces the minimum qualifying expenditure threshold for the post-digital and visual effects, PDV, offset and it simplifies eligibility requirements for the location offset. This measure is expected to increase employment opportunities and to assist in building capacity and expertise in the local film industry, which will in turn provide benefits for domestic productions.

The change to the location offset in particular will also reduce compliance costs for affected taxpayers. The government is assisting the film industry to attract offshore productions to Australia and expand opportunities for Australian PDV providers to bid for international work. This schedule gives effect to the government's 2010-11 budget announcement. The government, in the 2011-12 budget, has made further commitments to providing support to the Australian film industry.

Schedule 2 adjusts the benchmark interest rate used in the taxation of capital protected borrowing provisions to the Reserve Bank of Australia's indicator lending rate for standard variable housing loans plus 100 basis points for capital protected borrowings entered into, amended or extended after 7.30 pm AEST on 13 May 2008. These changes to the benchmark interest rate were first announced on 13 May 2008 and revised on 11 May 2010. The new benchmark interest rate provides a more appropriate basis for apportioning the expense in capital protected borrowings between interest on a borrowing that does not embed the cost of capital protection on one hand and the cost of capital protection on the other. The cost of capital protection will not be treated as interest for tax deductibility purposes. The new benchmark rate takes into account industry concerns over the credit risk borne by lenders for the cost of capital protection that is paid on a deferred basis.

Schedule 2 also provides for transitional arrangements for capital protected borrowings entered into at or before 7.30 pm AEST 13 May 2008. The transitional arrange­ments allow capital protected borrow­ings entered into on or before 13 May 2008 to apply the existing benchmark interest rate until 30 June 2013 or the life of the product, whichever is earlier. This schedule was referred to the Senate Econ­omics Legislation Committee for inquiry and report on the rationale and consequences of changing the benchmark interest rate. The committee recommended that the benchmark interest rate be amended to reflect a range between the variable rate for housing loans and the RBA's indicator lending rate for margin loans. The new benchmark interest rate of the RBA's indicator lending rate for standard variable housing loans plus 100 basis points is consistent with the range recommended by the committee.

These amendments are expected to save $170 million over the forward estimates period. These changes are another demonstration of the government's com­mitment to ensure that the tax system is as fair and as efficient as possible.

Schedule 3 extends the main residence capital gains tax exemption to cover a CTG event—that is, a compulsory acquisition or other involuntary realisation of a part of a main residence. The extended exemption will apply where part of a main residence—the part being some or all of the dwelling's adjacent land or structure—is compulsorily acquired without the dwelling itself also being compulsorily acquired.

Sitting suspended at 12:00

At 14:38, senators assembled in the House of Representatives chamber for a joint sitting—