Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

I table a supplementary explanatory memorandum relating to the government's amendments and requests for amendments to be moved to these bills. The memorandum was circulated in the chamber on 22 August 2011.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I indicate, as Chairman of Committees, that government amendment No. 8 on sheet CJ260 has been circulated as a request for the reasons given in the circulated statements. The amendment would enable regulations to be made that may then allow eligible entities to receive quarterly refunds of research and development tax credits rather than annual refunds. The amendments have no effect on the amount of the tax credit or offset but only on the timing of the refund, therefore the tax credits will be subject to reconciliation at the end of the financial year and any adjustments made then.

This scheme depends upon administrative action being taken under regulations to be made by the Governor-General. If under the regulations an entity fulfils the requirements, it will then be eligible to receive the quarterly tax credits. Thus, if there is an effect on a charge or burden on the people through increased appropriations, it occurs only after this rather convoluted process. The possible effect on the appropriation is therefore only indirect.

In the past the Senate has regarded only a very direct effect on an appropriation as an increase in a charge or burden on the people within the meaning of section 53 of the Constitution. It is also apparent that the amendment will not increase the total amount of offset credits to be paid. The precedents of the Senate do not support the amendment being moved as a request and it will, therefore, be treated as an amendment. With the concurrence of the committee the statement of reasons in relation to this matter will be incorporated into Hansard. There being no objection, it is so ordered.

The statement read as follows—

Statement of reasons: why certain amendments should be moved as requests

Section 53 of the Constitution is as follows:

Powers of the Houses in respect of legislation

53. Proposed laws appropriating revenue or moneys, or imposing taxation, shall not originate in the Senate. But a proposed law shall not be taken to appropriate revenue or moneys, or to impose taxation, by reason only of its containing provisions for the imposition or appropriation of fines or other pecuniary penalties, or for the demand or payment or appropriation of fees for licences, or fees for services under the proposed law.

The Senate may not amend proposed laws imposing taxation, or proposed laws appropriating revenue or moneys for the ordinary annual services of the Government.

The Senate may not amend any proposed law so as to increase any proposed charge or burden on the people.

The Senate may at any stage return to the House of Representatives any proposed law which the Senate may not amend, requesting, by message, the omission or amendment of any items or provisions therein. And the House of Representatives may, if it thinks fit, make any of such omissions or amendments, with or without modifications.

Except as provided in this section, the Senate shall have equal power with the House of Representatives in respect of all proposed laws.

Amendment (8)

The effect of this amendment is to allow the making of regulations that may increase the amount of expenditure payable out of the Consolidated Revenue Fund under the standing appropriation in section 16 of the Taxation Administration Act 1953. It is covered by section 53 because it may increase a "proposed charge or burden on the people".

Consequential amendments

The following amendment(s) are consequential on the amendments mentioned above:

amendment (1).

Statement by the Clerk of the Senate pursuant to the order of the Senate of 26 June 2000

Amendment no. 8 would not be regarded as a request under the precedents of the Senate.

The effect of amendment no. 8 is to provide for the making of regulations which have the effect of changing the timing of the delivery of the research and development incentive to certain entities, through the introduction of quarterly tax credits.

The Senate has long held the view that only a very direct effect on an appropriation is regarded as an increase in a charge or burden (Odgers' Australian Senate Practice, 12th edition, page 296). Possible expenditure from the standing appropriation in the Taxation Administration Act 1953 on the basis of regulations being made which do not "clearly, necessarily and directly" affect that appropriation does not meet the test of directness.

Amendment no. 1, which is consequential on amendment no. 8, should be treated similarly by the Senate.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

On the running sheet there is reference to clause 3, schedule 1, concerning a start date for the operation of the bill. I had circulated an amendment in my name and I understand the opposition has circulated an amendment to the same effect. Which amendment will you be taking as having precedence?

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Minister, the order that is on the running sheet will be the suggested order but, if the Committee decides otherwise, I am in their hands.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

By leave—Seeing that the opposition's amendments are listed first on the running sheet, I move opposition amendments (1), (7), (8), (15) to (18), (23), (24), (26) to (51) and (54) to (63) on sheet 7011 together:

(1)   Clause 3, page 2 (table), omit the table (but not the note), substitute:

(7)   Schedule 1, item 1, page 12 (line 11), omit "1 July 2010", substitute "1 July 2011".

(8)   Schedule 1, item 1, page 12 (line 13), omit "1 July 2010", substitute "1 July 2011".

(R9)   Schedule 1, item 1, page 15 (lines 27 to 29), omit paragraph 355-225(1)(a), substitute:

  (a)   expenditure of a capital nature that is incurred to acquire or construct:

     (i)   a building or a part of a building; or

     (ii)   an extension, alteration or improvement to a building;

     that is to be *held by the R&D entity;

(R10)   Schedule 1, item 1, page 21 (line 8) to page 22 (line 4), section 355-405 TO BE OPPOSED.

(15)   Schedule 1, item 1, page 29 (line 31), omit "1 July 2010", substitute "1 July 2011".

(16)   Schedule 1, item 1, page 29 (line 33), omit "1 July 2010", substitute "1 July 2011".

(17)   Schedule 1, item 1, page 38 (line 21), omit "1 July 2010", substitute "1 July 2011".

(18)   Schedule 1, item 1, page 38 (line 23), omit "1 July 2010", substitute "1 July 2011".

(23)   Schedule 3, page 99 (line 2), omit the Division heading.

(24)   Schedule 3, item 42, page 99 (lines 6 and 7), omit the note.

(26)   Schedule 4, item 1, page 112 (line 7), omit "1 July 2010", substitute "1 July 2011".

(27)   Schedule 4, item 1, page 112 (lines 9 and 10), omit "1 July 2010", substitute "1 July 2011".

(28)   Schedule 4, item 1, page 112 (line 14), omit "1 July 2010", substitute "1 July 2011".

(29)   Schedule 4, item 1, page 112 (lines 15 and 16), omit "1 July 2010", substitute "1 July 2011".

(30)   Schedule 4, item 1, page 112 (lines 18 and 19), omit "1 July 2010", substitute "1 July 2011".

(31)   Schedule 4, item 1, page 112 (line 21), omit "2010-11", substitute "2011-12".

(32)   Schedule 4, item 3, page 113 (line 29), omit "1 July 2010", substitute "1 July 2011".

(33)   Schedule 4, item 3, page 113 (line 31), omit "1 July 2010", substitute "1 July 2011".

(34)   Schedule 4, item 3, page 113 (line 34), omit "1 July 2010", substitute "1 July 2011".

(35)   Schedule 4, item 3, page 113 (line 35), omit "1 July 2010", substitute "1 July 2011".

(36)   Schedule 4, item 3, page 113 (line 38), omit "1 July 2010", substitute "1 July 2011".

(37)   Schedule 4, item 3, page 114 (line 2), omit "1 July 2010", substitute "1 July 2011".

(38)   Schedule 4, item 3, page 114 (line 15), omit "1 July 2010", substitute "1 July 2011".

(39)   Schedule 4, item 3, page 114 (line 18), omit "1 July 2010", substitute "1 July 2011".

(40)   Schedule 4, item 3, page 114 (line 21), omit "1 July 2010", substitute "1 July 2011".

(41)   Schedule 4, item 3, page 114 (line 23), omit "1 July 2010", substitute "1 July 2011".

(42)   Schedule 4, item 8, page 116 (line 10), omit "1 July 2010", substitute "1 July 2011".

(43)   Schedule 4, item 12, page 118 (line 6), omit "1 July 2010", substitute "1 July 2011".

(44)   Schedule 4, item 12, page 120 (line 21), omit "1 July 2010", substitute "1 July 2011".

(45)   Schedule 4, item 14, page 123 (line 13), omit "1 July 2010", substitute "1 July 2011".

(46)   Schedule 4, item 15, page 124 (line 18), omit "2010-11", substitute "2011-12".

(47)   Schedule 4, item 15, page 124 (line 24), omit "2010-11", substitute "2011-12".

(48)   Schedule 4, item 15, page 124 (line 27), omit "2010-11", substitute "2011-12".

(49)   Schedule 4, item 15, page 124 (line 28), omit "2010-11", substitute "2011-12".

(50)   Schedule 4, item 15, page 125 (line 17), omit "1 July 2010", substitute "1 July 2011".

(51)   Schedule 4, item 15, page 128 (line 22), omit "1 July 2010", substitute "1 July 2011".

(54)   Schedule 4, item 15, page 132 (line 10), omit "2010-11", substitute "2011-12".

(55)   Schedule 4, item 15, page 132 (line 12), omit "2010-11", substitute "2011-12".

(56)   Schedule 4, item 15, page 132 (line 17), omit "1 July 2010", substitute "1 July 2011".

(57)   Schedule 4, item 15, page 132 (line 27), omit "1 July 2010", substitute "1 July 2011".

(58)   Schedule 4, item 15, page 132 (line 33), omit "1 July 2010", substitute "1 July 2011".

(59)   Schedule 4, item 15, page 133 (line 6), omit "1 July 2010", substitute "1 July 2011".

(60)   Schedule 4, item 15, page 133 (line 24), omit "1 July 2010", substitute "1 July 2011".

(61)   Schedule 4, item 15, page 133 (lines 29 and 30), omit "1 July 2010", substitute "1 July 2011".

(62)   Schedule 4, item 15, page 134 (line 16), omit "1 July 2010", substitute "1 July 2011".

(63)Schedule 4, item 15, page 134 (line 25), omit "1 July 2010", substitute "1 July 2011".

Statement by the Clerk of the Senate pursuant to the order of the Senate of 26 June 2000

The Senate has long accepted that an amendment should take the form of a request if it would have the effect of increasing expenditure under a standing appropriation. If it is correct that these amendments require the Commissioner of Taxation to refund amounts payable from a standing appropriation, it is in accordance with the precedents of the Senate that the amendments be moved as requests.

These amendments extend the com­mencement date from 1 July 2010 to 1 July 2011. This particular issue is one that has been of significant contention right throughout the process and one that the opposition suggested should occur from the outset of the discussion of this legislation. Unfortunately the minister, in the initial stage, was not prepared to consider this but, of course, the passing of time that we have all discussed and noted since the legislation was first put into the chamber has effectively necessitated the fact that this date should be changed. I do note that we have gone past the second commencement date as well but, given that we both agree that these amend­ments should be passed, I think that we might as well get on with that. Even though the opposition does not support the legislation as it stands for the reasons I stated earlier in the second reading debate, these amendments should be passed as part of this process.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

I understand that we are trying to process these matters as quickly as possible. I am not able to support the opposition group of amendments although I do support the change in the start-up date. Given the time that has now elapsed, I think it is appropriate that the start-up date be 1 July 2011. As I understand it there are a number of other amendments within this category which the committee has decided to take as a whole that go to a range of other matters, which, given the changes that have now occurred with other amendments, are no longer necessary. I propose, Mr Chairman, that we reject this group of amendments and support the government's amendments which are moved in the next block, which have the same effect of changing the start-up date but do not go to a range of other measures which are now obsolete because the Tax Laws Amendment (Transfer of Provisions) Act 2010 has commenced. The presumption in these amendments as they were moved in their original form, particularly relating to amendments (23) and (25), is that the provision of that act would not apply. Part 5 of the bill is, therefore, not incorrect and amending the bill in the manner suggested by the opposition is unnecessary.

Question negatived.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

We have not dealt with amendment (25) on sheet 7011. That is still a separate matter.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

If that is the ruling, I indicate to you that the position of the government remains the same as I have indicated. I believe that schedule 1, item 1 as listed by the government covers this ground more effectively and has the same effect in terms of changing the start-up date.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

The opposition opposes division 2 in the following terms:

(25) Schedule 3, Division 2, page 99 (lines 8 to 14), Division TO BE OPPOSED.

In moving this amendment I note that the government has decided that it does not want to support this.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

The question is that division 2 of part 5 in schedule 3 stand as printed.

Question agreed to.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

by leave—I move government amendments (2) to (7) and (9) to (41) on sheet CJ260 together:

(2)   Schedule 1, item 1, page 12 (line 11), omit "1July 2010", substitute "1July 2011".

(3)   Schedule 1, item 1, page 12 (line 13), omit "1July 2010", substitute "1July 2011".

(4)   Schedule 1, item 1, page 29 (line 31), omit "1July 2010", substitute "1July 2011".

(5)   Schedule 1, item 1, page 29 (line 33), omit "1July 2010", substitute "1July 2011".

(6)   Schedule 1, item 1, page 38 (line 21), omit "1July 2010", substitute "1July 2011".

(7)   Schedule 1, item 1, page 38 (line 23), omit "1July 2010", substitute "1July 2011".

(9)   Schedule 4, item 1, page 112 (line 7), omit "1July 2010", substitute "1July 2011".

(10)   Schedule 4, item 1, page 112 (lines 9 and 10), omit "1July 2010", substitute "1July 2011".

(11)   Schedule 4, item 1, page 112 (line 14), omit "1July 2010", substitute "1July 2011".

(12)   Schedule 4, item 1, page 112 (lines 15 and 16), omit "1July 2010", substitute "1July 2011".

(13)   Schedule 4, item 1, page 112 (lines 18 and 19), omit "1July 2010", substitute "1July 2011".

(14)   Schedule 4, item 1, page 112 (line 21), omit "2010-11", substitute "2011-12".

(15)   Schedule 4, item 3, page 113 (line 29), omit "1July 2010", substitute "1July 2011".

(16)   Schedule 4, item 3, page 113 (line 31), omit "1July 2010", substitute "1July 2011".

(17)   Schedule 4, item 3, page 113 (line 34), omit "1July 2010", substitute "1July 2011".

(18)   Schedule 4, item 3, page 113 (line 35), omit "1July 2010", substitute "1July 2011".

(19)   Schedule 4, item 3, page 113 (line 38), omit "1July 2010", substitute "1July 2011".

(20)   Schedule 4, item 3, page 114 (line 2), omit "1July 2010", substitute "1July 2011".

(21)   Schedule 4, item 3, page 114 (line 15), omit "1July 2010", substitute "1July 2011".

(22)   Schedule 4, item 3, page 114 (line 18), omit "1July 2010", substitute "1July 2011".

(23)   Schedule 4, item 3, page 114 (line 21), omit "1July 2010", substitute "1July 2011".

(24)   Schedule 4, item 3, page 114 (line 23), omit "1July 2010", substitute "1July 2011".

(25)   Schedule 4, item 8, page 116 (line 10), omit "1July 2010", substitute "1July 2011".

(26)   Schedule 4, item 12, page 118 (line 6), omit "1July 2010", substitute "1July 2011".

(27)   Schedule 4, item 12, page 120 (line 21), omit "1July 2010", substitute "1July 2011".

(28)   Schedule 4, item 14, page 123 (line 13), omit "1July 2010", substitute "1July 2011".

(29)   Schedule 4, item 15, page 124 (line 24), omit "2010-11", substitute "2011-12".

(30)   Schedule 4, item 15, page 124 (line 28), omit "2010-11", substitute "2011-12".

(31)   Schedule 4, item 15, page 125 (line 17), omit "1July 2010", substitute "1July 2011".

(32)   Schedule 4, item 15, page 128 (line 22), omit "1July 2010", substitute "1July 2011".

(33)   Schedule 4, item 15, page 132 (line 12), omit "2010-11", substitute "2011-12".

(34)   Schedule 4, item 15, page 132 (line 17), omit "1July 2010", substitute "1July 2011".

(35)   Schedule 4, item 15, page 132 (line 27), omit "1July 2010", substitute "1July 2011".

(36)   Schedule 4, item 15, page 132 (line 33), omit "1July 2010", substitute "1July 2011".

(37)   Schedule 4, item 15, page 133 (line 6), omit "1July 2010", substitute "1July 2011".

(38)   Schedule 4, item 15, page 133 (line 24), omit "1July 2010", substitute "1July 2011".

(39)   Schedule 4, item 15, page 133 (lines 29 and 30), omit "1July 2010", substitute "1July 2011".

(40)   Schedule 4, item 15, page 134 (line 16), omit "1July 2010", substitute "1July 2011".

(41)   Schedule 4, item 15, page 134 (line 25), omit "1July 2010", substitute "1July 2011".

Question agreed to.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

I move opposition amendment (2) on sheet 7011:

(2)   Schedule 1, item 1, page 5 (lines 12 to 23), omit section 355-5, substitute:

355-5 Object

(1)   The object of this Division is to increase the number of businesses that conduct research and development activities and to increase the level of such activities that individual businesses conduct, where this is likely to benefit the Australian economy.

(2)   This object is to be achieved by providing a tax incentive forindustry to conduct, in a scientific way:

  (a)   research activities forthe purpose of generating new knowledge or information in either abasic or applied form; or

  (b)   experimental development activities to developnew or improved materials, products, devices, processes orservices;

that, if successful, may be able to be commercialised for the benefit of the Australian economy.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

I indicate that the government does not support this amendment. The govern­ment has accepted the recommendations of the Senate Economics Legislation Com­mittee in relation to the object clauses. Therefore we have sought the changes necessary throughout the consultation process. The measures here, we argue, have been carefully considered and well conceived and clearly reflect the policy intent of the bill. The bill will support R&D where the knowledge produced can be either general or in applied form. Such knowledge can range from blue sky research through to experimental development in a production environment. The proposed modification would actually impede the understanding of the bill and not do, as I understand, what the opposition senators are seeking to do. The government's position is that we do actually need to have that broad definition as it is indicated in the bill.

Question negatived.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I withdraw Greens request (1) on sheet 6193 and amendments (2) to (6) on sheet 6193.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

by leave—I move opposition requests (3) and (4) on sheet 7011:

(R3) Schedule 1, item 1, page 7 (line 14), omit “(1)”.

(R4) Schedule 1, item 1, page 7 (lines 16 to 21), subsection 355-30(2) TO BE OPPOSED.

The statement of reasons accompanying the requests read as follows—

Amendments (R3), (R4), (R5) and (R6)

The effect of these amendments will be to allow an increase in the number of claimants for tax deductions for research and development expenditure and to allow an increase in the amounts that can be claimed as tax deductions for research and development expenditure. This will increase amounts paid out under a refundable tax offset, which would be met from the standing appropriation in section 16 of the Taxation Administration Act 1953, and the amendments are therefore presented as requests.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

I want to thank the opposition for the approach they are taking on this matter. This has been a long process of discussion but I do want to emphasise the importance of the dominant purpose test in terms of the integrity measures that the government seeks to pursue through this bill. The proposed amendments will permit some firms to claim business-as-usual expenses under the R&D tax incentive and therefore would undermine the integrity of these arrangements. It would have quite serious implications, of course, in terms of the financial implications of this bill.

The dominant purpose test for supporting activity is in fact vital to the measures in the bill, that is, to prevent leakage of the incentive to business-as-usual production activities that are mainly being conducted for reasons other than supporting core R&D activities. So the improved targeting of this incentive is a key feature of what we are trying to achieve here. If the package is to provide the increased rates of assistance, that is doubling the level of support for small enterprises and increasing it for medium-sized enterprises by one-third, there need to be opportunities to ensure that there is some integrity in these arrangements. We need to be able to ensure that the assistance with cash payments for innovation start-up firms is able to be delivered in a manner which will not blow the whole finances of the scheme. The dominant purpose test applies only to supporting activities, not to the core R&D activities. Therefore narrowing the application of the dominant purpose test will not result in any more core activities actually being undertaken. If you look to the work of Nicholas Gruen in his study The BERD in the hand, he states that the dominant purpose distinction:

… neatly excludes from the concession activities which, though directly related to the R&D project, would take place with or without the R&D project and so are therefore no part of the full incremental costs of the R&D project.

Dr Gruen in his report also states:

The dominant purpose test has been designed to remove from assistance production activity for which there is very little policy rationale for assisting. It is overwhelmingly activity which would take place in any event because it would take place without the R&D project being undertaken.

So the proposed amendments would create difficulties for firms around this whole threshold issue. In some years they would have to apply for the dominant purpose test and others they will not.

The proposed amendment will not reduce any compliance costs for the R&D tax credit. Firms will still be required to distinguish between core and supporting R&D activities when applying for the R&D tax credit. A wide range of support will be available to assist claimants, including small and medium-sized enterprises, in the transition to the new program. I made very sure of this in terms of the budgetary arrangements that underpin these measures so that we can have extensive guidance material available for administrators. There will be a hotline to advise claimants and there will be a formal advisory function of AusIndustry to provide advance findings so that there will be certainty in the arrangements entered into. And there will be additional funding of $31 million over four years which has been allocated to AusIndustry in the 2009-10 budget to increase the resources available for administration of the new program. I might also add that further protection as to the assertions that I am making, about the purpose of these changes, is guaranteed by the establishment of the review mechanisms in the legislation through the R&D board which will allow us to be able to measure the policy intent in terms of how it is actually being implemented. I am very confident that the R&D board, given the personnel that are available on that, will be able to sort the wheat from the chaff in regard to any administrative high jinks that people might claim that people get up to when it comes to administering these types of schemes. So in respect of a range of levels to protect the integrity of the scheme and to also ensure that we do meet out commitments in terms of the policy intent, I believe there are very strong guarantees built into these arrangements for this bill.

Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Prior to placing the question before the chamber, is it the wish of the committee that the statements of reasons accompanying the requests be incorporated in Hansard immediately after the requests to which they relate? There being no objection, it is so ordered. The question is that request (R3) and request (R4) on sheet 7011 be agreed to.

Question negatived.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

by leave—I move requests (R5) and (R6) on sheet 7011 together:

(R5)   Schedule 1, item 1, page 8 (table item 1), after "apply)", add "where, in calculating aggregate turnover, references in section 328-125 to at least 40% are read as references to greater than 50%".

(R6)   Schedule 1, item 1, page 9 (table before line 1, table item 2), omit paragraph (a), substitute:

The statement of reasons accompanying the requests read as follows—

Amendments (R3), (R4), (R5) and (R6)

The effect of these amendments will be to allow an increase in the number of claimants for tax deductions for research and development expenditure and to allow an increase in the amounts that can be claimed as tax deductions for research and development expenditure. This will increase amounts paid out under a refundable tax offset, which would be met from the standing appropriation in section 16 of the Taxation Administration Act 1953, and the amendments are therefore presented as requests.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

I indicate that the government does not support these arrangements. The use of the concept of aggregate turnover is applied throughout the Income Tax Assessment Act and is based on a 40 per cent threshold for deeming control of related entities and it would remain open for firms to demonstrate that a 50 per cent threshold is appropriate in their circumstances, so there is no justification for continuing with the obsolete broader 50 per cent threshold used in the 1936 act. So by reinstating the obsolete 50 per cent threshold, the amendment would facilitate tax planning entities which are not truly small and medium sized enterprises and could manipulate their structures to inappropriately access the 45 per cent refundable tax offset.

Question negatived.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

I move opposition requested amendment (R9) on sheet 7011:

(R9)   Schedule 1, item 1, page 15 (lines 27 to 29), omit paragraph 355-225(1)(a), substitute:

  (a)   expenditure of a capital nature that is incurred to acquire or construct:

     (i)   a building or a part of a building; or

     (ii)   an extension, alteration or improvement to a building;

     that is to be *held by the R&D entity;

The statement of reasons accompanying the request read as follows—

Amendments (R9) and (R10)

The effect of amendments (R9) and (R10) will be to allow tax deductions for expenditure that was not previously tax deductible as research and development expenditure. This too will increase amounts paid out under a refundable tax offset, which would be met from the standing appropriation in section 16 of the Taxation Administration Act 1953 , and the amendments are therefore presented as requests .

This is one of the areas that I spoke about during my speech in the second reading debate. The government was making claims about claims that were not verifiable. It is trying to limit industry's access to R&D. Yet those that were clearly outside that process were being investigated. We have also had discussions over the last week or so where the government says it is going to do one thing in one piece of legislation but its actions in another area actually operate in a different way. So you have in this bill, as we read it, that it makes changes to qualifying arrangements that only allow for claimants to receive assistance where R&D occurs away from the building site and we know, having discussed this at estimates, that there are circumstances where the R&D actually does occur on site. Yet the Green Building Fund processes assume that no additionality is required. So we have the circumstance in the Carbon Farming Initiative where the government was saying to us, under that piece of legislation, they wanted to protect agricultural land. Yet, in moving to lock up 430,000 or 572,000 hectares of forest in Tasmania, you are going to move the forest industry out onto the agricultural land in Tasmania, because you need 100,000 hectares of plantation to make up for the land that you are locking up under the other process. So you can forgive people for being confused about the government's approach in relation to these matters, where they say they want to do one thing in one piece of legislation and head off and do something completely different, and in fact the opposite, in another measure. It is on that basis that we believe that this amendment should be supported.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

The government does not support this amendment. The bill merely replicates a longstanding exclusion on expenditure on the actual acquiring or construction of a building. It has always been part of the legislation framework within the R&D regime. This is a policy that has been supported by successive governments, including the Howard Liberal government.

Question negatived.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

I move request (10) on sheet 7011:

(R10)   Schedule 1, item 1, page 21 (line 8) to page 22 (line 4), section 355-405, omit the item.

The statement of reasons accompany ing the request read as follows—

Amendments (R9) and (R10)

The effect of amendments (R9) and (R10) will be to allow tax deductions for expenditure that was not previously tax deductible as research and development expenditure. This too will increase amounts paid out under a refundable tax offset, which would be met from the standing appropriation in section 16 of the Taxation Administration Act 1953, and the amendments are therefore presented as requests.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

The government does not support these measures. The expenditure not at risk rule is an important integrity arrangement within the existing R&D regime. The removal of the expenditure at risk rule would open up a loophole that currently does not exist.

Question negatived.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

by leave—I move opposition amendments (11) to (13) and amendments (52) and (53) together:

(11)    Schedule 1, item 1, page 22 (line 36), omit "only".

(12) Schedule 1, item 1, page 23 (line 4), omit "only".

(13)    Schedule 1, item 1, page 23 (line 9), omit "otherwise", substitute "if neither of paragraphs (a) and (b) apply".

(52)    Schedule 4, item 15, page 131 (table, after line 31), insert:

355-410 Disposal of results of R&D activities under old Act

(53) Schedule 4, item 15, page 131 (after line 32), before section 355-415, insert:

355-410 Disposal of results of R&D activities under old Act

     If an R&D entity under the Income Tax Assessment Act 1997 (the new Act) made claims under the formersection 73B of the Income Tax Assessment Act 1936 (the old Act) in relation to R&D activities under the old Act, then section 355-410 of the new Act applies in relation to the results of those activities as if they were R&D activities for the new Act.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

The proposed amendments would allow the benefits of the tax incentive to be taken on the revenue account but allow taxation arising from the disposal of R&D results to be assessed on a capital account. The proposed amendments create a tax arbitrage opportunity that would impact the budget, and we cannot support them.

Question negatived.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

by leave—I move amendments (14) and (19) on sheet 7011 together:

(14)    Schedule 1, item 1, page 27 (line 6) to page 29 (line 7), omit Subdivision 355-H, substitute:

Subdivision 355-H—Feedstock adjustments

Table of sections

355-460    What this Subdivision is about

355-465    Feedstock adjustment to R&D expenditure

355-470    Experimental production activity

355-475    Application to connected entities and affiliates

355-460 What this Subdivision is about

Where an R&D activity that is an experimental production activity produces product held for sale, applied to own use or further processing, then the value of the tax offset for that R&D activity is reduced by the lower of:

  (a)   the expenditure on feedstock goods, materials and energy that are transformed or processed into the stock or assets; and

  (b)   the value of the feedstock output produced by the R&D activity.

355-465 Feedstock adjustment to R&D expenditure

(1)   This section applies to an *R&D entity and an *experimental production activity for an income year if:

  (a) the entity incurs expenditure in the income year in acquiring or producing feedstock inputs for the *experimental production activity;and

  (b) the entity obtains under section 355-100 *tax offsets for one or more income years for deductions under this Division in relation to the *experimental production activity:

     (i) for expenditure on feedstock inputs for the *experimental production activity; or

     (ii) for expenditure it incurs on any energy input directly into the transformation or processing of such feedstock inputs; and

  (c)    the entity recovers value in the income year from feedstock outputs of the *experimental production activity by:

     (i)   sale of the feedstock outputs; or

     (ii)   using them as feedstock inputs into further processing or transformation; or

     (iii)   applying them to its own use.

(2)   The expenditure eligible for the *tax offset under section 355-100 for the *experimental production activity is reduced in the income year by the lesser of:

  (a)   the total expenditure giving rise to the deductions mentioned in paragraph (1)(b), apart from expenditure that has already been used under this paragraph; and

  (b)   the value recovered under paragraph (1)(c), worked out as follows:

     (i)   if the feedstock output is sold in that year without further transformation or processing after the *experimental production activity, then the value is the consideration received for the goods or materials produced by this *experimental production activity;

     (ii)   otherwise, the value is the market value of the feedstock output at the first point it is able to be valued after the completion of the *experimental production activity.

(3)   For this section, feedstock inputs are goods or materialsthat are transformed or processed during an *experimental production activity into one or more tangible products (the feedstock outputs).

355-470 Experimental production activity

(1)   An experimental production activityis the collection of all the necessary *R&D activities needed to be carried out to achieve the objective of a production trial, except for those activities that are only to acquire or produce feedstock inputs.

(2)   An *experimental production activity includes all *R&D activities required to undertake the trial and produce the feedstock outputs to the point that these can reasonably be valued as finished goods or materials or intermediate goods or materials to be further processed or transformed in activities after the production trial.

355-475 Application to connected entities and affiliates

     This Subdivision applies to a *supply or use of the marketable product by:

  (a)   an entity *connected with the *R&D entity; or

  (b)   an *affiliate of the R&D entity or an entity of which the R&D entity is an affiliate;

as if it were by the R&D entity.

(19)   Schedule 1, item 4, page 43 (line 30), omit the definition of feedstock revenue, substitute:

experimental production activity has the meaning given by section 355-470.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

The government's view is that the feedstock provisions in the bill are actually superior to those proposed by the opposition and we therefore would not support the opposition amendments.

Question negatived.

Richard Colbeck (Tasmania, Liberal Party, Shadow Parliamentary Secretary for Fisheries and Forestry) Share this | Link to this | Hansard source

by leave—I move opposition amendments (20) to (22) together:

(20)   Schedule 2, item 1, page 47 (line 3) to page 48 (line 31), omit sections 27A and 27B, substitute:

27A Registering R&D entities for R&D activities

(1)   The Board must, on application by an R&D entity, decide whether to register or refuse to register the entity for one or more specified R&D activities for an income year.

Note 1:   A decision under this subsection is reviewable (see Division 5).

Note 2:   For requirements of applications, see section 27D.

(2)   If the Board decides under subsection (1) to register the R&D entity, the Board must do so consistently with:

  (a)   any findings already in force under subsection 27B(1) in relation to the application; and

  (b)   any findings already in force under subsection 28A(1) (advance findings about the nature of activities) in relation to the R&D entity.

27B Findings about applications for registration

(1)   The Board may make one or more findings in relation to an R&D entity's application for the purposes of subsection 27A(1) to the effect that all or part of the activities satisfy the definition of R&D activities in section 355-20 of the Income Tax Assessment Act 1997.

Note:   A finding is reviewable (see Division 5).

(2)   If the Board makes a finding under subsection (1) in relation to the R&D entity's registration, the Board may specify in the finding the times to which the finding relates.

Example:   A finding under subsection (1) could specify the times during the registration year that a registered activity was an R&D activity.

(3)   This section has effect subject to section 32B (findings cannot be inconsistent with any earlier findings).

(21)   Schedule 2, item 1, page 52 (lines 3 to 37), omit section 27J, substitute:

27J Findings about a registration

(1)   The Board may make one or more findings about an R&D entity's registration under section 27A for an income year to the effect that all or part of the activities satisfy the definition of R&D activities in section 355-20 of the Income Tax Assessment Act 1997.

Note:   A finding is reviewable (see Division 5).

(2)   If the Board makes a finding under subsection (1) in relation to the R&D entity's registration, the Board may specify in the finding the times to which the finding relates.

Example:   A finding under subsection (1) could specify the times during the registration year that a registered activity was an R&D activity.

(3)   This section has effect subject to section 32B (findings cannot be inconsistent with any earlier findings).

(22)    Schedule 2, item 1, page 56 (line 20) to page 57 (line 3), omit subsection 28A(1), substitute:

(1)   The Board must, on application by an R&D entity for a finding under this subsection about an activity, either:

  (a)   find that all or part of the activity satisfies the definition of R&D activities in section 355-20 of the Income Tax Assessment Act 1997 for which the entity has been or could be registered under section 27A for an income year; or

  (b)   find that all or part of the activity does not satisfy the definition of R&D activities in section 355-20 of the Income Tax Assessment Act 1997 for which the entity has been or could be registered under section 27A for an income year.

These are administrative changes relating to the application by an R&D entity to decide whether to register or refuse to register for one or more specified R&D activities in one year.

Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | Link to this | Hansard source

The government takes the view that it is important to ensure the integrity of this program, and therefore asking firms to identify their core and supporting R&D activities separately is in fact a reasonable proposition. The new rules in the bill will allow administrators to shine a light on claims which should not be supported by taxpayers' dollars.

Question negatived.

by leave—I move government amendments (1) and (8) on sheet CJ260 together:

(1)   Clause 2, page 2 (table item 7), omit "Schedule4", substitute "Schedules3A and 4".

(8)   Page 111 (after line 24), after Schedule 3, insert:

Schedule 3A—Quarterly credits

Part 1—Introduction

1 Definitions

(1)   In this Schedule:

net refund assessment position: an entity is in a net refund assessment position for an income year if:

  (a)   an excess remains after the entity's tax offsets for the income year are applied against its basic income tax liability for the income year; and

  (b)   that excess is wholly or partly refundable.

Note:   The excess will be wholly or partly refundable if some or all of the tax offsets are refundable tax offsets.

quarterly credit means a credit referred to in item 3.

refundable R&D tax offset: an entity is entitled to a refundable R&D tax offset for an income year if:

  (a)   the entity is an R&D entity that is entitled under section 355-100 of the Income Tax Assessment Act 1997 to a tax offset for the income year; and

  (b)   that tax offset is a refundable tax offset.

refundable tax offset means a tax offset that is subject to the refundable tax offset rules.

relevant Acts means the following Acts:

  (a)   the Income Tax Assessment Act 1936;

  (b)   the Income Tax Assessment Act 1997;

  (c)   the Industry Research and Development Act 1986;

  (d)   the Taxation Administration Act 1953.

total credits: an entity's total credits for an income year is an amount equal to the sum of the entity's quarterly credits for the income year.

(2)   Subject to subitem (1), an expression used in this Schedule that is also used in the Income Tax Assessment Act 1997 has the same meaning in this Schedule as it has in that Act.

Part 2—Power to make regulations to modify operation of Acts

2 Regulations may modify operation of Acts to allow quarterly credits

(1)   The Governor-General may make regulations modifying the operation of one or more of the relevant Acts for the purpose of achieving the objectives set out in this Part. The regulations have effect accordingly.

(2)   The Minister must recommend to the Governor-General that the Governor-General make regulations under subitem (1) before 1 January 2014.

3 First objective—quarterly credits in anticipation of refundable tax offset

(1)   The first objective is that an R&D entity will be credited by the Commissioner quarterly amounts for an income year if particular requirements are satisfied.

Note 1:   These requirements include the R&D entity satisfying eligibility criteria and other matters (for example, see Part 3).

Note 2:   Receiving quarterly credits may result in the R&D entity being paid an amount out of the Consolidated Revenue Fund (see section 16 of the Taxation Administration Act 1953).

(2)   Three of the eligibility criteria for a quarterly credit for an income year are:

  (a)   that it is reasonable to expect that the R&D entity will be entitled to a refundable R&D tax offset for the income year relating to R&D activities conducted during the income year; and

  (b)   if Innovation Australia makes one or more findings about the R&D activities or purported R&D activities—that those findings are positive; and

  (c)   that the quarter begins on or after 1 January 2014.

Note:   There may be additional eligibility criteria (for example, see subparagraph 5(1)(a)(ii)).

4 Second objective—tax neutral consequences

(1)   The second objective is that, as far as practicable, there be tax-neutral consequences for an R&D entity receiving quarterly credits.

Note 1:   This objective is for the R&D entity to be in the same position, for income tax purposes, whether:

  (a)   the R&D entity receives quarterly credits for an income year; or

  (b)   the R&D entity does not receive those quarterly credits, and becomes entitled, after the end of the income year, to the refundable R&D tax offset for the income year.

Note 2:   Achieving this objective could include providing for a reconciliation and other integrity measures (for example, see paragraphs 5(1)(l) and (p) and subitem 5(4)).

(2)   For the purposes of subitem (1), disregard consequences relating to time.

Part 3—Modified Acts may provide for certain matters

5 Some matters the modified Acts may provide for

(1)   As a result of the regulations, the collective operation of the relevant Acts may provide for any or all of the following matters:

  (a)   eligibility criteria for quarterly credits, including:

     (i)   matters relevant to working out when paragraph 3(2)(b) is satisfied; and

     (ii)   additional criteria to those mentioned in subitem 3(2);

  (b)   how applications for quarterly credits may be made, including that:

     (i)   applications must be in an approved form; and

     (ii)   applications may be varied;

  (c)   that Innovation Australia may make findings (the IA findings) about the activities that relate to an application, or proposed application, for quarterly credits;

  (d)   how IA findings may be made, including that IA findings may be made on application in an approved form;

  (e)   fees relating to applications for quarterly credits or applications for IA findings, and a method for indexing the fees;

  (f)   how applications for quarterly credits or IA findings are considered (and approved or rejected);

  (g)   that applicants for quarterly credits or IA findings are notified of specified decisions or matters;

  (h)   that further information may be requested from applicants for quarterly credits or IA findings;

     (i)   deadlines for doing things in relation to quarterly credits or the making of IA findings;

  (j)   how amounts of quarterly credits are worked out;

  (k)   that each quarterly credit is a credit the R&D entity is entitled to under a taxation law for the purposes of Part IIB of the Taxation Administration Act 1953;

  (l)   that an R&D entity's total credits for an income year become a debt due to the Commonwealth at a specified time after the end of the income year;

  (m)   that each of the following may be varied or revoked:

     (i)   an approval of an application for quarterly credits;

     (ii)   an IA finding;

  (n)   that internal review may be sought of specified decisions relating to quarterly credits or the making of IA findings;

  (o)   that review by the Administrative Appeals Tribunal may be sought of internal review decisions relating to quarterly credits or the making of IA findings;

  (p)   integrity measures;

  (q)   that specified findings, decisions or requests made by Innovation Australia relating to quarterly credits are binding on the Commissioner (or vice versa);

  (r)   that Innovation Australia is authorised to disclose to the Commissioner (or vice versa) information relating to quarterly credits or the making of IA findings;

  (s)   matters of a transitional, application or saving nature;

  (t)   matters of a consequential, ancillary or incidental nature.

Note 1:   Innovation Australia's findings (see paragraph (c)) could be made before, during or after the consideration of an application for quarterly credits.

Note 2:   Innovation Australia could make decisions on its own initiative or on application. For example, Innovation Australia could make a finding, or vary a finding or an approval, on its own initiative.

(2)   Without limiting paragraph (1)(a), examples of additional eligibility criteria include the following:

  (a)   that it is reasonable to expect that the R&D entity will be in a net refund assessment position for the income year;

  (b)   that the R&D entity has been assessed as being entitled under section 355-100 of the Income Tax Assessment Act 1997 to a tax offset (whether a refundable tax offset or not) for an earlier income year.

(3)   Fees referred to in paragraph (1)(e) must not be such as to amount to taxation.

(4)   Without limiting paragraph (1)(p), examples of integrity measures include the following:

  (a)   if an R&D entity's total credits for an income year exceeds the amount of the R&D entity's entitlement to a refundable R&D tax offset for the income year—that the R&D entity may be liable to pay a penalty on the excess;

  (b)   if the approval of an R&D entity's application for quarterly credits for an income year is revoked—that the R&D entity's total credits for the income year become a debt due to the Commonwealth at a specified time.

(5)   As a result of the regulations, the collective operation of the relevant Acts may provide that a disclosure referred to in paragraph (1)(r) may be made despite:

  (a)   subsection 47(1) of the Industry Research and Development Act 1986; and

  (b)   sections 355-25, 355-155 and 355-265 in Schedule 1 to the Taxation Administration Act 1953.

(6)   This item does not limit item 2.

6 Other matters the modified Acts may provide for

(1)   As a result of the regulations, the collective operation of the relevant Acts may make different provision for a matter for different kinds of entities.

Note:   For example, different provision could be made for members of consolidated groups or MEC groups.

(2)   As a result of the regulations, the collective operation of the relevant Acts may make provision for a matter by:

  (a)   empowering a person to make a decision of an administrative character; and

  (b)   if appropriate, requiring the person to make that decision in accordance with decision-making principles.

Any decision-making principles must be legislative instruments.

(3)   This item does not limit item 2.

Part 4—Alternative constitutional basis

7 Alternative constitutional basis

(1)   Without limiting its effect apart from this subitem, the modified operation of each relevant Act as a result of the regulations has the effect it would have if:

  (a)   subitem (2) had not been enacted; and

  (b)   the relevant Act applied so that quarterly credits could only be worked out for an R&D entity that:

     (i)   is a constitutional corporation; or

     (ii)   has its registered office (within the meaning of the Corporations Act 2001) or principal place of business (within the meaning of that Act) located in a Territory.

(2)   Without limiting its effect apart from this subitem, the modified operation of each relevant Act as a result of the regulations has the effect it would have if:

  (a)   subitem (1) had not been enacted; and

  (b)   the relevant Act applied so that quarterly credits could only be worked out in respect of activities, or parts of activities, conducted or to be conducted:

     (i)   solely in a Territory; or

     (ii)   solely outside of Australia; or

     (iii)   solely in a Territory and outside of Australia; or

     (iv)   for the dominant purpose of supporting core R&D activities conducted, or to be conducted, solely in a Territory.

Part 5—Other matters

8 Varying the regulations

The Governor-General may vary, in accordance with subsection 33(3) of the Acts Interpretation Act 1901, regulations made under item 2. However, the Governor-General must not repeal those regulations.

Note:   Those regulations may be varied on or after 1 January 2014.

9 Another way of dealing with transitional, application or saving matters

(1)   The Governor-General may make regulations dealing with matters of a transitional, application or saving nature relating to the making of regulations under item 2.

Note:   This is another way of dealing with these kinds of matters. These kinds of matters could also be dealt with under item 2. That is, as a result of regulations made under item 2, the collective operation of the relevant Acts could make provision for some or all of these kinds of matters (see paragraph 5(1)(s)).

(2)   Item 7 applies to regulations made under subitem (1) in a corresponding way to the way it applies to the modified operation of a relevant Act.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I rise to support these government amendments. As I indicated in my speech on the second reading, part of the process of getting to where we are tonight with this bill—

Progress reported.