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

I move Australian Greens amendment (1) on sheet 7542:

(1) Schedule 1, page 3 (line 1) to page 4 (line 13), omit the Schedule, substitute:

Schedule 1—Quarterly R&D credits

Part 1—Main amendment

Taxation Administration Act 1953

1 After Part 2 -10 in Schedule 1

  Insert:

Part 2 -15—Quarterly credits of refundable tax offsets

Division 48—Quarterly credits

Table of Subdivisions

Guide to Division 48

  48-A Object

  48-B Participating in the quarterly credits system

  48-C Tests for participation

  48-D Working out and paying quarterly credit amounts

  48-E End of year reconciliation

  48-F Ending participation

  48-P Special rules for consolidated groups etc.

  48-T Other matters

Guide to Division 48

48 -1 What this Division is about

You can apply to participate in the quarterly credits system for an income year if you expect to be entitled to refundable tax offsets for the income year that are covered by the system.

Participating gives you quarterly credits towards your likely refund from those tax offsets. These credits will either be based on your refund from a recent income year, or on a varied amount chosen by you after estimating your refund for the current year.

A reconciliation happens when the current year's assessment is made. General interest charge may be payable if you chose to base your credits on a varied amount and they are excessively high.

Subdivision 48 -A—Object

Table of sections

  48-3 Object

   48 -3 Object

     The object of this Division is to benefit the Australian economy by improving entities' cash flow by enabling them to realise the benefit of certain expected refundable tax offsets on a quarterly basis during the income year.

Subdivision 48 -B—Participating in the quarterly credits system

Table of sections

  48-5 Participating in the quarterly credits system

  48-10 Refusing participation

  48-15 Applying to participate

48 -5 Participating in the quarterly credits system

(1) The Commissioner may, on application, allow you to participate in the *quarterly credits system for:

  (a) each of the *instalment quarters in an income year, other than any excluded under subsection (3); and

  (b) one or more specified *tax offsets covered by section 48-100.

Note: If you are dissatisfied with a decision under this subsection, you may object against it in the manner set out in Part IVC (see section 48-800).

(2) The Commissioner must notify you in writing of:

  (a) the Commissioner's decision under subsection (1); and

  (b) the reasons for the decision, if the decision refuses to allow you to participate as set out in your application.

(3) An *instalment quarter is excluded if the Commissioner receives your application after:

  (a) if all or a part of a December falls within the last month of the instalment quarter—the next 14 February after the end of the instalment quarter; or

  (b) otherwise—the 14th day after the end of the instalment quarter.

48 -10 Refusing participation

(1) The Commissioner must, under subsection 48-5(1), refuse to allow you to participate for:

  (a) any of the *instalment quarters, and a specified *tax offset, if the Commissioner is aware that you fail a test in Subdivision 48-C necessary for that participation; or

  (b) a specified instalment quarter, and a specified tax offset, if during that instalment quarter you have already withdrawn under section 48-400 from participating in the *quarterly credits system for that tax offset.

Note 1: The Commissioner may allow you to participate to the extent that paragraph (a) or (b) does not prevent this.

Note 2: This subsection applies separately for each tax offset mentioned in your application.

(2) The Commissioner may, under subsection 48-5(1), refuse to allow you to participate for one or more specified *instalment quarters and *tax offsets if:

  (a) you fail to give the Commissioner, in accordance with section 48-15, information requested under that section; or

  (b) for a tax offset listed in table item 20 (about R&D) in section 48-100—at any time you failed to give *Innovation Australia, in accordance with section 28H of the Industry Research and Development Act 1986, information requested under that section of that Act.

48 -15 Applying to participate

(1) An application to participate in the *quarterly credits system for one or more *instalment quarters in an income year, and one or more *tax offsets, must be given to the Commissioner in the *approved form before:

  (a) if all or a part of a December falls within the last month of the income year—the next 15 February after the end of the income year; or

  (b) otherwise—the 15th day after the end of the income year.

(2) The Commissioner may request you in writing to give specified information to the Commissioner about your application.

(3) The request may be for the information to be given to the Commissioner in the *approved form within:

  (a) 14 days after the request was made; or

  (b) a further period allowed by the Commissioner.

Note: A failure to give the information in accordance with this subsection may result in the Commissioner refusing to allow you to participate (see subsection 48-10(2)).

Subdivision 48 -C—Tests for participation

Table of sections

  48-100 Tests for participation

  48-105 Reasonable receipt test

  48-110 Complying taxpayer test

   48 -100 Tests for participation

     To participate in the *quarterly credits system for one or more *instalment quarters in an income year and a *tax offset listed in the table, you must pass each of the following tests:

  (a) the reasonable receipt test in section 48-105;

  (b) the complying taxpayer test in section 48-110;

  (c) any extra test listed in the table for the tax offset.

48 -105 Reasonable receipt test

     It must be reasonable to expect that:

  (a) you will become entitled to the *tax offset for the income year; and

  (b) the tax offset will be subject to the refundable tax offset rules.

48 -110 Complying taxpayer test

(1) You pass the complying taxpayer test if:

  (a) no part of any of your *tax-related liabilities remains unpaid after the time by which that liability is due to be paid; and

  (b) during the current income year, and the 5 most recent income years, you have not been convicted of an offence against:

     (i) a *taxation law; or

     (ii) a law relating to a taxation law; and

(c) you are complying with all of your obligations under taxation laws to provide documents or information to the Commissioner or another entity; and

  (d) it is reasonable to expect that you will comply with your obligations under taxation laws in the future.

(2) However, if this table applies to you, the corresponding entities mentioned in the table (your managing entities) must also satisfy the paragraphs in subsection (1).

Note: This subsection only applies to each of your managing entities when it is in that capacity (see section 960-100 of the Income Tax Assessment Act 1997).

Subdivision 48 -D—Working out and paying quarterly credit amounts

Table of sections

  48-200 Quarterly credit amounts

  48-205 Standard amount

  48-210 Choosing a varied amount

  48-215 Disallowing proposed varied amounts

  48-220 Notifying the Commissioner of proposed varied amounts

  48-225 When quarterly credit amounts are payable to you

  48-230 When quarterly credit amounts are payable by you

  48-235 The amount's quarterly credit due day

   48 -200 Quarterly credit amounts

     If you are participating in the *quarterly credits system for an *instalment quarter in an income year (the present year) and one or more *tax offsets (the present tax offsets), your quarterly credit amount for the instalment quarter and the present tax offsets is:

  (a) any varied amount applying under section 48-210 for the instalment quarter and the present tax offsets; or

  (b) otherwise—the standard amount worked out under section 48-205.

Note: If you recommence participating in the quarterly credits system, paragraph (a) covers any varied amount applying for the instalment quarter under your earlier participation in the system.

48 -205 Standard amount

(1) If:

  (a) for the most recent income year (the reference year) for which the Commissioner has made an assessment of your income tax, you were entitled to *tax offsets of the same kinds as each of the present tax offsets; and

  (b) those reference year tax offsets were subject to the refundable tax offset rules; and

  (c) the reference year is one of the last 2 income years immediately before the present year;

the standard amount worked out under this section is 1/4 of the lesser of:

  (d) the total amount of those reference year tax offsets; and

  (e) the total of your *tax offset refunds (for tax offsets of any kind) for the reference year.

Note: If the instalment quarter is the first in the present year, the reference year will usually be a different year to that for later instalment quarters.

(2) Otherwise, the standard amount worked out under this section is nil.

48 -210 Choosing a varied amount

(1) You can choose to notify the Commissioner under section 48-220 of a proposed varied amount for the *instalment quarter and the present tax offsets.

Note: If you do, your notice must include a proposed varied amount for each later instalment quarter in the income year (see paragraph 48-215(1)(a)). A later notice can propose a replacement varied amount for those later instalment quarters.

(2) An amount you so notify for an *instalment quarter is the varied amount applying under this section for that instalment quarter and the present tax offsets if that amount is the most recent that:

  (a) has been so notified for that instalment quarter; and

  (b) has not been disallowed by the Commissioner.

That amount may be a nil or negative amount.

(3) The Commissioner may disallow a proposed varied amount.

Note: If you are dissatisfied with a decision under this subsection, you may object against it in the manner set out in Part IVC (see section 48-800).

(4) The Commissioner must notify you in writing of:

  (a) a decision under subsection (3) to disallow a proposed varied amount; and

  (b) the reasons for the decision.

48 -215 Disallowing proposed varied amounts

(1) The Commissioner must, under subsection 48-210(3), disallow each proposed varied amount included in your notice given under section 48-220 if:

  (a) that notice does not include a proposed varied amount for each of the following *instalment quarters in the present year for which you are participating in the *quarterly credits system:

     (i) an instalment quarter that is yet to end when you gave that notice;

     (ii) an instalment quarter for which the last month included all or a part of a December, if you gave that notice before the next 15 February;

     (iii) an instalment quarter that ended less than 15 days before you gave that notice; or

  (b) for any of the proposed varied amounts included in that notice (the test amount), the sum of:

     (i) the test amount; and

     (ii) any of the other proposed varied amounts that are for earlier instalment quarters in the present year; and

     (iii) your *quarterly credit amounts payable for any earlier instalment quarters in the present year;

     is less than nil or exceeds the amount worked out under subsection (2).

(2) Work out the amount from the following formula:

where:

  estimated end of year amount means the lesser of:

  (a) the likely total of the present tax offsets and any other *tax offsets for which you are participating in the *quarterly credits system for an earlier *instalment quarter in the present year; and

  (b) the likely total of your *tax offset refunds (for tax offsets of any kind) for the present year.

  number of instalment quarters so far means the number of *instalment quarters in the income year, up to (and including) the instalment quarter for which the test amount is proposed, for which you are participating in the *quarterly credits system.

(3) The Commissioner may, under subsection 48-210(3), disallow each proposed varied amount included in your notice under section 48-220 if you fail to give the Commissioner, in accordance with that section, information requested under that section.

(4) The Commissioner must not, under subsection 48-210(3), disallow the proposed varied amounts included in your notice under section 48-220 if:

  (a) none of the following provisions applies:

     (i) paragraph (1)(a) or subsection (3);

     (ii) paragraph (1)(b), if the sum in that paragraph is less than nil; and

(b) each of those proposed varied amounts is less than or equal to the amount that would otherwise be your *quarterly credit amount for the relevant *instalment quarter and the present tax offsets.

48 -220 Notifying the Commissioner of proposed varied amounts

(1) A notice of one or more proposed varied amounts must be given to the Commissioner in the *approved form before:

  (a) if all or a part of a December falls within the last month of the earliest of the *instalment quarters to which the amounts relate—the next 15 February after the end of that instalment quarter; or

  (b) otherwise—the 15th day after the end of the earliest of the instalment quarters to which the amounts relate.

Note: You must keep records in relation to the varied amount (see section 262A of the Income Tax Assessment Act 1936).

(2) The Commissioner may request you in writing to give specified information to the Commissioner about the notice.

(3) The request may be for the information to be given to the Commissioner in the *approved form within:

  (a) 14 days after the request was made; or

  (b) a further period allowed by the Commissioner.

Note: A failure by you to give the information in accordance with this subsection may result in the Commissioner refusing to allow the proposed varied amounts (see subsection 48-215(3)).

48 -225 When quarterly credit amounts are payable to you

General rule

(1) The Commissioner must, on behalf of the Commonwealth, pay you your *quarterly credit amount for an *instalment quarter and the present tax offsets on or before this day:

  (a) the 28th day of the calendar month after the end of the instalment quarter; or

  (b) if all or a part of a December falls within the last month of the instalment quarter—the next 28 February.

Delayed payment—varied amount under examination

(2) Despite subsection (1), if:

  (a) your *quarterly credit amount is a varied amount applying under section 48-210 that exceeds the amount otherwise payable to you; and

  (b) the Commissioner is examining whether to disallow that varied amount;

the Commissioner may, until the examination ends, delay paying you so much of that varied amount as is equal to the excess.

Note 1: If you are dissatisfied with a decision under this subsection to delay payment of the excess, you may object against it in the manner set out in Part IVC (see section 48-800).

Note 2: Interest accrues under Part IIIAB of the Taxation (Interest on Overpayments and Early Payments) Act 1983 while the Commissioner delays payment of the excess.

Note 3: The excess (and the interest) is not payable if the examination results in the varied amount being disallowed.

Delayed payment—participation under examination

(3) Despite subsection (1), the Commissioner may delay paying you your *quarterly credit amount if and while:

  (a) the Commissioner is examining whether your participation should be revoked; or

  (b) the Commissioner is aware that a regulator mentioned in the table is examining a matter relevant to whether your participation should be revoked.

Note 1: If you are dissatisfied with a decision under this subsection to delay your payment, you may object against it in the manner set out in Part IVC (see section 48-800).

Note 2: Interest accrues under Part IIIAB of the Taxation (Interest on Overpayments and Early Payments) Act 1983 while the Commissioner delays your payment.

Note 3: Your payment (and the interest) is not payable if the examination results in your participation being revoked.

Delayed payment—you cannot receive electronic payments etc.

(4) Despite subsection (1), the Commissioner must delay paying you your *quarterly credit amount if and while the Commissioner is aware that your circumstances do not enable payments to be made to you in accordance with subsection 48-820(1) (about electronic payments etc.).

Note: Interest accrues under Part IIIAB of the Taxation (Interest on Overpayments and Early Payments) Act 1983 if the Commissioner delays your payment more than 14 days after becoming aware that electronic payments can now be made to you.

Matters relevant to delayed payments

(5) The Commissioner must notify you in writing of:

  (a) a decision under subsection (2), (3) or (4) to delay your payment; and

  (b) the reasons for the decision.

Payments cannot be made on or after assessment

(6) Despite subsection (1), your *quarterly credit amount for an *instalment quarter and the present tax offsets must not be paid to you on or after the assessment day (see paragraph 48-300(1)(b)) for the present year.

48 -230 When quarterly credit amounts are payable by you

(1) However, if your *quarterly credit amount for the *instalment quarter and the present tax offsets is a negative amount, you are liable to pay the Commonwealth that amount (expressed as a positive amount).

Note: The amount will only be a negative amount if you choose a varied amount that is a negative amount.

(2) That amount is due and payable on the *quarterly credit amount's *quarterly credit due day.

Note: For provisions about collection and recovery of the amount, see Part 4-15.

(3) If any of that amount (the varied amount) remains unpaid after the *quarterly credit amount's *quarterly credit due day, you are liable to pay the *general interest charge on the unpaid amount for each day in the period that:

  (a) starts on the day after that due day; and

  (b) ends on the last day any of the following remains unpaid:

     (i) the varied amount;

     (ii) general interest charge on any of the varied amount.

(4) This section does not apply if the *quarterly credit amount's *quarterly credit due day is on or after the assessment day (see paragraph 48-300(1)(b)) for the present year.

48 -235 The amount ' s quarterly credit due day

     The quarterly credit due day for a *quarterly credit amount is:

  (a) if that amount is a positive amount—the day referred to in subsection 48-225(1); or

  (b) if that amount is a nil or negative amount—the day that would have been the day referred to in subsection 48-225(1) were that amount a positive amount.

Subdivision 48 -E—End of year reconciliation

Table of sections

48-300 Debit equal to the total quarterly credits paid

48-305 When the debit is due

48-350 Liability to GIC on excess quarterly credits worked out using varied amounts

48-355 Benchmark amount for the variation quarter

48 -300 Debit equal to the total quarterly credits paid

(1) You are liable to pay the Commonwealth an amount (a debit) under this section if:

  (a) you are participating in the *quarterly credits system for one or more *instalment quarters in an income year and one or more *tax offsets; and

  (b) on a particular day (the assessment day), the Commissioner makes an assessment:

     (i) of the total of your *tax offset refunds for the income year; or

     (ii) that you can get no such refunds for the income year.

Note: The debit will be offset by a credit equal to the total of your tax offset refunds.

(2) The debit is equal to the sum of your *quarterly credit amounts for those *instalment quarters and those *tax offsets, disregarding so much of any of those amounts as:

  (a) is a positive amount not paid before the assessment day; or

  (b) is a negative amount with a *quarterly credit due day that is on or after the assessment day.

Note: This debit only includes your quarterly credit amounts for those instalment quarters for which you are participating in the quarterly credits system. It does not include quarterly credit amounts for instalment quarters for which you (under Subdivision 48-F) have ceased to participate.

(3) The Commissioner must give you notice of the debit, unless subsection 166A(3) of the Income Tax Assessment Act 1936 applies to you for the income year.

Note 1: This could be done by including the debit in the notice of your assessment referred to in paragraph (1)(b).

Note 2: The debit is the debit as amended. So, if a previously notified debit is incorrect, notice of the debit (as amended) must also be given for this subsection to be satisfied.

48 -305 When the debit is due

(1) Parts of the debit may be due on different days.

(2) So much of the debit as does not exceed the total of your *tax offset refunds for the income year is due and payable on the assessment day.

Note: This part of the debit will be offset by the credit equal to the total of your tax offset refunds.

(3) So much of the debit (if any) as exceeds the total of your *tax offset refunds for the income year is due and payable on the day your income tax for the income year:

  (a) is due and payable; or

  (b) would have been due and payable if you were liable to pay income tax for the income year.

Note 1: For the day income tax is due, see section 5-5 of the Income Tax Assessment Act 1997.

Note 2: For provisions about collection and recovery of this excess, see Part 4-15.

(4) If so much of the debit as is covered by subsection (3) (the excess) remains unpaid after the time by which it is due to be paid, you are liable to pay the *general interest charge on the unpaid amount for each day in the period that:

  (a) starts on the day after the excess was due to be paid; and

  (b) ends on the last day any of the following remains unpaid:

     (i) the excess;

     (ii) general interest charge on any of the excess.

48 -350 Liability to GIC on excess quarterly credits worked out using varied amounts

(1) You are liable to pay the *general interest charge under this section if:

  (a) you are participating in the *quarterly credits system for an *instalment quarter (the variation quarter) in an income year and one or more *tax offsets; and

  (b) this is the case:

     Benchmark amount ˂ 85% of your total credits

     where:

     benchmark amount means the amount worked out under section 48-355 for the variation quarter and those tax offsets.

     your total credits means the sum of your *quarterly credit amounts for the variation quarter and any earlier instalment quarters in the income year, disregarding so much of any of those amounts as:

     (i) is a positive amount not paid before the assessment day (see paragraph 48-300(1)(b)) for the income year; or

     (ii) is a negative amount with a *quarterly credit due day that is on or after that assessment day.

Note: You will not be liable for this charge if your quarterly credit amounts have never been varied above the standard amounts, as your total credits will never exceed the benchmark amount (see section 48-355).

(2) You are liable to pay the *general interest charge on the difference between your total credits and the benchmark amount.

(3) You are liable to pay the charge for each day in the period:

  (a) starting on the *quarterly credit due day for your *quarterly credit amount for the variation quarter; and

  (b) ending on the earlier of:

     (i) if you have a quarterly credit amount for one or more later *instalment quarters in the income year—the quarterly credit due day for the first of those later quarterly credit amounts; and

     (ii) the assessment day (see paragraph 48-300(1)(b)) for the income year.

Note: Subparagraph (b)(i) includes the case where you have a nil or negative quarterly credit amount for a later instalment quarter.

(4) The Commissioner must give you written notice of the *general interest charge to which you are liable under subsection (2). You must pay the charge within 14 days after you are given that notice.

Note: The Commissioner may remit the charge (see section 8AAG).

(5) If any of the *general interest charge to which you are liable under subsection (2) (the original GIC) remains unpaid at the end of the 14 days referred to in subsection (4), you are also liable to pay the general interest charge on the unpaid amount for each day in the period that:

  (a) starts on the day after those 14 days; and

  (b) ends on the last day any of the following remains unpaid:

     (i) the original GIC;

     (ii) general interest charge on any of the original GIC.

48 -355 Benchmark amount for the variation quarter

(1) The amount worked out under this section for the variation quarter and those *tax offsets is the greater of:

  (a) the sum of the standard amounts worked out under section 48-205 for:

     (i) the variation quarter; and

     (ii) any earlier *instalment quarters in the income year for which you are participating in the *quarterly credits system; and

(b) the amount applying under subsection (2).

(2) The amount applying under this subsection is as follows:

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

The government is not in a position to support the Greens amendment. The Greens amendment effectively seeks to drop the original intent of this bill, which, as I indicated in the second reading debate, was actually a budget savings measure initiated and banked in the last budget of the previous Gillard Labor government and which seeks to remove access to R&D tax incentives for companies with annual aggregate assessable income of more than $20 billion a year.

The Greens are proposing a quarterly credit scheme which would allow businesses to receive tax credits for eligible R&D activities before the expenditure has actually occurred. This would introduce a number of risks, as the scheme seeks to anticipate a company's expected entitlement to a refund of the R&D refundable tax offset and requires payments to be made on the basis of an estimate. Allowing a company to receive credits for R&D expenditure before that expenditure has actually occurred would, in particular, introduce a risk of fraud and a risk of overpayment. Further, any integrity rules to reduce these risks would increase the compliance costs associated with the scheme while not eliminating the risks. The integrity rules introduced in the Greens' proposed scheme would not be sufficient to eliminate the risks, and it is likely that cases of fraud and overpayment would occur.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

Can I indicate that the opposition will be supporting the Greens' amendment. I want to say a few things about the minister's statements. He is sorely testing the patience of this chamber, given how extraordinarily poorly briefed he is on these matters. These particular measures that the Greens have spoken of in regard to the quarterly credits were introduced by the previous Labor government from 1 January as part of negotiations with the Greens and the independent members of the parliament in the legislation to implement the tax incentive. The quarterly credits approach was recommended by the review of the National Innovation System. The quarterly credits were introduced by the 2013 measures bill—a bill which included other measures that the minister has referred to but which, of course, were not passed by the parliament at the time. The R&D quarterly credits received strong support from business stakeholders, particularly small and medium sized firms and from the biotech sector. AusBiotech indicated that companies had already factored in R&D quarterly credits in their R&D and financial planning, based on the 1 January 2014 start-up dates.

Specific proposals were built into the act in terms of Innovations Australia's capacity to monitor these measures, and a reference committee to ensure the appropriate application of these matters. These are steps that this government has abolished—just as they have sought to abolish the plan for Australian jobs and related savings measures. These are, of course, an integral part of the actions the previous government took on these questions which related to the funding arrangements for a transfer of resources on R&D to those jobs programs—programs which this government has abolished. It is on that basis that the opposition has walked away from those announcements. If we were introducing measures to fund responsible actions to defend Australian jobs and to defend manufacturing, then of course you would have a reasonable expectation. If this government implemented the same measures for the same purposes, of course we would support them. But this is a government that has lied through its teeth about everything it has done before it was elected and after it was elected.

The Labor government's R&D tax measures were introduced after extensive consultations, and provided a 45 per cent refundable R&D tax offset for small and medium sized enterprises and a 40 per cent non-refundable R&D tax offset for other eligible companies. The new data, which came in after these measures, indicated that there had been a significant expansion in the number of firms that were actually undertaking R&D in this country. And as of 30 June 2014, 11,936 companies had registered some $19 billion of R&D expenditure. That was a substantial increase on the level of R&D activity, despite the fact that we tightened up the definitions quite dramatically. There was an additional 2,700 companies that were new to the program, and 74 per cent of the registrations received in 2012-13 were companies with an aggregate turnover of less than $20 million. They were particularly in the services sector, but 33 per cent were in manufacturing and nine per cent were in mining, which is an important component of how the R&D taxation concession system works.

We are supporting this proposal that Senator Milne has advanced today because it is consistent with the original intent of the bill. The minister has just told this chamber that we had overly generous taxation arrangements—'overly generous' were the words he used. Minister, how do the taxation arrangements in the current regime compare with our international competitors in the Asia-Pacific region and in Europe? Minister, tell us that.

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

The Minister for Finance stood up and completely rejected this notion of being able to have quarterly instalments. He made some general criticisms that, supposedly, it would allow fraud and so on. He showed absolutely no consideration of the checks and balances that are in this particular amendment, which were worked through, as Senator Carr has just indicated. There are careful considerations. There is clearly a whole governance arrangement set out, with rules around what you have to do to be able to participate in the quarterly credits system. You can be refused participation; you have to apply; there are tests imposed to determine whether you are able to participate. You have to pass the following tests—the reasonable receipt test, the complying-taxpayer test and any extra test listed in the table for the tax offset. There is a whole governance arrangement. It is absolutely scandalous for the minister to stand here and just glibly say, 'This allows for fraud.'

This has the support of the R&D sector. It has the support particularly of small business—the most innovative part of the R&D sector.

This minister has now clearly revealed to the Senate that he has no real interest in facilitating research and development in Australia. His only interest is to get legislation through that will make sure that $1.1 billion does not go into research and development in Australia. I will be very surprised if the sector does not give him very strong feedback on that absolutely glib dismissal of a whole governance arrangement which has been previously worked through and put in place. All of the complying texts are there of how to work out and pay the quarterly credit amounts, to look through the whole disallowing of the proposed varied amounts and to notify the commissioner of proposed varied amounts and so on and so forth. It is all here in this amendment.

This is a very long and complicated amendment. It is based on what the government had in previous legislation that was developed. It requires careful consideration, not just a glib dismissal on the basis that it is some supposed thing that was thought up in five minutes; it is not. It has been carefully considered. There are the rules associated with it—the governance arrangements. I would be very interested to hear specifically in relation to this amendment if the minister can point to why and where he thinks the room for fraud is.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Firstly, in response to the issues raised by Senator Carr: the comparisons he seeks to make in relation to arrangements in other countries are not valid. This is because, essentially, you cannot just look at one aspect of our tax system as it relates to incentives to encourage research and development expenditure, because all of the schemes in different jurisdictions are fundamentally structured differently and obviously the flow-on consequences are different depending on what the specific arrangements are in individual jurisdictions.

In relation to Senator Milne's question, it stands to reason that if, as you are proposing we should do, the government provides a benefit up-front on a quarterly basis before any expenditure has been incurred by a business—so we the government provide the entitlement up-front—and then after the business may or may not incur the expenditure, there has to be a reconciliation. If too much has been claimed, the business has to refund the Commonwealth. The Commonwealth then has to go and chase businesses that might be tardy in refunding the entitlements that they have received from the Commonwealth erroneously or in excess of what their entitlement actually was. There will be such situations. It is just an intuitive reality that some businesses will seek to exploit this sort of loophole in order to facilitate their cash flows.

The advice that we have is that the proposal before the Senate and put forward by the Greens will increase the risk of over-payments, with all of the compliance issues and increased compliance costs that come with that, and will increase the risk of fraud. We accept that advice from Treasury. We accept that advice from the experts. On that basis, the government has decided not to support this amendment.

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

I would appreciate your tabling that advice from Treasury, because it was not the advice that was previously provided. Since it is Treasury that has supposedly said this, I would like to see that advice, because a huge amount of work went in to make sure that these governance arrangements went in. As Senator Cormann said, it is intuition that now determines his view of what will or will not happen in relation to this particular amendment. The whole arrangement here in governance is that, of course, if a company gets involved in that then they would not be available for it in the future. This is obviously going to be something that has to be put into practice. Companies would have to have been eligible for this concession in one of the previous five years before they would even be considered, and they would go through those tests ahead of it. So it is not any fly-by-night company that is able to do as it likes. There are clear governance arrangements, clear oversight arrangements, and this amendment is about encouraging R&D in the small- and medium-scale sector.

The minister is being extremely dismissive. I think he owes it to small- and medium-sized companies around Australia to table the advice that he says he has that says this arrangement is going to lead to fraud, given that the same advice was to the contrary previously.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

Minister, you have indicated that you cannot make international comparisons on the basis of one element of the R&D tax incentive, but that is exactly what you did. You made a statement in this chamber that we have an overly generous R&D tax incentive arrangement. Those were the claims that you made. On what basis did you make that claim? On what basis did you assert to this chamber that our scheme here in Australia was overly generous?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

It is very simple. It is on the same basis as the claim made by the previous government. The previous Gillard Labor government made a judgement that businesses generating more than $20 billion a year in profits were not an appropriate beneficiary of a research and development tax subsidy over and above the normal deduction of actual expenses incurred. So what you are suggesting now, contrary to what the previous Gillard Labor government suggested, is that businesses generating more than $20 billion in profit every year should have the advantage, the benefit, of an additional tax subsidy on top of the normal and ordinary deductions of genuine and legitimate business expenses that occur in the ordinary course of events.

Given the general discussion that we are having in Australia at present, prosecuted in part by the Labor opposition, that we need to ensure that companies generating profits in Australia pay their fair share of tax in Australia, I am somewhat bemused as to why it is that in relation to this particular aspect of our tax system that Labor thinks that businesses generating more than $20 billion in profits a year—these are the big companies, the BHPs, the Rios, the banks; we are talking about 20 of the biggest businesses in Australia—should have an additional tax subsid These are the businesses where the Labor Party are saying, 'We want to keep that special inflated tax subsidy for research and development in place.' But previously, when Julia Gillard was the Prime Minister and Wayne Swan was the Treasurer, you identified this as an appropriate area to make some savings and help contribute to the important task of budget repair. I think you are just play politics with this. That is essentially all this is.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

Minister, you referred to the inflated rate in this country. Can you confirm that the rate of the taxation concession in Japan is 150 per cent, in Malaysia it is 200 per cent and in Singapore it is 400 per cent on the first $400,000 and 150 per cent thereafter? Can you confirm that the rate in China is 150 per cent, in Thailand it is 200 per cent and in France it is between 160 and 180 per cent? Minister, can you confirm those figures?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Senator Carr, the company tax rate in Australia is 30 per cent, which means that any legitimate business expense can effectively be deducted from your tax liability, out of your profits, at a rate of 30 per cent. What you are saying is that businesses generating more than $20 billion in profits a year should be able to claim 40 to 45 per cent in tax deductions when they only pay 30 per cent in tax. How is that consistent with the argument that you are otherwise prosecuting? It is inconsistent. You are saying that we ought to ensure that we protect the revenue base of the Commonwealth. Well, here we are seeking to protect the revenue base of the Commonwealth through a measure that you and the Labor Party, not us, initiated and banked in your last budget in May 2013. Here we are dealing with a budget measure out of your last budget still hanging around the country's neck. You are playing politics. I know that you rolled your leader in relation to this. I know that Mr Shorten was not strong enough to stand up to you because you have got a particular personal interest in relation to these matters. But the truth is that it was the former Labor government that initiated this particular saving. It is the coalition that is doing your work because you never legislated something that you banked in your last budget.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

Minister, you made a statement that we have inflated rates in this country. I am asking you to confirm that that is not consistent with the fact that Japan has a 150 per cent rate, Malaysia has a 200 per cent rate, Singapore has a 400 per cent rate on the first $400,000 and 150 per cent thereafter, China has a 150 per cent rate, Thailand has a 200 per cent rate and France has a rate of 160 to 180 per cent. I would ask you to confirm that, rather than make bland statements about the inflated rate in this country. Minister, what is the evidence that companies will not simply transfer their R&D to those places, where they can get a better rate of return and a higher level of support from the local government?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

I think it is really interesting that Senator Carr continues to prosecute the case against former Prime Minister Gillard. All of the arguments he is running are arguments against the policy measure that Ms Gillard and Mr Swan initiated in their last budget in government. Ms Gillard and Mr Swan made a judgement that it is not appropriate for businesses generating more than $20 billion a year in profits to have the benefit of tax deductions well in excess of 30 per cent—40 to 45 per cent. It is appropriate to have the usual 30 per cent reduction that applies across the board. Why should a company generating more than $20 billion in profit a year be able to claim more than the applicable company tax rate as a deduction? We think 30 per cent is appropriate. We agree with former Prime Minister Gillard and former Treasurer Swan that it is more appropriate to bring that down to the applicable rate across the board. That will help repair the budget. That is why we are implementing the budget measure that Labor initiated in government.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

I think it is quite clear that the minister is now babbling. His hypocrisy is demonstrated by the fact that he intends to support Senator Wang's amendment. Is that the case, Minister, or not? Is it the case that you are intending to abandon the key plank of this government's measures in this bill and support Senator Wang's amendment?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

I just have to explain to Senator Carr that there is currently a refundable tax offset in the law for research and development expenses for small companies. We consider the risk to revenue, as I mentioned to you before. That is now talking about the Greens amendment, and additional compliance costs to companies are not appropriate. But the important point here is that the tax deduction that Senator Carr is talking about is, in effect, a tax deduction of 140 per cent, which includes the 40 per cent tax offset because 100 per cent of the expenditure is deductible. What we are saying is that it should be 133 per cent—that is, 100 per cent of the expenditure and also the 30 per cent effectively related to the company tax rate. Senator Carr is still arguing against the policies adopted by the former Gillard Labor government, in which he was a minister, which initiated and banked the savings measure that we are currently dealing with.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

I asked a specific question, Minister. Are you intending to support Senator Wang's amendments, which have the effect of abandoning your chief claim concerning the $20 billion?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Given that the Labor Party is so reckless and irresponsible and is not supporting its own budget measures, we have worked with Senator Wang and the Palmer United Party, and other crossbench senators, to come up with a different way to achieve the same policy objective. Of course, we are not yet dealing with the amendments of the Palmer United Party. But given that it is a wide-ranging debate I am quite happy to go to that point now. The Palmer United Party has proposed amendments to the bill which would delete the original measure and, instead, introduce a cap of $100 million on the amount of eligible research and development expenditure that companies can claim at the standard rate under the research and development tax incentive. For expenditure beyond $100 million, companies would claim a non-refundable tax offset at the corporate tax rate, which is broadly equivalent to claiming a normal deduction. Under an expenditure cap, Australian and foreign-resident companies would continue to be eligible for the research and development tax incentive and continue to receive a substantial tax benefit. This would address crossbench concerns about the perceived discriminatory effect of the original measure on Australia-resident companies. A research and development expenditure cap of $100 million would also achieve revenue gains approximately equal to the revenue gained from the original measure contained in the bill. This ensures that the changes will still play an important part in the budget repair effort.

The crossbench amendments to the bill also include consequential amendments, which we can discuss later. But the important point here is that the Palmer United Party engaged constructively with the government. Senator Xenophon, Senator Madigan and other crossbench senators, including Senator Muir, said to the government, 'We understand what it is that you're trying to achieve. We agree with the principle, but we are concerned that this will impact disproportionately only on Australian companies and less so on companies that are predominantly operating overseas.' So by introducing a cap on the level of research and development related expenditure that is eligible we are achieving the same objective. But whether you operate predominantly in Australia and generate your profits predominantly in Australia or whether you generate your profits predominantly overseas, you are treated the same way for the purposes of this particular measure. We think that is a sensible improvement that has been put forward by the Palmer United Party.

If I might here thank Senator Zhenya Wang very much for the very constructive approach he has taken and for the hard work of his staff as well, who have been working with my office in trying to come to a sensible landing point that helps us not only achieve the policy objective and the saving but achieve the saving in a better way than was originally intended. Let me just say, again, that the original measure of course was the measure put forward by the Labor Party during their last period in government.

The CHAIRMAN: The question is that amendment (1) on sheet 7542, moved by Senator Milne, be agreed to.

Dio Wang (WA, Palmer United Party) Share this | Link to this | Hansard source

by leave—I move Palmer United Party amendments (1) and (2) on sheet 7618 (revised) appearing in my name and Senator Xenophon's name—I move the amendments together:

(1) Clause 2, page 1 (lines 7 to 9), omit the clause, substitute:

2 Commencement

(1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.

Note:    This table relates only to the provisions of this Act as originally enacted. It will not be amended to deal with any later amendments of this Act.

(2) Any information in column 3 of the table is not part of this Act. Information may be inserted in this column, or information in it may be edited, in any published version of this Act.

(2) Schedule 1, page 3 (line 1) to page 4 (line 13), omit the Schedule, substitute:

Schedule 1—Reduced tax offset rate for expenditure above $100 million

Part 1—Main amendments

Income Tax Assessment Act 1997

1 Subsection 67-30(1)

  Before "the amount", insert "all or part of".

2 Section 67-30 (note 2)

  Repeal the note, substitute:

Note 2: This subsection can apply to an entitlement under any subsection of section 355-100.

3 Subsection 355-100(1) (heading)

  Repeal the heading, substitute:

If notional deductions are between $20,000 and $100 million

4 At the end of section 355-100

  Add:

If notional deductions exceed $100 million

(3) Despite subsection (1), if the total of those amounts exceeds $100 million, the *R&D entity is instead entitled to a *tax offset for the income year equal to the sum of:

  (a) that percentage of $100 million; and

  (b) the product of the excess and the *corporate tax rate.

Note: The R&D entity may be able to reduce related amounts that would otherwise be:

(a) included in its assessable income because of a balancing, or feedstock, adjustment; or

(b) payable as extra income tax because of an R&D recoupment;

(see section 355-720).

5 At the end of section 355-525

  Add:

Amount to be included in assessable income may be reduced if notional deductions exceeded $100 million

(4) For the purposes of subsection (3), the partner may choose to reduce the adjusted section 40-285 amount in that subsection if:

  (a) subsection 355-100(3) applied to the partner for an earlier income year or the event year (the excess year); and

  (b) the partner's deductions for the excess year included deductions covered by paragraph (1)(c) of this section for the asset.

(5) Subsection 355-720(3) applies to the partner as if a reduction under subsection (2) of that section for the present year included a reduction under subsection (4) of this section for the event year.

(6) The way the partner prepares its income tax returns is sufficient evidence of the making of a choice under subsection (4).

(7) A choice under subsection (4) is irrevocable.

6 At the end of Subdivision 355-W

  Add:

355-720 Certain related amounts may be reduced if notional deductions exceeded $100 million

(1) The object of this section is to prevent the portion of a *tax offset worked out using the *corporate tax rate being clawed back in later income years.

Note: This applies when the R&D entity's notional deductions exceed $100 million (see subsection 355-100(3)).

(2) For the purposes of working out a matter referred to in column 1 of an item of this table for an income year (the present year), the *R&D entity may choose to reduce the amount referred to in column 3 of that item if:

  (a) subsection 355-100(3) applied to the R&D entity for an earlier income year or the present year (the excess year); and

  (b) the R&D entity's deductions for the excess year included deductions covered by a provision referred to in column 2 of that item.

Note 1: Item 2 is about R&D recoupments and item 3 is about feedstock adjustments.

Note 2: Reducing the amount in column 3 will reduce the amount in column 1.

(3) The *R&D entity's circumstances may allow it to choose multiple reductions under subsection (2) for the present year. The total of any reductions cannot be more than the amount of its excess under subsection 355-100(3) for the excess year.

(4) The way an *R&D entity prepares its income tax returns is sufficient evidence of the making of a choice under this section.

(5) A choice under this section is irrevocable.

355-750 Review of rate when notional deductions exceed $100 million

(1) The Minister must cause a review of the operation of subsection 355-100(3) (about the rate of tax offset when notional deductions exceed $100 million) to be undertaken as soon as possible after the fifth anniversary of the commencement of that subsection.

(2) The Minister must cause a copy of the report of the review to be tabled in each House of the Parliament within 15 sitting days of receiving it.

Income Tax (Transitional Provisions) Act 1997

7 After subsection 355-325(4)

  Insert:

Amount to be included in assessable income may be reduced if notional deductions exceeded $100 million

  (4A) For the purposes of subsection (4), the partner may choose to reduce the adjusted section 40-285 amount in that subsection if:

  (a) subsection 355-100(3) of the Income Tax Assessment Act 1997 applied to the partner for an earlier income year or the event year (the excess year); and

  (b) the partner's deductions for the excess year included deductions covered by paragraph (1)(c) of this section for the asset.

  (4B) Subsection 355-720(3) of the Income Tax Assessment Act 1997 applies to the partner as if a reduction under subsection (2) of that section for the present year included a reduction under subsection (4A) of this section for the event year.

  (4C) The way the partner prepares its income tax returns is sufficient evidence of the making of a choice under subsection (4A).

  (4D) A choice under subsection (4A) is irrevocable.

8 At the end of Division 355

  Add:

Subdivision 355-W—Other matters

Table of sections

355-720   Certain related amounts may be reduced if notional deductions exceeded $100 million

355-720 Certain related amounts may be reduced if notional deductions exceeded $100 million

     Section 355-720 of the Income Tax Assessment Act 1997 also applies as if the table in subsection (1) of that section included the following item:

9 Application of amendments

  The amendments made by this Part apply relation to an R&D entity's assessments for income years commencing on or after 1 July 2014.

Part 2—Amendments commencing on 1 July 2024

Income Tax Assessment Act 1997

10 Subsection 67-30(1)

  Omit "all or part of".

11 Subsection 355-100(1) (heading)

  Repeal the heading, substitute:

If notional deductions are at least $20,000

12 Subsection 355-100(3)

  Repeal the subsection.

13 Subsections 355-525(4) to (7)

  Repeal the subsections.

14 Sections 355-720 and 355-750

  Repeal the sections.

Income Tax (Transitional Provisions) Act 1997

15 Subsections 355-325(4A) to (4D)

  Repeal the subsections.

16 Subdivision 355-W

  Repeal the Subdivision.

17 Application of amendments

  The amendments made by this Part apply in relation to an R&D entity's assessments for income years commencing on or after 1 July 2024.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

I move opposition amendment (1) on sheet 7650, which is consequential upon Senator Wang's amendment (2):

(1) Amendment (2), item 9, omit "1 July 2014", substitute "1 July 2016".

In moving this amendment, I am surprised that Senator Wang has not taken this opportunity to explain the merits of his proposal. In this chamber I trust that we are able to assess these things, if we actually have the information.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

There was an inquiry.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

No, you are quite wrong about that, Minister. There was a briefing by officers from the Department of the Treasury, who advised us that there had been no modelling undertaken on this arrangement—no modelling at all. I would ask you, Minister: is it the case that there has in fact been no modelling undertaken as a consequence of this amendment?

I would also ask you minister if it is the case that, at the Senate briefing on this matter, officers of the Treasury advised the Economics Committee that Treasury officers had actually drafted this amendment. Is that true or not?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

In relation to the last question, the government has been working very closely with Senator Wang, on behalf of the Palmer United Party, to develop this alternative approach, given that Labor was taking this incredibly reckless and irresponsible approach of opposing their own budget measure.

The government is very grateful to crossbench senators—the Palmer United Party, Senator Madigan, Senator Muir, and Senator Xenophon in particular—for the constructive approach they have taken with the government. We negotiated this as an alternative method of achieving the same objective. We wanted to ensure that research and development tax incentives were appropriately targeted and were not directed at those businesses that are extremely profitable.

The initial measure was consistent with what Labor had banked in their budget, essentially applying this measure to businesses generating more than $20 billion in profits, but the Palmer United Party and Senator Wang in particular pointed out quite rightly to us that this would mean that Australian businesses operating and generating profits predominantly in Australia were comparatively disadvantaged compared with businesses that generated most of their profits overseas, but that might be generating more than $20 billion in profits, but outside of the Australian tax jurisdiction. So in order to take that observation on board we came up with this as an alternative method. The advice we have is that the number of companies that will be impacted by putting this $100 million cap in place in relation to eligible research and development expenditure will be broadly the same.

If the Labor Party takes this approach where they oppose their own savings measures we will work with those senators across the chamber who take a constructive approach and are prepared to work with the government in the national interest. That is how we came to this point. And the government, of course, worked closely with Senator Wang in putting the relevant amendment together to make sure that it was technically accurate and well targeted.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

I take it that the minister is confirming that the department drafted this amendment. I raise that because it is not in itself a matter of odium that that happened but it is a question of whether or not these amendments are understood. It does raise the issue of what support the government provided to understand the implications of these amendments. I take it that you are also confirming that there was no modelling undertaken. Is that the case? Was there any modelling undertaken to establish that, as you say, the same effect would be generated by this new amendment?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

To clarify: the Clerk of the Senate is who would have provided assistance to the Palmer United Party in relation to the drafting of those amendments, as is usual practice, but subject to comment, advice and input by Treasury as appropriate. There is nothing unusual in relation to this to ensure that, as I have indicated before, these amendments are technically accurate.

In relation to the other matter, you would be aware that, in particular at the request of Senator Xenophon, after the Palmer United Party amendments were circulated the government did make Treasury and others available for an extensive briefing session of the Senate Economics Committee. That happened before Christmas. At the time, the indication was that this bill would be dealt with in the last sitting week before Christmas. As it turned out, of course, after the legislation on temporary protection visas we did not end up having enough time to deal with this, so this is a hangover from last year. The appropriate briefings and all of the background have been provided in good faith, and my feedback is that those senators who participated in that briefing—perhaps with the exception of Senator Carr—accepted that that was a very useful explanation of the background.

I think everyone very clearly understands what it is that we are trying to achieve. In effect, we are trying to implement a budget measure of the previous Gillard Labor government and trying to do it in a way that is acceptable to the crossbench so that we preserve the policy intent in a way that is slightly better than the original proposal. This is democracy at work. This is the Senate process at work. The government has engaged in it in good faith and constructively, and so have crossbench senators. Sadly, the Labor opposition has not.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

The proposal that the government has put to us is that we senators were all pleased with the briefing that we got. It is true that we were pleased. We were pleased by the fact that Treasury officers confirmed that no modelling had been undertaken. The point of my question was for you to confirm with officers in the box at the moment whether that information was accurate. We have a situation here where the government is proposing measures fundamentally different from the original bill which directly and adversely affect manufacturers in this country.

The amendments proposed by Senator Wang fundamentally change the measures in the original bill. We had a bill that set a threshold excluding particular firms from accessing the incentive. Now we are debating a measure that puts a cap on how much R&D expenditure firms can claim. On that basis, Minister, how can you say that this has the same effect as the original bill? It is a fundamentally different measure drafted by Treasury officers without any modelling and without any knowledge of the consequences of it other than your guesswork. How can you make the claim that this has the same effect as the original bill?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Because Treasury has modelled the revenue effect and the departmental costs of the Palmer United Party amendment. Of course in the ordinary process of government the Treasury has costed and modelled the revenue effect, and the advice that we have been given quite clearly by Treasury is that the impact of the Palmer United Party amendment is such that the saving to the budget is broadly the same and that the companies impacted are broadly the same. I could not be more transparent. I could not be any more clear. The government has in good faith engaged with the crossbench to seek to achieve the policy intent of the original budget measure initiated and banked in the 2013-14 budget by the Gillard Labor government. We are still dealing with budget measures of the Gillard Labor government.

Progress reported.