Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak on the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015. Labor will be supporting this bill. This bill seeks to enact two tax changes announced by the former Labor government, and Labor, as we have said throughout this entire process and for the past few years, are always supportive of sensible measures which tighten the country's tax net without harming vulnerable Australians.

In government Labor pursued significant changes to Australia's tax laws to reduce regulatory burden, ensure the tax system is keeping pace with the increasingly global nature of business and ensure that everyone pays their fair share. First we had the Abbott government, and now the Turnbull government—there has been a lot of talk around tax reform, there has been a lot of debate, there has been a lot of discussion, but there have not been any real concrete proposals for us to be able to debate and for us to be able to explore. What we have actually had in the space of a proper tax debate in this country has been a lot of rhetoric. Most recently, we saw a situation where the Treasurer, Scott Morrison, had everything on the table, but now, increasingly, things are being taken off the table. Where there was a lot of discussion around whether or not there was going to be some kind of GST or some kind of major piece of tax reform, that appears to not be happening. There was talk about the tax white paper—a whole lot of effort, a whole lot of work, a whole lot of money went into the production of that, and that is now off the table. Instead, when we talk about tax reform in this country we have the legacy of these bills that are measures that were discussed and raised by the last Labor government first.

There are two parts to this bill, and I want to touch on them very briefly. Schedule 1 amends the treatment of earnout rights associated with the sale of a business to allow the holder to defer their capital gains tax liability until the accurate financial value of those rights are known. Again, this measure was announced in the 2010-11 budget. An earnout arrangement is a sale or purchase of an asset where the consideration includes a right to future financial benefits linked to the performance of the asset. For example, a standard earnout may involve an upfront payment for the sale, with the seller having a right to future payments that are contingent on the business's performance. Earnout arrangements are a legitimate and efficient way of structuring the sale of a business or business assets to deal with uncertainty about its value.

Under the ATO's current administration of the law, each earnout right is a separate and distinct asset from the underlying business and its market value must be estimated for CGT purposes. The complexity involved in this system affects the ability of businesses to efficiently price their business assets. This bill will result in any payments made under the earnout right being added to the capital proceeds, or the cost base of the original sale, through amendments to the taxpayer's tax return at that time.

Schedule 2 introduces a new withholding tax requirement for those purchasing Australian property from foreign residents. Purchasers will be required to withhold 10 per cent of the purchase price and pay this to the Commissioner of Taxation to assist in meeting the foreign resident's capital gains tax obligation. Foreign residents are liable to pay tax on capital gains when they dispose of certain Australian assets—broadly direct and indirect interests in real property. The ATO has indicated that voluntary compliance with Australia's foreign resident CGT regime is poor.

Under this measure, from 1 July 2016, where the seller of certain Australian assets is a foreign resident, the buyer will be required to withhold and pay to the ATO 10 per cent of the purchase price. The amount collected is an estimate of the vendor's final income tax liability. The vendor is still required to lodge an income tax return and pay any outstanding debt. They may claim a credit for the amount of tax withheld in the income tax return at this time. In this way, the withholding measure also encourages participation and engagement by foreign residents with the ATO. To ensure that this measure is appropriately targeted at those areas where revenue is at greatest risk, and minimises the impact on other property transactions, the measure does not apply to direct real property transactions below $2 million.

As I said earlier, this is a piece of legislation that Labor intends to support. It relates to measures and budget measures that were raised and introduced and discussed by the previous government. I think it is disappointing that when it comes to tax reform and tax debate in this country, into the third year of the Abbott-Turnbull government, we are still only dealing with a handful of legacy items and tax reform proposals that were presented by the former Labor government. That being said, on its merits, this is a bill that warrants our support and Labor will be supporting it.

David Leyonhjelm (NSW, Liberal Democratic Party) Share this | Link to this | Hansard source

When we debated the fifth tax bill of 2015 last December, I sang about the five tax bills of Christmas my Treasurer sent to me. If you recall, the five bills delivered more FBT, more CGT, seafarer's tax, slower deductions and a tax on the elderly. Well today we are debating the sixth tax bill of 2015, which suggests I should sing something that sounds like 'six geese a laying'. But I cannot, because with this bill the government is killing the golden goose.

Australia's prosperity is built on foreign investment, but with this bill the government makes it abundantly clear that foreign investment is no longer welcome in this country. The bill imposes a tax on Australians who purchase Australian land, plant and equipment from foreigners unless those foreigners have obtained a certificate from the tax office. It is like requiring a note from the headmaster. This will have the obvious effect of discouraging foreigners from purchasing Australian land, plant and equipment in the first place.

The government justifies its new tax by complaining that it is difficult to get foreigners to pay capital gains tax when they sell Australian land, plant and equipment. But foreigners are already exempt from capital gains tax when they sell other Australian assets, like shares. And such exemptions help Australians. If you tax the returns of foreign investors you simply drive up the returns that foreign investors demand when they invest in Australia. Australian businesses face a higher cost of capital as a result, and business expansion is stifled. It is for this reason that successive governments have reduced taxes on interest and dividend payments to foreign investors. But now we see a new tax on payments to foreign investors—a tax that pleases the xenophobes, but hurts Australians. And a tax that sets out to rake in the revenue when the Treasurer says he is focused on cutting spending.

The solution is the exact opposite of what this bill aims to achieve. The solution is to exempt foreigners from capital gains tax when they sell Australian land, plant and equipment. The art of taxation is said to consist of plucking the goose to obtain the maximum amount of feathers with the smallest amount of hissing. But we are not plucking the goose; we are strangling it because it flew in from overseas.

Mitch Fifield (Victoria, Liberal Party, Manager of Government Business in the Senate) Share this | Link to this | Hansard source

I thank colleagues for their contribution to the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill debate. As has been canvassed, the bill does make two important changes to improve the operation of Australia's capital gains tax regime. Schedule 1 to the bill clarifies the treatment of earnout arrangements by making any payments under the arrangement part of the original value of the business or business asset for capital gains tax purposes in lieu of applying capital gains tax to the right itself—try saying that three times quickly, Mr President!

An earnout arrangement involves a sale or purchase of an asset with a right to future financial benefits linked to the performance of the asset. Earnout arrangements create flexibility for purchasers and sellers of business assets, especially where the value of the underlying asset is uncertain; however, the current system has significant complexities which affect the ability of businesses to efficiently price their business assets. This measure will result in any payments made under the earnout right being added to the capital proceeds or the cost base of the original sale through amendments to the taxpayers' tax return for that period.

Generally, taxpayers and the commissioner will not be liable for interest on, respectively, any shortfall and overpayment as a result of any amendment to a tax return made as a consequence of these earnout changes. This bill will not only help provide certainty for businesses entering into earnout arrangements but will also protect any entitlement they have to small business capital gains tax concessions. On 14 December 2013, the government announced that it would proceed with a measure to provide CGT look-through treatment to earnout arrangements, which have been announced but 'unenacted'by the previous government as part of their 2010-11 budget. This bill will apply to all earnout arrangements entered into after 23 April 2015. In addition, in some cases the bill also includes protections to preserve taxpayers' current tax outcomes without requiring amendments. These protections are available where taxpayers have reasonably and in good faith anticipated changes to the tax law in this area as a result of the May 2010 announcement by the previous government.

Schedule 2 to this bill amends the taxation laws to improve the integrity of Australia's foreign resident capital gains tax regime. In doing so, it is consistent with the government's broader efforts to ensure that foreign investors into Australian real property comply with their Australian legal obligations. Foreign residents are liable to pay tax on capital gains when they dispose of certain Australian assets; broadly, direct and indirect interests in real property. The ATO has indicated that voluntary compliance with Australia's foreign residents CGT regime is low. In addition, there are difficulties with the ATO undertaking effective compliance activity after a transaction takes place.

To address this, this bill introduces a withholding measure which will impose an obligation on a purchaser to withhold 10 per cent of the proceeds, and to pay that amount to the ATO at the time that they acquire certain taxable property from a foreign resident vendor. In doing so, the measure will improve compliance by foreign residents with Australia's CGT obligations, and with the tax system more broadly, by encouraging appropriate interaction with the ATO where necessary. The measure does not apply to direct real property transactions valued at under $2 million. This ensures that the measures are properly targeted at those areas where revenue is at greatest risk, and minimises the impact on other property transactions. The measure has undergone extensive consultation to ensure that it achieves a high level of integrity, whilst balancing administrative considerations including increased certainty around its application. On behalf of the Minister for Finance and on behalf of the Treasurer, I commend the bill to the Senate.

Question agreed to.

Bill read a second time.