Doug Cameron (NSW, Australian Labor Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

Labor supports the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018. This bill deals with five relatively uncontroversial matters: an issue on regulatory reform, allowing the tax commissioner to pay certain superannuation amounts to individuals with a terminal medical condition; extending tax relief for merging superannuation funds; increasing the APRA levy to cover funding for SuperStream gateway governance; transferring responsibility for the early release of superannuation from the Department of Human Services to the Australian Taxation Office; and payment of GST on taxable supplies of certain real property.

Schedule 1, on regulatory reform, includes amending the superannuation laws to enable the tax commissioner to pay certain superannuation amounts directly to individuals with a terminal medical condition, rather than it needing to be paid to the fund, who then pays it to the person; amending the Corporations Act 2001 to modify the notification and reporting obligations applying to certain corporations that have property in receivership or property in respect of which a controller is acting; and repealing several inoperative acts as well as amending the taxation law to remove a number of inoperative or spent provisions.

Schedule 2 relates to extending tax relief for merging superannuation funds. The transfer of assets from one super fund to another leads to the realisation of capital gains and/or capital losses. This can act as an obstacle to a superannuation fund merging with another fund, because the trustee has to take into account a potential reduction in the superannuation interests of its members when considering a merger. Through a series of government decisions, tax relief has been extended to merging funds since December 2008. This bill will extend the relief further, to 1 July 2020. The measure was announced by the government in the 2017-18 budget.

Schedule 3 will amend the APRA Act to enable the government to recover the ongoing costs of the governance of the superannuation transaction network SuperStream from the supervisory levy. It was Labor that first introduced SuperStream, following on from the 2010 Cooper review. SuperStream transmits money and information consistently across the superannuation system between employers, funds, service providers and the Australian Taxation Office. Before it existed, many transactions were processed manually, and the cost could be $5 or $10 a transaction.

Nowadays, over 80 million transactions a year are processed in a standardised digital form connecting around 800,000 employers, 200 APRA-regulated funds and 350,000 self-managed superannuation funds. SuperStream allows employers to make all their contributions in a single electronic transaction, including to multiple superannuation funds. It allows contributions and rollovers to be processed faster, more efficiently and with fewer errors. And it allows people to be more reliably linked to superannuation, reducing lost superannuation accounts and unclaimed money. The review conducted last year into SuperStream found that it had led to lower costs, ease of operation in the superannuation system and increased retirement savings. Members could now complete a rollover in three days, compared to an average 45 to 60 days previously.

Schedule 4 to the bill transfers the regulator role for early release of superannuation benefits on compassionate grounds from the Chief Executive Medicare to the Commissioner of Taxation—that is, from the Department of Human Services to the ATO. Currently, the Department of Human Services has responsibility for early release of super. However, it does not administer any other program within the superannuation system and the program is not aligned with its core service delivery arrangements. The ATO administers several of the programs relating to the release of superannuation benefits. The transfer to the ATO is intended to build on this existing relationship and to streamline the process for the early release of superannuation benefits for both individuals and superannuation funds.

I turn now to schedule 5, which deals with phoenixing in development projects by amending the Taxation Administration Act 1953, the Income Tax Assessment Act 1997 and the GST act to require purchasers of new residential premises and new subdivisions of potential residential land to make a payment of part of the purchase price to the ATO. Currently, supplies of new residential premises are generally subject to GST. The supplier remits the GST to the ATO in the next BAS. This can be up to three months after settlement. The withholding tax being collected in this manner fits with existing conveyancing processes.

One of the main forms of noncompliance with these obligations involves developers selling properties for a purchase price that reflects the GST obligations but then dissolving their business before the next lodgement to avoid remitting the GST. This, of course, is a form of phoenixing. Phoenixing to avoid paying GST has grown significantly over the last decade. As at November 2017, the ATO had identified 3,731 individuals actively involved in this activity over the last five years. These individuals controlled over 12,000 insolvent entities responsible for $1.8 billion in debt that has been written off. These insolvent entities also claimed $1.2 billion of input tax credits between 2013 and 2017. The cost of phoenixing was estimated in 2012 at $3.2 billion annually. This is probably an underestimate. The government has received updated costs of phoenixing as at 2015 but has yet to publicly release them.

My colleagues in the other place moved a second reading amendment that makes clear that the government has been lax in its action on phoenixing activity more generally. Labor announced in May last year that we would crackdown on dodgy directors through putting in place, among other things, a director identification number. Despite the government announcing that it would introduce a director identification number, we are yet to see the government take action.

We have had a suite of organisations from across the political spectrum calling on this government to act urgently on a director identification number. When the Australian Institute of Company Directors, the Australian Small Business and Family Enterprise Ombudsman, the Productivity Commission, the Tax Justice Network, the Australian Chamber of Commerce and Industry, Master Builders Australia, the Australian Council of Trade Unions, the Australian Restructuring Insolvency and Turnaround Association, the Australian Institute of Credit Management, the Phoenix Project from the University of Melbourne's law school and Monash University's business school call upon the government to introduce a director identification number, you've got to wonder when they are finally going to act. If the Turnbull government had acted on director identification numbers when we called on them to do so in May last year, they would be law already and phoenix directors would no longer be engaged in the dodgy activity of burning their firms and hurting workers, taxpayers and honest small businesses.

While we support the government's measures on phoenixing by developers to avoid GST, we urge them to go further and crack down on phoenix activity, as the Australian community demands, and reduce the cost of this to the community and the heartache that it imposes on workers, taxpayers and honest businesses.

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

I rise to speak on the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018. There are few needs more fundamental than the need for shelter and housing, and we're all aware that it is becoming increasingly difficult for people in Australia to afford a new home. According to the 2018 Demographia survey, my home city of Sydney has been the second least affordable city in the world to buy a home for two years running. The median price for housing is 6.6 times the median wage, up from less than three times the median wage in the late 1980s. Even the most affordable region, Gladstone in Queensland, has housing 3.2 times the median wage.

A generation of first-time homebuyers is virtually locked out of the Sydney market, with an average time to save for a deposit on an entry-level apartment now eight years, up from five years in 2007. Despite initiatives announced by the state government, such as accelerating land release to try and increase housing supply, and despite the record supply of 38,759 dwellings in 2017, Sydney's median house price rose 15 per cent in the last year to $1.17 million. With strong immigration levels and with property seen as a secure investment, increasing supply is the best way to tackle high house prices. To reach the long-term targets set by the Greater Sydney Commission, and with a backlog of up to 100,000 potential purchases in Sydney, there needs to be 41,250 new houses built every year for the next 20 years, according to the Urban Development Institute of Australia. This has never been done before. Those in regional areas do not escape the pricing pressure as the cost reverberates out from Sydney and the other capital cities to increase house prices nationwide. According to the Demographia report in 2017, the Illawarra is the third most expensive region in which to buy a house.

It's therefore imperative that we minimise the discouraging effect of housing market taxation and regulation on consumers and suppliers. Yet taxation currently accounts for up to one-third of the price of a new home. This is staggering, making a new home one of the most highly taxed commodities in Australia. For example, a new home in New South Wales costing $800,000 would attract the following fees: GST of $80,000; state stamp duty of $31,768; a state biodiversity contribution of $30,000; and a special infrastructure contribution of $7,236. This sums to $179,004 in total taxation. The taxation on an existing home costing $800,000 is $31,768 worth of stamp duty. The difference in tax between a new home and an existing home is a staggering $147,236, and this is without accounting for other costs that might apply, such as land tax or local government rates paid whilst developing the site.

On top of all that comes schedule 5 of this bill, which is an attempt to eliminate phoenixing in the building industry. Under current law, consumers seeking a new home obtain the price from a developer before approaching their bank to secure a loan. The money is paid to the developer or builder, and the builder or developer is responsible for passing on the GST to the ATO. This occurs every three months, like for every other business under the BAS system. Phoenixing is the practice of a small minority of builders to liquidate their companies in the final three months of the building contract. In doing so, they pocket the last three months of GST before resurrecting themselves as another company. This means that tax money is ultimately not paid to the tax office.

Doug Cameron (NSW, Australian Labor Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

And superannuation and wages.

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

And wages, as Senator Cameron advises. This bill takes the responsibility for paying the GST away from the builder and developer and puts it on to the consumer.

The problem with this extraordinary departure from the fundamentals of the GST is that the industry is simply not set up to deal with money in this way. Industry representatives have told me that, although they support tackling unscrupulous developers who practice phoenixing, the proposals need further scrutiny and planning. The proposed scheme requires the purchaser to provide one-eleventh of the cost of the new home to the ATO and to obtain a receipt from the ATO prior to or on the day of the settlement of the property. It is unlikely that a bank would fund the GST payment prior to the purchaser having secure title over the property, as it would mean the loan would be initially unsecured. The minister has said that the GST payment can be made on the day of settlement, but at the very least this will require considerable alterations to current practices by purchasers and lenders. Development industry representatives have told me that the only system currently available to process the GST payments by purchasers is for a cheque to be issued and photographed as proof that it has been paid before or on the day of settlement. The PEXA system, an e-conveyancing tool, is available and preferable for dealing with this transfer, but time is needed for the industry to move across to this system.

I'm also assured that this bill will not be retrospective and that agreements made before the proposed implementation of 1 July 2018 will operate under the existing system. That's something at least. Schedule 5 operates under the assumption that shifting the GST to the consumer automatically means it is shifted to an individual who is much easier for the ATO to trace, but consumers are not always individuals. Companies also buy new houses.

In short, the proposed bill has been rushed and will lead to unintended consequences that will put a greater burden on consumers and developers. This bill is an extraordinary overreaction to the rare event that is phoenixing. It uses a sledgehammer to crack a nut. The government seems to want to chase down every tax dollar regardless of the consequences. It is acting as if no tax dollar should be left behind. At the very least, schedule 5 should be delayed until mid-2019 to allow the various parties to adjust their systems. Otherwise, there is a considerable risk that much-needed new housing will not be built and consumers will continue to be priced out of buying a new home.

Murray Watt (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018. In particular, this bill makes a number of changes to the superannuation system which Labor support. The one aspect of the bill that I wanted to make a few short comments on concerns the changes to try to rein in a degree of phoenixing. We have heard from other speakers in this debate already about the problem that phoenixing is causing in Australia. In short, phoenixing basically involves company directors operating, running up big debts, not paying those debts and then collapsing their companies without having paid the debts.

But before they collapse the company, they transfer the assets across to a new company and go on living happily ever after while leaving a trail of destruction behind in the form of creditors that they haven't paid. The reason I'm speaking on this is that this is a particularly big problem that we're experiencing on the Gold Coast, where I have my office. It's an issue that I've been taking up both with the regulatory authorities and in the local media.

This bill addresses one aspect of phoenixing that directly concerns the government. Good on the government for making some changes which protect its own revenue from the actions of phoenix companies. Specifically, the proposed changes included in this bill will require purchasers of new homes or land to remit the GST component of their purchase price directly to the tax office rather than pay that GST to, for instance, a developer who would then remit that GST as part of their next business activity statement. The problem that the government has been experiencing—and the ATO in particular—is that too many developers have been taking that GST payment from buyers and then collapsing their company without having remitted the money to the tax office. They then close down their company, go into liquidation and owe the tax office debts which never get paid. I think it's a good thing that the government is cracking down on this and am very happy to support it.

I want to see the government take similar steps to protect a range of other people who are suffering from the actions of phoenix companies. As I said, this has been a particularly big problem on the Gold Coast. Even over the last 12 months, there've been a series of construction companies that have gone into liquidation, owing subcontractors, homebuyers, suppliers and a range of other people significant amounts of money that these people never get to see because the companies go into liquidation. They transfer all their assets to other companies so they can't be used to repay their debts. They go on, live a great life and, in many cases, the subbies and homebuyers go broke. I've met people involved in the Gold Coast construction industry whose marriages have fallen apart as a result of debts that they've been owed by phoenix companies. They are rightly cranky that not enough is being done to protect their interests. What I say to the government is, 'Great—good on you for protecting your own revenue from people who are doing the wrong thing, but how about we take some action to protect other people who are also losing out from subbies?'

Senator Cameron went through in some detail some of the proposals that Labor has had on the table for a long while now. In particular, we want to see company directors have director ID numbers to make it easier for regulatory authorities to track directors of phoenix companies. At the moment, it's harder to get a dog licence or a drivers licence than it is to become a company director in Australia. That isn't right when you think about the amount of money that companies are playing with. In many cases, it's other peoples' money. We think that the introduction of a director ID number would go a long way to helping ASIC and other regulatory authorities keep tabs on the people who are doing the wrong thing. We also want to see tougher penalties introduced for phoenixing. We think at the moment the penalties are too low and don't send a message to the people who are doing the wrong thing. We also want to see ASIC start taking some greater action.

A couple of weeks ago, I again met with a number of subcontractors on the Gold Coast and their representative group, the Subcontractors Alliance. They have completely lost faith in ASIC taking action against the rogues in the industry, whether we're going back a few years to Walton Construction—one of the big construction companies with a large presence in Queensland that went broke, owing tens of millions of dollars to subbies and suppliers—or more recently with other groups like Future Urban Residential on the Gold Coast and former Senator Bob Day's company, which went broke and owed lots of people money as well. These subbies feel like they have repeatedly taken their concerns up with ASIC but are not seeing any action taken. It's for that reason that, only this week, I've referred their concerns to the Federal Police because, quite rightly, these subbies say to me: 'This is just fraud. Let's forget about breaching corporations laws. This is straight-out fraud by company directors. It should be treated as such and it should be investigated by the police.' So I've referred these matters to the Federal Police in the hope that some greater action can be taken to protect the interests of subbies.

In conclusion, we support the bill. We support, in particular, the move to tighten the net around phoenix companies when it comes to the government receiving its tax revenue. I look forward to also supporting government legislation in the near future that will take some action to protect the other people who suffer from phoenix companies, such as subbies.

Matthew Canavan (Queensland, Liberal National Party, Minister for Resources and Northern Australia) Share this | Link to this | Hansard source

I would like to thank all the senators who contributed to this debate. There have been some considered contributions to it and I thank the senators who have indicated support for the government's position. This bill includes schedules that will extend tax relief for merging superannuation funds, provide ongoing funding to the Gateway Network Governance Body and transfer the early release of superannuation function to the ATO. In addition to those schedules, schedule 5 addresses phoenixing activity in the construction sector. It protects GST revenue and stops tax evasion by property developers by requiring purchasers of new residential premises or new residential subdivisions to remit the GST to the ATO. Senator Leyonhjelm has concerns about the obligation of the purchaser to remit the GST to the ATO. I note that the legislation allows for purchasers, through their solicitor or conveyancer, to hand over a bank cheque made out to the ATO for 1/11th of the purchase price on or before settlement. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.