Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Hansard source

The Tax Laws Amendment (2006 Measures No. 3) Bill 2006 involves a raft of measures associated with extending concessions in some areas, modifying definitions, correcting errors and, in one case, actually overriding a major decision of the full Federal Court.

At the outset, I would like to indicate to the House that this bill was to be debated in the House when we last sat—a matter of just two business days after it was introduced. This is typical of the way this government is operating the legislative program in this House. We saw an even worse example this morning of the way the government is operating the legislative agenda in this House. On that basis, we decided to send a number of the provisions to a Senate committee to give us a better opportunity to fully scrutinise the propositions being put before us. I thank the government for agreeing to the Senate reference, and we look forward to having a more cooperative relationship with the Minister for Revenue and Assistant Treasurer than we had with the former minister, Mal Brough.

The first two schedules of the bill are important to the people in Far North Queensland who have been devastated by the effects of Cyclone Larry, which hit that area on 20 March this year. While, thankfully, there has been no loss of life, a significant number of homes and businesses in the area were affected and the region was declared a natural disaster zone by the Queensland government. Some businesses have not been able to trade due to the effects of the cyclone. As a result, some residents in affected areas have had to rely on income support from Centrelink. These measures ensure that such support enjoys a tax-free treatment. In considering some other areas of government grants and the tax treatment of those grants, I am sure the member for New England would be most interested in the point I have just made.

The first schedule extends eligibility for the beneficiary tax offset to farmers and small business owners who receive Cyclone Larry income support payments. The Cyclone Larry income support payments provide income support to farmers and small business owners whose income has been adversely affected by Cyclone Larry. The Cyclone Larry income support payments are equivalent to the maximum rate of the Newstart allowance and are administered by Centrelink. Businesses have also received cash grants to make up for loss in trade.

The second schedule provides tax-free status for certain Australian government payments to businesses adversely affected by the cyclone. Payments of $10,000 will go to businesses adversely affected by Cyclone Larry. Those businesses that can show significant losses can receive up to $25,000. Without this assistance, some small businesses would need to close down, and of course that has significant job loss implications. The opposition is firmly committed to assisting these small businesses and those whom they employ, and we give this measure our complete support. Labor also supports the reimbursement of any excise paid on diesel or petrol fuel used by businesses for generating their own electricity until normal services are restored.

Schedule 3 is a similar measure. It ensures that personnel affected by drought will also receive income support in a manner that does not attract tax. It extends eligibility for the beneficiary tax offset to drought affected taxpayers who receive interim income support payments.

Schedule 4 makes a correction to the share-tainting rules as they apply to demutualised entities. The simplified imputation system was part of the government’s business tax reform package, which applied from 1 July 2002. The share capital tainting rules are an integral part of the dividend imputation system. Accordingly, in this bill they have been redrafted and anomalies have been removed in order to integrate into the new imputation system. Shareholders are taxed preferentially on distributions of share capital. In contrast, shareholders are generally taxed at their marginal tax rate on distributions of profits, with imputation credits available, if appropriate. The share capital tainting rules are integrity rules designed to prevent a company from disguising a distribution of profits as a tax preferred capital distribution by transferring profits in its share capital account and subsequently making distributions from that account to shareholders.

The opposition supported the original share-tainting rules and supported the redrafting of the dividend imputation system. The new tainting rules remain there to act as an integrity measure. It now appears that there was an oversight in the design of those rules when the original share-tainting rules were introduced in 1998—namely, the treatment of companies that were mutuals but which had demutualised. The bill, therefore, introduces a regime which covers both capital returns made at the time of demutualisation and subsequent returns of capital made by demutualised companies to ensure they are treated on a comparable basis to other companies. This is needed to create certainty that the integrity provisions of the share-tainting rules will not adversely affect shareholders of demutualised firms.

Schedule 5 of the bill exempts the recipients of certain grants from capital gains tax. There are cases when the receipt of such grants can be assessable income or an assessable capital gain. This bill will simply clarify that this is not the case in the situation of the M4/M5 Cashback Scheme on Sydney tollways. In addition, some grants to mediation and dispute resolution schemes under the Work Choices laws are to receive this treatment. Labor has referred this to a committee to inquire whether tax-free status of the Work Choices scheme is warranted.

Schedule 6 will provide a tax offset to certain taxpayers who, in the year in which they have received a significant eligible lump sum payment in arrears, have become liable for the Medicare levy surcharge or, indeed, an increased Medicare levy surcharge liability due to the receipt of a lump sum payment in arrears. The amount of the offset will be the amount of the increased Medicare levy surcharge liability created by the receipt of the eligible lump sum. In cases where receipt of the lump sum payment in arrears alone results in the taxpayer’s spouse having a Medicare levy surcharge liability, the spouse will also be eligible for the offset.

Schedule 7 allows the commissioner to require superannuation providers to report prescribed information that is reasonably necessary to assist in the administration of the superannuation guarantee arrangements. The information that superannuation providers will be required to report to the tax office are details of employer and total contributions. Where amounts are transferred between superannuation funds or retirement savings accounts, the transferring superannuation provider must provide the receiving superannuation provider with equivalent information. This, again, is a measure that Labor has supported in the past.

Schedule 8 excludes from reporting fringe benefits provided to address certain security concerns relating to the personal safety of an employee or an associate of the employee arising from the employee’s employment.

Schedule 9 provides that funding credits can only apply to reduce tax on contributions that are used to fund liabilities that occurred prior to 1 July 1988. These amendments apply to the use of funding credits on or after 9 May 2006. In addition, any new or outstanding objections or requests for amendment to past assessments will only be able to amend funding credit use for the year or years up to the amount that can be claimed under the new tax law. It is not clear how the costing of this measure has been arrived at nor what the impact on state superannuation schemes will be. This is to be investigated by the reference we have given to the Senate committee.

Schedules 10 to 12 introduce some changes to the rules that apply to charities. Schedule 10 amends the definition of the word ‘enterprise’ in both the GST act and the ABN act so that non-charitable public ancillary funds and prescribed private funds can obtain an ABN and will, where applicable, be entitled to be endorsed as income tax exempt. This amendment will also ensure that the DGR status of non-charitable public ancillary funds and prescribed private funds is maintained and these entities can receive input tax credits for GST included in their acquisitions and importations. Labor supports this but would also add that the government is punishing some apprentices in relation to the ABN system.

I have put a series of questions on the Notice Paper to the Assistant Treasurer on this issue. While I have given him the opportunity to respond in writing, I would also extend to him the opportunity to respond to those questions when he provides his summation to this bill in the House today. In particular, I have asked the Minister for Revenue and Assistant Treasurer these questions. I will not go through them all. I will hit on the key points. I have asked the minister:

(1)

Was the Building and Construction Industry Forum (BCIF) informed in 2005 that, in order to clamp down on abuse of the contractor system, Australian Business Numbers (ABNs) would not be issued to apprentices or unskilled labourers.

(2)

At its meeting of 30 May 2006, at the Mercure Hotel, Sydney Airport, was the BCIF told that the policy referred to in part (1) had not been, and would not be, implemented.

(3)

In respect of the policy referred to in part (1), (a) why did the Australian Taxation Office (ATO) not implement it when industry participants were promised that it would be implemented, (b) who in the ATO decided not to proceed with implementation, (c) why was the decision to proceed with implementation changed, (d) what role did he, or his office, play in the decision not to proceed with implementation, (d) why were the members of the BCIF not consulted on the decision not to proceed with implementation, (e) why were the members of the BCIF not advised in writing of the decision not to proceed with implementation, (f) what is the expected cost of the decision not to proceed with implementation, and (g) who calculated the cost of the decision not to proceed with implementation.

Having said I would not go through them all, I have just decided that I will:

(4)

How can an apprentice qualify as a self-employed contractor.

(5)

How many apprentices currently claim to be working as self-employed contractors.

(6)

Will he supply a copy of the written advice under which the decision not to proceed with implementation of the policy referred to in part (1) was made.

What we seem to have here was originally, at least, an honest attempt to rein in, if you like, abuse of independent contractor status, but then a secondary decision was made, somewhat under the carpet, behind closed doors and without proper consultation, not to enforce that original policy decision. I do invite the minister in his summation to address those questions I have asked, and I do so as a great leap of faith because I cannot say he is in the habit of responding to these questions I pose to him in the House, but I give him an opportunity to redeem himself this afternoon.

The next schedule of the bill streamlines current DGR specific listing arrangements and provides a more consistent framework for assessing applications for DGR status—that is, deductible gift recipient status. Funds, authorities or institutions that meet criteria for the categories of war memorials, disaster relief, animal welfare, charitable services or educational scholarships will be eligible for endorsement for DGR status under one of these new general categories. Labor has consulted with major charities. It has been informed that this issue is generally supported. However, we do want the charities to have an opportunity to express their own views and again, on that basis and for that reason, we referred the provision to the Senate Economics Legislation Committee.

Schedule 12 of the bill amends the GST act to clarify that (1) the GST concessions available to an entity only because it operates a fund, authority or institution that has gift deductible status do not apply to the activities of the entire entity; (2) an entity that supplies a thing as a gift to an entity that operates a fund, authority or institution that has gift deductible status may have an adjustment under division 129 of the GST act if the gift is made other than for the principal purpose of the endorsed fund, authority or institution; and (3) charitable retirement villages must be endorsed by the commissioner in order to access the GST charitable retirement village concession under section 38.260 of the GST act. Although Labor understands that charities are not uncomfortable with this measure, the speed at which the bill has proceeded into parliament creates the need for this schedule to also be considered by a Senate committee.

The 13th schedule clarifies that the repeal of the six-year amendment period for general antiavoidance amendments only applies to assessments for the year 2004-05 and later income years. This is another infamous ‘Brough-up’, as we used to call them when Minister Brough was in the portfolio. The previous Assistant Treasurer was notorious for introducing bills with errors in them. Labor counted 13 such errors in a 12-month period. This, of course, makes No. 14 to the former minister. Labor supports the correction but asks the government to make all efforts to clean up its act and in future to resist from putting these faulty tax bills into the House of Representatives.

The next schedule is vital to the key industries in my electorate of Hunter. From 2006-07 each wine producer or group of wine producers will be able to claim up to $500,000 in wine equalisation tax rebates each year. This measure provides assistance to the wine industry at a critical time, and Labor of course supports it. However, there is a major problem in this measure in that it extends the measure and supplies more funds which will flow under the scheme to New Zealand producers. I have said it before but I will say it here again today: we would like to know what amount of funds under this scheme will flow to New Zealand wineries. Why is the minister, for example, not capping the grants that flow to overseas producers?

I was amazed to learn more than 12 months ago that a very good initiative—that is, the wine equalisation tax rebate—was going to flow on to New Zealand producers. As a matter of principle, I do not necessarily have a big problem with that, and as a former trade minister, Mr Deputy Speaker McMullan, I suspect you would not have a problem with that either. In fact, you were possibly the minister throughout the implementation period of the CER. I am not sure—I am relying on memory there. But the closer economic ties we have with New Zealand are important, and I do accept that the CER is a very different animal, if you like, to the free trade agreement with the United States in that the free trade agreement, as I understand it, is very specific in its measures. We agree to the courtesies we extend to one another in financial terms and in trade terms, but the CER is a more open relationship and one would expect and hope that all measures that have an adverse or distorting economic effect on trade would be addressed, and it is quite possible for the government to argue that extending this rebate to New Zealand producers ensures that we do not have those distortions in our trading relationship.

But what we have never had in this place, despite my best efforts to get responses in this House from former minister Brough, is any explanation as to how this extension of the rebate to New Zealand producers came about. Was there a submission from the New Zealand government or was there a submission from New Zealand wine producers? We do not know. We do not know what discussions took place or what agreements were made. There has been no public consultation with the Australian wine industry. I am sure you will find, Mr Deputy Speaker, that there are various views within the Australian wine industry about the appropriateness of extending that rebate to New Zealand producers. We do not know what it is costing. We do not know how much money is going to New Zealand wine producers. We do not know what additional funds, as I have already pointed out, will be going to New Zealand wine producers as a result of the change in this measure we are considering today.

So again I appeal to the minister, when he comes back in to wind up this debate, to tell us some more about the extension of the rebate to New Zealand producers: how it came into effect, what consultation if any was undertaken, how many New Zealand wine producers are receiving the rebate, how much money is going to New Zealand wine producers, how much more money will go to New Zealand wine producers as a result of this measure and what risk there may be in that rebate in turn being extended to producers in other parts of the world. I think the answer to that is that any FTAs we have entered into, or are likely to enter into, will not necessarily accommodate that flow-on. But I am not sure about that. I want some assurance from the minister about whether we are likely, at some time in the not too distant future, to be sending our rebate to producers in the Nappa Valley, for example, or in the south of France. These are not complex questions and I expect the minister to come in here and answer them.

Can I take the opportunity to briefly talk a little bit more about the wine equalisation tax rebate. It is a very important measure. When we discuss this initiative I never miss the opportunity to take some credit for it on behalf of the opposition. I will take members opposite back down memory lane to the time when the GST was introduced. Prior to the introduction of the GST, wine was taxed at a rate somewhere in the low 40s. I cannot remember the exact figure, but I think it was in the low 40s. If the excise on wine had been abolished and replaced by the GST, the tax on wine would have decreased from some 41c to 10c. Of course, that would have been a massive reduction in the tax on wine. There are some economic and indeed social arguments why that might not have been a good thing. It would have affected the relativities between alcohol taxes and could have had some social implications—you make alcohol cheaper and you run the risk of abuse of alcohol. So the government in its wisdom at that time decided to introduce the wine equalisation tax.

The purpose of the wine equalisation tax was to ensure that the net effect of the tax on wine did not fall. So the government struck a wine equalisation tax at a rate that was supposed to be revenue neutral. But it was never revenue neutral. My memory is that in the first year of the operation of the GST the government took some $180 million more in wine tax revenue than it had in the previous year under the old excise arrangements. The wine equalisation tax is 29 per cent. The government argued that, if you add 29 to 10, you only get 39 and therefore you have actually had a slight reduction in wine tax. But of course it is not that simple, because the 10 per cent goes on the 29 and there is a compounding effect. I do not remember the exact figure but it pushed the net effect of tax on wine to something in the order of 44c, where it had previously been 41c. So the government had actually applied a punitive tax on wine, and that had some significant implications for the industry.

At that time I moved amendments in this place exempting small regional wine producers from the wine equalisation tax. I did so on the basis that this would be an initiative that would promote growth in the wine tourism industry in regional areas. At the time the government rejected that proposition. But after some solid campaigning—and, I have to say, some support from the Democrats at the time—the government backed down. It did not accept our wine equalisation tax exemption but it did introduce the rebate that we are discussing today. That was to the great satisfaction of me, the industry and the many members on both sides of this House who are supporters—and indeed consumers—of the wine industry. The system has never been perfect; still too many people are being unfairly caught in the net of the wine equalisation tax and being disadvantaged relative to where they were prior to the introduction of the GST. On that basis we support the change, but I remind the minister again that I want some responses on the impact on overseas producers.

The final schedule of the bill deals with the GST treatment of residential properties. The amendments in this schedule: (1) ensure that supplies of certain types of real property are input taxed to confirm the policy intent that the words ‘residential’ and ‘residence’ are not limited to extended or permanent occupation; (2) confirm that residential premises which have only previously been sold as commercial residential  premises or as a part of commercial residential premises are still regarded as new residential premises; and (3) confirm that a supply of accommodation provided to individuals in commercial residential premises by an entity that owns or controls the premises remains subject to the GST. These amendments apply to net amounts for tax periods that commence on or after 1 July 2000. This is to override the decision in the case of Marana Holdings last year, where the full Federal Court essentially held that units in a strata title rented for a short period are ‘residential premises’ which are exempt from GST. This has thrown into confusion entitlements to input tax credits. The government’s response is to override the decision and impose a regime from 1 July 2000 that makes it clear that input tax credits could never have been claimed in those circumstances.

Labor has again referred this provision to a Senate committee for further consideration. We do not support retrospective tax legislation and we are always concerned about any retrospective tax legislation. While we support the approach in principle, we do retain the right to express greater concern in the Senate once that committee has run its course. This will hurt some investors. We are very conscious of that and we want to ensure that the policy intent has been struck, has been properly determined, and that there are no unintended adverse consequences. At this stage I move:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House:

(1)

condemns the Government for failing to invest in rebuilding our health system, including Medicare for the future, focused on prevention, early intervention and an ageing population;

(2)

condemns the Government for another technical error in a piece of tax legislation;

(3)

condemns the Government for failing to fully explain the expansion of the Wine Equalisation Tax rebate to New Zealand Wine producers;

(4)

condemns the Government for denying full and open debate on tax bills; and

(5)

condemns the Government for denying opposition parties the right to move technical amendments on tax bills”.

This amendment gives members of the House an opportunity to broaden the debate on the many issues that I have covered within those 15 or so schedules. It also gives me the opportunity to express my concern about what happened in the House of Representatives this morning, when the government took a decision to gag a number of bills, at least two of which are causing the government a high degree of political pain—the most obvious, of course, is the government’s attempt to change the migration laws of this country.

There was another very important tax bill in here this morning too, and that was the one which, amongst many other things, was going to force businesses in this country to adopt a new system to claim back their fuel tax credits. The government tells us that this is going to be a better system for business, particularly small to medium businesses. But that is not what the business community has been telling me and that is not what the business community has been telling the media of this country. It is fairly obvious that that is not what the business community has been telling the government backbench. To that purpose, Minister Dutton decided the last time we sat to withdraw the bill from debate in this place while he dealt with the crisis he faced on his own backbench and the pressure he was receiving from the Labor Party and, I am sure, the minor parties. Yesterday he brought the bill into the House and proposed his own government amendments, which would have provided a grace period for business—in other words, they would have been able to continue to operate under the current system for two years but after that time would be forced to use the new system.

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