House debates

Wednesday, 2 March 2011

Tax Laws Amendment (2010 Measures No. 5) Bill 2010

Second Reading

9:41 am

Photo of Joe HockeyJoe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Hansard source

I rise to support these minor changes to the tax laws as proposed in the Tax Laws Amendment (2010 Measures No. 5) Bill 2010. However, schedule 2 of this bill, relating to changes to capital protected borrowings, has been referred to a Senate committee for further scrutiny. As the bill says, schedule 1 of the bill makes two changes to the eligibility criteria for accessing film tax offsets. The coalition acknowledges the reduction in compliance costs that these changes will have for this industry.

The overall bill has our support but, as I said, schedule 2 of the bill will obviously be subject to review following the Senate Economics Committee assessment, which will report on 24 March, regarding amendments to capital protected borrowing provisions. This reflects coalition concerns around the proposed benchmark rate that has been chosen to be used within this bill. When capital protected borrowings entered the Australian market in the early 1990s, all interest on these products was tax deductible. Treasury and the Australian Taxation Office in the late 1990s then moved to limit the fraction of interest which could be claimed as a tax deduction, with part of the interest allocated as an investment expense and therefore obviously deductible and part allocated as a capital expense and, therefore, as capital, obviously not deductible.

In 2002 the Full Bench of the Federal Court ruled that the component of interest applicable was in fact deductible, and the High Court later refused an appeal from the tax commissioner. After this, legislative action was required and the Howard government moved to introduce an interim methodology apportioning deductibility for capital protected borrowings and opened the consultation process to determine a longer-term methodology. The new methodology was introduced from 1 July 2007. Until this, any interest paid in excess of the Reserve Bank’s indicator rate for personal unsecured loans would not be deductible. Government and industry were content with this; however, Treasury, being Treasury, wanted a lower rate.

In the May 2008 budget the Rudd government lowered the benchmark interest rate to the indicator lending rate for standard variable housing loans—a move that would net the government an additional $70 million in revenue. This is where the coalition’s concerns began to emerge. As everyone on this side of the House understands—and I say to the new member for Canberra: watch and learn—housing lending rates are significantly lower than personal unsecured lending rates. Industry lobbied the government for change and the Rudd government delayed proposing legislation to implement their proposal.

This brings us to where we currently are with the legislation. In the May 2010 budget the Rudd government undertook changes to the benchmark interest rate so that it was 100 basis points above the indicator lending rate for standard variable home loans—that is their version of a compromise—with revenue forecast to be $28 million less. However, the proposed benchmark interest rate at current interest rate levels is about six percentage points below the personal unsecured lending rate. That is why the coalition wishes to defer the final decision on schedule 2 of this bill until the Senate committee has reported, in order to determine whether the government has actually got this right.

Schedule 3 extends the main residence capital gains tax exemption to a compulsory acquisition or other involuntary realisation. We will be supporting this change as this allows the taxpayer who has had part of their asset compulsorily acquired to reduce or disregard a capital gain made as a result of the compulsory acquisition. I think that is very reasonable. Schedule 4—deductions in relation to benefits for terminal medical conditions: obviously we support this part of the bill, which allows complying superannuation funds and retirement savings account providers to claim deductions for terminal medical condition benefits. Schedule 5 deals with changes to the 1999 GST act to allow non-profit subentities access to GST concessions of their parent entity.

How fitting it is to have the minister, Minister Crean, at the table—my old foe and friend from GST days. And how the roles are reversed. How the worm turns—and hopefully it will turn again.


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