Paul Fletcher (Bradfield, Liberal Party) Share this | Hansard source

I am pleased to rise to speak on the Tax Laws Amendment (2013 Measures No. 2) Bill 2013. This bill contains 11 complex and highly technical schedules. As the coalition have made clear, we believe that schedules 3, 4 and 5 in particular deserve further scrutiny, and we will be moving amendments to excise these schedules from the bill.

In the brief time I have available to me this morning I wish to focus on schedules 3 and 4, which are intended to establish a new regulatory framework governing tax advice given by financial advisers, financial planners and others who are giving such advice on tax incidental to the course of giving advice on broader financial issues. The key issue which is addressed by these schedules is whether that advice should be subject to the regime in the existing Tax Agent Services Act 2009.

In the time available to me I want to make three points. The first is that there are complex issues here which affect a wide range of stakeholders. The second is that the government has rushed through these detailed and complex changes with very little consultation. Thirdly, therefore, the coalition does not support these changes to the regulatory arrangements governing the provision of tax advice without further scrutiny and consultation.

Let me turn to the first proposition, which is that these measures raise complex issues which affect many stakeholders. Indeed, these measures would affect many professionals who provide tax advice incidentally to the provision of advice on financial products. It is a fairly obvious proposition that it is difficult to untangle tax advice from financial advice. If we think about a financial adviser or a financial planner who is advising a client to increase his or her superannuation contributions, obviously, part of the rationale for such an increase is going to be that superannuation is a tax advantaged investment. Money which goes into a superannuation fund, subject to it being below the annual contribution limit, is taxed at 15 per cent as compared to the marginal rate if the money is taken in ordinary income. In those circumstances, for most taxpayers the marginal rate is well above 15 per cent. If someone is providing advice about extra superannuation contributions, inevitably they, as a financial planner or a financial adviser, will raise tax considerations in the advice that they give to their client.

Similarly, if someone were to advise a client, as a financial planner or a financial adviser, that that client should consider taking out a margin loan to buy a parcel of blue-chip shares, again, the tax considerations would necessarily form part of their discussion with their client. They would need to explain to the client the tax treatment of the interest on the margin loan. While the advice is given primarily as part of assisting the client to develop an effective financial strategy to maximise his or her wealth over time, in the provision of that advice there will necessarily be a discussion of the tax aspects of this particular structuring of the client's affairs.

A third example might be advice regarding the tax benefits of investing in shares which have franking credits. Again, the primary purpose of the provision of the advice is to recommend the desirability of investing in shares as a means of building up wealth over time. I hasten to add that I am not personally expressing a view as to whether shares constitute a good investment for that purpose or not. I am simply making the point that an adviser or planner might very well find themselves in the position of giving such advice to a client. Again, what would necessarily form part of that discussion would be advice about the way the dividend imputation system works. The fact is that shares, in companies which are themselves paying tax, carry with them franking credits, and when that is added into the overall mix that increases the after tax value of the returns from the shares.

The point I am making is that it is very difficult to disentangle advice on the financial affairs of a client from advice on the tax implications of particular financial options and choices that the client may choose to follow based upon advice from, for example, a financial planner or a financial adviser. It follows, therefore, that it is quite problematic if financial planners and financial advisers are not permitted to advise on tax issues. On the other hand, tax is clearly a very complex area. The consequences of getting tax matters wrong can be severe for taxpayers. It is therefore appropriate that the provision of tax advice should be carefully regulated.

These issues were weighed up when the existing Tax Agent Services Act 2009 was passed. That legislation established a national regulatory regime for tax agents and agents providing advice on business activity statements as part of the GST arrangements, so as to ensure that providers of tax agent services to the public meet appropriate professional and ethical standards. The legislation establishes the definition of a 'tax agent service', and the legislation seeks to establish that dividing line. Is the advice merely general information about the tax implications of particular financial products, or is it the provision of tax advice which could reasonably be expected to be relied upon and therefore a tax agent service?

As part of drawing that dividing line, in developing the regime that was legislated under the Tax Agent Services Act the government took the decision to carve out tax agent services provided by financial services licensees and their authorised representatives. In other words, the policy decision that was taken when the 2009 act was passed was to use that particular carve-out mechanism to establish the dividing line. Therefore, somebody who is providing advice to a client and who is a financial services licensee or the authorised representative of a financial services licensee is excluded from the regime in the Tax Agent Services Act, even though in the provision of financial advice—as I have pointed out—that person is inevitably, necessarily and naturally likely to provide advice about the tax implications of that particular financial instrument or structure that they are recommending that the client should invest in.

What we have before the House now is a bill which proposes a complex new regime, taking a different approach to establishing where that dividing line is. It will do so by creating a new type of regulated service: a 'tax (financial) advice service'. Let me briefly note the enthusiasm with which the Treasury and other relevant officials treat the bracket as a device in the naming of bills and other concepts. Under the regime that is proposed in the bill, the tax (financial) advice service will consist of two elements: the provision of a tax agent service and the provision of a service in the course of giving advice of a kind usually given by a financial services licensee or its representative. If you are to provide such services you will need to register with the Tax Practitioners Board.

These issues are complex and they affect many stakeholders. The Financial Planners Association, the Financial Services Council and the Association of Financial Advisers have all raised concerns in relation to the changes proposed in schedule 3 of this bill. Those concerns include the lack of consultation in relation to the bill and the lack of clarity in the definition which is proposed to be used in the bill. It is unclear, for example, if stockbrokers, insurance brokers and mortgage brokers are covered by the definition. Stakeholders have also raised concerns about the potential negative interactions with the very complex and extensive Future of Financial Advice reforms and of the increased compliance costs resulting from the bill that will inevitably be passed onto consumers.

I would like to quote from a letter from the Financial Planning Association of Australia dated 3 June. That association said:

In our view the Bill is far from finalised and does not satisfactorily relate to the taxation advice provided in the context of financial planning advice.

The most significant key outstanding issues include:

We are four weeks away from the existing deferral arrangements ending and we are still not clear on the exact requirements and obligations for financial planners in respect to complying with the Tax Agent Services Act, should this be required. … Considering that the Tax Agent Services Act will impact every one of our 9000 practitioner members, and likely more than 40,000 in total, the lack of consultation and the tight time frame is a real concern.

That brings me to my next point, which is that the government has sought to rush through these complex changes with very limited consultation.

When this bill was introduced, the coalition sought to have it referred to the Parliamentary Joint Committee on Corporations and Financial Services. That request was denied and the bill was instead sent to the House Standing Committee on Economics by the selection of bills committee. On Friday, 31 May 2013, the Labor majority of the House economics committee refused to hold an inquiry into this complex bill. So we now have the situation where this government is asking parliament to pass a bill with significant changes to the law and with significant impact on key stakeholders—with those stakeholders very uncertain as to its impact—within a week of the bill being introduced to the parliament, with no committee oversight. There is no word to describe this process other than atrocious.

It is quite difficult to understand why the government has got itself into this situation, given that the 30 June 2013 deadline has been there for a long time. Yet this government has left this important matter to the last minute. Also, the current arrangements have worked satisfactorily. So, even if there is a policy case to improve them—as to which I express no view—there is no particular reason to do it with effect from 1 July this year. It would be perfectly practicable to roll over the current regime for another year to go through a proper and considered process. It is further hard to understand given that these changes affect an industry—the industry of financial planning and advice—which has faced a relentless torrent of regulatory change in the last three years, including Future of Financial Advice reforms, the MySuper reforms, Superstream and a range of others, all of which involve complex changes to business processes, IT systems and client engagement models. And now this government is proposing to dump another burdensome set of regulatory changes on this industry at very short notice.

This brings me to my third and final point, which is that the coalition does not support these changes without extensive further scrutiny. The coalition have a simple choice this morning: do we support these changes as presented to us or do we reject them? We do not dismiss out of hand the question as to whether the dividing line is appropriately struck between the provision of tax advice on the one hand and the provision of financial advice, including tax issues, on the other. We simply say that there has not been adequate time to consider this important question. There are serious stakeholder interests at stake. Until a proper process has been carried out, we will not support these provisions.

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