Chris Bowen (Prospect, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

The Tax Laws Amendment (2007 Measures No. 2) Bill 2007 is an omnibus bill which the opposition will support. I will be moving a second reading amendment in relation to the venture capital provisions when I turn to them later in the proceedings. Schedule 1 of the bill deals with the effective life provisions of mining rights. The amendments included in this bill clarify the law so that it reflects the original policy intent. The changes mean that a taxpayer acquiring a mining right from a prior holder will be able to estimate the remaining life, rather than the whole life, of the existing or proposed mine to which the right relates, as with other assets. The amendments provide that taxpayers can work out the effective life of their mining right themselves by estimating the period until the end of the life of the mine, quarry or petroleum field. Taxpayers holding mining rights will have the choice of using either the prime cost or the diminishing value method in calculating the decline in value, as with other assets. Once the life of the mine has been estimated there will be no requirement for a yearly or periodic restoration of the effective life of the mining right. However, a taxpayer can reassess the effective life if the original estimate is no longer accurate.

These amendments apply from 1 July 2001. This is retrospective because the 2003 amendments were also retrospective to 1 July 2001. This will ensure that the policy intent is reflected in the law since the introduction of division 40 into the 1997 act. Labor supports this move to clarify the law and provide certainty to taxpayers. I do note that it has been some time in coming. This is a regular refrain from me because it is a common problem. The government are very slow to correct drafting anomalies that are pointed out to them. I note, in passing, that last night’s budget included a cut in the number of staff for Treasury. I certainly hope that will not be the staff who are involved in drafting tax laws amendment bills, because I believe that, if anything, that area needs more resources, not fewer.

Schedule 2 of the bill proposes to allow deductions for boating expenses to taxpayers who do not use their boat for specific business activities. The current income tax law allows only people who are carrying on a business with their boat to claim deductions. The tax law denies deductions for taxpayers who use or hold their boats to earn ‘passive’ income. For example, a boat owner who occasionally rents out their boat for income is assessed on that income but is not able to claim any deductions. As the opposition agree that this is unfair, we support this measure. It is a fundamental principle, in my view, that if you are assessed on income you should be able to claim deductions relating to generating that income. The amendments will allow deductions for expenses relating to earning income from boats even where the owners are not carrying on a specified type of business.

The proposed changes will allow taxpayers who cannot demonstrate that they are carrying on a business using a boat to deduct expenditure relating to their boating activity up to the level of income they generate in that year from the boating activity. They will also allow excess deductions to be carried forward and deducted against future boating income activities. A taxpayer will be able to deduct the expenses to acquire a boat; retain ownership; acquire rights to use a boat; retain the rights to use a boat; use, operate, maintain or repair a boat in relation to any obligation associated with that boat or any obligation associated with the taxpayer’s right to use that boat.

Expenditure in relation to a fringe benefit will be exempt from the quarantining rule so that expenditure by an employer in providing a boat as a fringe benefit as part of a salary package is deductible to the employer regardless of the employee’s boating income. This is consistent with the general treatment under income tax law of expenses in relation to fringe benefits. Labor supports this measure. The amendments should ensure that taxpayers who generate an income stream using their boat are not treated unfairly compared to other taxpayers.

Schedule 3 of the bill proposes amendments to the tax law relating to research and development tax concessions. It makes 10 technical amendments to clarify the law, remove unintended consequences and ensure the law accurately reflects the original policy intent of the R&D provisions. The amendments proposed by this schedule include provisions so that companies will be able to object to the amount of R&D tax offset allowed by the tax commissioner if they are dissatisfied with the amount allowed. Currently companies can only object to an assessment when they owe money to the tax office. The bill will also allow companies who do not choose the R&D offset to amend their tax return to claim it by writing to the commissioner. Currently a company must choose the R&D offset instead of the deduction in the company’s tax return for the year. Once it chooses the offset, it cannot claim the deduction for that year. For the accelerated deduction, expenses incurred in having an outside body perform R&D activities for the company are deductible at the accelerated rate. The $20,000 minimum spend threshold does not apply. This bill extends this to companies wishing to claim the R&D tax offset for the amount of the contracted expenditure.

The R&D tax offset provisions may not cover all companies in a group as it refers to ‘taxpayers’, which is too narrow to cover certain companies that the original policy intended to cover. References to ‘taxpayers’ will be replaced by references to ‘persons’ to cover all companies in a group. This is important because, to reach the R&D expenditure threshold of $20,000, eligibility applies to all R&D expenditure in a group of companies. Further, currently a group of companies may be eligible for an amount of the premium deduction without any firm in the group being eligible for the allocation of that amount. This situation arises where a group of companies have collective R&D expenditure greater than the rolling three-year average of the group and are therefore entitled to the deduction but no individual company has increased their R&D expenditure over the previous year’s expenditure. This is because the premium deduction is only available for a member of a corporate group that must have increased its R&D expenditure above its three-year average. Also, at least one member in that group must have increased its R&D expenditure over the immediate previous year. This was an anomaly in the legislation. We welcome its correction.

The bill will eliminate the criterion that an R&D group have at least one member of the group whose expenditure for the year is greater than its R&D expenditure in the prior income year to access the premium so that the R&D group will only have to have increased its R&D expenditure above the average for the past three years to be eligible for the premium deduction. Currently an entire group of companies becomes automatically eligible for the premium deduction if a newly acquired company can establish eligibility due to expenditure incurred prior to joining the group. This bill will restrict eligibility to expenditure that is incurred during the company’s membership of the group so that a group will not be eligible for the premium concession based on expenditure incurred by a company when it was not a member of the group.

As a result of the method for calculating the 175 per cent premium concession, it is possible that the premium concession will be negative in certain circumstances. As this concession should only provide a benefit to companies, the calculation will be taken to be zero. We welcome these technical and detailed amendments to the R&D tax concessions. However, I make the point that it is time for more than technical amendments. It is time for root and branch amendments to the R&D tax concessions. It is time that this government re-examined its very shortsighted decision to slash R&D tax concessions when it came to office in 1996.

Since that decision we have seen the average annual growth rate of real business investment in R&D plummet from 11.4 per cent in the period from 1986-87 to 1995-96 to 5.1 per cent in a similar period 10 years later. For manufacturing the story is even worse, with the average annual growth rate slipping from 10.6 per cent to only 1.9 per cent. At 1.76 per cent—already half a percentage point below the OECD average—Australia’s overall R&D effort is set to be overtaken by China’s in the next few years unless urgent action is taken. Following the government’s 1996 changes, R&D as a share of output plummeted from about 3.3 per cent to only about 2.8 per cent. We can only speculate about what would be different today if the government had not taken its shortsighted decision back in 1996. We can only speculate as to what our R&D rates would be. We can only speculate as to whether we would have had over 50 consecutive trade deficits. We can only speculate as to whether last night’s budget would have still predicted that the current account deficit would blow out to six per cent of GDP—as it did—one of the highest figures encountered in Australia’s history. We have 10 years of wasted R&D opportunities, 10 years of failure to invest in the future. It is time for more than technical amendments; it is time for a complete re-examination of this government’s approach.

Schedule 4 of the bill amends the tax law to allow for a deduction for donations of small parcels of shares in listed public companies to deductible gift recipients. The amendments will allow taxpayers a tax deduction where they make a gift to a DGR of shares in a listed public company where those shares were acquired more than 12 months before making the gift and are valued at less than $5,000. This is eminently sensible and it meets with our support.

The bill also amends the Income Tax Assessment Act 1997 to update the list of deductible gift recipients. Schedule 5 adds the American Australian Association Ltd and the Bunbury Diocese Cathedral Rebuilding Fund to the list of specifically listed DGRs, and we welcome this. The American Australian Association do good work—and have done for many years—promoting good relations between our two great countries. They played an important role in having the American memorial erected here in Canberra and they continue to play an important role in the annual commemorations of the Battle of the Coral Sea, as well as doing much other good work. Tax deductibility for donations to this group is eminently sensible and supportable, as are those for the cathedral rebuilding fund. Schedule 5 also extends the DGR listing until 27 August 2007 of the Finding Sydney Foundation—which of course does good work in trying to find that battleship and those who went down on her—and reflects the name change of a specifically listed DGR. Again, Labor supports each of these measures.

Schedule 6 extends eligibility for tax deductions for contributions to DGRs where there is a minor benefit in return for their donation. In other words, where a fundraising function is held—a dinner, a ball or some other sort of function—and there is a minor benefit received in return, such as the dinner on the night or some other form of minor benefit for attending the function. Schedule 6 proposes to relax the eligibility thresholds for minor benefits to allow deductions for contributions of more than $150—it is currently $250—where the market value of the minor benefit is no more than that. We support this. Fundraising functions and dinners are very important parts of a charity’s fundraising activities. Just a couple of weeks ago I was delighted to host the Learning Links charity ball in Bossley Park, which raised almost $50,000 for Learning Links. I am sure that Learning Links and other charities appreciate this amendment, and, of course, we will be supporting it.

Schedule 7 corrects a defect in the definition of ‘exempt entity’ by ensuring the definition covers all entities exempt from tax under the tax law. This bill will change the definition of ‘exempt entity’ in the Income Tax Assessment Act to include any entity if all of its income is exempted by any Commonwealth legislation or if it is an untaxable Commonwealth entity. This will ensure that ancillary funds and prescribed private funds can donate to tax exempt state, territory and Commonwealth bodies such as public ambulance services, research authorities and cultural institutions. This was the original intent of TLAB (No. 3) of 2005, which made changes to public ancillary funds and prescribed private funds. I note that various institutions, including the Opera House, made submissions to the Senate inquiry welcoming this, and of course we join them in that.

I now turn to the venture capital section of the bill. A healthy venture capital sector is vital to the strength of the Australian economy. Venture capitalists take risks—they invest in things which may or may not produce them a return—and the tax system recognises this. The OECD notes in its Economic policy reforms: going for growth paper of last year that Australia’s venture capital investment rate, as a percentage of GDP, is below the OECD average and is very significantly below the rates for the United Kingdom, Canada and the United States. The government enacted the Venture Capital Bill 2002 and the Taxation Laws Amendment (Venture Capital) Bill 2002 to improve the tax treatment of venture capital. This has had a questionable impact. Only 15 VCLPs and 15 PDFs have been registered since that time.

The government then appointed the Watson review to look at the treatment of venture capital in our taxation system. The government says that this bill adopts the recommendations and meets the concerns of the Watson review, which it received in December 2005. I say: ‘That’s great. I would rather come to that conclusion myself; I would rather make that decision for myself.’ It would be helpful if I and other members could read the Watson review. It would be helpful if the government would actually release the review that they commissioned. When the Assistant Treasurer comes into the House to sum up this debate I ask him to enlighten the House as to why he, the industry minister and presumably other cabinet ministers are the only people in Australia entitled to read the Watson review. Why has that privilege not been extended to members of the opposition or to any other person in this country so that Australia can make the decision and individuals can make the judgement about whether this government is adopting all the recommendations of the Watson review?

I suspect the government are reluctant to release the Watson review because it shows that their previous reforms have been less than successful. When a government commissions a report that finds that something they have done has been less than successful, they actually get points for fessing up, being honest about it and releasing the report. They get zero points for keeping it hidden and for refusing to release it. And they certainly get zero points for bringing in legislation which is meant to comply with the recommendations of the report and not giving the parliament of this nation the chance to read the report to make that assessment for itself. So the Assistant Treasurer today has an opportunity to explain to the House why that report has not been released. Indeed, he has an opportunity today to release it so that this House can make that judgement.

I also note that last night the budget announced further changes to venture capital provisions. These changes were announced in last year’s budget. The day after this budget, we are finally debating them. In the meantime, more have been announced. This reinforces the point that the government is very good at making announcements on budget night but is very poor in implementing them.

I think there are 10 separate measures that were announced in the 2006 budget which, the day after the 2007 budget, we are still to see introduced into this House. I hope for the sake of the Australian economy that some of the measures announced last night are introduced into this House a good deal quicker than that. For instance, I hope that the change to the $100 million cap—which my predecessor, the previous shadow Assistant Treasurer, moved an amendment in the Senate to achieve two years ago, and which the government finally announced last night—is introduced a good deal more quickly than 12 months down the track. My point is: what confidence do we have that these measures will achieve the government’s objectives when, before they were even introduced into the House of Representatives, further measures were announced last night?

Schedule 8 amends the venture capital provisions to relax the eligibility requirements for the concessional treatment of foreign residents investing in venture capital limited partnerships or VCLPs. It also introduces a new investment vehicle—the ‘early stage venture capital limited partnership’ or ESVCLP. The aim of the tax concessions is to provide equity capital for a relatively high-risk and expanding business that finds it difficult to attract investment through normal commercial mechanisms.

Schedule 8 relaxes the restrictions on VCLPs. It does that in the following ways. It removes restrictions on the investor’s country of residence. People in this sector have been calling for this for some time and we welcome it. It allows the VCLPs to invest in unit trusts and convertible notes, whereas currently investments must be in the form of shares or options in companies. It reduces the minimum partnership capital required for registration from $20 million to $10 million. And it allows the appointment of auditors to be delayed until the end of the financial year of the investment; currently an auditor is required on an ongoing basis.

Schedule 8 also relaxes the ‘Australian nexus’ test, which currently requires that the investee entity—the company the VCLP invests in—be a company resident of Australia and that 50 per cent of the assets and employees of the investee entity be located in Australia for 12 months following the investment. The changes allow some investments—up to 20 per cent of the committed capital—to be in companies and unit trusts that are not in Australia.

However, this bill maintains the restriction on VCLPs that target investees must have less than $250 million in assets—a restriction generally not imposed in other jurisdictions. I will be dealing with this in my second reading amendment.

As I indicated earlier, this bill also establishes a new investment vehicle—the early stage venture capital vehicle—which will progressively replace the existing pooled development funds or PDFs, which were established in that 2002 legislation and which have had, at best, patchy success. These new vehicles will be flow-through tax vehicles, like VCLPs; however, the income and capital gains tax earned by these vehicles will be exempt from any Australian tax. This exemption will apply to both resident and non-resident investors.

However, the attractiveness of these concessions must be measured by the following restrictions that will apply to these vehicles. The maximum size of the fund administered by an ESVCLP is $100 million. They will not be able to invest in investee entities having total assets exceeding $50 million; this restriction already applies to PDFs. Losses from these new partnerships will not be deductible by the partners. And once the total assets of the entity invested in by an ESVCLP exceed $250 million, the vehicle must divest itself of that entity.

I now 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 condemns the Government for its failure to promote the venture capital industry and calls on the Government to:

(1)

increase to $500 million the value of assets of an entity invested in by an Early Stage Venture Capital Limited Partnership (ESVCLP) beyond which ESVCLP must divest itself of an interest in the entity;

(2)

increase the time allowed for a partnership to divest an investment from 9 months to 12 months; and

(3)

increase the value of assets target investees of Venture Capital Limited Partnership can have, to $500 million”.

This amendment calls on the government to remove the significant requirement that ESVCLPs must divest themselves of an organisation which has assets of more than $250 million. As a step in that direction, it calls on the government to change that threshold from $250 million to $500 million, and to increase the amount of time allowed for an ESVCLP to divest itself of that interest from six months—which can be extended by three months—to a flat 12 months.

Increasing the threshold to $500 million would encourage more investment in early stage venture capital vehicles and more investment in innovative businesses in Australia. This is something which has been raised with me consistently in my consultations with the venture capital industry on this bill. I know the Assistant Treasurer likes to talk about consultation but doesn’t like to actually do much of it, whereas I have been to various capital cities of this nation and consulted directly with venture capitalists about the implications of this bill, and this is a concern which has been raised with me directly. I do not imagine that it has been raised directly with the Assistant Treasurer, because I know he believes more in the rhetoric of consultation than in actually doing it.

This is a step that the Labor Party is calling on the government to adopt today. I indicate that, should we be honoured with government later in the year, this is something we would be reviewing in office. We would be examining this threshold and the amount of time that is given to ESVCLPs to divest themselves of those assets. We would be reviewing those things and having a very close look at them. But, as we stand today, we think it would be a sensible measure for the government to lift this threshold, which does not apply in many other jurisdictions and which does not give these venture capital partnerships long, in real terms, to divest themselves of these assets. So, while I welcome these reforms generally, I remain concerned about the restrictions on the assets that can be held by both investment vehicles: VCLPs and the new early stage vehicles.

As I have said, the government is making these changes because the venture capital regime it introduced in 2002 is not working properly and has failed to boost the venture capital industry by an acceptable amount. The removal of some of the restrictions on VCLPs and the new vehicles are positive and welcome. However, as I have said, they do not go far enough. I fear that, unless the government adopts Labor’s amendment today, we will be back here in one, two or three years time amending this legislation yet again. Just as we are today amending the 2002 legislation, just as the government last night announced further changes—which we will be amending sometime in the next 12 months, I presume—we will be coming back again to amend this legislation because the government, through its lack of consultation, has failed to take it up.

Generally, I support this bill. I note that the government of its own volition referred it to a Senate committee. I presume that is because of the farce that we saw last time with Tax Laws Amendment (2006 Measures No. 7) Bill 2007, where the government refused to refer it to a Senate committee, backflipped and accepted Labor’s referral to a Senate committee and then finally had to accept the recommendation of Labor senators to amend the bill. I assume that the government thought, ‘We’ll avoid all that rigmarole this time and just refer it straightaway to a Senate committee.’ I welcome that. I do not think every tax laws amendment bill has to be referred to a Senate committee—may I let the Assistant Treasurer know—only those which cause some concern. The measures in this bill are generally supported. I commend the bill and the amendment to the House.

Harry Jenkins (Scullin, Australian Labor Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Lindsay Tanner (Melbourne, Australian Labor Party, Shadow Minister for Finance) Share this | Link to this | Hansard source

I have much pleasure in seconding the amendment.

Alan Cadman (Mitchell, Liberal Party) Share this | Link to this | Hansard source

The Tax Laws Amendment (2007 Measures No. 2) Bill 2007 contains multiple changes to the tax act. There are seven or eight effective ones. Some are technical, but most of them deal with specific areas that the government has given attention to, either to simplify or to extend current provisions and concessions. They include the effective life provisions, the taxation of boating activities, certain expenditure on research and development activities, donations of listed shares to deductible gift recipients, deductible gift recipients, deductions of contributions related to fundraising events, technical amendments, and provisions relating to venture capital, which were dealt with by the previous speaker. I will run through them briefly, spending some time on the taxation of boating activities and more time on the donations and deductions for deductible gift recipients.

The boating provisions are very sensible. This area has been a problem for the boating industry for some time. I have examined the changes carefully. I am concerned that there is a temptation for boat owners to mix business with pleasure. It is very difficult for the tax office to determine where the line between the two should be. Under these provisions, there are changes to deductions and there are two exceptions. There is a general rule relating to the capping of deductions for income earned. Amounts attributable to a specific type of boating business or amounts incurred in providing fringe benefits are not quarantined. The quarantined amount is modified for taxpayers who have boating capital gains, have profits from a boating business in an income year, derive exempt income and become exempt.

For anybody involved in the boating industry, I believe that the examples in the explanatory memorandum are essential reading, because it is only by looking at those specific examples that it is possible to delve behind the intention of the act. I want to compliment the tax office for providing clear examples in this case. These include proposals for using or holding a boat and what it can be used for. For instance, the advertising by a boat owner of his business on the side of the boat may or may not be deductible. It depends on the methods used by the boat owner for gaining income. If his income is derived solely from a business separate from the boat, of course the advertising itself on the boat may be deductible. But if the boat itself is used to raise funds and not just as a form of advertising but as a form of earning income, then of course a different arrangement applies to taxation.

The apportionment of the deductions that partly relate to using or holding a boat are outlined in further examples. There are exceptions to the quarantining rule and there are modifications to the quarantining rule contained in the bill before the House. Part of the legislation covers the way in which profits can be dealt with or the way in which profits and losses can be carried forward. Another section of the legislation deals with owners who own multiple boats. Some may be solely related to fishing or business; others may be for pleasure. The bill clearly sets out the conditions that apply. Interestingly, the cost to revenue of these measures is approximately $5 million or $6 million per annum, and I believe they will be greatly beneficial to the boating industry.

There is provision in the legislation for expenditure on research and development activities. The new law is interesting and it provides a number of corrections. They are small changes to the existing concessions for research and development of any type, but the legislation also provides some additional benefits, such as the offset in the year in which entitlement is made. Currently, there is no provision for a company to choose the R&D tax offset by amending their original tax return. That has now changed in this bill. Currently the R&D concession has a general exemption to the $20,000 minimum spend rule for contracted expenditure to a registered research agency on behalf of a company. This exception does not apply if the R&D tax offset is claimed. So that is a further change in this current legislation.

The main area of particular interest to me—and, I believe, the public at large—is the encouragement that this bill offers for philanthropy. I think this is an area that government needs to pay attention to. I know that there have been considerable efforts made by the government to have the Prime Minister’s Community Business Partnership group examine in particular the way in which philanthropy can be encouraged. I believe it is an avenue that needs careful attention. I think it can be easily extended to schools in general and to church and charity groups, which perform functions which are of a charitable nature. There should be an extension of the provisions of deductibility for gifts to charitable organisations of all types; I do not think the range is broad enough and I believe the community would benefit greatly. Indeed, the social welfare bill would be reduced if we were to do this. I think charitable organisations generally are much more effective at providing support and services to those in need than government mechanisms. This proposal does extend philanthropy. I believe that it needs further examination and that philanthropy needs to be greatly encouraged.

The context of these amendments is that the income tax law encourages philanthropy through a range of taxation measures covering the donation to deductible recipients of money or property valued at $2 or more. Those gifts are deductible. Currently, gifts of property to DGRs, the tax deductible gift recipient group, which can include shares, are tax deductible if the property is purchased during the 12 months before making the gift or is valued by the Commissioner of Taxation at more than $5,000. Gifts of property, including shares, acquired at least 12 months before making the donation and valued at $5,000 or less are currently not tax deductible. The new measure was announced in the 2006-07 budget and applies to gifts and contributions made in an income year commencing on or after royal assent. So it brings forward the capacity to make deductions in the current income year.

The new law provides that taxpayers gifting shares deduct the market value of the shares on the day they make the gift, provided that the shares were acquired at least 12 months before making the gift, have a share value of $5,000 or less, were acquired in a listed public company and are listed for quotation on the official list of the Australian Stock Exchange. So there is the protection for revenue: making sure the shares are acquired in a listed public company and making sure a full quotation is available. The capital gains provisions are something that sneak in here, because it is obvious that the tax office would not like to see somebody make a capital gain and then avoid their responsibility for paying by making a donation or a gift to a charitable organisation. Again, we have examples. I will read one briefly. This is example 4.2 in the explanatory memorandum:

Mark wishes to gift $3,000 of shares in Red Ltd and $4,000 of shares in Blue Ltd, both listed public companies, to a DGR. Both of these parcels of shares were purchased more than 12 months ago. Mark signs and submits two share ownership transfer forms.

Although their combined value exceeds $5,000, Mark can still deduct the gifts of shares as they are treated as separate gifts each valued at $5,000 or less.

There are a whole series of examples about the way in which this law may apply to gifts of shares. I think it is an excellent provision and one that needs to be promoted by charitable institutions and organisations. I think this is a ready source of income for these groups that they should be seeking out. I encourage donors to actively consider whether or not a gift of shares is an appropriate way in which to make their support for an organisation known and recognised. There is no need to cash things out. There is no need to go into all the problems of finding out what shares are worth and going through the sale process with its costs. A simple transfer is what is proposed by this legislation.

The other interesting provision is the provision for tax deductibility for contributions relating to fundraising events. This tax deductibility provision is an interesting one. I will read schedule 6.1:

The deduction is available where the value of the contribution is more than $150 (the current threshold is more than $250), and the minor benefit received in return is no more than $150 (currently $100) and 20 per cent (currently 10 per cent) of the value of the contribution, whichever is the less.

This means that, for fundraising events, all sorts of things can be done to support a charity. Again, there is an example which illustrates this. Example 6.1 says:

Anthony pays $260 to attend a charity golf day, hosted by a DGR. The market value of an 18-hole golf game is $50. As the market value of the golf game is less than $150 and less than 20 per cent of the value of his contribution ($260), Anthony can deduct $210 ($260 less $50).

Without the amendments to the thresholds, Anthony would not be entitled to a deduction as the market value of the minor benefit, the golf game ($50), is more than 10 per cent of the value of his contribution ($260 × 10 per cent = $26).

This is a great encouragement for charities of all sorts, for schools, for the Scouts and Guides, for people holding art shows and all sorts of activities. It is a wonderful way of encouraging people to make minor contributions, whether they be football jumpers or whatever—a host of things can be contributed to a charity. There is even the contribution of attending a charity golf day, as illustrated by the explanatory memorandum. Clearly there are advantages to the taxpayer but particularly to the organisation, the DGR. I commend this legislation to the House. It covers a wide range of important issues. I think they are good measures.

Chris Hayes (Werriwa, Australian Labor Party) Share this | Link to this | Hansard source

I know we are coming back from a break, Mr Deputy Speaker, and we are all refreshed, but this week seems to be a week of amendments. In addition to the Tax Laws Amendment (2007 Measures No. 2) Bill 2007 that we have in front of us—not an uncommon form of legislative amendment, when it comes to this government—amendments are to come before the House in the form of the Building and Construction Industry Improvement Amendment (OHS) Bill 2007. That is set down for debate tomorrow, I think. We also have the mother of all amendments—which the Prime Minister has told us for the last year would not happen, out of fear that it would destroy the economy as we now know it—the amendments proposed to Work Choices. An effort is certainly being made by the government to draw to a conclusion a number of things that have been hanging around for over 12 months.

I will keep my comments brief and relevant to this tax bill. I will limit my comments to the issues of research and development. Research and development expenditure is critical for the performance and advancement of the economy. Certainly it is critical to improving the competitiveness of industry. Business investment in research and development, however, is at 0.95 per cent of GDP. That is well below the average OECD contribution to R&D, which is 1.53 per cent. As a consequence, that has this country sitting behind 14 other OECD nations. That is despite the fact that considerable advancements were made throughout the mid-1980s and the 1990s in industry contributions to research and development.

There must be many reasons for that performance, but the fact remains that business spending on research and development under the Howard government has grown at less than half the rate that it grew at under the former Labor government. When the Prime Minister announced in 1996 his commitment to industry, he put it in these words:

... to improve Australia’s international ranking in terms of expenditure on business R&D, as a share of GDP.

I have just cited the current figures, and the position could not be more different from that envisaged by the Prime Minister in 1996. It certainly has not lived up to the standard set by the former Labor government with regard to encouraging industries to invest in research and development in their sectors.

The Howard government’s main policy of cutting the research and development tax concession has produced a less than stellar performance. Policies that promote further investment in research and development are being actively pursued by many countries but this government only pays lip service to them. Let me take a moment to examine the targets set by other countries when it comes to R&D. China is committed to increasing research and development expenditure to 2.5 per cent of GDP by the year 2020. The European Union as a whole is targeting expenditure on R&D at three per cent of GDP by the year 2010.

All around us, our Asian neighbours are increasing their research and development spending at an incredibly rapid pace. As a local member representing the seat of Werriwa, in the south-west of Sydney—an area I am very proud of—I point to the employment statistics for the area to demonstrate the effect research and development will have on the development of our main industries. In the south-west of Sydney, we have nearly 50,000 people employed in manufacturing. It is welcome news that the manufacturing sector is taking seriously its responsibility for R&D in the development of home products, particularly in Werriwa, my area. Currently, manufacturing accounts for 41 per cent of Australia’s research and development. Manufacturing businesses are also the most likely to commit to innovation and further development and to invest in their futures.

The manufacturing industry recognises the need to be the one that is setting the pace in the world, and not having it foisted upon it, simply being reactive to the position of other countries. We need to stimulate growth in the manufacturing sector. We need the sector to invest in its future. We are certainly seeing some encouraging signs. In my backyard, in the south-west of Sydney, various companies that I visit on a regular basis are now taking steps to invest in their future through research and development expenditure.

The amendments contained in this bill will, I believe, help contribute to the improvement of Australia’s research and development performance. They are vital and necessary. We do need to stimulate and encourage expenditure in that area. To that extent I support the provisions of the bill. Labor supports the proposals in the bill, particularly the proposals relating to R&D. In saying that, however, it would be remiss of me not to note the time it has taken for this amendment bill to come before the House. The amendment bill was announced at the time of the last budget. I am talking about the budget handed down in May 2006, not last night’s budget. It has taken more than a year for the legislation to come before the House. Of course, this is not the longest delay that we have seen in amendments coming before the House.

Research and development tax concessions were introduced by the Labor government in May 1986. Quite frankly, they have had a chequered history, particularly under the current government. In the 1992-93 budget speech of the then Labor government it was announced that the R&D concession would continue indefinitely. There was a commitment by a Labor government to invest in the development of this country, particularly in manufacturing, by continuing that concession indefinitely.

In 1996, upon the election of the Howard government, there was a slash and burn approach to budgetary measures and that characterised the government’s first few budgets. I am sure members will remember the cuts that were made and the ones we are still paying for. There are fewer doctors, certainly on the Central Coast, and dentists. The Howard government took it upon itself, among other things, to reduce the R&D maximum concession to 125 per cent. The government led the charge in discouraging people from investing in their futures. That is the legacy of this government. That is why it is scrambling now to redress those things. That is why we are falling behind other nations which have taken the positive approach of setting targets for R&D into the future. That is why we need to look forward and invest in ourselves. That is something we have advocated through successive Labor governments. It is good to see that the Howard government is now starting to take a leaf out of our book and at least return it to its former position prior to 1996.

In 2001, the government backflipped on its position when it produced a package called Backing Australia’s Ability. In that package it introduced a premium rate of 175 per cent for additional research and development activity and the research and development tax concession for small companies. While I say it has taken a long while for this amendment bill to come before the House, and I refer to last year’s budget, the reality is that—and make no mistake about this—we have been waiting effectively since 2001 for this legislation to come before the House and to be implemented in a way that will stimulate the growth of R&D within the business sector.

I know that the government is now scrambling to establish its credentials. I accept that it is an election year and the government has to do something about showing its sincerity in this regard. Last night when I went back to my rooms—as no doubt most members did—I started to go through the budget statements. Statement 1: Fiscal strategy and budget priorities, under the heading ‘Creating opportunities for industry’, states:

This commitment is outlined in the industry statement, Global Integration: Changing Markets, New Opportunities, which includes—

among other things—

$200 million over four years to expand access to the 175 per cent research and development (R&D) tax concession, to encourage multinational enterprises to increase the amount of R&D they perform in Australia ...

That is welcomed, but I make the point that this highlights how the government is now scrambling to catch up and stimulate industry to perform R&D, with a view to generating not only productivity but also employment in this country. One of the spin-offs of R&D is not simply the research and development that takes place but the all likelihood of the employment that it generates as a consequence of undertaking R&D in this country.

There is no doubt that the provisions contained in schedule 3 of this bill will improve the research and development tax offset, particularly by allowing companies more time to claim the offset. The amendment that allows all companies in a group to be covered by the research and development tax offset provisions will be welcomed not only by those businesses currently undertaking R&D in Australia but also, more importantly, by those companies which are contemplating it. Given the importance of research and development to the longevity of a number of Australian businesses and industries and the importance of R&D in terms of building our productive capacity, while these changes are technical in nature, I agree they are welcome.

The reality of our global economy is that, if we do not innovate, if we do not invest in our future, our businesses and our industries, we are not likely to survive in that competitive market. That is why it is more important than ever for government to come to the table with industry, to ensure that the arrangements in place are sufficient to maintain Australia’s competitive position in the world economy. While the amendments in this bill are welcome, when it comes to R&D, one can only wonder whether they are enough.

Tanya Plibersek (Sydney, Australian Labor Party, Shadow Minister for Human Services, Housing, Youth and Women) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2007 Measures No. 2) Bill 2007. I want to focus my comments on schedules 5 and 6 of the legislation. Schedule 5 will amend the list of deductible gift recipients in the tax legislation. Deductible gift recipient status will assist the listed organisations to attract public support for their activities. Schedule 6 of the bill amends the tax legislation by extending the eligibility for tax deductions for contributions to deductible gift recipients where an associated minor benefit is received with an eligible fundraising event.

The government says that what they call the improvements to the taxation deductibility provisions provide further support to encourage greater philanthropy in the community. Naturally, Labor support measures that encourage philanthropy in the community. We are pleased to see that this bill will lift some of the restrictions on the kinds of gifts which can be donated to organisations with deductible gift recipient status. Of course we support those changes.

I want to talk more broadly about deductible gift recipient status and about charities more generally. We have a proud record in Australia of giving to charities. The 2005 report Giving Australia: research on philanthropy in Australia estimated that the total giving of money, goods and services to non-profit organisations by individuals and businesses was about $11 billion per year. I noticed just this week that new reports of giving to charities put my own state, New South Wales, at the top of the list per capita, having the most generous citizens when it comes to donating to charities.

Duncan Kerr (Denison, Australian Labor Party) Share this | Link to this | Hansard source

We always say Sydney has a big heart!

Tanya Plibersek (Sydney, Australian Labor Party, Shadow Minister for Human Services, Housing, Youth and Women) Share this | Link to this | Hansard source

We have a big heart, that is right. I know you are trying to pull my leg here, Mr Deputy Speaker, but as the member for Sydney I see every day just how generous Australians are and just how generous Sydneysiders are. My electorate of Sydney, an inner city seat, is the location for a lot of charities and services—drug and alcohol services and homeless services in particular. We also have the head offices of a number of charities located in the Sydney electorate. Many church groups, welfare services, legal centres, environment groups, gambling services, family support services, neighbourhood centres and health services are located in my electorate. I see the first-class work they do. I also see the sorts of people who rely on these charities every day—Australians who access homeless shelters every night, young people in particular who are being helped to kick their drug and alcohol addiction or gambling habits, or women and children leaving violent partners and looking for a safe place to live. These organisations in my electorate support people living with HIV and AIDS, not only helping them with the usual domestic support and medical advice but also helping them to combat the social isolation which often goes with chronic illnesses such as HIV.

I see a lot of people who are desperate for help accessing community legal services to try to get some protection for their rights, protection which they are likely to miss out on without advocacy on their behalf. Day after day I see the charities and other organisations supporting some of the most disadvantaged and marginalised citizens in the country. Many of the charities have deductible gift recipient status. That means that they are allowed to receive donations which are tax deductible for the donor. The staff of these organisations are basically doing charity work also—they are certainly not being well recompensed. The deductible gift recipient status provides for organisations to allow their staff to salary package. Sometimes that is the only way people can make ends meet. Deductible gift recipient status allows organisations to receive money from philanthropic trusts and grants and to use that money for innovative new projects.

The point that needs to be made here is that Australian society relies more and more on charities as the government has withdrawn from providing some of the most basic services to Australian people. There are a couple of examples in my electorate. An organisation called the Luncheon Club AIDS Support Group started in my electorate in November 1993 and is a registered charity for taxation purposes. Every Monday the luncheon club offers lunch free of charge to people who are living with or affected by HIV or AIDS. Families, friends, partners, carers and children come along to support their loved one. HIV sufferers are able to support each other and to build a social network, and as well they get a nice lunch.

Until recently, the luncheon club has also had a larder program, under which it has been able to provide food and other essential items free of charge, because people who are living on the disability pension find it very difficult to pay for the medication they need in order to combat their HIV, as well as all of their other associated expenses. The luncheon club is really struggling at the moment. I met with the organisation recently to go over some of the things we can do to improve its financial situation. But this is just one organisation; there are literally hundreds that support people who live in my electorate.

While I support these measures that make it easier for Australians to donate to these organisations, I make the point that in the last 12 months I have become increasingly worried about the number of organisations in my electorate that have lost their deductible gift recipient status. I know that a number of organisations have been audited recently by the Australian Taxation Office—some of them a number of times over a very short period—in order to establish that they meet the criteria for retaining DGR status. They are forced to go through what is really a very arduous process to prove that they are charities—to itemise carefully all of their different functions and the varied work they do, in order to show that they meet the criteria.

Apparently, the ATO has stepped up its auditing of non-profit organisations to ensure that they are entitled to the tax concessions that they are claiming. The ATO’s compliance program priorities for 2005-06 include ‘testing the integrity of endorsed deductible gift recipient status organisations and tax concessions charities’. Losing DGR status results in substantial financial losses for these organisations. Their staff effectively lose money because they are no longer able to salary package a proportion of their wage. They have an increased tax burden. They are no longer able to accept donations and they can no longer apply for or receive philanthropic grants.

This move really began in 2003, when the government threatened to introduce the charities bill, which sought to remove charitable status from organisations which engaged in advocacy. In short, the government basically said, ‘If you help homeless people, that’s all right, but if you say there shouldn’t be so many homeless people, you become an advocate and you lose your funding.’ It reminded me of what Brazilian bishop Dom Helder Camara said:

If I give food to the poor they call me a saint. If I ask why the poor have no food, they call me a communist.

It is important to note this threat of losing charitable status if you are advocating for the people that you are trying to help: instead of just giving them handouts, if you actually stick up for them, you are threatened with losing your charitable status. That is a very serious threat for these organisations.

A great amount of work has been done by the Australia Institute. One of their reports shows that 70 per cent of organisations report that the funding restricts their ability to comment on government policy and that 76 per cent of these organisations disagreed with the statement that current Australian political culture encourages public debate. Firstly, these organisations fear that they will lose their public funding if they criticise the government. Secondly, if they get no funding, how does the government get to them? If they have no government funding, the way the government gets to them is by taking their charitable status away from them, making sure that they are too frightened to make public comments. So the deductible gift recipient status audits are one way of intimidating some organisations. Losing their government funding is another. Another way, of course, is the confidentiality agreements that charities are made to sign when they do a lot of—

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

Mr Deputy Speaker, I take a point of order regarding relevance to the bill that is being debated at the moment. The honourable member made mention of schedule 5. Her contribution bears no relevance whatsoever to schedule 5 of the bill, which extends gift recipient status to two specific organisations. The nonsense and the hollow rhetoric cannot be of assistance to this debate.

Ian Causley (Page, Deputy-Speaker) Share this | Link to this | Hansard source

The minister cannot debate the matter under the guise of a point of order. I do understand the minister’s comments but the chair has never been strict regarding the rules in relation to relevance. There is a broad relevance, so I permit the debate to continue.

Tanya Plibersek (Sydney, Australian Labor Party, Shadow Minister for Human Services, Housing, Youth and Women) Share this | Link to this | Hansard source

Are you trying to shut down the debate in here as well? You don’t like the charities telling the truth about this government; you don’t like members of the opposition telling the truth about this government either.

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

You’re just a fraud, that’s all. Stick to the facts.

Ian Causley (Page, Deputy-Speaker) Share this | Link to this | Hansard source

Order! The minister should not interject or he will not be able to make his reply.

Tanya Plibersek (Sydney, Australian Labor Party, Shadow Minister for Human Services, Housing, Youth and Women) Share this | Link to this | Hansard source

Throw him out. I was talking about deductible gift recipient status, which, quite clearly, this legislation does cover, and I was talking about confidentiality agreements for these organisations. Because the government has pulled out of providing a whole lot of social services, it is asking the charities to provide those. Where the charities do pick up the contracts, they are asked to sign a confidentiality agreement which, again, prevents them from commenting when they believe that government policy is wrong.

A study by Clive Hamilton and Sarah Maddison of the Australia Institute, which I mentioned a moment ago, called Silencing dissent, shows that these organisations in many cases are clearly frightened of criticising the government. One of the leaders in persecuting organisations that are advocates has been the Institute of Public Affairs, a conservative think tank which, incidentally, has charitable status and which has referred to these organisations as ‘cashed-up non-government organisations which are an unrepresentative dictatorship of the articulate’.

The Institute of Public Affairs, incidentally, received $50,000 of government funding to audit non-government organisations to determine whether they were legitimate representatives of the people whom they claim as their clients. Incidentally, the Institute of Public Affairs, which received this $50,000 in government funding, whilst it is a charitable organisation, does not disclose its donors, which of course is one of the criticisms that it makes of these other organisations.

The churches, amongst other organisations, have really been caught in this sandwich. If they are working to relieve poverty once it is obvious in the community, that is okay; if they want to talk about why poverty exists in a country as wealthy as Australia, at a time when it is raining cash from the resources boom, then they have their charitable status threatened.

Obviously, no government likes to be criticised—none of us take it well. But previous governments have understood that, in a healthy and strong democracy, people who advocate for the most disadvantaged members of our community should not be punished for standing up for those people. It is vital for democracy, in fact, to have people standing up for the most disadvantaged members of our community, to make sure that their voices are represented when decisions are being made.

Since the 2001 inquiry into the definition of charities and related organisations, and the proposed charities bill in 2003—the bill that lapsed—many organisations have argued for a rethink on laws and regulations relating to charities. At the end of last year Jobs Australia and ACOSS released a discussion paper floating an idea relating to the reform of charities, the definition of a charity, regulations relating to charities and categorisation. They are calling for a more modern definition of a charity. We are still working with a definition from 1891. It goes without saying that the role of these organisations has changed significantly since then. It may well be worth modernising and harmonising the regulation of various tax statuses so that the current confusions over whether an organisation is a charity, a public benevolent institution or a deductible gift recipient are removed.

ACOSS has suggested that we consider the establishment of a charities commission, similar to the one in the UK. The commission would act as a gatekeeper of charitable status at a federal level. It would mean that the regulation of many of these non-government organisations and their tax treatment would be at arm’s length from the government. That would allow these organisations to continue to play the important role they play in the community without fearing that, if they are too outspoken, they will lose their tax deductibility status. Advocates of a charities commission argue that it would streamline and improve the overall regulation of charities as well as harmonise the accountability requirements placed on charities and deductible gift recipients by state and Commonwealth regulators and departments. I think that is well worth considering.

I mentioned some research earlier by Sarah Maddison and Clive Hamilton from the Australia Institute. There has been a great deal of very interesting research also undertaken by another academic, Joan Staples, that goes through just how the government has used its funding and tax deductibility status to prevent a number of these organisations from saying what it is that they truly believe about the way that the most vulnerable people in Australian society have been treated. Joan Staples’s research in this area is very relevant as well. This whole argument about the shutting down of the defenders of the most vulnerable people in the Australian community reminds me of what the founder of the St Vincent de Paul Society, Frederic Ozanam, said. He said, ‘Charity is the oil being poured on the wounded traveller, but it is the role of justice to prevent the attack.’ I think that any system that helps pour the oil on the wounded traveller is worth supporting—of course I support that. But any system that actually prevents advocacy for justice for those people has serious flaws.

Duncan Kerr (Denison, Australian Labor Party) Share this | Link to this | Hansard source

I thank the honourable member for Sydney. I apologise to the member for Sydney for my intervention earlier in the debate, which led me to be less capable of administering admonishment to the minister when he later interjected.

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

I thank you at the outset, Mr Deputy Speaker, for acknowledging shortcomings, including your own. Can I say thank you very much to the members who have taken part in this debate on the Tax Laws Amendment (2007 Measures No. 2) Bill 2007except for the member for Sydney, I might say; that might have been the most painful 10 minutes of debate I have had to sit through in this parliament. It is a pity that she does not have the capacity to contribute along the same lines as perhaps the member for Barton would have been able to—a person who is able to contribute constructively and honestly to debate in this place. The contribution by the member for Sydney was, frankly, nothing more than an attempt to muddy the facts with the diatribe that she normally goes on with. It really is a sad reflection on her contribution in this place. I think the House should record the fact that the contribution that was made by the member for Sydney was not factual in any way. Nonetheless, I want to acknowledge in particular the member for Mitchell, Mr Cadman, who I think provided an exceptional contribution to this debate. He obviously went through a very well-thought through process to compile his contribution. He should be recognised for that.

I also want to comment on some of the points that were made by the member for Prospect and, again, to correct some of the confusion and lack of factual basis in some of the comments that he made. The first point I make is that it takes time to amend law and to consult on the amendments. The opposition are running around this place and in the business community, on one hand saying that we do not consult enough with business and then, to a separate audience, saying that we take too long to implement changes and amendments to the law. The fact is that they cannot have it both ways. They cannot argue that we need a further process of consultation and then argue at the same time that we should be making these decisions in a shorter period of time. It is like the other process that they are indulging in at the moment of telling one group that they can cut government expenditure, yet running into the next room and, in that speech, talking about further government largesse, about how they would be able to provide more money for them were they in government. It is hypocritical, and it is a nonsense to suggest that you can have one with the other. They are really showing their ignorance about the consultation process that is undertaken.

The government remains very committed to conducting a timely consultation process. But, when we talk about tax law, we are talking about complicated amendments to the law. They need to be properly thought through, and we need properly to be able to engage with people in the business community and with other stakeholders to make sure that we provide for best practice to keep this economy going as well as it is in the current day.

I also note the member for Prospect’s claim that the government opposed referral of TLAB7 to a Senate committee. I encourage the member, again, to get his facts straight on this issue, because it was the government that initially sought to refer the bill. Labor said that this was not needed, and then it was actually Labor which did the backflip to seek a referral of the bill. So that also needs to be recorded, as part of my contribution to this debate, to correct some of the non-factual contributions made by those opposite.

Schedule 1 to this bill makes amendments to the capital allowance system to clarify how mining, quarrying and prospecting rights are depreciated. The changes align the treatment of these assets more closely with other depreciating assets and ensure that the provisions operate as intended.

Schedule 2 to this bill improves the fairness of the taxation rules applying to income earned from certain boating activities, while ensuring that the tax system cannot be used to subsidise the private use of boats. This schedule implements the government’s decision to allow taxpayers to deduct expenses denied under the current rules, up to the amount of boating income earned.

Schedule 3 to this bill improves the operation of the R&D tax offset for small and medium businesses, ensuring that the law reflects the government’s original policy intent for the offset. These amendments will ensure that all companies in a group are covered by the R&D tax offset provisions and extend the time companies have to choose the offset. The amendments will also allow companies to object to decisions made by the Commissioner of Taxation regarding the allowable amount of the offset. Further, the amendments ensure that the existing exception to the minimum expenditure of $20,000 for contracted expenditure to a registered research agency applies to both R&D tax deductions and the R&D tax offset.

Schedule 4 delivers the government’s 2006-07 budget announcement to extend the gift provisions to promote philanthropic giving. The amendments will allow taxpayers to claim a tax deduction for the donation of certain publicly listed shares to deductable gift recipients. Schedule 5 to the bill further demonstrates the government’s support for philanthropy by amending the list of deductable gift recipients in the tax legislation to extend the current listing for the Finding Sydney Foundation and to list the American Australian Association Ltd and the Bunbury Diocese Cathedral Rebuilding Fund. Deductable gift recipient status will assist these organisations to attract public support for their activities. Further, schedule 6 to this bill extends the eligibility for tax deductions for contributions to deductable gift recipients where an associated minor benefit is received with an eligible fundraising event.

Schedule 7 of this bill makes technical amendments to ensure that the definition of ‘exempt entity’ covers all entities exempt under the income tax law. Schedule 8 to this bill amends the venture capital regime to relax the eligibility requirements for foreign residents investing in venture capital limited partnerships and Australian venture capital funds. It introduces a new set of taxation concessions for Australian residents and foreign residents investing in early-stage venture capital activities. This is achieved through a new investment vehicle called an ‘early-stage venture capital limited partnership’.

The $250 million divestment requirement is reasonable because the government is introducing generous tax concessions for early-stage vehicles. Given the emphasis on start-up and seed capital, the need for ongoing tax concessions once an entity reaches the size of $250 million diminishes. Moreover, if the partnership divests the entity into a venture capital limited partnership as it approaches the $250 million limit, it can continue to attract tax-free gains without any divestment requirement. The requirement to divest once an entity reaches $250 million applies for up to six months after the end of an income year, and this provides ample opportunity for divestment to occur. This measure further demonstrates that the government’s ongoing support for new business continues, and the promotion of industry innovation will always be supported by this government.

I thank those members who have participated in this debate, and I commend the bill to the House.

Duncan Kerr (Denison, Australian Labor Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Prospect has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the words proposed to be omitted stand part of the question.

Question agreed to.

Original question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.