Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

My question is to the Minister for Revenue and Assistant Treasurer and relates to the government’s statement last Friday on compensation for those who have given up groundwater entitlements for the public good in the six valleys across New South Wales. Could the minister clarify the contradictory announcements, one from the minister and the other from the member for Gwydir, in terms of the triggering of a capital gains event and how capital gains taxation will apply to the compensation payments both pre and post the introduction of the capital gains tax provisions?

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

Firstly, I begin by thanking the member for New England but saying how disappointed I am that he has been playing political games on this issue. This is an issue of great importance to those Australians, those farmers, who are affected by it. I take the opportunity to thank the member for Gwydir for the assistance that he has provided to those farmers and the direction that he has offered to the government. There was no contradictory statement issued last week. What there was was a clever, tricky political situation conjured up by the honourable member.

Simon Crean (Hotham, Australian Labor Party, Shadow Minister for Trade and Regional Development) Share this | Link to this | Hansard source

Mr Crean interjecting

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

It is an unfortunate development because—

David Hawker (Speaker) Share this | Link to this | Hansard source

Order! The member for Hotham is warned!

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

the government have offered considerable assistance to these farmers who are in need and we have been working with the irrigators to make sure that we provide for an equitable outcome. Capital gains tax does not apply to an asset such as a statutory licence where the licence was issued before 20 September 1985. Even where a pre-CGT licence is replaced by another statutory licence, that replacement licence is not subject to CGT when it is eventually disposed of. In the case of the Namoi Valley irrigators, many groundwater licence holders have received replacement licences. Where the licence holder receives cash as well, the cash is not subject to CGT because it relates to the disposal of a pre-CGT licence. The result of my announcement of 8 June 2007 is that the acquisition date of the original licence is rolled over to the replacement licence and so any gain on the replacement licence will be disregarded.

Coming to licence holders who acquired their original licence after the CGT date in 1985, a rollover occurs when they are provided with a replacement groundwater licence. This means that the disposal of the original licence is disregarded for CGT purposes and it is only when the replacement licence is disposed of that CGT may be payable. Importantly, the CGT rules apply by taking the acquisition date and the cost of the original licence into account when the replacement licence is disposed of.

If cash is also offered to the licence holder in conjunction with the replacement licence, the announcement I made on 8 June 2007 indicates the replacement of the original licence with the new licence will still be eligible for rollover. The cash, however, will be subject to CGT in the year it is offered. The amount of the cash capital gain is determined after prorating the cash to the value of the replacement licence. The cash capital gain may be eligible for the CGT 50 per cent discount provided the original licence had been held for at least 12 months prior to its replacement.

This is a technical issue. The member asked for a technical response. I am happy to provide him with any further response that he may require. But I do say to all those irrigators who are nervous about the loss of their water rights that they can be assured that the Howard government are providing them with assistance. We offered $25 million more to those farmers. People should not be playing political games with these issues; they should be looking to the leadership being provided by the former Deputy Prime Minister, the member for Gwydir, who has brought very ably the interests of those irrigators to my attention and the attention of the Prime Minister and the cabinet. I can provide them with an assurance that we will continue to provide them with the best outcome possible.