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

by leave—It gives me pleasure to conclude the debate on the Tax Laws Amendment (2008 Measures No. 5) Bill 2008. I thank all honourable members who have made a contribution to the debate. I note the support of the opposition and their supportive comments. The GST and the sale of real property measure are important for the integrity of the GST system. It will ensure that the GST is consistent with the policy intent of that system in that it applies to the value added to real property by registered entities from 1 July 2000. The interaction of the existing margin scheme provisions with other provisions allows some transactions to be structured to avoid paying GST on the full value added to the property. These tax minimisation opportunities would pose a substantial and growing risk to the revenue if they were allowed to continue. The amendments will ensure that the appropriate amount of GST is collected on sales of real property.

The amendments have been drafted in close consultation with industry to avoid unintended consequences and to minimise compliance costs. The changes will only apply prospectively from the date of royal assent, so as not to impact on existing contractual arrangements. There is no reason to expect that the amendments will have any significant impact on house prices. The section of the housing market directly affected by the integrity measure is relatively small compared with the whole housing market. In any event, the amendments will ensure a level playing field for participants in the property industry.

Schedule 2 modifies the thin capitalisation rules to enable entities in certain circumstances to depart from the accounting standards in identifying and valuing assets and liabilities for thin capitalisation purposes. The amendments will adjust for certain impacts of the 2005 adoption of the Australian equivalence to the International Financial Reporting Standards of the thin capitalisation position of complying entities.

Schedule 3 makes bonds issued in Australia by state and territory central borrowing authorities eligible for exemption from interest withholding tax. This amendment will result in state and territory central borrowing authorities being able to bring their offshore bond issuances onshore, unifying their issuances into one pool of funds and improving the depth and liquidity of the market. This should lead to a lower cost of capital and financing costs for the states and territories and aid in easing some of the pressures currently faced by the Commonwealth government securities market.

Schedule 4 corrects an anomaly in the fringe benefits tax law to ensure that the amount of fringe benefits associated with jointly held investments is able to be appropriately calculated. Under certain salary sacrificing arrangements, associates of employees can receive a share of a fringe benefit made available to an employee. The current anomaly is that the associate share of the fringe benefit may often not be considered in the calculation of fringe benefits tax. But, as announced in this year’s budget, the law which allowed this type of arrangement to occur will be amended in order to improve the fairness and integrity of the fringe benefits tax system by ensuring that the FTB law recognises the benefit being provided to associates of employees who hold investment assets jointly with the employees.

Following consultation with the community, the government decided to implement this measure in the time frame originally announced. This measure will have effect from 7.30 pm Australian Eastern Standard Time on 13 May 2008. There will be a transitional period for employees who have already entered into salary sacrificing arrangements with their employer. Arrangements that were put in place prior to the announcement will be able to continue under the existing law until 1 April 2009—that is, the end of the current fringe benefits tax year. This will provide time for employers and employees to adjust salary packages as appropriate for those private arrangements.

Schedule 5 implements the amendments to the eligible investment business rules for managed funds contained in division 6C of the Income Tax Assessment Act 1936. These amendments were designed following extensive consultation with the managed funds industry and professional bodies. The changes clarify the scope and meaning of investing in land for the purpose of deriving rent; introduce a 25 per cent safe harbour allowance for non-rental, non-trading income from investments on land; expand the range of financial instruments that a managed fund may invest in or trade; and provide a two per cent safe harbour allowance at the whole-of-trust level for other non-trading income. The safe harbours are designed to make it easier for managed funds to know if they are complying with the eligible investment business rules and to reduce the scope for funds to breach these rules inadvertently. They will lower compliance costs for industry and the Australian Taxation Office as well as taxpayers.

These amendments are part of the government’s plan to make Australia a financial services hub in the Asia region. To date, the government has taken action on a number of fronts to further this objective, including reducing the level of withholding tax on distributions from Australian managed funds to non-resident investors and instigating the Board of Taxation review into the taxation arrangements applying to managed investment funds. As the board’s review will take some time, the government has introduced these amendments as an interim measure pending the outcome of the board’s review. The scope of these changes is limited to be consistent with the current policy framework so as not to pre-empt the outcome of the board’s review. Nevertheless, the amendments are an important step in modernising this area of the law and this important area of government priority. I thank the opposition for their support and commend the bill to the House.

Question agreed to.

Bill read a second time.