Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2011 Measures No. 8) Bill 2011. This bill, along with the Pay As You Go Withholding Non-compliance Tax Bill 2011, was referred to the House of Representatives Standing Committee on Economics on 13 October. The report of that committee was released on 3 November. The House of Reps Standing Committee on Economics addressed substantial issues within the package of bills, including a recommendation that the government delete schedule 3 of the tax laws amendment bill and associated provisions. It is in fact a rare moment that a government controlled committee would advise against the government's own bill, but that tends to be the trend with hastily prepared bills.

The bill before the House has four schedules. Two of these, schedules 1 and 4, are sensible changes relating to the provision of the commissioner's discretion for primary production elections and consequent amendments relating to the taxation of gaseous fuels. The coalition view both these schedules as reasonable, and I can state at the outset that we will be supporting those schedules.

The other two schedules, schedules 2 and 3, seek to clarify the taxing point on the petroleum resource rent tax, as well as to implement further obligations on company directors in relation to noncompliance with PAYG withholding and the superannuation guarantee obligations. The coalition have reservations in relation to both schedules 2 and 3 and will be seeking to remove them from this bill for reasons that I will outline to the House shortly. I understand the government is removing one of those schedules, but, if both are not removed, we will be voting against this bill.

As stated earlier, the House of Representatives economics committee recommended that the government remove schedule 3, and I understand the government will be moving that amendment. I note the decision was made late last week by the government to follow the advice of the committee to remove schedule 3. We agree with that, but we obviously have different reasons from the government's for that. I can also foreshadow that the coalition will be moving an amendment to omit schedule 2 from the bill.

The first schedule seeks to provide the Commissioner of Taxation with discretion to disregard particular events that would otherwise trigger assessments of income for primary production trusts. The second schedule, as I said, amends the PRRT to provide statutory reinforcement on how the taxing point is determined for the purposes of the tax. The third schedule aims to strengthen directors' obligations to cause their company to comply with its pay-as-you-go withholding and superannuation guarantee obligations through extending the director penalty regime to make directors personally liable for their company's unpaid superannuation guarantee amounts—which I am sure is something that the Assistant Treasurer himself came up with, given he is so anti business—and, in some instances, making directors and their associates liable to pay PAYG withholding non-compliance tax where the company has failed to pay amounts withheld to the commissioner. The fourth schedule of the bill makes minor amendments to the tax arrangements for gaseous fuels to ensure the legislation applies as intended and that excessive compliance costs are not imposed on industry.

I am particularly going to look today at schedule 2 and also refer to schedule 3. The changes outlined in schedule 2 seek to provide statutory reinforcement in relation to the taxing point and the way it is determined for the purposes of the PRRT. These proposed changes will have retrospective application to 1 July 1990. The bill's explanatory memorandum states:

The amendments apply retrospectively to remove any doubt about the long-established operation of the PRRT.

They do not impose any new tax burden, as the amendments merely clarify and confirm the current application of the PRRT, consistent with the policy intent.

The coalition have long had reservations on the implementation of retrospective legislation that potentially creates a disadvantage, and we oppose this attempt to retrospectively amend a taxation law. The government try to justify the retrospectivity on the grounds that the amendment simply confirms, in their view, the long-established operation of the legislation. The coalition notes that submissions received by the House committee on economics from a range of bodies all oppose the retrospectivity of the changes put forward. These bodies include the Business Council of Australia, the Law Council of Australia, the Institute of Chartered Accountants in Australia, the Corporate Tax Association and the Tax Institute.

The Corporate Tax Association's submission to the Senate committee now inquiring into this bill addresses the government's claim that the bill merely clarifies the law. I quote:

Intention can be an elusive concept, and is often in the eye of the beholder. Assurances regarding intention are generally no more than unsubstantiated assertions or wishful thinking, and should be vigorously tested–particularly where they are made by the revenue authority as is the case here.

Contrary to the disclaimer provided by the government that no new tax burden will be created by this legislation, the government is in fact desperately trying everything it can to pre-empt the outcome of a case that is currently before the full bench of the Federal Court. It fears this court decision will create a significant hole in its taxation receipts. Earlier this month, the full Federal Court of Australia heard an appeal by Esso Australia Resources in relation to the PRRT. The appeal is against a Federal Court judgment that was given on 13 April this year. The Commissioner of Taxation, the other party in this litigation, won that case. The case is about one of the central concepts of the taxing point of the PRRT. This is the point at which the petroleum project's assessable receipts are calculated for the levying of the tax. Given its fundamental importance, you can understand that there could be different opinions about how to interpret the legislative words used to define this concept. Under our system of law, a company has the right to appeal against an unfavourable court judgment, even if the judgment is significant to the government's budget position. It should be entirely irrelevant in the whole debate. This is the way it should be, despite what the other side of the argument thinks about the validity or otherwise of the point to be appealed. If schedule 2 of this bill is enacted, the right to proceed in the courts will effectively have been removed.

The House should be aware that the commissioner, not long before the appeal was due to be heard, applied to the full court to have the appeal adjourned. The ATO argued that, because it was highly likely this bill before the House would be passed, the appeal would be 'a pointless and wasteful exercise'. We see that as a rather ironic statement by the Commissioner of Taxation: as if waste was ever a consideration of this government, let alone a wasteful exercise! The court unanimously gave the ATO's adjournment application short shrift—and rather appropriately so. I quote from the court's judgment to reject the ATO's adjournment application:

... there is much to be said for the view that it is not appropriate for a Court to take into account as a controlling factor the prospect of a substantive legislative amendment which would accrue for the benefit of one party.

Of course, if the government had been serious in trying to prevent wasteful spending on this appeal, it could have acted much more quickly. The government announced the measure at the time of the budget. So the government had the opportunity to introduce this amendment well before the appeal was to be heard earlier this month. That would have saved some legal costs. But the government sat on its hands. It could have drafted this one-page amendment and tried to have it passed, but it did nothing.

On 19 July, when the date was set for the appeal, the commissioner informed the court of the government's proposal to amend the PRRT. But the government did nothing to bring the measure forward. They did nothing until they put the bill into the House on 13 October. This is a government that pretends to be concerned about costs yet it did absolutely nothing to prevent them being incurred—or the heartache, I might add.

This schedule is retrospective to 1990. The schedule should be omitted because it is seeking to pre-empt an appeal to a superior court in Australia. The court is the appropriate forum in which the matter of legitimate dispute about statutory interpretation should be decided. Despite the retrospective operation in schedule 2, the House Standing Committee on Economics has concluded—in a majority report only—that the schedule should remain. The committee also appears to have thought it significant that the schedule reflect how Esso Australia has been lodging its tax returns and paying tax. The point is based on the committee's total misunderstanding of how many conservative or risk-averse taxpayers manage taxation disputes.

A conservative taxpayer will prepare their return in conformity with the commissioner's view about how a particular matter should be treated. The taxpayer will take this approach even though they disagree with the commissioner. A conservative taxpayer will pay the tax, including the amount that relates to the matter they disagree with, but will then lodge an objection. The objection is the means by which the matter in dispute is brought to the commissioner's attention. I might add that it is pretty hard to bring issues to his attention. The objection and appeal process is the statutory mechanism by which tax disputes are resolved. This conservative approach should not be seen as compromising the validity of a taxpayer's view about the specific matter they want to dispute.

Finally, I observe that there is an unhappy trend developing in relation to retrospective tax legislation. Since the introduction of this bill, the Assistant Treasurer has announced the government's intention to amend the tax law affecting international transactions, amendments that will also be retrospective. The proposed amendments would take effect from July 2004. This will, of course, continue to damage Australia's sovereign reputation, because retrospective legislation creates uncertainty. Investors will be reluctant to invest in a country where the tax system is uncertain and the government and the taxation commissioner have a habit of looking at issues retrospectively.

This brings me to schedule 3. The government will now need to respond to the House of Representatives report on this package of bills and specifically about schedule 3. If it is to be excluded, the coalition will obviously support that amendment. Schedule 3 was originally announced in this year's budget. The budget describes the measure as:

... tax compliance countering phoenix activities by company directors.

The stated aim was to:

... counter fraudulent phoenix activity, which involves a company intentionally accumulating debts to improve cash flow or wealth and then liquidating to avoid paying the debt.

Phoenix activities are actions by directors to strip out assets to a new company with the intention of liquidating the old company, which is left with net debts. Some directors have tried to use this corporate veil to protect themselves against any personal liability for the old company's debts. The directors then run the old business through the new company. The old operation rises up from the ashes. Treasury's discussion paper on this topic in 2009 noted:

Defining … what constitutes phoenix activity is inherently difficult.

ASIC sees the key distinction hinging on intent. Some directors deliberately structure the company's operations so as to avoid its obligations. The ATO's definition of 'phoenix activity' is similar, because it emphasises evasion, which is also based on intent. It is defined as:

… the evasion of tax through the deliberate, systematic and sometimes cyclic liquidation of related corporate trading entities.

I do not believe that anybody would object to changes which render directors liable for the obligations of deliberate phoenix companies. However, schedule 3 of this bill is a sweeping change to deal with a relatively small number of criminally-minded individuals. The possibility is very real that innocent directors will be caught in the net. It could be, for example, that directors who have innocently misunderstood the complex superannuation law, or who have inadequate management systems in place, will potentially be exposed to personal liability for the superannuation guarantee payments.

The issue of independent contractors versus employees could also cause significant difficulties. This bill exposes directors to personal liability for payments in respect of people who have been treated as contractors for a long period of time but who later are found to be employees, and where the company has not or cannot make the superannuation guarantee payments. This exposure is not restricted to circumstances where the company and the punitive contractors have not been dealing at arm's length or have a relationship that is based on a nod and a wink.

In practice, the borderline between a company's employees and its contractors can be very blurred. Determining whether a person is an employee for the purposes of the superannuation guarantee can be a difficult and technical issue. In the recent Roy Morgan case the full Federal Court had to examine whether interviewers were independent contractors or employees of Roy Morgan for superannuation guarantee purposes. Despite being hired by Roy Morgan as independent contractors, the court found that they were employees. Roy Morgan was thus liable for the superannuation guarantee for the individuals concerned.

It is extremely harsh to make all directors automatically personally liable for superannuation debts without affording the director any grace period to remedy the matter. It is harsh to do so where there is no intent involved in the underpayment of entitlements.

There were some other measures in schedule 3 which also caused difficulty. One measure dealt with speeding up the process that the commissioner could follow in starting court action to recover director penalties when the amounts were unpaid and unreported three months after the due delay. That would have been another assistant treasurer intervention. The coalition would have opposed the proposed new recovery methods because they were not restricted to directors and companies that have engaged in phoenix activities.

The other measure would make directors and their associates liable for a pay-as-you-go withholding non-compliance tax. The coalition would have opposed this measure because it would impose a liability on a new director as well as pre-existing directors where liabilities of the company have not been discharged within 14 days of becoming a director. The measures should only apply to liabilities of the company that arose subsequent to the person becoming a director. So the coalition supports the removal of schedule 3 from this legislation and will seek to move to remove it in the instance that the government fails to do so.

The other two schedules in the bill—schedules 1 and 4—are not contentious. The coalition welcomes the changes in schedule 1 in this bill. They will make improvements to the laws relating to primary production trusts. Under current taxation laws primary production trusts can defer taxation liabilities on profits from the sale of livestock in years where they have been affected by drought, flood, fire or disease. However, if any beneficiary of a trust dies then this tax liability cannot continue to be deferred. In effect, this means that a primary production trust can be liable for a large and unexpected tax liability in the event of an untimely death.

A tax liability is triggered on the death of any beneficiary of the trust, regardless of whether the deceased beneficiary is presently entitled to the income from the deferral. To the coalition this clearly appears to be an unfair implementation of tax law. The death of a beneficiary can sometimes be that of a mother, a son or a close relative, any of which would trigger a potentially large tax liability. This outcome seems to serve no public policy interest but compounds personal grief. The government has introduced this change to give the commissioner more discretion to waive the tax liability in these circumstances. On this occasion, the coalition welcomes the government's understanding on this issue and supports the change.

Schedule 4 contains minor consequential amendments to the taxation arrangements for gaseous fuels. The changes seek to ensure that the legislation relating to the taxation of gaseous fuels operates as intended, and that it does not impose excessive compliance costs on industry. The point of contrast from the changes contained in schedule 2 is that the changes in schedule 4 do not have retrospective application. These amendments apply from 1 December 2011. The gaseous fuels are liquefied petroleum gas, liquefied natural gas and compressed natural gas.

The minor changes to the taxation arrangements for these gaseous fuels include ensuring that excise duty does not apply to compressed natural gas for transport use where it is manufactured in a home review unit or units that collectively have no commercial capacity, ensuring entitlements to fuel tax credits are available to distributors of liquefied petroleum gases in a wider range of circumstances and ensuring that the content of liquefied petroleum gases are prescribed in regulations only. So the coalition supports the changes contained within schedule 4 of this bill.

So to be perfectly clear in the presence of the Assistant Treasurer, we do support schedules 1 and 4. We are strongly opposed to schedules 2 and 3, and if wisdom does not prevail in the government—and I fear that it will not—then we will seek to amend this legislation to remove schedules 2 and 3. And if those schedules are not removed then we will oppose this bill. Otherwise, the rest of the bill has our strong support.

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

I rise to support the contribution of the member for North Sydney, the opposition's shadow Treasurer. He has very eloquently outlined the key issues at play here with the various schedules of this omnibus tax laws amendment bill. I will start with the last one first. The shadow Treasurer has quite rightly identified that there is some virtue to this amendment, and the good thing about it is that it will apply prospectively, so there will not be some middle-of-the-night change to tax laws with retrospective application that may expose particular taxpayers to a liability they never anticipated, certainly never factored in and for which there has certainly been no legal obligation to pay.

The amendment touches on a couple of areas such as the off-road use of LPG—for those who are listening, these are things such as forklifts that operate in factories and the like which quite rightly are getting the consideration of a non-transport use of LPG—and also as it relates to compressed natural gas. It might come as a surprise to you, Madam Deputy Speaker, but in Aspendale Gardens in the great state of Victoria, probably about a year and half ago, there was an opening of the first publicly available CNG filling station. For those with an interest in transition fuels that are more environmentally friendly, I am a big fan of CNG and, as the parliament knows, I have been a long-time, big advocate of LPG. Here was a compressed natural gas filling facility not of the kind ordinarily operating in Australia where fleet vehicles may have had access to it.

In fact, not far from your electorate, Madam Deputy Speaker Vamvakinou, the Melbourne city council received a grant from the previous Howard government to have a CNG filling station in its depot to support the garbage collection fleet where there were dedicated CNG vehicles operating in the city of Melbourne, coming back to base and being filled with CNG. That has been the normal course of events and a number of light commercial and heavy commercial vehicle manufacturers offer compressed natural gas systems for their vehicles. What was new in this case was that this was a publicly available CNG filling station, reflecting that a number of suppliers, including Mercedes Benz and others, now have light commercials that can be operated on CNG that needed somewhere to fill up.

On that occasion—and it was a very nice occasion; I think the member for Isaacs was there as well—the proprietors of that public CNG filling station showed me a home CNG compression unit. This would allow you, I or anybody else to purchase technology that would draw gas from the gas mains and to have it compressed and injected into a vehicle so that you could actually fill up your car at home. One of the issues that did cross my mind at that point was just how excise would operate when people were drawing gas from the household main system that would be firing up their hot water services and keeping them all toasty warm on a cold Melbourne night. They would also tap into that supply to fuel their vehicles. This bill deals with that and gives some encouragement to those who would invest in that domestic CNG filling capability that they will not be subject to excise. That is another reason why the coalition is supportive of schedule 4.

The other area we are very interested in and supportive of the government's actions on relates to the discretion the tax commissioner would gain related to certain trust structures where a change in the composition of the trust would trigger certain taxable events, such as a new trust member or one leaving the trust. As the shadow Treasurer indicated, an untimely death might trigger capital gains tax liabilities and the like. We think that the opportunity for the tax commissioner to exercise a discretion as it relates to those taxable events is a very good idea. I am personally aware of some circumstances where an untimely death has created an enormous tax liability that none of the family members had anticipated and that only compounded their personal grief.

There was no great public policy or tax policy justification for triggering that liability but it was one that they were faced with that added to the hardship of the loss of a loved family member. Those family farm enterprises felt unforeseen and very harsh consequences from a strict interpretation of the law. The opposition actually highlighted that this was a shortcoming of the taxation law and administration and proposed a change of this nature, and I am pleased that the Assistant Treasurer, not only having chosen well with his wife, a lovely person who I was pleased to meet the other day, has also chosen well in picking up this opposition suggestion. I commend him for doing that.

It does highlight, though, a policy initiative that the coalition has proposed—that is, the need to appoint a small business and family enterprise family ombudsman for a range of reasons: in dispute mediation and for a proper strong voice to be heard within the halls of power, something that you could never suggest happens at the moment with the current government; they seem to have this horrible disposition of hostility and combativeness towards small business and family enterprises.

Mr Shorten interjecting—

The Assistant Treasurer is illustrating the point quite well at the moment of just how hostile the government's attitude is to small business and family enterprises. Here is an example of where the coalition had led the way, has shone the light on a problem with government administration that dealt with small business and family enterprises. Something has been done about it.

As to other problems, Madam Deputy Speaker, I am sure you are highly alert to some of the communication responsibilities, where a broadcaster, a family trust or others might hold a radio broadcasting licence and the untimely death of one of the family members would be a trigger event to impose new local news content. Do you remember when we had that sort of 'vanillarisation' of radio services down the east coast and there was some concern about a loss of local content and news services being beamed in from places afar into local regional markets? There was a trigger event that if a radio licence was sold then the new owners would have certain obligations on them for local news collection, local content and the like.

Sadly, one of those trigger events was like what we are describing here, where if the their licence was owned by a family trust and one of the members passed away it was treated as if it were a sale. So, compounding the grief of a loved one being lost to the family that owned that radio licence, they then had to restructure their radio station purely because a family member had passed away. It was not because of the sale but just because of the change in the composition—again, highlighting why the coalition's excellent policy to appoint a small business and family enterprise ombudsman would have alerted people to the family enterprise context of that policy.

We think that is a good thing, and perhaps the government will also follow the lead of the coalition and embrace yet another good idea that has come out of the small business portfolio, dare I suggest, Assistant Treasurer. The Department of Prime Minister and Cabinet actually said that the coalition's small business policy would promote and support small business and encourage entrepreneurship, and they gave it a big tick. My encouragement to the government was, 'We know that you do not have a great feel for small business and family enterprise so just copy the coalition's policy.' That has happened before and it is happening here. I hope, in the interests of small business, it happens again, because they really need someone on their side. They cannot look to government benches for that kind of support. So we are happy to keep providing some insights on what can happen.

On the two provisions of the bill that are quite contentious, the shadow Treasurer outlined a quite remarkable effort to retrospectively change the nature of the tax law as it related to Bass Strait petroleum, even though it is currently the subject of court proceedings. Taxpayers, who are disputing the tax commissioner's interpretation, have been paying their asserted tax liability that the tax commissioner has put forward whilst they contest the interpretation of the tax laws. The shadow Treasurer quite rightly points out the difficulty that taxpayers face when they have a dispute with the tax commissioner. They are expected, particularly for small businesses, to pay the liability that has been calculated and deemed to apply and then they may contest it. If you do not, you show great courage because interest compounds on that tax liability. It is almost a no-brainer that you should pay first and then contest later. Somehow, some interpret that as an admission that the tax law has been appropriately administered.

This is another example where the tax office's assessment of tax liability has been hotly contested for two decades. This is no way resolving it by coming in at the 11th hour on well-advanced court proceedings to try and reframe the law and then apply it retrospectively. There is no virtue in that whatsoever. It runs against all the grains of good public policy and good legislative formulation. I can understand why the Assistant Treasurer is hanging his head. It is not his finest moment when he is trying to retrospectively change the way the law is operating. He should let this thing run its course, and I commend to him the coalition's position in that regard.

The last point that we should talk about relates to the reach of a director's liability. I must say, at the urging of the Assistant Treasurer, I will praise him for seeing the wisdom in withdrawing the schedule. What was said to have been an effort to crack down on phoenix structures actually has much broader reach. Directors, with no suggestion that the companies they are involved with have been involved with phoenix liabilities, may be subject to these provisions. If directors, who are exercising all of their responsibilities quite appropriately, find that somewhere within the organisation something had not been done right with the PAYG or the superannuation contributions, they would personally would be liable. There is no effort required to substantiate the phoenix-like status of the company and that being the motive for that action. There is no legal obligation to prove that the directors had somehow not been properly discharging their obligations or knowingly conspired to see an inappropriate PAYG or superannuation payment arrangement. There is nothing like that whatsoever in schedule 3, which was poorly drafted. The House Economics Committee identified that many of the submissions to the inquiry into this bill reiterated that point. I think it is wise and sensible that the government has chosen to withdraw schedule 3.

It does point to yet another opportunity that the government has to embrace a coalition policy. Madam Deputy Speaker Vamvakinou, you would be aware that the government has promised much from an arrangement where employers, if they choose, could make superannuation contribution payments to Medicare. Medicare would then oversee the distribution of those payments to the particular funds that their employees were members of. That has been spectacularly unsuccessful because the idea has been so poorly executed. It has been spectacularly unsuccessful because most businesses do not wake up in the morning thinking that they need to have a relationship with Medicare. Yet that is the presumption that sits behind the government's policy formulation.

The coalition on the other hand has been advocating that that role be through the Australian Taxation Office where you could combine the PAYG contributions and the superannuation guarantee responsibilities into a single payment to the tax office. Then the tax office could make that distribution. That makes sense because it is the tax office that is charged to enforce their recovery, not Medicare. Medicare under the government's arrangements would receive this payment and do the transactional gymnastics to take that payment and spread it out across the funds. If those payments were not right or they were not coming in in a timely way, there would be nothing they could do about it. Compounding the problem is that most businesses do not have any kind of relationship with Medicare and would not even think to contact them for some service of the kind that is being considered in superannuation clearing terms. If there were something not quite right, Medicare could not do anything about it anyway.

The government should embrace the coalition's proposition of having these payments handled through the tax office. You would then have all the right mechanisms connected and the relationships that business understands working to the advantage, not only of the business in reducing their transaction costs in making superannuation payments, but also in the event the business was not upholding their responsibilities for those payments. The tax office would be the Johnny or the Jeanette on the spot seeing that those payments were not coming in and would have all the tools necessary to ensure that those payments were made in a timely way. That is a far more sensible way to go than what was originally envisaged in schedule 3, which sought to impose some new liability on directors. Notwithstanding that those directors did not have any involvement, knowledge of, or had failed in some way to carry out their responsibilities, they were somehow going to be personally liable.

It is another example of a good coalition policy. The only criticism that has come from the government is that it would be too successful. Too many businesses would be involved and somehow that would put added demands on that process. It has been a long time since I have heard a criticism of a policy being at risk of being too successful and too effective in achieving its objectives. That is another area where I think the government could embrace the coalition's position in recognising the Assistant Treasurer's decision to withdraw schedule 3.

Scott Buchholz (Wright, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2011 Measures No. 8) Bill 2011. Certain schedules in the bill make changes to taxation laws. Schedule 1 gives the commissioner discretion in certain circumstances to disregard events that would otherwise trigger the assessment of certain incomes on primary production costs. We support that part of the schedule. It is not contentious. Schedule 2 speaks to making a retrospective change to the taxing point of the petroleum resource rent tax and schedule 3 makes directors personally liable for the unpaid superannuation of employees and PAYG withholding tax. Schedule 4 enacts consequential amendments regarding the tax on gaseous fuels, which we support and which is not in contention. I would like to address each of these schedules and the proposed changes one by one.

Schedule 1 relates to the commissioner's discretion pertaining to certain income on primary production trust. This schedule returns the laws to the position prior to the introduction of the Income Tax Assessment Act 1997. Specifically, it relates to section 385-E, 385-F and 385-G of the act, which, among other things, allows primary production trust and deferred taxation liabilities from the profit of the sale of livestock in years where they have been affected by drought, flood, fire and disease. Under the current laws, if any beneficiary of a trust dies, then this tax liability cannot continue to be deferred. In effect, this means that the primary production trust can be liable for a large and unexpected tax liability in the event of an untimely death. In fact, tax liability is triggered on the death of any beneficiary of the trust, regardless of whether or not the deceased beneficiary is presently entitled to the income from the deferral. This would seem to me to serve no public interest and only compound personal grief in a time of need. Under the previous 1936 Income Tax Assessment Act, the Commissioner of Taxation had discretion over whether a death would trigger a tax liability or not. The change to remove the discretion was made as part of a general limiting of discretion, but led to unforseen and harsh consequences for family farm enterprises. Consequently, this change to the taxation law was proposed by the opposition to correct this. It is my understanding the government has accepted it as a sensible change, recognising there is low financial impact, and we commend the government for that.

Schedule 2 relates to the taxing point for the petroleum resource rent tax, or PRRT. This tax is a profit-based tax which is levied on petroleum projects in Commonwealth waters, except the North West Shelf project. Under the changes developed in conjunction with the mineral resource rent tax, the current PRRT regime was proposed to be extended to all Australian onshore and offshore oil and gas projects, including the North West Shelf. However, the legislation does not deal with that change; rather it is a technical change supposedly clarifying the taxation point of the existing PRRT regime—that is, petroleum recovered in Commonwealth waters excluding the North West Shelf project. More specifically, this change will have application only to the Bass Strait ExxonMobil project, which BHP is partnering. In fact, the taxation point, along with other matters, has been challenged in the courts by Exxon for many years since the Bass Strait project was brought into the PRRT regime in 1990-91.

The schedule gives effect to an announcement by the Treasurer in the federal budget on 10 May 2011 and is specifically directed at curtailing ongoing litigation between the Australian Taxation Office and Esso Australia Resources, a wholly owned subsidiary of ExxonMobil Australia. This litigation was the subject of a recent Federal Court decision, Esso Australia Resources Pty Ltd v the Commissioner of Taxation [2011] FCA 360 on 13 April 2011, and is the subject of an ongoing appeal. In light of all this dubious history, I am amused that the government has variously claimed that the PRRT is working well and is well understood. In fact, here we are in relation to one of the major offshore projects coming under the PRRT and yet the government has been in litigation for more than 20 years on issues such as the appropriate definition of the taxing point. As a result, I cannot help but conclude that this part of the bill seeks to undercut the court proceedings currently underway. It enables potentially two things: either the government's views prevail—in which case this amendment will not be necessary—or the government loses its argument in court—in which case this is retrospective tax legislation going back more than 20 years on the current prevailing tax laws.

In light of this background, this schedule should be opposed or amended for the following reasons: it seeks to retrospectively alter tax law to a 1990 act, reaching back over 20 years, and it targets one taxpayer who is currently in litigation with the Australian Taxation Office and the government as to the correct interpretation of the tax law as it stood at the time of relevant investment decisions. Tax laws which retrospectively disadvantage taxpayers—in this case going back to 1990—are highly unfair. The following are some comments from industry representatives to the House's economics committee on this matter. The comments from the Business Council of Australia's submission to the House of Representatives Standing Committee on Economics included:

… the BCA has been unable to identify a precedent for the introduction of retrospective tax law where there is an ongoing dispute between government and an individual taxpayer involving a debate as to the meaning of the law.

…    …    …

For this reason the BCA is asking the committee to recommend to parliament that it reject the retrospective elements of the bill.

There are additional comments from the Tax Institute of Australia in its submission to the same committee. They said:

In our view …

The Government will amend the tax law to provide greater certainty around how the taxing point is calculated for the purposes of the Petroleum Resource Rent Tax (PRRT), with effect from 1 July 1990. This measure will confirm existing application of the PRRT in relation to the taxing point and will provide greater certainty for PRRT taxpayers.

…    …    …

The amendments will provide further statutory support for the Court's judgment, and will be consistent with the established application of the PRRT law.

Additional comments come from the Institute of Chartered Accountants in Australia along the lines of:

As our written submission to this inquiry has highlighted, the institute is apprehensive that the risk presented to Australia is a governance framework from a failure to strictly adhere to the longstanding doctrine of separation of powers between the legislature and the judiciary. The government should not be allowed by the parliament to retrospectively amend PRRT laws dating back 21 years and should not be encouraged to usurp the role of the judiciary by amending tax laws part way through a major litigation that is seeking to test certain key concepts embedded in the PRRT regime. If the government is determined to introduce retrospective tax laws, it should at very least wait for the finalisation of this long-running litigation before deciding on an appropriate course of action in respect of the relevant issues.

The economics committee and parliament must consider the implications of the passage of this bill. It appears that the parliament is being asked to intervene in what is a longstanding legal case as it comes to the stage of a final appeal. This intervention by the parliament will in effect prevent such an appeal. This would appear to be creating a grave precedent and should be resisted at all points. Both the matters raised have the potential to create substantial uncertainty in the business environment, with repercussions for investor perceptions of the investment climate in Australia.

Schedule 3 covers the Pay As You Go Withholding Non-compliance Tax Bill 2011 regarding directors being personally liable for unpaid superannuation and PAYG withholding tax. This schedule proposes the following changes to tax law: making directors personally liable for unpaid superannuation guarantee amounts—not to mention, directors are already liable for unpaid PAYG withholding amounts; allowing the commissioner to estimate unpaid superannuation guarantee amounts—not to mention, they can already estimate unpaid PAYG withholding amounts; allowing the commissioner, once a company's unreported and unpaid debts regarding superannuation guarantee and PAYG withholding are over three months old, to immediately commence proceedings to recover the penalty; giving the commissioner discretion to reduce PAYG withholding credits where a company has failed to pay PAYG withholding amounts; where a director or an associate is entitled to claim a withholding tax credit and the company associated with that credit has not paid its PAYG entitlement in full to the ATO, then the ATO may levy a withholding non-compliance tax on the director or associate—up to the value of the credit being claimed—to recover the amount of unpaid PAYG.

The final three measures in this schedule target 'phoenix' activity and the personal use by directors of PAYG entitlements. Phoenix activity is typically associated with directors who transfer the assets of an indebted company into a new company of which they are also directors. The directors then place the initial company into administration or liquidation with no assets to pay creditors, meanwhile continuing the business using the new company structure. This schedule also targets companies which fail in their obligations to pay superannuation guarantee and PAYG withholding amounts.

Let me make this point very clear upfront: we absolutely support the right of every employee to be paid their rightful entitlements regarding employee superannuation contributions, or any other obligations under law an employer has. However, the Australian Institute of Company Directors in their report to the committee, outlined serious reservations about this schedule, believing the legislation has been drafted far too broadly. The implication of this was highlighted in Minister Shorten's own media release on 13 October where he said:

The ATO estimates that there are approximately 6,000 phoenix companies in Australia. This equates to approximately 7,500-9,000 company directors who will have personal liabilities under this legislation.

In fact, the legislation applies to around 1.2 million company directors in Australia; it throws a far broader net. It also applies the same penalties to new directors for events that occurred in a company prior to their appointment. But specifically I would like to highlight feedback from the submission of the Australian Institute of Company Directors which states:

1. The Bill applies to ALL directors of Australian companies, not just to directors of companies suspect of phoenix activity;

2. The Bill makes directors personally liable for the company's unpaid superannuation guarantee amounts—regardless of the directors' culpability;

3. The Bill makes directors liable for actions of the company, regardless of the circumstances in which the breach occurred (i.e. even when the company's breach is inadvertent);

4. The Bill makes new directors, that is, directors who have joined a company after a breach has occurred, personally liable for the actions of others and for which they were in no way responsible.

As a result, the AICD concludes and subsequently suggests limiting the application of the personal liability of directors to companies where phoenix activity has taken place and limiting the liability of directors to matters that occurred after their appointment.

Schedule 4, regarding consequential amendments to tax on gaseous fuel, seeks to clarify the treatment of LPG, LNG and CNG following the introduction of the taxation of alternative fuels legislative package which received Royal Assent on 29 June 2011. In particular, the changes confirm excise does not apply to CNG for transport use manufactured in a home refuelling unit on a non-commercial scale and fuel tax credits are available to distributors of LPG in a wider range of circumstances. Given these changes offer a reduced tax burden in each case, they are non-controversial and therefore the coalition supports this clarification.

In conclusion, as a result of this background and subsequent analysis, the coalition supports the changes in schedules 1 and 4. However, schedules 2 and 3 raise a number of issues that require greater prudence. There is nothing conclusive in the bill that has taken my mind nor convinced me that this bill will deject or dampen the entrepreneurial activities of repeat phoenix operators. This bill throws a wide net that will affect every employer in the country. I repeat it will affect every business that is currently struggling with layers and layers of compliance, which in my electorate is one of my small business sector's greatest barriers to business, coupled with the Consumer Confidence Index data which remains at record lows. Either way, the House of Representatives should have proper opportunity to consider the economics committee report before being asked to consider the schedules as they are not entirely straightforward.

Bill Shorten (Maribyrnong, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

Firstly, I would like to thank the members who have contributed to this debate. Schedule 1 to the Tax Laws Amendment (2011 Measures No. 8) Bill 2011 allows the Commissioner of Taxation discretion to disregard certain events that would otherwise trigger the assessment of certain income for a primary production trust in the year of the event. The amendments ensure that elections to spread or defer income made by primary production trusts do not automatically end upon the happening of a disentitling event. These include when a beneficiary becomes insolvent or leaves Australia permanently. This broadly restores the position that existed prior to the Tax Laws Improvement Project in 1997, where a commissioner's discretion existed in the income tax laws. Schedule 1 secures a favourable position for taxpayers, as the amendments apply from the 2005-06 income year.

Schedule 2 to this bill clarifies the intended operation of the petroleum resource rent tax. Specifically, these amendments reinforce the long-established interpretation, recently affirmed by the Federal Court, of how the taxing point is determined for the purposes of the petroleum resource rent tax. The amendments put beyond doubt that the final intended use of a substance must be taken into account in determining where in a production chain a marketable petroleum commodity is produced. This in turn is used in determining the location of the taxing point within a petroleum operation. Passage of these amendments will provide current and future PRRT taxpayers with certainty as to how the petroleum resource rent tax applies in their specific projects. This is particularly important because from 1 July 2012 the petroleum resource rent tax will be extended to cover all Australian oil and gas projects, including, for the first time, those located onshore, as well as the North West Shelf project.

I wish to foreshadow government amendments to remove schedule 3 from the bill. Removal of schedule 3 would allow further consultation on this measure without delaying passage of the bill, because the amendments contained in schedules 2 and 4 require urgent passage. After listening to recent feedback from stakeholders and after the hard work of the member for Parramatta, it has become evident that some further modifications may be required to ensure that the proposed amendments do not affect company directors inappropriately in certain circumstances. The government remains committed to implementing amendments to protect workers' entitlements and ensure that company directors take their tax obligations seriously, and we wish to discourage phoenix operators and will reintroduce this measure early in 2012 after further and final consultation.

Schedule 4 to this bill makes minor consequential amendments to the taxation of gaseous fuels. The minor amendments have been developed with the benefit of extensive consultation with the gaseous fuels industry. The minor changes ensure that the home manufacture of compressed natural gas with domestically rated equipment does not impose excise obligations even where there is some business use. The changes also clarify both the requirements for LPG notices and the fuel tax credit arrangements for the unlicensed supply of packaged LPG. The minor changes ensure that the taxation arrangements for gaseous fuels do not have any unintended impacts and minimise industry compliance costs. The measures contained in schedule 4 to the bill will apply from 1 December 2011. I commend this bill to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.