Thursday, 20 September 2018
Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Bill 2018; Second Reading
That this bill be now read a second time.
This bill enhances the integrity of Australia's tax system through implementing the government's response to the Black Economy Taskforce's final report.
The Black Economy Taskforce was established in December 2016 to develop a whole-of-government response to tackling the black economy.
The black economy includes businesses and individuals who operate outside the tax and regulatory system and avoid their withholding and reporting obligations or deliberately under-report income.
Participation in the black economy undermines community trust in the tax system, gives some businesses an unfair competitive advantage and puts pressure on the margins of honest businesses.
Failing to report income or the under-reporting of income are black economy activities targeted in this bill.
The government is committed to a fair tax system which supports honest businesses and ensures that black economy participants cannot escape paying their fair share of tax.
Schedule 1 to this bill introduces changes to tax deductibility rules, denying a tax deduction for certain payments where an entity, such as an employer, fails to comply with their withholding and reporting obligations, encouraging nonreporting or underreporting of incomes by their employees and contractors.
Some businesses can currently claim deductions for expenses even where the business does not comply with withholding obligations in respect of the expense, such as paying undeclared cash-in-hand wages to employees or paying contractors without withholding tax where an ABN is not provided. This sends a conflicting message about the legitimacy of these actions.
Denying deductions in cases where these obligations are completely disregarded provides a strong financial disadvantage to this behaviour and will send a message that black economy behaviours are not legitimate activities.
Schedule 2 to this bill extends the taxable payment reporting system to the road freight, security and IT industries. Contractors in these industries are considered by the Black Economy Taskforce and the ATO to be at higher risk of not reporting their income.
From 1 July 2019, entities that provide a road freight, security or IT service will be required to report to the ATO payments made to other entities that they engage to undertake that service on their behalf. Reporting these payments will improve transparency and bring reporting obligations for payments to contractors more into line with the pay-as-you-go reporting obligations on employers for payments to their employees.
The taxable payment reporting system already operates in the building and construction industry, where it has resulted in improved contractor compliance. In the 2017-18 budget, the taxable payment reporting system was also extended to the cleaning and courier industries.
The information reported to the ATO will be used for prefilling purposes to make it easier for contractors to lodge their income tax returns and for data-matching purposes to ensure contractors comply with their tax obligations, such as correctly lodging their income tax returns and meeting business activity statement obligations.
The bill also targets the illegal tobacco trade and complements legislation introduced by the Assistant Minister for Home Affairs, which is designed to combat imported illicit tobacco. Through effective tobacco control policy, Australia has become a world leader in reducing smoking rates. This has improved the health and wellbeing of Australians and reduced the social costs associated with smoking.
It is important to support Australia's tobacco control policies with effective measures to combat illicit tobacco, which is a major source of funding for criminal organisations, and to ensure that tobacco products are taxed effectively to continue reducing the prevalence of smoking.
Schedule 3 is part of a suite of measures the government announced in the 2018-19 budget to combat illicit tobacco. It moves the taxing point of domestically manufactured tobacco to the point of manufacture rather than when the tobacco enters home consumption.
This schedule in conjunction with the bill introduced by the Assistant Minister for Home Affairs creates a comprehensive approach to stop tobacco leakage from warehouses, which is the primary cause of the illicit tobacco trade. Stopping warehouse leakage will withdraw a major source of funding for organised crime and remove the supply of illicit tobacco to the market.
Further explanations of these measures are contained in the explanatory memorandum.
I commend the bill to the House.