Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Hansard source

The Tax Laws Amendment (2006 Measures No. 3) Bill 2006 and associated bill involve a raft of measures associated with extending concessions in some areas, modifying definitions, correcting errors and, in one case, overriding a major decision of the full Federal Court. The first two schedules of the Tax Laws Amendment (2006 Measures No. 3) Bill 2006 are important to the people whose lives have been devastated by the effects of Cyclone Larry, which hit far North Queensland just south of Cairns on 20 March this year. While there was no loss of life, a significant number of homes and businesses in the area were affected and the region was declared a natural disaster zone by the Queensland government. We recognise that some businesses have not been able to trade due to the cyclone. As a result, some residents in affected areas have had to rely on income support from Centrelink. These measures ensure that such support enjoys tax-free treatment, as it should.

The first schedule extends eligibility for the beneficiary tax offset to farmers and small business owners who receive Cyclone Larry income support payments. The Cyclone Larry income support payments provide income support to farmers and small business owners whose income has been adversely affected by Cyclone Larry. They are equivalent to the maximum rate of the Newstart allowance and, as we know, are administered by Centrelink.

Businesses have also received cash grants to make up for loss of trade. The second schedule provides tax-free status for certain Australian government payments to businesses adversely affected by Cyclone Larry. Payments of $10,000 will go to businesses that have been adversely affected, and those businesses that can show significant losses can receive up to $25,000. Without this assistance, some small businesses would need to close down, with loss of jobs and dislocation of people’s lives. Labor are firmly committed to assisting these small businesses and give this measure our complete support. Labor also support the reimbursement of any excise paid on diesel or petrol fuel used by businesses for generating their own electricity until normal services are restored.

Schedule 3 is a similar measure that ensures that persons affected by drought will also receive income support in a manner that does not attract tax. It extends eligibility for the beneficiary tax offset to drought affected taxpayers who receive interim income support payments.

The fourth schedule makes a correction to the share-tainting rules as they apply to demutualised entities. The simplified imputation system was part of the government’s business tax reform package, and applied from 1 July 2002. The share capital tainting rules are an integral part of the dividend imputation system. Accordingly, in this bill they have been redrafted and anomalies have been removed in order to integrate them into the new imputation system. Shareholders are taxed preferentially on distribution of share capital. In contrast, shareholders are generally taxed at their marginal tax rate on distribution of profits, with imputation credits available, if appropriate. The share capital tainting rules are integrity rules designed to prevent a company from disguising a distribution of profits as a tax preferred capital distribution by transferring profits to its share capital account and subsequently making distributions from that account to shareholders.

The opposition supported the original share-tainting rules and supported the redrafting of the dividend imputation system. The objective is that the new tainting rules will remain to act as an integrity measure. It now appears, however, that there was an oversight in the design of those rules when the original share-tainting rules were introduced in 1998—namely, the treatment of companies that were mutuals but which had demutualised. The bill introduces a regime which covers both capital returns made at the time of demutualisation and subsequent returns of capital made by demutualised companies to ensure that they are treated on a comparable basis to other companies. This is needed to create certainty that the integrity provisions of the share-tainting rules will not adversely affect shareholders of demutualised firms.

Schedule 5 exempts the recipients of certain grants from capital gains tax. There are cases when the receipt of such grants can be assessable income or an assessable capital gain. This bill simply clarifies that this is not the case in the situation of the M4/M5 Cashback Scheme and the Sydney noise insulation project. In addition, some grants to mediation and dispute resolution schemes under the new Work Choices laws are to receive this treatment. This schedule exempts the unlawful termination assistance scheme and the alternative dispute resolution assistance scheme grants from capital gains tax provisions. Labor supports the measure in defence of employees in dispute with their employer or contemplating unlawful termination actions. However, there seem to be insufficient integrity measures to ensure that these vouchers are properly used. Quotations from the hearings into the bill are quite relevant to this fact. Senator Webber asked of the department:

When they take their voucher along to this person that they have found, how do you determine how much money you pay? It says ‘up to $4,000’.

The response from the department was:

The provider would remit the invoice to the department for payment on behalf of the applicant and that invoice would need to set out the services that have been provided.

Senator Webber then asked:

Yes, and you will just pay on submission of that invoice?

The answer was, ‘Yes.’ It seems that insufficient safeguards are in place to ensure that the Commonwealth is not being billed $4,000 for all matters, even those which can be dismissed in 10 minutes as not having a prima facie case. Labor suggests that the department should investigate options to ensure that the voucher is only used for hours genuinely billed on a commercial basis.

Schedule 6 will provide a tax offset to certain taxpayers who, in the year in which they receive a significant eligible lump sum payment in arrears, have become liable for the Medicare levy surcharge or an increased Medicare levy surcharge liability due to the receipt of a lump sum payment in arrears. The amount of the offset will be the amount of the increased Medicare levy surcharge liability created by the receipt of that eligible lump sum. In cases where receipt of the lump sum payment in arrears alone results in the taxpayer’s spouse having a Medicare levy surcharge liability, the spouse will also be eligible for the offset.

Schedule 7 allows the commissioner to require superannuation providers to report prescribed information that is reasonably necessary to assist in the administration of the superannuation guarantee arrangements. The information that superannuation providers will be required to report are details of employer and total contributions. Where amounts are transferred between superannuation funds or retirement savings accounts, the transferring superannuation provider must provide the receiving superannuation provider with equivalent information. This is a measure that Labor has supported in the past. The next schedule excludes from reporting fringe benefits provided in order to address certain security concerns relating to the personal safety of an employee or an associate of the employee arising from that employee’s employment.

Schedule 9 provides that funding credits can only apply to reduce tax on contributions that are used to fund liabilities that were accrued prior to 1 July 1988. These amendments apply to the use of funding credits on or after 9 May 2006. In addition, any new or outstanding objections or requests for amendment to past assessments will only be able to amend funding credit use for the year or years up to the amount that can be claimed under the new tax law. It is not clear how this costing has been arrived at or what the impact on state superannuation schemes will be. That was part of the investigation pursued by the committee.

Schedules 10 to 12 introduce some changes to the rules that apply to charities. Schedule 10 amends the definition of the word ‘enterprise’ in both the GST act and the ABN act so that non-charitable public ancillary funds and prescribed private funds can obtain an ABN and will, where applicable, be entitled to be endorsed as income tax exempt. This amendment will also ensure that the DGR status of non-charitable public ancillary funds and prescribed private funds is maintained and that these entities can receive input tax credits for GST included in their acquisitions and importations. Labor supports this, but I add that the government is punishing some apprentices in relation to the ABN system.

The next schedule streamlines current DGR specific listing arrangements and provides a more consistent framework for assessing applications for DGR status. Funds, authorities or institutions that meet the criteria for the categories of war memorials, disaster relief, animal welfare, charitable services or educational scholarships will be eligible for endorsement as a DGR under one of these new general categories. Labor has consulted with major charities and has been informed that this measure is generally supported. However, Labor wants the charities to have the opportunity to express their own views and, accordingly, Labor referred it to the committee.

Schedule 12 of the bill amends the GST act to clarify that GST concessions are available to an entity only if it operates a fund, authority or institution that has gift deductible status, and it does not apply to the activities of the entire entity; that an entity that supplies a thing as a gift to an entity that operates a fund, authority or institution that has gift deductible status may have an adjustment under division 129 of the GST act if the gift is made other than for the principal purpose of the endorsed fund, authority or institution; and that charitable retirement villages must be endorsed by the commissioner in order to access the GST charitable retirement village concession under section 38-260 of the GST act. Although Labor understands that charities are not uncomfortable with this measure, the speed at which the bill has proceeded in the parliament creates the need for this schedule to have been considered by the committee.

The 13th schedule clarifies that the repeal of the six-year amendment period for general antiavoidance amendments only applies to assessments for the 2004-05 income year and later income years. Labor supports the correction and asks the Assistant Treasurer to make all efforts to clean up the act. Treasury has made some technical errors in this regard in the past.

The next schedule is vital to the wine industry. From 2006-07, each wine producer or group of wine producers will be able to claim up to $500,000 in WET rebates each year. This measure provides assistance to the wine industry at a critical time, and Labor supports it. However, there is a major problem in this measure, because it means that more funds will flow under the scheme to New Zealand producers.

The final schedule of the bill deals with the GST treatment of residential properties. These amendments ensure that supplies of certain types of real property are input taxed to confirm the policy intent that the words ‘residential’ and ‘residence’ are not limited to extended or permanent occupation; confirm that residential premises which have only previously been sold as commercial residential premises or as a part of commercial residential premises are still regarded as new residential premises; and confirm that the supply of accommodation provided to individuals in commercial residential premises by an entity that owns or controls the premises remains subject to the GST. These amendments apply to net amounts for tax periods that commence on or after 1 July 2000.

Labor is of the view that the evidence presented by the Treasury officials at the hearing and as outlined in the report seemed to conflict with the material provided in the explanatory memorandum in section 15.4. The inquiry reports state that Treasury representatives commenced their evidence by pointing out that the Marana decision was not focused on the key issues discussed by the committee. The Marana decision was about related issues around when something is a new residential property. It dealt with a situation where an old motel was converted into strata title units, so it was quite a specific case. As part of that, the court made some comments about what residential property might be as opposed to what new residential property might be. As such, the comments were obiter dicta. If this issue was purely obiter dicta, why has the government sought to legislate on this matter?

Statements in the explanatory memorandum that indicate that as a result of the Marana decision certain taxpayers would be advantaged or disadvantaged is not consistent with the interpretation of obiter dicta proffered by officials. The explanatory memorandum tabled by the minister is a document of notes to the courts on the interpretation of taxation law so it carries greater weight than the oral testimony given by officials at a hearing. Labor request that the minister address the issue of a potential conflict between the evidence given and the material stated in the explanatory memorandum.

In addition, Labor calls on the government to publish the number of taxpayers who have entered into relevant investments since the time of the Marana decision and 27 February 2006 and who have successfully made an input tax credit claim with the ATO. Labor calls on the minister to request from the Commissioner of Taxation advice as to whether he can use his discretion to grant rate relief to such taxpayers and publish this advice. In the event that the government is not prepared to make such material public, Labor would ask the government to consider the introduction of measures to grant relief to taxpayers who have entered into relevant investments since the time of the Marana decision and who have successfully made an input tax credit claim with the Australian tax office.