Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Hansard source

The Tax Laws Amendment (2007 Measures No. 4) Bill 2007 and associated bills and the Tax Laws Amendment (2007 Measures No. 5) Bill 2007 have been listed together for debate. I intend to limit my contribution to only some of the schedules due to the combination of the two tax bills and the time constraints in dealing with what are two relatively large tax measures.

Schedule 1 of the Tax Laws Amendment (2007 Measures No. 4) Bill 2007 repeals existing foreign loss and foreign tax credit quarantining rules and replaces them with new simplified foreign income tax offset rules. The main measure is the abolition of foreign loss and foreign tax credit quarantining and the rewriting of the remaining complex foreign tax credit rules as part of the 1977 tax act. The rewritten tax offset rules also reduce compliance and administration costs through the removal of the foreign tax credit as a remedy for the double taxation for transferring pricing adjustment in another country, the inclusion of a $1,000 de minimus cap and the removal of attributed tax accounts. The amendment means that taxpayers will no longer be required to quarantine assessable foreign income accounts into four separate classes. Excess foreign income deductions or foreign losses will no longer be quarantined for domestic assessable income. Therefore, in utilising deductions, no distinction is made in respect of the source of the assessable foreign or domestic income, which will reduce compliance costs.

The bill also allows taxpayers with a minority interest in foreign companies to choose to calculate attributable income using the CFC branch-equivalent rules rather than the foreign investment fund—FIF—rules. This should reduce compliance costs for taxpayers and financial institutions that have to deal with the notoriously complex FIF rules and will allow Australian investors to take advantage of the existing exemptions and concessions of the CFC measures.

These amendments go some way to making Australia’s international tax rules more competitive. However, there is so much more that this tired, out-of-touch, stale government could do. They have been sitting on their hands when it comes to ensuring Australia’s financial services sector can grow and become a financial hub within Asia. Labor will reform division 6C and replace it with a specified specific tax regime for managed funds and listed property trusts. This announcement is in addition to Labor leader Kevin Rudd’s announcement in the May budget reply to reduce the withholding tax rate that applies to non-resident investors to a flat and final rate of 15 per cent. These measures, proposals and policies of Labor demonstrate our commitment to Australia’s economic future. They are sensible tax changes that value-add and are welcomed by the financial services sector.

I also note that these changes in schedule 1 were announced in the 2005 budget. It has taken far too long—over two years—to legislate this, which I think again leads to a question mark being put over the government’s general translation of budget announcements into legislation in a timely manner.

Schedule 3 of this bill contains amendments to the Superannuation Industry (Supervision) Act, commonly known as the SI(S) Act, to provide an exemption from the borrowing prohibition to allow superannuation funds to invest in instalment warrants so long as certain borrowing criteria are met. The in-house asset rules contained in the SI(S) Act are also amended to allow for the purchase of an interest in a related trust forming part of the instalment warrant, if certain conditions are met. This measure overcomes the tax office’s and the Australian Prudential Regulatory Authority’s view that instalment warrant arrangements constituted a form of borrowing and that an investment by a self-managed superannuation fund in an instalment warrant is an in-house asset and therefore breaches the borrowing provisions and in-house asset rules of the SI(S) Act. Labor believes that this proposal assists superannuation funds to grow their assets to support Australians in their retirement, and as a result supports the measure.

Schedule 4 amends the Income Tax Assessment Act 1936 so that the trustees of closely held trusts are no longer required to report to the Commissioner of Taxation details of the trust’s ultimate beneficiaries. Instead, trustees of closely held trusts are now only required to report details of the trust’s trustee beneficiaries. The ultimate beneficiary rules were introduced by this government in 1999 as an anti-avoidance measure aimed at preventing complex chains of trusts being used to avoid or indefinitely defer tax. The measure in this bill goes back on the government’s own closely held unit trust integrity measures of 1999. The amendments will reduce the costs of complying with the ultimate beneficiary rules but may be at the cost of the integrity of the tax system. Labor support this proposal to reduce the compliance burden and the compliance costs but will monitor the operation of this to ensure it does not open up possibilities of tax avoidance.

Schedule 5 amends various acts to assist in the smooth transition to the—I was going to say ‘simplified superannuation’ regime, but I have noticed of late that the government is no longer describing it as ‘simplified superannuation’. It seems to have morphed into what is called ‘better superannuation’. I wonder what focus group polling has been driving that quite significant change in title description. I have to say that everyone I have met has not particularly seen the ‘better super’ package, as it is now being dubbed by the government, as an exercise in simplification. Schedule 5 makes the following minor amendments to the superannuation rules: it limits strategies which could circumvent the minimum drawdown requirements for accounts based pensions; facilitates the provision of tax file numbers to superannuation retirement savings accounts; changes the treatment of a non-TFN contributions income under the pay-as-you-go—PAYG—regime; and revises the application of the small business capital gains tax relief amendments.

On the issue of tax file numbers, what I do not think is generally known in terms of the Better Superannuation package is that a penalty tax will be payable by the member on their contribution of 42.5 per cent rather than 15 per cent. I do not think most Australians are aware that they will be subject to a higher tax on contributions when their employer fails to provide their TFN.

In questioning the tax office closely during estimates about this, I must say that the tax office were more forthcoming with information than Treasury were. We are looking at perhaps five to eight per cent of the just over 10 million contributors to the system being penalised by this higher tax. These people will be in for a rude shock when they get their fund statement—conveniently after the election, of course. From 1 July next year, hundreds of thousands of people will suddenly discover they have been subject to higher tax, not lower tax. If Labor are in government, I indicate this is an area where we will be keeping a very close eye on the outcomes. Frankly, if we are in government, and if I am privileged to be a minister, I do not want to be sitting next to Treasury and Tax officials and having to defend the position whereby hundreds of thousands of Australians have had an increase in their contributions tax.