Thursday, 27 November 2008
Tax Laws Amendment (2008 Measures No. 5) Bill 2008
I rise tonight to support the Tax Laws Amendment (2008 Measures No. 5) Bill 2008. Like many of the TLABs that come before the Senate, this bill contains a number of unrelated schedules that make minor amendments to taxation law with the intent of improving the operation of the Australian tax system. The bill has five schedules, and I will deal briefly with each schedule.
Schedule 1 is an integrity measure that seeks to amend the 1999 GST act by making changes to the GST margin scheme to prevent entities manipulating their affairs so as to reduce their GST liability. Like a number of schedules in TLABs that have come before the Senate this year, this schedule is based on the work undertaken by the previous coalition government. I will briefly discuss the background to this schedule. The measures addressing the GST margin scheme were initially announced in 2005 as part of the Tax Laws Amendment (2005 Measures No. 2) Bill 2005. That bill proposed amendments to the GST margin scheme which the former Treasurer announced on budget night in May 2005 in Budget Paper No. 3. The coalition, after the announcement, embarked on extensive and widespread consultation regarding the changes. Following consultation, on 7 June 2005, the then Minister for Revenue and Assistant Treasurer, the Hon. Mal Brough, foreshadowed amendments to the bill and the coalition government deferred the tax integrity measure so that there could be further consultation. The consultations continued after the change of government, leading to the amendments seen in the bill that we are debating today. The point is, of course, that this has had a very long gestation.
The GST margin scheme essentially allows for the GST on certain taxable supplies of real property to be calculated on the margin—the margin being the difference between the purchase price and the sale price. The first aspect of schedule 1 ensures that, where the margin scheme is applied to real property that was previously acquired on a GST-free basis, the value added by the entity that made the GST-free sale is included in calculating the GST payable under the margin scheme. This ensures that the rules are brought back into line with the original intent of the legislation. The second aspect of schedule 1 ensures that the eligibility to use the margin scheme cannot be reinstated by interposing a GST or non-taxable sale. The third aspect of the schedule strengthens general anti-avoidance provisions for schemes that are entered into with the sole or dominant purpose of gaining a GST benefit. According to the explanatory memorandum, schedule 1 is expected to have a positive impact on revenue collections of $523 million over the forward estimates.
Schedule 2 is a noncontroversial schedule that amends accounting standards in relation to the thin capitalisation regime. Specifically, it modifies the accounting treatment of specified assets and liabilities in relation to thin cap provisions. This amendment was necessary because of the adoption of the Australian equivalents of international accounting standards in 2005.
Schedule 3 is another noncontroversial schedule that extends an exemption from interest withholding tax for state and territory government bonds. This schedule amends section 128F of the Income Tax Assessment Act 1936 and is expected to see a reduction of $64 million in revenue over the forward estimates.
Schedule 4 is also a noncontroversial schedule that makes changes to the fringe benefits tax treatment of jointly-held benefits. In National Australia Bank Ltd v Federal Commissioner of Taxation, the court held that an employer could reduce the entire taxable value of a fringe benefit provided jointly to an employee and third party—typically their partner—in relation to an income-generating asset. This was a significant departure from the generally held tax principles of income and deductions. Schedule 4 seeks to address this anomaly by requiring an employer to adjust the taxable value of the fringe benefit according to the proportion of the jointly-held asset that the employee owns. This schedule is expected to deliver a revenue-positive amount of $49 million over the forward estimates.
The last schedule in this bill, schedule 5, amends division 6C of the Income Tax Assessment Act 1936 to change the eligible investment business rules for managed investment funds. This is likely to be an interim measure. The measures in this schedule, subject to certain conditions, include a definition of the term ‘investing in land’ to include fixtures, chattels and moveable property. The schedule also expands the range of financial instruments in which a managed investment trust can invest from the current specified instruments that are listed in division 6C. The schedule also introduces the following safe harbours: a two per cent safe harbour for non-trading income set at a whole-of-trust level and a 25 per cent safe harbour for non-rental, non-trading income from investments in land for public unit trusts investing in land for the purpose of deriving rent.
This bill was referred to the Senate Standing Committee on Economics for inquiry and recommendation. The committee received six submissions and also held a public hearing in Canberra on 28 October 2008. And I should record my thanks to the committee for their usual diligence and good work—with, I must say, an enormous workload in looking at many bills. During this inquiry, only schedule 1 attracted any significant criticism, which was why I spent a little more time on it earlier in my remarks. The committee, likewise, also paid attention to the detail of schedule 1 in its report.
The Urban Development Institute of Australia and the Property Council of Australia both expressed concern that the proposed legislation would act as ‘an increased tax on new housing developments’, thus ultimately being passed on to the home buyer. Treasury, however, disagreed and suggested that groups like the Urban Development Institute of Australia and the Property Council of Australia had overstated the effect that the proposed changes would have on house prices and housing supply. Interestingly, the committee’s view of this was:
The committee agreed with the Treasury that the proposed changes to the legislation would not have a significant impact on the cost of housing. The measures—
in schedule 1—
only affected a very small proportion of the housing market. Moreover, only a proportion of the cost would be passed onto homebuyers, with some passed back to the suppliers of land and some borne by the property development sector in reduced profits.
So, obviously, I have put some weight on the committee’s finding. It was the recommendation of the committee that the Senate support the bill, and that is a view that I share. Again, on behalf of the coalition, I indicate our support for this bill.