Thursday, 27 November 2008
Tax Laws Amendment (2008 Measures No. 5) Bill 2008
I think Senator Coonan has outlined very clearly the schedules involved in the Tax Laws Amendment (2008 Measures No. 5) Bill 2008. Indeed, as Senator Coonan said, the Senate Standing Committee on Economics spent most time looking at schedule 1, which was the subject of the submissions to our committee. Schedule 1 seeks to amend the GST act—A New Tax System (Goods and Services Tax) Act 1999—to overcome tax minimisation involving the use of the margin scheme and the sale of real property as a tax integrity measure. There is no suggestion that people have been acting illegally in the past, but there was concern that it might have become an avoidance measure under the act. This schedule seeks to align the antiavoidance provisions in the GST act with the antiavoidance provisions in part IVA of the Income Tax Assessment Act.
This arose because special rules existed for real property that allowed taxpayers an alternative means of calculating GST. These rules became known as the margin scheme. The margin scheme was generally used for new residential property developments. The example was given that party A, a GST registered party, sold land under the margin scheme to party B, a GST registered property developer. Party B began construction on new residential premises on the land and then sold to a third party as a GST-free going concern. The third party then completed the construction and sold to the consumer. In this case, the only GST collected from the transactions between A, B and C and the final consumer left a loophole where no GST was paid in the interim period. That had some justification, I think, because the example used was where farmers, for example, developed land to a certain stage and then on sold it. There was no suggestion that the farmer as a going business should pay GST on the partly developed land, but there was a concern that it had developed into an avoidance provision.
There was then the concern, as Senator Coonan mentioned, that the measure to close the loophole might add to the cost of housing property. Of course, at this particular time, this is a great concern. So the committee did consider this in detail. The committee did accept the Treasury’s position that it would not cause a significant increase in property prices. The ABS data of building activity in Australia indicates that only 1.5 per cent of all residential property sales will be affected by the amendment, thus counteracting any concerns as to housing affordability. So there would be a minimal impact on house prices from this measure. It will ensure a level playing field for those in the property industry; whereas, under the current scheme, there may be an opportunity for above normal profits for certain property developers. The committee agreed that this measure overcame an anomaly in the GST act. The financial impact of the proposed change will be a total of $523 million over the next four years. This is within the context of the total taxable value of new residential property, which is estimated at least $120 billion over four years. I think this small proportion of properties that would be affected allayed the committee’s concerns about any impact on housing prices arising out of this measure.
The other schedule which attracted some interest from submissions was schedule 3, which seeks to extend the interest withholding tax exemption to state and territory government bonds to bring about a better functioning state and territory bond market. This was strongly supported by two submissions and does indeed allow state and territory governments to have a better functioning bond market. The main concerns of the state central borrowing authorities were that the current arrangement segments the market, reduces liquidity and efficiency for the state markets and causes some hampering of the role of the state bond market. The extension of the eligibility for the interest withholding tax to domestically issued state government bonds was welcomed by operators within that market and, so I understand, state governments. I commend this bill to the Senate and am pleased to support all the schedules contained within it.