Doug Cameron (NSW, Australian Labor Party, Shadow Minister for Human Services) Share this | Hansard source

  Labor supports the measures in the Treasury Laws Amendment (Tax Integrity and Other Measures) Bill 2018, although we will move two small but important amendments.    The bill contains four tax measures.    Schedule 1 to this bill amends the Income Tax Assessment Act 1936 to ensure that the Multinational Anti-Avoidance Law applies appropriately to artificial or contrived arrangements involving trusts and partnerships entered into by multinational entities to avoid the taxation of business profits in Australia.

This measure applies on or after 1 January 2016 in connection with a scheme, whether or not the scheme was entered into, or was commenced to be carried out, before that day. However, the measure does not apply in relation to tax benefits that a taxpayer derives before 1 January 2016. This is consistent with the date from which the Multinational Anti-Avoidance Law applied, and the purpose of the law.

In order for this extension to apply, the trust or partnership must have: a relationship with a foreign entity that means they are not independent of that entity at the time they make the relevant supply or supplies to their Australian customer; and a foreign entity participant at any time in an income year in which income is derived from the supply.

As noted in the explanatory memorandum, the schedule implements a technical integrity measure underpinning the Multinational Anti-Avoidance Law.    At this point, I just want to remind the Senate that the government regularly makes misleading statements that Labor voted against the Multinational Anti-Avoidance Law. This is untrue. In the House, Labor voted against government-Greens political party amendments that watered down tax transparency reporting requirements for large private companies. Labor, throughout debate, supported the MAAL.

I should also note that the Senate has now passed Labor's private senator's bill regarding tax transparency. This will allow proper scrutiny and help restore the trust in the integrity of the tax system that was brought about when the Gillard government passed tax transparency reforms in June 2013. The Senate has voted to lower the tax transparency threshold to $50 million for all firms—public and private.

The bill also removes a grandfathering exemption for certain financial reports for approximately 1500 large companies. Labor supported this when former Senator Ricky Muir moved it during the Multinational Anti-Avoidance Law debate in 2015, where it was opposed by the Liberals and the Greens. That private senator's bill stands alongside other Labor transparency measures, including disclosure of tax haven activity in government tenders, public reporting of country-by-country reports and protection for whistleblowers who uncover tax dodging by multinationals.

Schedule 2 to the bill amends the Income Tax Assessment Act 1997 to include additional conditions that must be satisfied to apply the small business CGT concessions to capital gains. The new conditions ensure that the small business CGT concessions in division 152 are only available for capital gains tax assets that are either used or held ready for use in the course of a small business or are an interest in a small business. These amendments implement the measure announced in the 2017-18 budget as 'Tax integrity package—improving the small business capital gains tax concessions' and apply to capital gains tax events that occur on or after 1 July 2017. That announcement followed issues raised with Treasury by the Australia Taxation Office that legislative loopholes were being exploited. The budget proposal was vague in its details. Numerous tax professionals and stakeholders have said it was not until the release of the exposure draft legislation that those affected would become aware of how they were affected. Stakeholders make the reasonable claim that, due to a lack of detail, taxpayers have conducted their tax affairs in good faith and will be caught by changes that go beyond what was flagged in the budget. In light of the stakeholder concerns, Labor is moving a detailed amendment to make the start date 8 February 2018, the date on which the exposure draft legislation was released, as proposed by the tax professional community. I will detail our amendment later in my remarks.

Schedule 3 of the bill amends the income tax law and the Venture Capital Act 2002 to ensure that the venture capital tax concessions are available for investments in fin-tech businesses. These amendments apply in relation to investments made on or after 1 July 2018. This schedule partially implements the National Innovation and Science Agenda measure, expanding the new arrangements for venture capital limited partnerships from the 2016-17 budget. In the light of feedback received in the course of our consultations, Labor will be moving an amendment to this schedule of the bill. This amendment will require the minister to instigate an impact assessment of the venture capital tax concession provisions overhaul, and include the measures in schedule 3 to this bill to ensure that they are operating as intended.

Schedule 4 to this bill amends the Income Tax Assessment Act 1997 to exempt from income tax the payments received from the Commonwealth as reparation for abuse by Australian Defence Force personnel. This measure applies to the 2017-18 income year and later income years, and implements the tax consequences from the 2017-18 budget of the Defence Force Ombudsman continuation and expansion measure. The Defence Abuse Response Taskforce was established on 10 April 2011 to assess and respond to individual cases of sexual and other abuse in the Australian Defence Force. The Defence Abuse Response Taskforce administered reparation payments through the Defence Reparation Scheme of up to $50,000 to complainants who likely suffered abuse in the Australian Defence Force. Reparation payments were not paid as compensation for loss or damage for any asserted, perceived or possible legal liability on behalf of the Commonwealth or for any injury, disease or impairment. The payments did not affect complainants' statutory common law or other legal rights. This measure amends the tax law to exempt from income tax the payments made in accordance with a recommendation of the Defence Force Ombudsman in relation to abuse by Australian Defence Force personnel. Labor supports this measure in schedule 4.

I now turn to the two amendments that Labor will move to this bill in relation to schedule 2 and schedule 3. Labor will move an amendment relating to the small-business capital gains tax concession measures in schedule 2. Stakeholders have informed Labor that the additional conditions for eligibility for the capital gains tax concessions are detailed in a way that make the changes more akin to a policy change rather than an integrity change, and, as such, capture taxpayers who engaged in good faith according to the intent of the concessions. Further, the active asset tests for eligibility interact with a longer run issue of tax office interpretation and application of the active test. This issue flared up when the ATO appeared to change its interpretation of 'act of business/asset' in a footnote to the draft taxation ruling TR2017/D2—a matter that has not been resolved. Chartered Accountants of Australia and New Zealand noted in language comparable to other stakeholders:

The proposed measure would deny "access to the concessions for assets which are unrelated to [a taxpayer's] small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions". No further information was released until the publication of this exposure draft.

The measures contained in the exposure draft are extraordinarily complex. More importantly, in our view they go beyond what taxpayers could reasonably have expected from the Budget announcement designed to address "integrity" concerns. They reduce what many stakeholders would regard as the intended scope of the concessions.

… … …

… taxpayers have in good faith sold, or entered into agreements to sell, interests in entities on the basis that they qualified for the concessions but will not now do so.

The Tax Institute, Chartered Accountants of Australia and New Zealand, partners at large accounting firms and small businesses have all argued that, to prevent adverse consequences for taxpayers who have acted in good faith but could not reasonably have been expected to foresee the detailed amendments that were finally unveiled in the exposure draft, the implementation date should be changed from 1 July 2017, as per the budget announcement, to 8 February 2018, the date of the exposure draft release.

In light of the stakeholders' concerns, Labor is moving a detailed amendment to make the start date 8 February 2018. We flagged the need for this change when the bill was debated in the House. Labor will also move an amendment in relation to schedule 3. This amendment requires the minister to instigate an impact assessment of the venture capital tax concession provisions overall and to include the measures in this bill to ensure they are operating as intended. This impact assessment would be conducted by Treasury and Innovation and Science Australia.

For the benefit of the Senate, I want to note some comments by the member for Chifley in the other place when debate was underway on this bill. The member for Chifley said:

The sector and people in the sector have raised with me that they're not entirely happy with what's been put forward in this bill. Again, it's a straightforward measure, but they still don't think that it's picked up their concerns. For example—and I had highlighted to me—in 3.26 of the explanatory memorandum it states that a fin-tech may be eligible for the tax concession when developing its technology. However—and this is what has been raised with me—it then goes on to say that when a business is commercialising the technology it would no longer be eligible. As has been raised with me: 'This hardly seems like a certain, longer term platform for a venture capital firm to make an investment in a fin-tech, given that the VC is only making the investment because it's hoping the fin-tech will be able to commercialise and profit from the technology.' This is what they're raising with me, and I'm sure they have raised it with Treasury.

The member for Chifley raised important concerns about the government's processes. This reflects why we believe it is important to have a review. We also note concerns about the government's process. The member for Chifley noted in the other place:

… what I have been finding out when talking with stakeholders about this is how long it took to get to this point—how long it took for this straightforward move to happen.

I note that FinTech Australia put out a policy paper on this issue on in February 2016. The government announced this in their 2016-17 budget, but it was not until October 2017 that the government started to consult on amendments. It is concerning that this whole process has taken so long.

Labor's position strikes the right balance: we support this particular measure, but we will also be moving an amendment requiring the government to have a comprehensive and transparent review of the venture capital tax concession framework. In conclusion, Labor supports the measures in the Treasury Laws Amendment (Tax Integrity and Other Measures) Bill 2018. However, we will be moving sensible amendments to the bill, which we commend to the Senate.