Helen Coonan (NSW, Liberal Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

Today we are debating the Tax Laws Amendment (Budget Measures) Bill 2008 that deals with the following budget changes: fringe benefits tax, exemption for work related items, fringe benefits tax for jointly held assets, fringe benefits tax for meal cards, employee share schemes and depreciation of computer software. These measures make 17 amendments to tax legislation—five amendments to fringe benefit tax legislation and 12 amendments to the Income Tax Assessment Act 1997.

This bill will raise over $1.4 billion in the next four years by, essentially, raising taxes on small businesses. The opposition thinks that these matters are worthy of comment. It is one of the high-taxing measures of Labor’s high-taxing, high-spending budget.

As to the fringe benefits tax changes, the Keating government, of course, introduced the fringe benefit tax legislation in 1986. Anyone who has ever tried to make sense of this legislation would have to conclude that it is extraordinarily complex. Over the years it has been much criticised for its density of language and tortuous syntax. One only has to look, for example, at section 136 of the Fringe Benefits Tax Assessment Act 1986 and its definition of ‘business journey’ to see just how complicated this legislation really is. It is an absolute nightmare to actually make sense of what is a business journey. For the purpose of illustrating this and to show the kind of pressure that the opposition and those on the crossbenches have been under in the Senate committee, it is worth actually quoting this. ‘Business journey’ means:

(a) for the purposes of the application of Division 2 of Part III in relation to a car fringe benefit in relation to an employer in relation to a car—a journey undertaken in a car otherwise than in the application of the car to a private use, being an application that results in the provision of a fringe benefit in relation to the employer; or

(b) for the purposes of the application of sections 19, 24, 44 and 52 in relation to a loan fringe benefit, an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit, as the case requires, in relation to an employee in relation to a car—a journey undertaken in the car in the course of producing assessable income of the employee.

This is the sort of material that the Senate is dealing with in the FBT legislation. One could only hope, had there been proper scrutiny of bills, that this might not have got into the legislation in such a tortured way all those years ago. So amendments to the FBT legislation do require careful analysis. They warrant more than a pitiful one day’s notice for a committee inquiry.

While the coalition will not be opposing this bill, we do have a number of concerns that we would like to place on the record, particularly in respect of the small business community, and I will deal briefly with them. First of all, the removal of the FBT exemption on meal cards, which is projected to raise $610 million over the forward estimates, is of course a tax increase by stealth. This change in tax law is expected to raise, as I said, $610 million over the forward estimates. The Treasurer’s second reading speech states that the intent of this measure is to tighten the law applying to arrangements for work related items and for property consumed on an employer’s premises. These meal card arrangements rely on the exemption given in the FBT legislation for property consumed on business premises on a working day. There is no suggestion that the meal card arrangement has been an exercise in avoidance—far from it. The Australian Taxation Office has issued a number of class rulings that actually sanction meal card like arrangements.

The change will mean that the exemption for on-site consumption of business property will no longer apply to salary sacrificed food or drink. It is yet another case of the government promising one thing but when they get into government they change it all. I note that the explanatory memorandum claims that the cost impact of this measure will be minimal. Certainly there will be a financial impact on the many small businesses that sell food and drink under meal card deals. A good example of the impact that this will have is to look at the unintended consequences on, say, a coffee shop that is in the lobby of an office block. A coffee shop on the ground floor of a major office block in a capital city would often be dealing with those entitled to make purchases on a meal card.

Of course, while Treasury does take into account the revenue that it expects to receive from the change, one has to wonder whether there has really been a significant analysis of the losses in income that will be incurred by many small businesses and coffee shops in major cities. What will be the impact on small businesses from this decision? I think this just underscores why we on this side of the chamber have felt that we need a bit more time to scrutinise this legislation. The explanatory memorandum also states that the measure restores the original policy intent of the exemption being given for ‘modest benefits’. Most of the benefits provided by meal cards are no doubt modest. I would say that sustenance through food and drink is in fact a modest benefit. That is certainly the case for the many low-paid workers that have been hit by this budget measure.

The committee report notes that a number of submissions indicated that the large bulk of meal card users were often low-paid workers in manual labour jobs who would use these meal cards at the work cafeteria. Specifically, Accor Services stated in their testimony that meal cards were used by a range of low- to middle-income earners. Of its 7,000 clients, Accor reported that more than 60 per cent of meal card users were on a 30 per cent tax rate and 60 per cent were women. This is hardly a picture of sumptuous lunches and over-the-top catering, nor is it an example of the rich taking advantage of a tax loophole.

The FBT measure relating to work related items, which is projected to raise $530 million over the forward estimates, is also something that I think raises some significant issues. It will restrict the FBT exemption to items that are used primarily for work related purposes, such as laptops and PDAs, and limit employees to one item a year, unless of course it is a replacement. It will, as I said, raise $530 million over the forward estimates. When it comes to the FBT changes on work related items, the stated intent of this measure is to tighten the FBT exemption for certain items provided by an employer to enable an employee to do their job. In addition to computer software, a briefcase, protective clothing and a tool of trade, there will be an FBT exemption for a portable electronic device. I think we can expect that there will be some rulings and determinations from the ATO in the months and years ahead that seek to explain what is meant by ‘a portable electronic device’. For example, guidance will be required by employers in deciding whether a portable electronic device does or does not have substantially identical functions to another portable electronic device. We can only hope that we do not end up with another tortuous section. This provision as it stands gives little certainty to employers in working out their FBT liability.

It has been noted by a number of commentators that those employers who have been providing benefits such as meal cards and salary packaging of laptops and PDAs will now have to consider certain challenges to their strategies to attract and retain scarce talent in this tight labour market. One can only wish them good luck.

The changes to employee share schemes have been described as a tax integrity measure. Under the measure, where an employee who is granted shares or options at a discount to market value elects to be taxed on that discount in the year of grant, instead of deferring tax, say, to year of sale, the employee will not be able to take advantage of changes in value and try to backdate their election—that is, the ATO will be unlikely in future to let employees amend earlier year returns to include the discount belatedly. There is also a measure to remove double taxation by correcting a technical exposure to trustees and members of an employee share scheme on the member becoming absolutely entitled to shares in the scheme.

The opposition supports action that prevents employees from making a late election for up-front taxation where the taxpayer does not have an acceptable explanation—which of course is the current policy. However, to remove the commissioner’s discretion to accept late elections in any situation suggests the government considers that the ATO has been ineffective in its administration in this area of the tax law. We contend that there is no evidence to support this inference. If there is any, we would like to know about it. Indeed the ATO was successful before the full Federal Court in a recent challenge to its decision making in relation to the taxation of employee share schemes. It would be helpful if the minister representing the Treasurer would, in his comments, provide us with the assumptions underlying the revenue impact, estimated at $77 million over the forward estimates.

On another point, there are numerous elections throughout the tax legislation, as we all know. There are numerous discretions given to the commissioner throughout the legislation. These are well-established features of the self-assessment system that has been in place now for 20 years or so. I call on the Minister representing the Treasurer to inform the Senate, in his remarks, whether the taxpayer behaviour that apparently justifies the measure included in item 12 of the bill has longer term implications for the self-assessment system more broadly. Will the self-assessment system be part of the ever-expanding root and branch Henry tax review? No doubt, as has been shown with most other matters that have got the government into a bit of hot water, it can quite readily be added to the scope of the review. In our view, the tax community needs to know whether the government is going to go back 20 years or so and examine self-assessment.

The extension of the write-off period for software from 2½ years to four years is yet another hit on small business. This change in write-off periods will spread tax deductions for software over longer periods, leading to increased revenue of $1.3 billion over the forward estimates. Software is bought by businesses for operational reasons, not tax reasons. That is something the government does not seem to grasp. The Treasurer has already acknowledged that, where a business scraps software before the four-year write-off period has ended, the business will still get an immediate write-off for the remainder under the existing tax law. I call on the government, through the Minister representing the Treasurer, to inform the Senate about the assumptions that underlie the estimate of $1.3 billion, given that businesses will be able to fully write off their expenditure in the circumstances outlined by the Treasurer and will still be able to self-assess an effective life that is shorter than the four-year write-off period.

I note that there is a measure in Treasury’s 2007 tax expenditure statement described as ‘accelerated depreciation for software ... a tax expenditure in relation to software which has an effective life greater than 2.5 years’ which estimates the concession to cost approximately $70 million per annum. Given that this lower estimate is plainly there for all to see in the tax expenditure statement, will the minister inform the Senate why the government are setting a longer depreciation rate than the effective life for software assumed by Treasury in the tax expenditure statement.

As I have already noted, we have some major concerns about the potential impact of some of the aspects of this bill. I have to say, now that I am over this side of the chamber, that we wish to take a responsible attitude towards the measures that are part of this bill, but it does raise some issues when we think the business community and certain individuals that are impacted by these changes deserve a more fulsome explanation than we were able to glean from a one-day Senate inquiry and other inquiries that have been made about this.

Ordinarily such a bill as this would at least be afforded the opportunity for adequate scrutiny by parliament. Unfortunately, I think this bill will be remembered and remarked about not so much for its content but rather for the way in which, unfortunately, it has been rushed through the parliament without proper scrutiny and proper consideration of the personal and financial impact on small businesses and working Australians dependent on these work related benefits for their tax arrangements.

Senator Sherry, Senator Evans and Senator Conroy—and the government generally—have been using question time in the Senate to claim that we are somehow being economic vandals by referring some complex bills to committee for further analysis. Nothing could be further from the truth. This is of course our job—to elicit a more comprehensive explanation of the policy rationale underpinning these changes.

It is very unfair and unedifying for the Rudd Labor government to treat the Senate like a sausage factory. It shows a government under pressure. The disgraceful manner in which this bill has been rushed through the other place and the Senate raises serious questions that go either to the government’s motives or to the government’s competence. Why, after the bill was introduced into the other place, did the second reading debate occur just the very next day? What was the haste that meant such a bill should be rushed through without even giving the opposition a chance to look at it for a week before voting on it? Why was the Senate Standing Committee on Economics only given a day to advertise for the very, very brief public hearing that it had last Friday? These are all serious questions. What this shows is the shambolic mess that the government is making of its legislative program.

While I have made it very clear that we do not oppose the bill, we would like to point out for the record the concerns that we have with it. It is a matter of great regret that the Senate has again been pressured into supporting a bill that is all about digging the government out of a hole of its own making in its legislative program and not about delivering well-considered tax policy for the Australian economy.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

Madam Acting Deputy President Moore, it will not surprise you in particular that I stand to speak to a tax bill. Dealing with the last first—namely, the shadow minister’s remarks about referring a bill to a committee—this is one of those bills which did need to be referred to a committee. The inquiry, short and rushed as it was, was very illuminating. I must say that the secretariat did a very good job in producing a report on the bill at short order. The point of my making those remarks is to refer to a bigger problem we have as a Senate; which is that time-sensitive budget bills, both under the previous government and the present government, are being rushed through simply because they have the financial year end in mind. That is dangerous when you are dealing with complex legislation which materially affects large communities of people and where tax law changes result in negative consequences for certain people enjoying benefits under the law as it presently stands. Even where the policy might be the right one, it still needs time for people to express reservations and to suggest changes and amendments.

I remind the Senate that I recently made similar remarks. As a consequence of those remarks, I wrote to the President and asked him to refer the matter to the Procedure Committee. I ask the opposition, in particular, to take an interest in that. My central proposition, particularly with bills consequent to the budget, is that there should be a mechanism developed by the Senate for bills, once they land in the House, to be immediately referred to a committee. At present you have the May budget and after that the House meets for two weeks and then meets for these two weeks in June. But the Senate does not. The Senate meets for two weeks of estimates. Therefore, the first time the Senate can meet and say, ‘Yes, we’ll send that bill across to a committee,’ it is too late for a thorough review and consideration before the end of those two sitting weeks. That creates a real problem with the proper examination and review of legislation—whereas, if this bill, for instance, had been referred to a committee in May, soon after the budget, we would have had a far deeper and more informed analysis and a far better understanding of how these changes either are merited or will affect people detrimentally. I think the Senate needs to find a better mechanism for time-sensitive bills than it has at present. I have formally written to the President asking him to refer to the Procedure Committee and I hope he agrees to refer to it. I ask the opposition in particular, and all parties, to pay attention to that reference to try and find a proper mechanism.

I now turn to the bill specifically. The second general comment I make is that the general descriptions of tax bills are quite confusing. I came down here scrambling to make sure I had my tax measures bill and not my tax measures bill No. 1 in my hand. Although the Senate Standing Committee for the Scrutiny of Bills and the parliamentary counsel—the legal counsel who draft government bills—did try to improve the naming of the bills, I still think we need to name them a little better because it is not necessarily clear, on their face, what you are dealing with. Hopefully I am now about to address the right bill! I say that because I was once vastly amused when a minor party senator, not from my own party, arrived and spoke passionately and at length to obviously the entirely wrong bill. The Senate was cruel enough to let him go almost all the way through and then said, ‘By the way, it’s the wrong bill.’ That amused me at the time.

The Tax Laws Amendment (Budget Measures) Bill 2008 amends taxation legislation to give effect to some of the policy initiatives announced as part of the 2008-09 Commonwealth budget. Proposals within this bill are contained in two schedules, with amendments to a number of acts. The first one—the controversial one—is changes to fringe benefits tax. This schedule proposes amendments to the Fringe Benefits Tax Assessment Act 1986 and the Income Tax Assessment Acts 1936 and 1997. The changes are in several parts. They tighten the fringe benefits tax concessions for so-called meal cards: those cards received at work as part of salary sacrifice arrangements. They tighten fringe benefits tax concessions for laptop computers, portable printers, electronic diaries and mobile phones, and they tighten the provisions to deny a personal income tax deduction for depreciation on work related items, such as computers. These changes result in significant revenue gains, including $610 million related to meal cards and $530 million related to computer items, over the forward estimates period.

The other part of the fringe benefits tax bill relates to employee share schemes and removes any incidence of double taxation arising from such schemes. It also clarifies the timing at which the proceeds of these plans are brought to account for taxation purposes. This will result in a $77 million revenue benefit over the forward estimates period. The changes to the depreciation rules for computer software are captured in schedule 2, which proposes amendments to the ITAA 1997 to extend the current depreciation rule for computer software from 2½ years to four years.

There will be relatively minor and immediate financial consequences arising from the proposed changes to the fringe benefits tax regime and the rules governing taxation from proceeds arising from employee share schemes. However, the cumulative gain in revenue arising from the lengthening of the depreciation period for computer software from 2½ to four years—an industry average, as it turns out from the committee report—is $1.3 billion, as I outlined earlier, from 2008-09 to 2011-12. This sounds significant, but effectively it is just an accounting change. This, as with all depreciation life schedules, is a timing shift. Over the long run, no revenue loss or gain will occur. So do not be alarmed when you see that very large figure; it is accurate in the budget estimates, but it evens out over the long term.

I think, personally, the main amendments in the bill are relatively modest, although people will be feeling quite strongly about the loss of some benefits in their particular case. Both the fringe benefits tax and the employee share scheme amendments are claimed by the government and the Treasury witnesses to the committee to restore the fringe benefits tax regime to its original policy intent. Sometimes governments and departments will make that claim somewhat lightly, but not in this case. I think it is an accurate claim. I think it does in fact do that very thing and I would remind the chamber that the Democrats for many years have adopted a twofold view: firstly, that we must make a serious effort to make our tax system more simple and less complex; and, secondly, it is desirable, if you are going to get equity and efficiency in the system, to broaden the base. In a small way this does broaden the base.

Companies benefiting from the present situation claim the meal cards reform is an assault on lower income workers. In my view, it is nothing of the sort. The measures increase revenue and so will be unpopular with some of those from whom the revenue is raised. I do not know anyone who likes to be taxed. What was the name of the French cardinal—it might have been Richelieu—who said you have to tax people like plucking geese: with the least amount of hissing? I have not got the quotation precise but I seem to remember that is what it was about. There is not too much hissing out there, so you are doing all right.

I think the measures are in the overall public interest and they are better tax policy. The main objections and submissions to the committee were to removing the exemption from fringe benefits tax currently enjoyed by people able to buy their lunch more cheaply—that is, more cheaply than other people—through salary sacrifice. It is an odd thing that tax law should encourage that some people get a benefit not available to other Australians. It just makes the other Australians cheesed off that they are not getting the benefit. The bill will mean these people have to pay the same for a lunch as those not able to package their salaries in any way, but the bill does not stop people from buying a healthy lunch, which is one of the spurious claims put to the committee. It does not stop people having their lunch delivered to their workplace—that is another spurious claim. It does not prevent employers subsidising lunch—that is yet another spurious claim—although some of the objections advised to the committee make this rather wild assertion. So you will hear from my remarks that I am not too sympathetic in this instance to the claims of special interest, but I recognise the remarks of the shadow minister that the nature of the implementation will have small-business effects.

I sometimes wonder at an attitude we have that, when farmers are forced to change their way of producing, operating and functioning, we give them adjustment packages—many millions, for sugar, milk or whatever it is—but, when we do the same for small business, there is no structural adjustment package. It may be good policy, as it might have been considered to be for milk, dairy and other things, but we need start to develop greater consistency in this compensation area. So, on those grounds, I am sympathetic with the shadow minister’s and the coalition’s view that some of the small businesses, which presently enjoy the benefits of the current way in which tax laws are administered in this fringe benefits area are probably likely to be hurt by these changes.

I like committees because you learn stuff. Senator Joyce, who, as the chamber knows, is an accountant by profession and understands that sort of stuff, was surprised at the extension of the software provisions. I thought he had a case, from my own experience. Businesses tend to turn over their software pretty quickly in contrast to individuals. I do not know about other senators, but my software at home is pretty aged. It is about to be upgraded as I shift into a different role, but business do turn it over quickly. So, in the committee report, as a result of Senator Joyce’s inquiries and other views, there is a table of the depreciation of software presently employed. It is taken from the latest annual reports—somebody has done some very good research and the table shows assumed useful lives in years terms. I will just select a few: ANZ Bank, three to five years; Macquarie Bank, three years; the ASX, Australian Securities Exchange, seven to 10 years—interesting; Insurance Australia Group, IAG, which that wonderful comedian Connolly advertises, three years; government, Treasury, three to five years; Bureau of Statistics, two to 28 years—that is a worry, isn’t it; I would like them to turn their software over pretty quickly, given the importance of what they do—Reserve Bank of Australia, four to seven years; Telstra, six years; Metcash, run by a South African friend of mine, five years; and Qantas, three to five years.

What that schedule indicates is that choosing a depreciation standard of four years is not unusual or unreasonable. I would have, on the surface, thought it was, but it turns out that the survey indicates it is not so that four years depreciation is a good choice. With those remarks and a general view on some other matters I have outlined, I indicate that the Australian Democrats will be supporting the Tax Laws Amendment (Budget Measures) Bill 2008.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

I would like to thank all those senators for taking part in the debate on this measure. The amendments in the Tax Laws Amendment (Budget Measures) Bill 2008 make important improvements to the tax law to restore fairness and integrity to the tax system. They are also part of a responsible budget carefully designed to fight inflation and invest in the future. They restore the original intent of the FBT law by tightening the arrangements for eligible work related items and property consumed on employers’ premises. They improve equity in the treatment of employee remuneration and they align the period over which taxpayers can write off depreciable in-house software with that for computer hardware.

Currently, employees can salary sacrifice to obtain a meal card to purchase lunch, coffee and other consumption items out of their pre-tax income. Under these amendments, meals provided as part of a salary sacrifice arrangement will no longer be FBT exempt. This measure restores the intended policy and improves equity in the treatment of employee remuneration. Genuine staff canteens will not be affected. The FBT measures also ensure FBT exemptions are restricted to items used primarily for employment. That addresses the ability of employees to acquire items such as laptops for private use out of their pre-tax income. It also restores the original intent of the FBT law. The exemption will be limited to one item of each type per employee in each FBT year, unless it is a replacement item. The list of eligible work related items will also be updated for technological changes. The amendments also remove depreciation for FBT-exempt items. This addresses a double tax benefit whereby an employee can claim depreciation for an item that is also FBT-free.

The policy intent of the tax treatment of employee share scheme arrangements is also being restored. This amendment closes a loophole in the employee share scheme provisions and addresses double taxation. Amending the election requirements will stop taxpayers manipulating when they have a tax liability for discounts on employee shares or rights. This will ensure discounts are properly included in assessable income. The bill also removes the double taxation of certain employee share schemes using an employee share trust.

Under these amendments, the write-off period for in-house software is extended from 2½ years to four years. This is the same as the tax commissioner’s safe harbour period for computer hardware. The amount deductible is unchanged. Businesses will still get an immediate write-off when the remainder of the software is scrapped before four years. Small businesses and businesses that pay an annual licence fee for their software generally will not be affected. The amendments in this bill help restore fairness to the tax system and contribute to funding the government’s key priorities for the future.

There were a couple of items that were raised in the debate on this bill. A concern about removing the powers to accept amendments to tax returns was raised. Item 12 of the bill allows the tax commissioner to accept an election for the inclusion of a discount at a later time. This replicates the same powers contained in the current law. The impact on small business was also raised. The existing concessional small-business depreciation arrangements remain, so small businesses generally are not affected. Businesses with turnover of $2 million or less retain alternative depreciation arrangements unaffected by this change—that is, the immediate deductibility of software costing less than $1,000 and amounts of over $1,000 can be pooled with other assets and depreciated at 30 per cent diminishing value. One assertion was that software costing was unbelievable given the $70 million in tax expenditures statement. Software costing was considered by the committee. The costing reflects the timing effects. It reaches a peak in 2010-11 of $681 million and the costing considers growth in the industry. Once again, I want to thank all senators for their contributions.

Question agreed to.

Bill read a second time.