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

I rise to indicate that the coalition will be supporting the Tax Laws Amendment (2008 Measures No. 3) Bill 2008. Like most of the tax law amendment, or TLAB, bills that have come before the Senate this year, this bill is effectively identical to the tax technical issues that the coalition committed to changing last year when we were in government but which lapsed because of the federal election.

I like to try and keep track of the schedules, so I indicate for the record that the bill initially had four schedules. The first schedule dealt with the taxation of rights and options and the second schedule dealt with GST refunds. Schedules 3 and 4, with bipartisan support, were rolled into the Tax Laws Amendment (2008 Measures No. 2) Bill 2008 back in June so that they could be passed at that time as they were non-controversial. Both the government and the opposition supported referring the remaining schedules, Nos 1 and 2, to the Senate Standing Committee on Economics so that the details could be examined further. We are now here to debate these remaining first two schedules.

The coalition parties have historically been the parties of lower taxation in Australia, and it continues to be the case today. The recent budget has certainly confirmed this. The Howard government was a leader in tax reform, pushing ahead with major reform such as the implementation of the GST and reduction in the uncompetitive tax rates that stifled innovation and indeed aspiration. When in opposition, Labor criticised and complained and did not appear to have any alternatives. In fact, they even went to the last federal election without having a tax policy. This was clearly evident only a few days after they gained government when they announced the tax policy that they would implement. It was eerily similar to the coalition’s policy, with a few changes to the timing of the reduction in the rate of the top tax bracket. It was clear then that the coalition leads on taxation and Labor follows, and it is exactly the same in this case with this bill.

The purpose of schedule 1 of the bill is to amend taxation laws to overcome the impact of the High Court of Australia’s decision in the Commissioner of Taxation v McNeil in 2007, the McNeil case. Before the McNeil case, the longstanding taxation approach was that shareholders issued with rights by companies seeking to raise capital would not have an income tax liability at the time of issue. Instead, rights issues were treated as issues of capital account and would be subject to CGT tax provisions. In the McNeil case, a High Court majority ruled that the value of the sell-back rights was assessable income of the taxpayer according to ordinary concepts, and the amount was derived by the taxpayer on the listing date of those rights. The McNeil decision has caused, I think it is fair to say, considerable uncertainty as to the future tax assessability of company distributions. It was a significant concern in the corporate sector.

Generally, one would expect that unexercised rights would be considered capital. As such, the coalition announced on 26 June last year that the then government would introduce legislation to overcome the McNeil case and return to the previous tax arrangements. So I am pleased to see that the Rudd government has followed our lead. We have, however, noted the projected nil impact of these measures on revenue as stated on page 3 of the revised explanatory memorandum. I think I know the answer to this, but I invite the Minister representing the Treasurer, in his remarks on this bill, to clarify the revenue implications. If revenue is currently being treated as income as a result of the McNeil case, this means that it is being taxed in the current year. If, as the bill intends, it will treat revenue as capital then this will mean that it will be taxed in later years. The point to clarify is how shifting the time of tax from now into future will have nil impact on the budget bottom line. I would appreciate it if the minister could clarify to the Senate how treating revenue as capital will not have any effect on the amount of tax collected.

The purpose of schedule 2 of the bill is to amend the Taxation Administration Act 1953 so that problems with the scope of the goods and services tax, or GST, refunds caused by the decision in KAP Motors v The Commissioner of Taxation are overcome and problems with the four-year time limit on the refund of indirect taxes are dealt with. In KAP Motors v The Commissioner of Taxation, the case centred on whether the commissioner had to refund GST mistakenly paid to him by two car dealerships before they had reimbursed the end customers for the mistakenly paid tax. The court held that two taxpayers were entitled to a refund of GST mistakenly remitted to the commissioner before KAP Motors had reimbursed the end customer. The court decided that, as no actual goods and services had been supplied to the end customers, no GST was payable.

This bill seeks to deal with the issues raised in the KAP Motors case and will consequently make amendments to the GST legislation to provide clarity with regard to GST refunds and the time frame in which these refunds can be claimed. The bill will ensure that a refund from the tax office of mistakenly paid GST is allowed even if the refund to the end customer has not yet been paid. Also, it will ensure that these types of GST refunds, along with other indirect tax refunds, are able to be recovered within a four-year period. Schedule 2 is an entirely sensible change to the legislation and the coalition is pleased to support it. That deals with the two remaining schedules in Tax Laws Amendment (2008 Measures No. 3) Bill—we can never think of a better way to name these TLAB bills. Having said that, the coalition supports appropriate tax reform and lower taxes, and will be supporting this bill.

Annette Hurley (SA, Australian Labor Party) Share this | Link to this | Hansard source

I also rise to support the Tax Laws Amendment (2008 Measures No. 3) Bill 2008. It is certainly a sensible measure to address two problems that have arisen. As Senator Coonan described, the first one is in the corporate sector where put and call options and the treatment of their income has been made a little uncertain. The Senate Standing Committee on Economics did get submissions from a couple of people requesting that the government go further in the treatment of this and also in clarifying non-renounceable share rights. This certainly addresses the issues arising out of the McNeil case and does clarify that the proceeds for those put options in particular, and call options, are not income on a year-by-year basis; they are not assessable income as such but only assessable as capital when those rights are exercised. Therefore it restores, the government believes, the original intent of that legislation. It will also apply retrospectively for those that have acquired put or call options to 1 July 2001.

The remaining issues that were raised by the Institute of Chartered Accountants and also by the Taxation Institute of Australia, the committee believed, would be dealt with by Australian Taxation Office interpretation of those laws. A number of these matters have already been raised in a submission to the Tax Design Review Panel, which was set up on 2 February 2008 by the government. Indeed, as Senator Coonan said, schedule 2 of this bill deals with GST payments where the court found that they were not treated as supply, and this called into question the treatment of GST refundability. The government believes that this bill maintains the integrity and original intent of the GST system. It applies whether or not the GST payment was held to be in relation to supply. It also deals with the issue of the four-year limit for both taxpayers and the tax office, and gives certainty in that respect. The committee recommended that these bills be passed—that they were both very sensible measures and any request to go further would be dealt with by the review panel set up by the government. That would restore the balance of the tax bills. I am pleased to support the bill.

Debate (on motion by Senator Ludwig) adjourned.