Helen Coonan (NSW, Liberal Party, Shadow Minister for Finance, Competition Policy and Deregulation) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2008 Measures No. 6) Bill 2009, which contains five schedules. Schedule 1 to this bill amends the Income Tax Assessment Act 1997 for the purpose of preventing a market value cost base being used when interests in an entity are acquired by another entity through a scrip-for-scrip capital gains tax rollover—that is, a restructure. Schedule 2 to this bill amends the Tax Administration Act 1953 for the purpose of correcting the legal and administrative barriers relating to debts that are removed from the foreign claims register. This schedule also provides for certain types of payments to be made by the Commissioner of Taxation to foreign countries.

Schedule 3 to this bill amends the Superannuation Guarantee (Administration) Act 1922. The purpose of this schedule is to expand the time period in which an employer can make a late superannuation contribution and still elect to use the late payment offset to reduce their superannuation guarantee charge obligation. Schedule 4 to this bill amends existing taxation laws to ensure the proper operation of the tax system by removing errors and anomalies within existing legislation. Schedule 5, which became part of this bill after a recent amendment in the other place, amends income tax and fringe benefits tax legislation for the purposes of ensuring that charities undertaking infrastructure reconstruction in areas affected by the Victorian bushfires will not lose their tax concessional status.

Schedule 1 implements the policy announcement made by the previous coalition government as a tax integrity measure to prevent capital gains tax avoidance. The former coalition government recognised that certain entities were undertaking a scrip-for-scrip CGT rollover and obtaining a market value cost base for shares in the acquired entity. The entities would then use the consolidation tax cost-setting rules to push the market value cost base into the underlying assets of the acquired entity. This device allows entities to reduce the capital gains when the assets are sold and increases the capital allowance deductions. In October 2007, the previous coalition government announced that it would introduce measures to prevent the intentional tax mischief relating to the resetting of tax values relating to scrip-for-scrip CGT rollovers.

The former coalition government also announced a commitment to undertake consultation with the business community to ensure that the operation of the legislation would be implemented correctly. The announcement reflects the coalition’s longstanding commitment to ensuring the integrity and correct operation of Australia’s taxation system. I therefore welcome the government’s decision to introduce these measures to prevent further abuse of Australia’s tax system.

Schedule 1 prevents entities from exploiting the rollover provisions, as I mentioned, and where a scrip-for-scrip CGT rollover is taken to be a restructure, entities will not be able to apply a market value cost base. The schedule will stop entities undertaking scrip-for-scrip CGT rollover restructures with the intent of reducing their capital gains tax liability from the disposal of the acquired entity’s assets. This is consistent with the intent of capital gains tax to apply to increases in value of capital assets.

Schedule 2 addresses the legal and administrative issues arising from deeming debts being removed from the foreign claims register. It also expands the types of payments the Commissioner of Taxation can make to other countries. It expands the types of payments from principal and general interest charge to allow the Commissioner of Taxation to pay other amounts that may need to be paid.

Schedule 3 amends the time within which an employer can make a contribution to an employee’s superannuation fund and be able to use that payment to offset the superannuation guarantee charge liability. This is important. It will encourage employers to be timely in making superannuation contribution payments.

Schedule 4 will make minor changes and alterations to the existing tax laws to promote their intended operation. As my colleague in the other place the member for Casey states: this is effectively a non-controversial, housekeeping amendment, and it is obviously supported.

As I said earlier, schedule 5 will ensure that charities can assist in rebuilding infrastructure damaged by the Victorian bushfires, without losing their status as charities. This is obviously very important in view of the recent tragic bushfires. It is a very welcome move, which was the result of a recent bipartisan amendment in the other place, as a means to assist those afflicted by the terrible fires in Victoria.

During the last parliament, the previous coalition government announced the substantive provisions that form part of this bill. The coalition’s support for this bill represents our commitment to protecting the integrity of Australia’s tax system. It has our support in this place, and I commend the bill.

Doug Cameron (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I rise to support the Tax Laws Amendment (2008 Measures No. 6) Bill 2009. I am pleased to speak in support of the bill and the five measures contained within it. Schedule 1 of the bill deals with capital gains tax rollovers for corporate restructures and the emergence of so-called ‘top hat’ schemes. Schedule 2 deals with amendments to the assistance-in-collection provisions in division 263 of schedule 1 to the Taxation Administration Act 1953. Schedule 3 deals with late payment offset for superannuation guarantee contributions. Schedule 4 deals with minor amendments and technical corrections. Schedule 5 is about facilitating assistance to individuals and communities affected by the Victorian bushfires and the north Queensland floods

Schedule 1, the capital gains tax rollovers for corporate restructures, is an important integrity measure. As has been indicated, the former government announced its intention to deal with this issue in October 2007. Those proposals have been refined by this government through extensive consultation. The amendments will apply to arrangements entered into after 7.30 pm on 13 May 2008 and will prevent companies from gaining significant and unintended tax benefits by restructuring.

The bill modifies the capital gains tax provisions in the Income Tax Assessment Act to prevent a market value cost base from arising when an entity is acquired by another entity following scrip-for-scrip rollover under an arrangement that is taken to be a restructure. Scrip-for-scrip rollover is designed for corporate takeovers and the exchange of share rollover is designed for corporate restructures. The exchange of shares rollover provides a tax neutral outcome for corporate restructures where there is no substantive change in the underlying asset ownership of the original entity. If this rollover applies, the cost base of the shares that an acquiring entity receives in the original entity reflects the cost base of the underlying net assets of the original entity.

The scrip-for-scrip rollover can apply to an arrangement only if the exchange of shares rollover does not apply. In scrip-for-scrip rollovers the cost base of the shares that the acquiring entity receives in the original entity reflects the market value of the underlying net assets of the original entity. Scrip-for-scrip rollovers contain integrity rules that apply if the owners of the replacement entity and the original entity are substantially the same. Integrity rules mean that the cost base of the shares that the acquiring entity receives in the original entity reflects the cost basis of the original shares held in the original entity, not the market value of the original entity.

Some entities insert new holding companies on top of the original entity. This has been described as a top hat scheme. This is designed to attract scrip-for-scrip rollover. The holding company obtains market value cost base for the shares acquired even though no significant change in the underlying ownership of the assets takes place. Where the original entity subsequently joins the holding company consolidated group, the consolidation tax cost setting rules apply to push this market value cost base into the underlying assets of the original entity. This effectively allows the tax costs of the original entity’s assets to be set aside which, in turn, can lead to an increase in capital allowance deductions and reduction in capital gains that arise on the disposal of those assets.

The government is determined to address this loophole in the tax laws that allows corporate restructuring for the purpose of accessing a tax advantage designed for legitimate takeover activity. I am very surprised that we still have corporate entities in this country who are trying to undermine the tax base of the country, trying to set up these false structures to avoid paying the proper tax to the community and to the government.

Schedule 2 makes amendments to assistance-in-collection provisions. Schedule 2 to the bill amends the assistance-in-collection provisions found in division 263 of schedule 1 of the Taxation Administration Act 1953. The amendments will overcome legal and administrative problems associated with deeming debts never to have been payable in the event that claims are removed from the foreign claims register or otherwise reduced. The amendments also expand the types of payments that the Commissioner of Taxation can make to a foreign country to include certain funds that the commissioner recovers in the course of legal proceedings, such as interest attributable to the debt and funds paid for in advance to the foreign country.

The amendments also clarify that the role of the register is to transform foreign tax debts into Australian tax debts, rather than acting as a day-to-day record of the debtor’s liability. The current assistance-in-collection provisions were enacted by the International Tax Agreements Act 1953 to enable the commissioner to meet Australia’s existing and future treaty obligations for mutual assistance in collection of tax debts. Specifically, these provisions enable the commissioner to take action to collect or to conserve debts owed in another country where the debtor is a resident in Australia or has assets in Australia.

Two issues have been identified which may impact on the commissioner’s ability to effectively meet Australia’s obligations under relevant international agreements. The first arises because of the consequence of deeming a foreign tax debt as never to have been payable where the debt is reduced under subsection 263-35(6). Debts can be reduced in circumstances such as where a debtor has made a part payment in the foreign country or where the debt is reduced in the foreign country as a result of an amendment to the debtor’s liability. Deeming such debts as never to have been payable in this way can significantly frustrate any proceedings that the commissioner has commenced or finalised to collect the debt.

The second problem arises in relation to the types of payments that the commissioner is able to make to the foreign country. Under current law, section 263-40 permits only the principal amount and any general interest charge referable to that amount that has been collected by the commissioner to be paid to the foreign country. However, there may be circumstances where other amounts will need to be paid. These amendments also provide an opportunity to clarify the role of the register.

Schedule 3 of this bill amends the Superannuation Guarantee (Administration) Act 1992 to vary the period within which an employer can make a contribution to an employee’s superannuation fund after the due date for a quarter and still be able to use the late payment offset. The calculation of the general interest charge on an unpaid amount of the superannuation guarantee charge where the offset is used is also amended.

An employer is eligible to use the offset to reduce the superannuation guarantee charge liability in the following circumstances: where the employer has made a contribution for a quarter into an employee’s fund after the due date for the quarter; where the contribution in respect of the employee is made before the employer’s original assessment of the superannuation guarantee charge for the quarter; where the employer has given an election, in the approved form, to the commissioner to use the offset in respect of the employee to reduce their superannuation guarantee charge liability for the quarter; and where the election is made within four years after the original superannuation guarantee assessment date for the quarter.

Schedule 3 also amends the act in relation to the calculation of the general interest charge on an unpaid amount of the superannuation guarantee charge where an employer elects to use the offset. The offset takes effect from the original superannuation guarantee assessment date. From the original superannuation guarantee assessment the general interest charge accrues on the remaining shortfall component of the unpaid superannuation guarantee charge amount after the offset has been applied. Where an employer is eligible to use the offset for a quarter for an employee and does elect to use the offset, the offset takes effect on the employer’s original superannuation guarantee assessment date for the quarter.

Schedule 4 of this bill makes various minor amendments to the taxation laws. The amendments deal with issues such as incorrect terminology, grammatical punctuation errors, missing asterisks from defined terms, inoperative material, ambiguities in the law and the realignment of policy with the original policy intent. More significant amendments to this schedule include extending capital allowance rollover relief for depreciating assets to the case where a fixed trust is converted to a company, allowing funds that make payments to dependants of deceased estates to still be approved worker entitlement funds and so retain the fringe benefit tax exemption for payments to them, and giving trustees and beneficiaries of employee share trusts a choice to backdate recently inserted capital gains tax provisions that prevent taxing both trustees and beneficiaries when the employee becomes absolutely entitled to shares held in a trust after exercising a right under an employee share scheme. These amendments will apply from the date of royal assent unless otherwise stated.

Schedule 5 is designed to ensure that assistance can be provided to individuals and communities affected by the Victorian bushfires and North Queensland floods. The government has moved decisively to assist the Victorian and North Queensland communities in their time of need. The fires in Victoria are estimated to have cost in excess of $1 billion. It would be appropriate to once again acknowledge the courage, commitment and resolve of the firefighters who risked their lives in the face of horrendous firestorms. It is almost impossible to appreciate the horrific task undertaken by our bushfire volunteers and our police force when they had to attend after the fires. I also express my condolences to the family, friends and firefighting colleagues of David Balfour, who tragically lost his life while selflessly serving the Victorian community in the time of need. David Balfour was a local Canberra resident and I am sure he is remembered with great respect. The dignity with which he carried out his task will be remembered for a long, long time in the Canberra community.

So many other citizens, community groups and charities mobilised to provide emotional and physical support to the survivors of the Victorian bushfire and to North Queenslanders, who faced devastation and disruption through flooding. I would like to place on record my appreciation for the terrific efforts of everyone involved in this bushfire fight and in the relief after the bushfires and the North Queensland floods. Many Commonwealth and state public servants worked around the clock to assist in the national mobilisation, with the resources of many departments, both state and federal, stretched to the limit to deal with the unprecedented demands arising from the two major disasters. I also congratulate the member for Maribyrnong, the Hon. Bill Shorten, in being appointed Parliamentary Secretary for Victorian Bushfire Reconstruction. Knowing Bill, I am sure he will bring a huge amount of energy, commitment and intellect to the task before him, and I am sure we all wish him well in the task of reconstruction in Victoria.

Part 1 of schedule 5 to this bill amends the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 to make the income recovery subsidy exempt from income tax and to ensure the subsidy is not included in separate net income for the purposes of calculating an entitlement to certain tax offsets.

Part 2 of schedule 5 to this bill amends the Income Tax Assessment Act 1997 to provide that the Treasurer may declare an event a disaster for the purposes of establishing Australian disaster relief funds. The declaration of a disaster by the Treasurer will allow Australian disaster relief funds to receive tax deductible donations and provide money for the relief of people in Australia in distress as a result of the disaster. Public benevolent institutions, which must normally operate for direct relief effort, will also be able to establish Australian disaster relief funds for long-term recovery and community reconstruction efforts.

Part 2 of schedule 5 also specifically lists the 2009 Victorian Bushfire Appeal Trust Account as a deduction gift recipient in division 30 of the Income Tax Assessment Act 1997. This will ensure that the fund can use tax deductible donations for a wide range of activities, including recovery and community reconstruction efforts in communities affected by the 2009 Victorian bushfires as well as the provision of direct benevolent relief to affected communities. The Prime Minister announced the income recovery subsidy to parliament on 10 February 2009. The income recovery subsidy is administered by Centrelink and is equivalent to the maximum rate of the Newstart allowance. A payment received by a taxpayer as replacement for salary, wages or income is generally taxable. A legislative amendment is required to make the payment exempt from income tax. Such payments would also normally be included in the calculation of separate net income. The calculation of separate net income can affect a taxpayer’s eligibility to certain tax offsets. Exempting these payments from income tax and separate net income will lessen the financial hardship experienced by those individuals and communities affected by the 2009 Victorian bushfires or North Queensland floods.

It is quite clear to everyone in parliament that these steps being taken by the government are absolutely essential in providing the appropriate support to Australians who are suffering great hardship as a result of the Victorian bushfires or the North Queensland floods. I like to think that the response has been absolutely professional on the part of government departments and the response has been absolutely courageous on the part of the volunteers who have gone into those bushfire areas, at risk to their own lives, to help other Australians.

Not a lot has been said about the North Queensland floods, but the North Queensland floods have been a real problem in terms of individual families in North Queensland dealing with their day-to-day activities and being able to operate normally. It is clear that the North Queenslanders were very supportive of the Victorian bushfire victims. It was amazing to see people in North Queensland, who were isolated and not able to go about their normal business, providing funds to the Victorian bushfire appeal. These amendments are about making sure that the funds are tax-effective. (Time expired)

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I am pleased to be following Senator Cameron and to endorse his remarks, adding the support of the Greens for this legislation. The Tax Laws Amendment (2008 Measures No. 6) Bill 2009 is quite complex. If I can just refer to one component of the Bills Digest from the library, its summary on the tax minimisation schemes that the amendments seek to prevent says:

… underlying the tax minimisation schemes using the scrip for scrip roll-over measures is the fact that these measures and the consolidation measures result in giving a market value cost base for the underlying assets of the original entity when that entity joins the acquiring company’s consolidated group.

If we did not know what it was about before, we all do now! The effect is to avoid tax avoidance, and that is a good thing. It means that where scrip-for-scrip measures are used instead of the sale and purchase of shares, which would be taxable, under this legislation taxation will be applicable to those measures, and we support that.

I take this opportunity to flag the need for legislation here equivalent to that in the United States to also end the business of corporate tax avoidance through overseas tax havens. I refer to an article in the Guardian of 4 March which underscores action being taken in America which we need to emulate, and I ask the Rudd government to seriously consider it. The article says:

The world’s most secretive tax havens are to be prised open after Barack Obama’s new administration endorsed far-reaching legislation to crack down on them.

The decision to force “secrecy jurisdictions” to reveal the identities of the super-rich and major corporations who use them came from the US treasury secretary, Timothy Geithner, at a congressional hearing and will be seen as a blow to places such as Jersey, the Cayman Islands and Switzerland.

“We fully support the legislation … on offshore tax centres, and we look forward to working with you as part of the broader effort to address international tax evasion and close the tax gap,” Geithner told the House ways and means committee late on Tuesday.

His commitment was followed by supportive comments from Gordon Brown during his speech to Congress yesterday. But the prime minister will come under intense pressure to resist the move from the City and the tax havens that are UK dependencies or overseas territories.

Britain has recently faced international criticism for blocking European measures to reveal details of those who deposit huge wealth in tax havens … 

With an estimated $13tn—

that is A$23.4 trillion—

… of untaxed wealth held in offshore centres, taxing them would add $255bn of revenue to governments – more than double the global aid budget to poor countries.

What an appalling situation it is where tax avoidance by big companies amounts to that. Who of us can forget Kerry Packer, for one, boasting about tax avoidance in Australia? I remember the assessment was that his companies were paying four per cent tax, effectively, in Australia because of their ability to hide their financial matters in overseas tax havens. This is something that the Greens will be raising repeatedly in this chamber and in the public arena. In fact, I have written the following to the Prime Minister:

Dear Prime Minister,

I am writing to ask you to join US President Obama and UK Prime Minister Brown to legislatively or otherwise move to abolish or, at least, open up tax havens such as Jersey, the Cayman Islands and Switzerland.

It is estimated that such havens allow individuals and corporations to avoid more in tax than the global aid budget to the world’s poorest countries.

The G20 meeting in London on April 2, 2009 will provide an ideal opportunity to further the cause. I recommend Australia also promote the prospect of a Tobin tax to fund a global Marshall Plan.

A Tobin tax is a tax on international money movements and profiteering on money movements. It is very minimal tax, a fraction of one per cent, but it would raise billions of dollars which could then go to helping the poorer people of the world, hence the reference to a global Marshall Plan.

These are very serious matters, but it is a tribute to the lobbying power of the corporate sector that they are not tackled. However, we now have a Labor government in place that can tackle them, and my plea to Treasurer Swan and to the Prime Minister, Kevin Rudd, is to tackle them. I have not had a response to the letter—it was only sent on Saturday—but we are appealing to Prime Minister Rudd to make it clear before he goes to the G20 meeting on 2 April that he will be supporting moves to close down or at least open up to the spotlight of transparency these tax havens. Now, they include Switzerland’s banks, which since 1934, under legislation in Switzerland, have guaranteed secrecy to depositors. We all know some of the more gross abuses of the system, including the Nazis’ use of those secrecy provisions to hide financial dealings of the worst kind. However, it is worth noting in this chamber that President Obama has moved for and already succeeded in cracking open and shining the light on at least some of the big corporate deposits held in the biggest of the Swiss banks by threatening retaliatory action in the United States if they did not.

I want to hear from the Rudd government what support it is giving to the Obama presidency and administration on these very, very worthwhile moves to crack open the ability for corporations, including major Australian corporations and investors, to avoid taxes in this country. It is an impost on the rest of the community. It defrauds our ability to fund hospitals, schools and other entities and it is time it ended. It is a very serious matter. Now that the opportunity is there, we want to hear from Prime Minister Rudd. He is going to G20 to help the United States President and the British Prime Minister in this very worthwhile endeavour.

I might add that Switzerland has its nose out of joint because it has not been asked to go to G20. It has been excluded, even though it has the seventh biggest banking wherewithal in the world. And nor should it go until it cleans up this act of hiding tax avoiders in Switzerland. We all know that Australians have been attracted to using that device to avoid scrutiny of their financial dealings and therefore avoid taxes. It is time it stopped. So there is a golden opportunity at G20 for our government to join the most powerful governments in the world to bring an end to this defrauding of the Australian public by tax avoiders. They might be few in number but the amounts involved are very big indeed. I am looking forward to legislation coming into this place in the wake of this worthwhile tax laws amendment to parallel at least the legislation that has been brought forward in congress in the United States.

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

I do not think it can be denied that the Labor Party have always been very strong on the pursuance of tax avoidance, but I think it is also important to make a distinction between tax avoidance or evasion and tax minimisation. I do not think Kerry Packer, for example, would have said that he minimised his tax by avoiding tax. I think he would have argued that he used legitimate minimisation methods. Certainly tax avoidance and evasion have always been strongly pursued by the Labor Party, using all of the regulatory bodies, the Australian Taxation Office and the tax laws. I think it is Project Wickenby, which the Australian tax office has involvement in, that is chasing several prominent Australian figures through the courts over a range of matters, including overseas holdings in, for example, Swiss banks.

I think that offshore tax havens do indeed deserve to be looked at very carefully by regulatory authorities and governments around the world. I do have to say, though, that, perhaps as a result of that kind of pressure, Swiss banks have opened up and provided information where it has been proved that their activities are illegal or part of tax evasion measures. I would like to see that happen further. I would like to see those tax havens be much more open where the host country does suspect some form of tax avoidance or evasion.

I go back to the subject of tax minimisation. This is an ongoing issue and governments continue to make tax laws and deal with the changing corporate and taxation environment. There are companies that continue to look at the tax arrangements and try to legitimately minimise the amount of tax they pay. That is a reasonable proposition. Sometimes companies go a bit further and devise quite tricky schemes to minimise that tax. That is exactly one of the measures that we are looking at today in the Tax Laws Amendment (2008 Measures No. 6) Bill 2009, specifically in schedule 1.

Schedule 1 modifies the capital gains tax provisions of the Income Tax Assessment Act 1997 for corporate restructure. The current provisions allow that, where there is a corporate takeover and there is a scrip-for-scrip arrangement as part of that process, there is a capital gains tax rollover. This means that shareholders are not unduly penalised if a scrip exchange is part of the takeover arrangement. It is entirely appropriate to allow for normal competitive takeovers and restructuring in the market and not have shareholders unduly penalised by that arrangement where it is simply a transfer of that shareholding. As the ATO describe in their tax sheet:

Some takeover or merger arrangements involve an exchange of shares. In these cases, when you calculate your capital gain or capital loss, your capital proceeds will be the market value of the shares received in the takeover or merged company at the time of disposal of your original shares.

If you receive a combination of money and shares in the takeover or merged company, your capital proceeds are the total of the money and the market value of the shares you received at the time of disposal of the shares.

The cost of acquiring the shares in the takeover or merged company is the market value of your original shares at the time you acquire the other shares, reduced by any cash proceeds.

That simply meant, for example, that, where a taxpayer held shares in one corporate entity that were replaced by shares in another entity, as in a company takeover, that taxpayer was allowed to disregard the capital gains on the original shares. The replacement shares were then taken to have been acquired for the cost base of the original interest in shares. That arrangement was put in place by the former government in 1999.

However, there were some unintended consequences arising, including the tax minimisation practices. As has been described before, some companies sought to gain significant tax benefits by restructuring in such a way that the company in which shares were held joined a new holding company but ownership was essentially unchanged. No capital gains tax was payable and the intent of the legislation was therefore subverted. One such arrangement was described in the explanatory memorandum:

1.

7   For example, some entities have entered into schemes that involve the insertion of a new holding company above the original entity (known as ‘top hat’ schemes).  The schemes are designed to attract a scrip for scrip roll-over.  As a result, the holding company obtains a market value cost base for the shares it acquires in the original entity under the scheme even though there is no significant change in the underlying ownership of the assets.

1.

8   Where the original entity subsequently joins the holding company’s consolidated group, the consolidation tax cost setting rules apply to push this market value cost base into the underlying assets of the original entity.  This effectively allows the tax costs of the original entity’s assets to be reset which, in turn, can lead to an increase in capital allowance deductions and a reduction in capital gains that arise on the disposal of those assets.

It is this market value cost base which is the fundamental basis of what is happening here. The measures in schedule 1 of this bill deal with it. Companies will be prevented from obtaining a market value cost base for shares and certain other interests acquired in another entity following their scrip-for-scrip capital gains tax rollover under an arrangement that is taken to be a restructure. This is the crux of the change here. We are not dealing with straight takeovers or substantial restructures where one larger company takes over a smaller company. Generally and loosely speaking, an arrangement will be taken to be a restructure if the resulting entity has more than 80 per cent of the market value of the previous arrangement.

This measure will not only address this problem of this type of tax minimisation but also provide more certainty for markets when dealing with takeovers and restructuring. The feedback from the market is that a lot of scrip-for-scrip deals that may have been put in place have in fact been halted in the business markets because there is some uncertainty about what is being allowed by the legislation and what is not. Therefore, there is some hold-up of a lot of these scrip-for-scrip offers. That is particularly important in the current global financial market because it is, of course, harder and harder for straight debt capital raising. It becomes more and more important that the opportunities for dealing with scrip and shareholdings are available so that, where there is a restructuring of the entire market and one company merges with or takes over another company, there is this possibility of scrip for scrip rather than borrowing the money and paying out the shareholders of another company. Although I do not believe that that was the impetus for this bill, it certainly provides even more impetus at this time. This was borne out in comments from Ernst and Young and PricewaterhouseCoopers on these proposed changes, as quoted in the Financial Review in December 2008:

“Scrip takeovers are likely to re-emerge, particularly in the current environment; where obtaining debt finance for acquisitions can be very difficult,” Ernst & Young partner Don Green said.

“Existing companies, seeing an attractive target company, will be able to undertake scrip takeovers and will know the tax implications with certainty, rather than relying on government announcements without legislation.”

…     …         …

PricewaterhouseCoopers tax partner Mike Davidson said: “They have gone back to the underlying theme of only trying to target a certain type of transaction which is really just an internal restructure, which is quite good.”

So the markets generally are quite supportive of the change mooted in schedule 1 of this bill. It will certainly address those issues of tricky rearrangements of companies in order to minimise tax through the use of that capital gains tax exemption.

Another measure in this bill of some note is in regard to the superannuation guarantee payments. Superannuation payments are payable each quarter. From 1 July 2008 the minimum will be nine per cent, which is the standard superannuation guarantee payment. If these payments are not made by the employer at the end of each quarter a charge applies. If the superannuation guarantee payment is not returned to the tax office within 28 days of the end of each quarter, a superannuation guarantee charge is applied. This can be offset against ongoing payments under certain conditions. These conditions allow an employer who makes a contribution into an employee’s fund after the due date for a quarter to elect to use the contribution to offset part of their superannuation guarantee charge liability with respect to the employee for the quarter.

Prior to these amendments, the employer could make the contribution at any time after the due date and still be eligible for the offset. There was no required time limit for that offsetting of the superannuation guarantee charge. The changes foreshadowed in this bill limit the time during which an employer may defer payment of the superannuation guarantee charge obligation and, consequently, limit the potential interest charges that are part of that superannuation guarantee charge. This is a sensible and practical measure that is part of the ongoing review of superannuation and has been supported by the opposition as well. The Australian tax office expects that the measure will save around $25 million, and that was foreshadowed in the budget papers last year.

The other significant schedule that it deals with is foreign tax debt. It enables the collection or conservation of tax debts owed in another country where the debtor is resident in Australia or has assets in Australia. Again, this is tidying up another part of the system. This refers to the International Tax Agreements Amendment Act (No. 1) 2006, which enables the tax commissioner to meet Australia’s existing and future treaty obligations for mutual assistance in the collection of tax debts. We are in a global market where money moves around quite freely. Unfortunately it has not been moving upwards in the last six months or so, but hopefully we will get back to a time when we will again see growth in our financial markets and the money that is moving around will not be to cover outstanding obligations but to produce growth around the world. I guess this harks back to what Senator Bob Brown was saying: now that money is moving freely around the world and we have these tax treaties in place, we do have treaty obligations to better monitor what is happening with money moving around the world—often quite large amounts of money. It is quite difficult to monitor what is happening with all of the different types of financial instruments that are available, so it is very important that Australia clarifies and meets its obligations and also that it collects the money that is due to be collected from those people who are resident in Australia and have overseas interests or have substantial assets in Australia and tax obligations that need to be met.

There are a number of other measures in this bill. It is quite generally supported. The addition of schedule 5, which provides assistance in emergency situations, has been dealt with extensively by Senator Cameron. I will not go into that except to say that clearly this is a very important measure and one which will provide support to those people affected by emergencies like bushfires and floods. It will make life a little bit easier for those people who are undergoing such difficult times at the moment. I support the bill as a whole.

Mark Furner (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

I rise here today to talk on the Tax Laws Amendment (2008 Measures No. 6) Bill 2009. This bill implements a number of improvements to tax law in Australia. As a member of the Senate Standing Committee on Economics, I see this as just another example of the work and commitment that all the members on that committee are doing to correct the measures in laws, in particular tax laws, in order to resolve matters that will free up tax laws in this country.

Through these amendments, a new schedule has been added to ensure that charities collecting donations for bushfire victims are tax deductible. That is one measure. The other major measures in the amendments include changes to the capital gains tax, to restrict capital gains tax scrip-for-scrip rollover, to the Superannuation Guarantee (Administration) Act 1992 with regard to late payment offsets and to the provisions of the Taxation Administration Act 1953 with regard to assistance-in-collection provisions, as well as minor amendments to other tax legislation. I believe tax law, although complicated at times, is imperative to Australian businesses, employees, regulators, individuals and government. Here we are today trying to make these laws better for all those groups of people. The Rudd Labor government has made a commitment, and will continue with its commitment, to care for and maintain our tax system. Each amendment to this legislation is indicative of this commitment.

In the Tax Laws Amendment (2008 Measures No. 6) Bill 2009, schedule 1 deals with capital gains tax rollovers for corporate restructures under the Income Tax Assessment Act 1997. It will modify scrip-for-scrip capital gains tax rollover provisions so that during corporate restructures the purchaser’s cost base of shares reflects the tax cost of the target entity’s net assets. Under the current provisions, companies can obtain unintended tax benefits through consolidation. This can cause significant disruption to the operation of capital gains. The amendments seek to prevent this type of exploitation of the scrip-for-scrip rollover. The Australian Taxation Office describes its experiences in the explanatory memorandum of the bill as follows:

… Companies are able to gain significant tax benefits by restructuring in a way that attracts the scrip for scrip roll-over rather than the exchange of shares roll-over. These tax benefits are compounded if the entity taken over becomes a member of the acquiring entity’s consolidated group.

… For example, some entities have entered into schemes that involve the insertion of a new holding company above the original entity (known as ‘top hat’ schemes). The schemes are designed to attract a scrip for scrip roll-over. As a result, the holding company obtains a market value cost base for the shares it acquires in the original entity under the scheme even though there is no significant change in the underlying ownership of the assets.

… Where the original entity subsequently joins the holding company’s consolidated group, the consolidation tax cost setting rules apply to push this market value cost base into the underlying assets of the original entity. This effectively allows the tax costs of the original entity’s assets to be reset which, in turn, can lead to an increase in capital allowance deductions and a reduction in capital gains that arise on the disposal of those assets.

The amendments look to the market value cost base when shares are acquired through scrip-for-scrip rollover, which will help prevent exploitation or unintended tax benefits.

Schedule 2 deals with assistance in the collection provisions of the Taxation Administration Act 1953. The amendments look to provide consistency among partner countries and the Australian Taxation Office. Collection provisions currently enable the Commissioner of Taxation to take action on tax debts owed to another country where the debtor is an Australian resident or has assets in Australia. The amendments seek to overcome technical issues arising through current legislation. They provide new mechanisms such as reducing the liability of a debtor in certain circumstances, expanding the type of payments the commission can make to foreign entities and clarifying the foreign claims register.

Schedule 3 relates to late payment offsets for superannuation guarantee contributions. The superannuation guarantee scheme relates to the prescribed minimum superannuation contribution—currently nine per cent—payable on an employee’s ordinary time earnings. This is administered by the Australian Taxation Office. When an employer neglects to pay this it is known as an SG shortfall. The amendments deal with an SG shortfall in regard to late payment offsets. Currently, if an employer does not pay the SG within the 28-day period they must lodge an SG statement on or before the 28th day of the second month after the end of the quarter. The total payments owed are known as the SG charge and are made up of the SG shortfall plus interest and administration costs. This is distributed by the Australian Taxation Office on behalf of the employees. Currently, employers who make contributions to a superannuation fund after the due date can offset the late payment against the SG charge liability. As these payments are not tax deductible and there is no time limit to making late payment, there is little incentive for an employer to make payments promptly. The amendments seek to limit the time during which an employer may defer payment of the SG and limit the amount of the interest component of the SG charge if the legislation is complied with. These particular amendments are more employer friendly and thus will have a flow-on effect to employees by ensuring prompt payment of superannuation.

Schedule 4 deals with minor amendments to a variety of legislation, updating outdated terminology and grammatical errors. This again reflects the Labor government’s commitment to care for and maintain our complex tax system. Schedule 5 introduces measures to alleviate financial hardship felt during traumatic events such as the 2009 Victorian bushfires and the North Queensland floods. As it follows, subsequent to the disastrous Victorian bushfires on Black Saturday all Australians dug deep to assist in donations towards support for those fellow Australians who needed help the most. Equally, Australians dug deep for the victims of the floods in my home state of Queensland. The amended schedule 5 will allow for a new schedule to the bill to ensure that charities collecting donations for bushfire victims are tax deductible. What we are doing in this regard is specifically listing the Red Cross’s and the Victorian government’s 2009 Victorian bushfire appeal as a deductible gift recipient for a five-year period, and that will allow tax-deductible donations for that purpose. We are also doing more than that: we are allowing further concessions to be made and are amending the disaster relief category to allow a Treasury minister to declare a disaster for tax purposes—and it goes on. So there are some important amendments in this regard which will help to allow donations and assistance which have been given in circumstances of fire, flood and other disasters to be used for the benefit of people such as those in Victoria and North Queensland.

The Red Cross and the Victorian government have established the joint 2009 Victorian Bushfire Appeal Fund. As the Red Cross is a public benevolent institution, or PBI, any tax deductible funds being donated through the appeal fund can be used for direct relief only and not for recovery or reconstruction efforts. Donations being collected by the appeal fund are currently being transferred to a Victorian government special-purpose trust fund. The trust fund comprises both donations from the general public, through the Red Cross, and moneys being contributed by the Australian and state and territory governments and international governments.

The specific listing of the trust fund will ensure it can receive tax deductible donations for recovery and reconstruction as to communities affected by the 2009 Victorian bushfires. Currently, the requirements of the Australian disaster relief fund general DGR category require that a state of emergency be declared by a relevant state minister before the provision can be enacted. Once enacted, the Taxation Office can endorse as DGRs those public funds which are established to provide for relief, recovery and reconstruction following a disaster in Australia. Amending the tax law to allow a Treasury minister to declare a disaster situation for tax purposes will allow for situations where there is national support for victims of a disaster and where a state of emergency is not declared by the relevant state, as has occurred for the 2009 Victorian bushfires. Once these amendments have received royal assent, a Treasury minister can declare the 2009 Victorian bushfires as a disaster situation.

A remaining question is whether providing funds to the trust fund for recovery and reconstruction would jeopardise the Red Cross’s tax concessional status as it would be providing for non-PBI activities. Amending the existing Australian disaster relief fund general DGR category in order to expand the scope of PBI activities when a disaster has been declared would allow PBIs and other organisations to establish a public fund for the relief, recovery and reconstruction of communities. The PBI could then either provide funds to organisations providing the assistance or undertake the assistance directly. The amendment would also ensure that PBIs seeking donations would not jeopardise their PBI status should they wish to contribute to recovery and reconstruction efforts. PBIs such as the St Vincent de Paul Society, Anglicare Victoria and the Salvation Army are accepting donations to provide emergency relief for those affected by the bushfires.

The income recovery subsidy is a Newstart-like payment which will provide financial assistance to employees, small business owners and farmers who can demonstrate a loss of income as a result of the Victorian bushfires or North Queensland floods. The payment is set at the maximum Newstart rate. Normally a payment received for lost salary, wages or income would be taxable and would be included in an income test for determining eligibility for certain tax offsets. Exempting these payments ensures that no tax will be paid on them and that they will not be included in calculating eligibility for tax offsets through the separate net income test.

These amendments put beyond doubt that tax deductions to the Victorian Bushfire Appeal fund are tax deductible. The amendments also improve the tax law by easing the requirements for deductible gift recipient status, which can be granted to organisations assisting in the event of disasters and by ensuring that public benevolent institutions such as Red Cross, Anglicare and St Vincent de Paul retain their PBI status when assisting in reconstruction efforts.

I wish to briefly comment that the Red Cross are to be commended for the work they have done in Victoria and in Queensland. I have heard about that work. The Red Cross are a magnificent organisation, deserving of the kind of support the Australian people have given them. The legislative change that the minister has circulated will help the Red Cross in their operations. Anything we can do in terms of amendments to our tax laws to help the Red Cross is of great advantage. I want to praise and thank them for the wonderful work they have done in Victoria and particularly in North Queensland, with our sisters and brothers and fellow Queenslanders who have suffered so much recently.

I was up in North Queensland recently when Cyclone Hamish was bearing down on the coast from Cairns through to Mackay. I could only think at the time that another disaster could follow the terrible flooding in North Queensland. Sure enough, by virtue of Mother Nature, the cyclone diverted itself away and dissipated into a storm. When people are digging deep into their pockets, these laws will assist in those recovery efforts to make sure that the money is going through without additional burden and taxation. I commend the bill to the chamber.

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 those senators who contributed to the debate on the Tax Laws Amendment (2008 Measures No. 6) Bill 2009. Schedule 1 modifies the capital gains tax provisions of the Income Tax Assessment Act 1997 for corporate restructures. Companies will be prevented from obtaining a market value for cost base for shares and certain other interests acquired in other entities following a scrip-for-scrip capital gains tax rollover under an arrangement that is taken to be a restructure.

This is an important integrity measure which the former government announced its intention to deal with in October 2007. However, the former government’s proposal was poorly targeted and effectively stopped scrip-for-scrip arrangements, causing disruptions in the market. The government’s measure has been refined through extensive consultation and will effectively target the mischief. The amendments to the assistance in collection provisions will ensure that they operate as intended and provide the Commissioner of Taxation with an effective mechanism to take action to collect or to conserve tax debts in another country where Australia has committed to such a reciprocal arrangement under an international agreement.

Schedule 3 of this bill amends the Superannuation Guarantee (Administration) Act 1992 with regard to the late payment offset. The offset allows an employer who makes a late superannuation guarantee contribution for the employee to use that contribution to offset against part of their superannuation guarantee charge liability. These amendments specify that an employer will be able to use the offset if they make the contribution before they are assessed with the superannuation guarantee charge liability. This will encourage employers to make the contributions in a more timely manner whilst still having the benefit of using the offset to reduce their superannuation guarantee charge liability. Schedule 3 also amends the calculation of the general interest charge on an unpaid superannuation guarantee liability where the offset is used. The calculation of the general interest charge will be amended so that it accrues with the remaining amount of the unpaid liability after the offset has been applied. This reduces the amount of the general interest charge and acknowledges the fact that the employer has made a contribution for their employee.

Schedule 4 implements various minor amendments to the law and also some general improvements of a minor nature. These amendments reflect the government’s commitment to care and maintenance of the tax system.

Schedule 5 introduces taxation measures to alleviate the financial hardship being felt in communities affected by the 2009 Victorian bushfires and North Queensland floods. Part 1 of schedule 5 exempts the income recovery subsidy from income tax and ensures that the subsidy is not included in separate net income for the purposes of calculating an entitlement to certain tax offsets. Part 2 of schedule 5 allows the Treasurer to declare an event a disaster for the purpose of establishing Australian disaster relief funds. The declaration of a disaster by the Treasurer will allow Australian disaster relief funds to receive tax deductible donations and provide money for the relief of people in distress as a result of the disaster. Part 2 also lists by name the 2009 Victorian Bushfire Appeal trust account as a deductible gift recipient. I commend the bill to the Senate.

Question agreed to.

Bill read a second time.