Senate debates

Wednesday, 24 June 2009

Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009

In Committee

Bill—by leave—taken as a whole.

10:55 am

Photo of Steve FieldingSteve Fielding (Victoria, Family First Party) Share this | | Hansard source

I move amendment (1) on 5838:

(1) Schedule 1, page 4 (after line 3), at the end of Schedule 1, add: 3 Application of PAYG withholding tax rules Division 12 of Schedule 1 of the Taxation Administration Act 1953 does not apply in relation to the foreign earnings of a person that would be exempt from tax but for the amendment made by this Schedule, so that the person’s employer is not required to withhold any amount of those earnings under that Division. [PAYG not to apply to certain foreign earnings]

I will make some general comments before referring directly to the amendment. Firstly, regarding the vote on the second reading of the bill, I would be interested to know whether there may be any conflict of interest for those politicians within the defined benefit scheme through this legislation providing exemptions for them. They voted against Senator Xenophon’s amendment, so that is an important issue they need to consider. During the second reading debate, the Assistant Treasurer referred to defined benefit programs and those people who would get some sort of special treatment. Senator Xenophon’s amendment related to politicians only—not Qantas or any other area but politicians and their superannuation entitlements. The question is whether, when you are voting for a bill, you should declare whether it assists you and therefore constitutes an interest. I will leave that for each senator to consider. Politicians’ superannuation is something the community is definitely concerned about.

The amendment I have just moved will prevent the double withholding of tax for Australians working temporarily overseas. I will give an example of how the bill as it stands would operate. A resident of Australia temporarily working overseas who earns $1,000 per week might be taxed at a rate of 30 per cent in the country they are working in and then taxed at the rate of 30 per cent under Australian law. That money would be taken from their pay and they would be left with a smaller amount to live on. Without this amendment, this person would be effectively taxed at the rate of 60 per cent and take home only $400 in their pay packet each week. Quite clearly that is wrong. They will have to wait 12 months before they can reclaim the money at the end of the financial year. The government will claim that they can avoid this by having their Australian employer seek an exemption from the Australian Taxation Office—but that is the employer, not the employee. It is extra red tape and it will be a burden. We have been contacted by a number of people saying that this is going to cause a significant problem.

This amendment will stop the government from double dipping upfront rather than the reconciliation being done by default at the end. This is a bit of a mess that the government have created. They know it is a problem. It would lead to an outcome that is less than desirable and it is in their hands to fix it, which is what this amendment would do. The government have accepted that there is a problem here; the Senate Economics Legislation Committee, which conducted an inquiry into this bill, also accepted that this double dipping is a problem; yet no-one has presented a solution. It is very hard for the Senate to vote on a flawed bill without seeing a solution. I urge senators to support this amendment.

11:00 am

Photo of Nick SherryNick Sherry (Tasmania, Australian Labor Party, Assistant Treasurer) Share this | | Hansard source

I was going to touch on this issue in concluding the debate on the second reading but, as I think Senator Fielding would appreciate, I was running out of time so I covered the matters raised by Senator Xenophon.

The current law, the Taxation Administration Act 1953, permits the Commissioner of Taxation to vary the PAYG withholding amount to be withheld by an employer in order that the amounts withheld reflect an employee’s final Australian tax liability. So the existing law allows the commissioner to deal with the issue that Senator Xenophon is raising. A taxpayer who will be entitled to a foreign income tax offset in his or her Australian income tax assessment, because of foreign income tax paid, is able to ask the Commissioner of Taxation to vary the amount of PAYG withheld by his or her employer to reflect the foreign tax paid. So the current law allows adjustment. There is an administrative avenue available to taxpayers to seek to overcome the issue that Senator Fielding is raising—potential PAYG withholding issues—including taking into account the level of foreign tax withheld at source in the foreign country.

The proposed amendment that Senator Fielding is moving—and I appreciate his intentions—could affect the imposition of fringe benefits tax in Australia. It would create inequity between the tax treatment of fringe benefits paid to Australian-based employees and foreign-based employees. It could also result in a loss of potential revenue for the government and could encourage tax avoidance—for example, via the conversion of taxable salaries into non-taxable fringe benefits. The proposed amendment would remove an employer’s obligation to withhold PAYG withholding amounts from salaries and wages et cetera paid to their Australian residents and employees working overseas.

The PAYG withholding provisions are an integral part of Australia’s tax system, so the treatment proposed by Senator Fielding would be inconsistent with the PAYG treatment of Australian based employees and could create large end of year tax debts for some employees. So the government is mindful of the fact that some other countries tax fringe benefits from Australia. In this regard the government is examining the need for further work in that specific area to minimise the potential for double taxation of fringe benefits. The main thrust of Senator Fielding’s amendment we believe can be dealt with under current tax law by the commissioner. Therefore, Senator Fielding’s amendment is not necessary and, unfortunately, opens up a range of consequences. For the reasons I have outlined, that would be inappropriate and undesirable.

11:03 pm

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

I indicate on behalf of the coalition that, whilst we appreciate the sentiment behind Senator Fielding’s amendment, we are not disposed to support it, largely for the reasons that have been outlined by the minister. I have absolutely no reason to do anything other than accept the advice from the Australian Taxation Office that the problem identified here is dealt with and can be dealt with administratively by the tax office. The law is very clear that it is possible to vary PAYG withholding to reflect the liability of a taxpayer. But the second reason, apart from the fact that we are of the view that the existing law can deal with the issue raised, is that as with all of these matters, including Senator Xenophon’s second reading amendment, which I did not get a chance to speak to, one has to always be wary of unintended consequences in changing any part of the tax law. It is a bit like pulling a thread in a carpet, as I remarked to the minister during a conversation we had a little while ago. The complexities of the tax act are such that, if you change a bit of it, it usually means there are unintended consequences in other areas. The minister has referred to some of them, particularly in relation to complexities with the fringe benefits tax. It is a very good thing for us all to be vigilant if we come across what we perceive as inequities and difficulties and raise these matters in this place, so I certainly make no criticism of Senator Fielding for raising a legitimate issue. It is just that I am of the view that the advice from the Australian Taxation Office is in fact correct—that the legislation does enable this matter to be appropriately dealt with.

Question negatived.

Bill agreed to.

Bill reported without amendments; report adopted.