Wednesday, 12 May 2010
Tax Laws Amendment (2010 Measures No. 1) Bill 2010
Bill—by leave—taken as a whole.
I move opposition amendment (1) on sheet 6087:
(1) Schedule 1, item 5, page 7 (line 4 and 5), omit subsection (3), substitute:
(3) An approved clearing house means one of the following:
(a) a licensed superannuation clearing house, which meets the minimum standards specified in the regulations for the purposes of this paragraph; or
(b) a government-subsidised clearing house, selected subject to a competitive process for awarding a government contract, as specified in the regulations for the purposes of this paragraph.
This amendment is basically to encompass a wider capacity for the usage of clearing houses. We should not just have clearing houses such as the hand-picked Medicare clearing house. We should have the capacity for other people to participate in this process. If we are truly going to support small business—and I hear the Treasurer and the Prime Minister talking about their support of small business—then surely we should engage in the delivery of what would be access to government funds through a process that has no reason to just be quarantined to Medicare but should be widened. In our amendment we have increased the capacity of clearing houses to be ‘a government-subsidised clearing house, selected subject to a competitive process for awarding a government contract, as specified in the regulations for the purposes of this paragraph.’
It has been stated through all the speeches that have been given so far from this side and through the committee work that there are people with the capacity to deliver a clearing house outcome, and we should be doing our best to endeavour to keep them in the marketplace. It does seem rather unfair that we have gone out and picked a winner in Medicare, especially when there has been no real diligence done on Medicare’s capacity to provide that outcome. I clearly spelt that out in my speech in the second reading debate on this matter. This amendment is basically going forward and saying, ‘Let’s test the marketplace. Let’s see if we can get the best value for our dollar. Let’s increase the description so that we allow other Australians to participate in this process.’
My colleague Senator Carr well covered the reasons why the government have opposed this amendment. There are just two elements that I want to respond to. The first is the question of why we need a clearing house specifically for small business, whoever provides it. Why do we need it? We need it because, as a consequence of superannuation choice provisions as introduced by the previous government, there has been an enormous new red-tape and regulatory burden placed on small business. We warned the previous government at the time they introduced superannuation choice about some of the difficulties that would confront business, particularly small business. Choice of fund requires in law that a business provides a choice-of-fund form to all new employees. It then legally requires the processing of those forms by that business where there is a departure from the default fund. There is an administrative cost to that. And then obviously there is the payment.
A lot of small businesses, as I am sure Senator Joyce knows, do not have electronic transfer payment facilities in order to carry this out; they do it manually. So this is an additional problem for small business. One of the features of Medicare, of course, is that they have physical offices to which businesses can go to make manual payments. That is not available through a traditional electronic clearing house. I know some of these privately run electronic clearing houses, and they do not have physical offices on the ground—particularly in regional Australia, Senator Joyce—by which small businesses can continue, if they wish, to make manual payments. In the case of Devonport, where I live, there is a Medicare office for small business and people can, obviously, physically walk in. Our preference is electronic payment but the reality is that many small businesses will continue for the foreseeable future to do this work physically rather than electronically. That is one important advantage.
The other issues have been well canvassed in this debate and Senator Carr has run through those. This issue has been the major point of contention during the second reading debate—not the only point raised but the major focus of debate—and I commend the government’s position on Medicare to the Senate chamber. The government opposes the opposition amendment.
I rise to indicate that the Australian Greens will be opposing the opposition amendment. In addition to the reasons that have been cited by the government—and I did want to have discussion with the government about this and have now done so to my satisfaction—the issue for me is the level of risk that small businesses around the country are already suffering in terms of the financial advice and financial services that are provided to them. I think we are all aware that as a result of the global financial crisis there is also a crisis of confidence about the quality of advice and the capability of a number of businesses in the financial services area. The issue here is that when small businesses pay the superannuation guarantee for their employees they provide that to the default fund, or whoever is managing the transfer, but they bear the liability for it until it goes into the major super fund wherever that money is directed in the end. If those businesses in the middle go broke or are fraudulent then the risk comes back to the small business owner, whereas if it goes to Medicare then the minute that the payment is made to Medicare the small business operator’s liability ceases. That is an important issue in terms of who bears the risk.
The second important point, in my view, is the one made by Senator Sherry. Coming from Tasmania, he is well aware of small businesses in rural and regional Australia. It is the case that many of them are not online and that they are not working with electronic transfer systems. I would hope that with the Medicare arrangements now in place many of these small businesses will use the opportunity for accelerated depreciation to become more electronically savvy, if you like, and to arrive at the greater level of efficiency that would come with that.
As far as I can see, we have got major clearing houses for businesses that employ more than 20 people. We are looking at small businesses around the country, and this is offering them an efficient and convenient way of dealing with the superannuation liabilities that they have to provide for their employees. We are going to a system where the amount of money that is being transferred is going to be greater because of the rise from a nine per cent to a 12 per cent levy. The risk associated with shonky businesses in the middle is in my view considerable and if we can do anything to reduce that level of risk then we ought to be doing it. If I was in a small business knowing that the minute that I transferred this money to Medicare my liability ceased, as opposed to transferring it to a middleman and then waiting to see when it went into the fund and knowing that it is at that point that my liability ceased, I would prefer to get that liability off my back as quickly as possible. That is why I do not support the coalition amendment and will support Medicare becoming a clearing house.
I think it is important to note the following words in the first part of the amendment:
… a licensed superannuation clearing house, which meets the minimum standards specified in the regulations for the purposes of this paragraph—
and also, in the second part of the amendment—
… as specified in the regulations for the purposes of this paragraph.
This means that there is oversight. There is not going to be a kind of laissez-faire approach; we just want to open up further the opportunity to participate in this marketplace. I do not know why we should quarantine everything within Medicare or why we should be inherently picking a winner in Medicare. When we drill down through Medicare they have provided us with no real reason for us to say that they are a winner. I have no doubt that they would have competence but they do not necessarily have it in this field. It may develop in this field, but we should be opening this up so that there is the capacity for wider participation by small business in this marketplace.
The purpose of this amendment is not that any person for any reason should be able to decide to set things up. It is a case that if you meet the minimum standards, you can. To put it another way, it would be like starting up tax agents again and saying only Medicare could be the tax agent. Why? Other people are competent and have the capacity to deliver an outcome. Other people have the capacity to build a business. Why not let them do it?
Could I just get some confirmation from the government. As I understand it, initially it was planned that there be a tendering process for a private clearing house to deal with this—I think that is the assertion made by the opposition—and that it was due to start on 1 July 2009. I want to understand whether the premise of the coalition’s argument in respect of that is correct or not.
I can firstly confirm that, yes, it was scheduled to commence on 1 July 2009. Secondly I can confirm that it was originally envisaged that there would be a private clearing house. However, on being elected, the government assessed the implementation of the policy and it identified a range of risk factors and practical issues which have been well debated. I could repeat them but Senator Xenophon is always urging restraint in my contribution on these superannuation issues! The government did consider the option of developing a regulatory framework to apply to a private clearing house. However, while a regulatory framework could mitigate the risk employee entitlements are exposed to, it cannot remove it entirely. In contrast, delivering the service through a public sector entity removes the risk associated with private sector provision—and Senator Milne has just touched on one of those issues—because the Commonwealth will effectively be standing behind the clearing house and underwriting any risk to the security of employee entitlements.
The government is also mindful that Medicare Australia has significant capacity and expertise in payment processing. We all know that because we all use Medicare. Medicare processes more than 500 million services annually to the value of more than $30 billion. It is uniquely positioned for the reasons I outlined earlier, particularly for small business and in rural and regional areas as well.
This would deny APRA the capacity to actually be a regulator. If they are going to be APRA regulated you either believe that APRA can regulate the industry and provide competency in delivery or you do not. It seems peculiar. Minister, I think you have three times, in pieces, discussed wider engagement in this industry. We are merely going back to your former position. We are asking that you give APRA the capacity to do the job. If a person cannot pass APRA’s specification for what is required then it is not so much about Medicare’s competency to provide the service but APRA’s competency to do the job. I have confidence that APRA would be able to do the job.
I too have great confidence in APRA in the area of superannuation regulation. The point is that APRA does not regulate any clearing houses at the moment; it is not a regulated or supervised set of entities.
I am grateful to the minister for his answer and also for the interchange with Senator Joyce. On balance, I cannot support the opposition’s amendments. I think the opposition has made a fair point—that the government did break a promise in relation to this—but I think the minister has squared off as to why the government considers this to be the best option. For me, this is about what is most convenient for small businesses to discharge the obligation alluded to by Senator Milne in her contributions. There is no question that there is no risk involved in this being dealt with by Medicare. In effect, Medicare is government backed as a clearing house, so there is no risk.
There was an assertion made—not by Senator Joyce—that Medicare’s data requirements are still not finalised. I sought further information about that from the government yesterday, and I am grateful for that information. I have been advised that Medicare has finalised the datasets to be captured from employers and transmitted to superannuation funds and is on track to commence receiving payments from employers on 1 July 2010. So this clearing house is ready to go. If we went through a private process it would take a longer period of time.
In terms of the issue raised by the opposition, which is a valid one in terms of efficiencies, what undertakings and assurances can the government give that this scheme will be as efficient as—or comparably efficient to—those run by the private sector? Secondly, what benchmarks, what devices, will there be to measure that efficiency so that taxpayers can be assured this is the most effective way? Again, to put those questions in context, it seems to me that this is about administrative efficiency for small businesses and an assurance that, once they have made the payments to the clearing house, they will have discharged their obligation without any risk to them or to their employees.
Just for clarification: the clearing houses have to provide reporting data to APRA so that APRA do have an involvement in this. Their licensing may be under ASIC but they have to provide reporting data to APRA. A number of people in the box are going to say that that is not the case.
I can see that neither the Greens nor the Independents are going to be supporting this amendment, so we will not be dividing on it. So, for the sake of prudence, we will move on.
by leave—I move government amendments, as circulated:
(1) Schedule 3, item 4, page 13 (line 23) to page 16 (line 17), sections 275-5 and 275-10 to be opposed.
(2) Schedule 3, item 4, page 16 (lines 24 to 26), omit paragraph 275-15(1)(b), substitute:
(b) every *member of the trust is a managed investment trust in relation to the income year (or a trust that is treated in the same way as a managed investment trust in relation to the income year through the operation of this Subdivision).
(3) Schedule 3, item 4, page 17 (lines 6 to 13), omit paragraphs 275-20(b) and (c), substitute:
(b) the trust would be a managed investment trust in relation to the income year (or a trust that would be treated in the same way as a managed investment trust in relation to the income year through the operation of this Subdivision) if the trustee of the trust had made the first fund payment in relation to the income year on the first day of the income year; and
(c) the trust would be a managed investment trust in relation to the income year (or a trust that would be treated in the same way as a managed investment trust in relation to the income year through the operation of this Subdivision) if the trustee of the trust had made the first fund payment in relation to the income year on the last day of the income year.
(4) Schedule 3, item 4, page 17 (lines 14 to 26), section 275-25 to be opposed.
(5) Schedule 3, item 4, page 21 (lines 32 and 33), omit “year of income”, substitute “income year”.
(6) Schedule 3, item 4, page 22 (line 1), after “Division 6C”, insert “of Part III”.
(7) Schedule 3, item 4, page 22 (line 2), omit “year of income”, substitute “income year”.
I am not aware that there is any opposition to the amendments that have been circulated. I was here yesterday when Senator Milne raised some concerns about any potential interaction between these amendments and managed investment schemes. There is none, for the record. And I understand she has now been briefed on that.
I want to thank the officials for taking the time to explain one of the technicalities of the amendments that I was concerned about, and that was whether, as to the managed investment trust changes and some of the managed investment schemes, there were a crossover and whether that effectively meant that managed investment schemes not only got the 100 per cent tax deduction upfront but could also opt, at the other end, to take advantage of the provisions relating to a choice of income or capital gains. But now I am satisfied that the forestry managed investment schemes are not captured by the changes to the managed investment trusts as proposed, and therefore I will not be opposing those government amendments.
Just for the record: we got the additional EM and the other amendments yesterday. There was a substantial amount of material there, and we would, in the future, appreciate just a little more time to go through it.
I accept that criticism, Senator Joyce. Certainly, as the responsible minister in this area, it is always my intention to endeavour to provide access briefings. That did not occur as efficiently as it should have on this occasion. As I have indicated to Senator Milne, you have my assurance that we will always do our best to ensure maximum time for amendments.
The Temporary Chairman:
How I propose to proceed is by putting the question first that government amendments (2), (3) and (5) to (7) on sheet CG234 be agreed to.
Question agreed to.
The Temporary Chairman:
We will now move on to the first Australian Greens amendment.
I move Australian Greens amendment (1) on sheet 6089:
- Page 34 (after line 6), after Schedule 4, insert:
Schedule 4A—Carbon sink forests
Income Tax Assessment Act 1997
1 Subdivision 40-J
Repeal the Subdivision.
As I have indicated previously, every time there is a tax law amendment brought into the Senate, I will be moving for the removal of the tax deduction for the establishment of carbon sink forests. We have had a long debate on this matter previously and my concerns remain. In fact, they are now heightened by the complete mess that is the forest products industry around Australia. As a result of very poor government policy with managed investment schemes, we now have a glut of plantation timber from one side of the country to the other. There is no market for this timber. And the global projections of that market show that the glut is there to stay. China is not going to rescue anybody in this particular field.
There is a wall of wood that has come on stream from around the world. And the best thing the government could do right now is to get rid of managed investment schemes for forestry and protect Australia’s native forests. That would improve our biodiversity outcomes. It would protect our standing carbon stores and it would increase the likelihood of a sale and a decent price for the plantation timber which has now come on stream for which there is no market. Subsidising the logging of native forests and subsidising the planting of plantations for which there is no market is a ludicrous economic policy. Whichever way you want to look at the mess in the forest industry around Australia, throwing government money at subsidies to make the matter worse is ridiculous. And, in difficult economic times, and climate change very much in our face, there is now I think a once-in-a-lifetime opportunity, actually, to sort out, once and for all, the protection of native forests, the protection of those carbon stores, the removal of these subsidies which lead to competition for land for food production and for water, and to actually increase the price for those people who have put in place these forests.
The next concern I have is that the $652 million that the government has put aside for renewable energy, that it has saved from the Carbon Pollution Reduction Scheme, it has included in its renewable energy remit—biomass. Does this mean that we are now going to be in a situation where we have subsidised the establishment of these managed investment schemes and are about to subsidise more of them with the carbon sink forests? Are we now going to say, with the managed investment schemes: ‘We’ve already given you the money upfront to plant them; now there is no market for them, we’re going to subsidise you to cut them down and burn them in forest furnaces. That’d be a good idea; let’s give the money to do that’? When are we going to stop this sacred cow mentality? When are we going to adopt a rational and efficient forest industry in this country instead of pork-barrelling an industry which is now in a mess, largely as a result of government policy? So I am now concerned that we give it on the one hand by encouraging people to go and plant these plantations—taking that land out of food production and undermining the viability of many food processing areas. We have had Senator Boswell in here many times before, talking about the impacts on sugar in Queensland, for example, where you have had land taken out into managed investment schemes.
I want to put the government on notice yet again. You now have a golden opportunity. This is first time in the whole 20 years that I have been campaigning on native forests that there has been such a logical and overwhelming imperative and opportunity to fix up this mess around logging and wood products once and for all. You have got all the ducks lined up, for once, and yet I do not see any serious whole-of-government analysis of how the tax breaks are impacting on land use, on carbon and on ecological integrity.
If you want to have a vote winner at this federal election then get rid of managed investment scheme subsidies and carbon sink forest subsidies, and go and protect the native forests for the biodiversity outcomes and the carbon stores—therefore, getting yourself a big tick on the climate front and the biodiversity front—and look at what to do with this massive wall of wood for which there is no market. But do not come back into this chamber and make a big announcement prior to the election that we are going to spend more taxpayers’ money—in the $652 million over the next four years for renewable energy. Do not come back in here and tell me that we are going to have taxpayer funded forest furnaces to burn down the trees that we have subsidised people to put in in the first place. That is where I fear we are about to go next.
But there is not only what we will find with the forest furnaces; there is also the issue that, under the renewable energy target, they will get counted as green energy—and that is a third subsidy. Now wouldn’t that be a fabulous outcome—the taxpayer gives you a tax break to put them in, gives you a furnace so you can cut them down and burn them up and gives you a fund to count it as green energy! What is more, the beautiful thing in terms of the ridiculous rules we have got for accounting on carbon is that, because you would have put these forests in post 1990, they would not be counted as a carbon loss when you cut them down. So, under the accounting rules, you would not have to count them as a loss. So you get your green energy; you get your government subsidy for your furnace and you get another government subsidy. Meanwhile, the poor, old farmers out there are struggling and are paying higher costs for their land use, having lost their water into their catchments. They are now struggling in those communities as the managed investment schemes go broke and are not being properly managed. There are feral animals, fire risks and all sorts of things because of this complete and utter disaster.
Instead of maintaining it, why not face up to it and recognise that you have got an opportunity to fix things? It is a once-in-a lifetime opportunity. We have never had a situation where the native forest logging industry is in complete chaos and collapse, where the plantation industry is in complete chaos and collapse, and where the ecological imperatives are so great. At the same time, this is an opportunity to save money, by removing those subsidies which nobody in their right mind would support if they went out and saw what is actually happening on the land.
I want to see the end of managed investment schemes for forestry. I want to see the end of a tax deduction for carbon sink forests. The only tax deduction for carbon sink forests that should be allowed is for the forests which are biodiverse and which are planted for permanency—for 100 years. Increase your biodiversity, by all means. But, by including a provision that you can plant plantations as carbon sink forests and continue to manage them as plantations for wood production at the same time—which you can do under this legislation—is a ludicrous proposition. I will be moving an amendment to get rid of this and I will continue to do so until the government sees sense with regard to getting rid of these subsidies that distort land prices, water issues and food production—distort everything.
We have seen just how distortionary this has been with the rip-offs that have gone on with the commissions being paid right throughout rural and regional Australia. A lot of people have already lost money with the managed investment schemes for forestry. If you live in Tasmania you have seen the collapse of forest enterprises. You have seen Great Southern go down. You have seen Timbercorp go down. When you set up your carbon sink forests, you are going to see exactly the same mess with the middlemen making an awful lot of money ripping off the system. The people who lose are the people who live in those areas and have to put up with the consequences. So I now move Australian Greens amendment (1) on sheet 6089, to remove this tax deduction for carbon sink forests:
- Page 34 (after line 6), after Schedule 4, insert:
Schedule 4A—Carbon sink forests
Income Tax Assessment Act 1997
1 Subdivision 40-J
Repeal the Subdivision.
I rise to indicate that I support the Greens amendment moved by Senator Milne. This is an issue that will not go away. When I speak to irrigators in Riverland in South Australia and to environmentalist and environmental groups in the Lower Lakes, there is a common ground when it comes to managed investment schemes and the impact they have on the water market and on land use. Carbon sink forests and the tax breaks given for them further distort the water market and distort the use of prime agricultural land. There is also the impact they have on water with respect to the interception of that water from going into river catchment areas.
I endorse what Senator Milne has said. I note that the Nationals—in particular, in the work that they have done, and Senator Nash in particular—have been outspoken as to their concern about the distortionary effects of carbon sink forests. This issue will not go away. This is an issue where there is considerable angst in the community, particularly amongst river communities. Both environmentalists and irrigators have real concerns about these tax write-offs. These tax write-offs really need to be abolished, and we need to go back to the drawing board.
I think this chamber is well aware of the National Party’s position on carbon sink forests. Using the parlance of the chamber, we have crossed the floor twice on them. We acknowledge that each time a TLAB comes in this issue can be brought back in. We have made our position on that quite clear to the Australia people, but we are not on this occasion going through that ritual because the effect will be that there is no effect—there are not the numbers to support this. Maybe that issue will change.
We have made our statements in the past. We are coming from a completely different angle than what the Greens are coming from, but on some issues we are coming from the same angle. But unless we are going to evolve into a higher form of termite, it seems peculiar that we would be encouraging the removal of prime agricultural land to put a forest in perpetuity that, for all intents and purposes, is not even supposed to be milled. We think that would have huge economic ramifications in regional districts. This view has been well expressed and I am sure will be expressed again very soon by other senators here. It has huge effects in places such as Tully. We are very concerned and we have expressed that concern, but we do not intend today to provide numbers to a motion that is not going to get passed.
I just want to take a couple of moments to echo the remarks of our leader here, Senator Joyce. Our position, as he said, as the Nationals has been very clear on this issue. Our view is that prime agricultural land is of vital importance to ensure the future food security of this nation and to ensure that we are able to have the domestic productive capacity that we are going to need not only for our own domestic consumption but also for feeding the world, and particularly assisting those developing nations that are going to need us to provide for them.
As Senator Joyce as indicated, on this occasion we will not be providing numbers on the other side and certainly not at the risk of losing a job. I have already lost a job over it. I have got nothing left to lose. That is certainly not preventing me from voting elsewhere on this occasion. Our views are very clear. We are not going to continue down the path of providing numbers on this particular amendment.
I am getting to that point, Senator Xenophon. But that in no way gives any indication that our resolve on this issue has lessened in any way, shape or form. To give tax breaks to the big end of town to plant carbon sink forests on prime agricultural is, to my mind, completely wrong and my view on that will not be changing.
I would just like to support what my leader, Senator Joyce, and my deputy leader, Senator Nash, have said. We have made it perfectly clear over a long time that planting down prime agricultural land to carbon sinks and to MISs with the tax deduction they get forces up the price of land and excludes those genuine farmers from being able to purchase more land, especially when youngsters come home from school and wish to go onto the land. We oppose it. We are not going to be crossing the floor on the issue. We have made our point very clear and just for the sake of numbers it will not make any difference in the chamber.
Firstly, I want to recognise the range of concerns that have been put forward by the Nationals, by the Greens and by Senator Xenophon on managed investment schemes. I want to recognise that there are valid debating points and valid policy points in everything you raise. Some I would agree with; some I would not agree with—but this bill is not the place to deal with those concerns.
I can confidently predict that at some point in time in the near future there will be legislation on managed investment schemes—whatever that final form is, I do not know yet—because of a couple of points Senator Milne raised in her contribution: the validity of the tax concession arrangements, the regulatory and supervisory arrangements, the impact on water and a whole range of other issues. The government at the present time has Minister Burke in respect to agriculture, Minister Wong in respect to water, myself in respect to tax concessions and Minister Bowen in respect to regulatory and supervisory issues on these things, all of which have been highlighted by the recent collapses of Great Southern, Timbercorp, and FEA in my own state of Tasmania. They are all being considered from a whole of government and whole of policy point of view. So there will be a time and a place for senators to put their concerns on that issue.
The issue we are dealing with here in this tax bill is a measure to protect 19,000 investors in forestry managed investment schemes from an unintended and adverse tax penalty, which is going to flow—unless this bill passes—as a result of the collapses. That is the issue we are dealing with in this bill. It is a measure about the deductions of investors in forest managed investment schemes. The deduction that they have been given and allowed could be denied because they have not held the investment for four years. They have not held the investment for four years because a number of schemes have collapsed for a whole range of reasons—not their fault—and these 19,000 investors could now be double penalised. They are penalised because they have lost their investment in whole or part and they are going to be double penalised, unless this amendment is passed, because of an adverse tax outcome.
That is what this bill is fixing: the adverse tax outcome and the double penalty that would apply to investors who have lost their money in whole or part. For goodness sake, my understanding of this amendment is that if an investor actually dies—obviously not their fault—they are tax penalised as well. We are clearing up a penalty that is totally unreasonable in the circumstances. That is what this bill goes to. I detect from the contributions in the chamber that whilst there is a whole range of concerns there is no opposition—in fact, I think there is resounding support for the particular measure we are taking to protect the 19,000 investors who, for reasons beyond their control, would be penalised unfairly. We are fixing that particular problem.
The amendment moved by the Australian Greens goes to the broader issue of the debate—repeal of the carbon sink forest provisions. I accept that the Greens have moved this on several occasions. I am very confident, Senator Milne, that there will be another occasion—and, I think, a more appropriate occasion—when we can deal with that and any of the other issues that have been raised in the debate. We oppose the amendment.
I am delighted to hear from the government that we are finally going to have legislation on forestry managed investment schemes. I really look forward to it, because it is time we got rid of them completely. I am glad that we have been pushing and pushing this debate, as a collective in this chamber, and finally we will have legislation. I do recognise that this amendment deals with the four-year investment rule in terms of the tax benefit, and we have said we will support that. I am not concerned about that aspect of it. But this is one of those omnibus bills with a whole range of tax issues in it, so it is entirely appropriate that we bring in this amendment.
I want to go back to something that you did not respond to me on, Minister, and that is the role of the tax commissioner. I raised this yesterday in the second reading debate. In order to get the tax deduction from investment in a managed investment scheme—in other words, to offset your tax liability on another area of business, in order to get it through the managed investment scheme—the tax office had to determine that the investment you were making was commercial; so your investment in a managed investment scheme was commercial. It is implicit in the decision of the tax commissioner to allow you to have the offset that what you were investing in was commercial. That is my issue with the tax commissioner and managed investment schemes.
There is a huge amount of evidence out there that the schemes were never commercial, and the tax office had all that information. The tax office had more information than was in the prospectuses that went out to the average investor. The tax commissioner had more information than that. Therefore, why did the tax commissioner give the tick allowing the tax deduction to offset other tax liabilities through investment in managed investment schemes? Why was that allowed—unless the tax office had made a decision that it was a commercial investment? If it was a commercial investment, why have they all failed? Why have they been demonstrated to be exactly what we nailed them to be a long time ago—that is, Ponzi schemes? They borrowed from the investment from future years to pay the returns to previous years’ investors to make it look as if there was a rate of return similar to what had been claimed in the prospectuses, when in fact there was never that rate of return. And the tax office knew that—as did ASIC—rates of return were not there. They knew that for years and years and years. Yet they kept on approving it, and to this day they keep on approving a tax deduction into managed investment schemes in forestry. Allowing them to do that means that the tax office accepted that it was a viable commercial venture. Otherwise they would not have been allowed to make that offset. So I want to know what due diligence the tax office takes.
What responsibility does the tax commissioner now take for having used his discretion to allow this tax deduction to go in? Why did he do that when it was clear that they were not viable—they have all collapsed? People have a right to know: why did the tax office exercise its discretion in favour of the tick for commerciality, if you like, of these schemes when they were never any such thing?
I cannot respond—indeed, I legally cannot respond—on behalf of the tax commissioner. The tax commissioner is totally independent. As you know, Senator Milne, the question that you have posed is one that is appropriately directed to the tax commissioner himself. I can in no way direct or get involved in the decisions of the tax commissioner and the exercise of his discretions with respect to MIS projects.
I will make a couple of quick points. It is not correct to say that all MIS schemes have failed in forestry. Perhaps with some irony I could highlight that Gunns managed investment schemes in forestry plantations have not failed. You may wish it somewhat differently, but that is an example of one that has not failed, and it is with some irony that I make that point. There is no doubt that there have been a number of failures. Managed investment schemes are supervised by ASIC, and I think you are aware of that, Senator Milne.
The other point I would make is: I certainly have some concerns about the operation of some of these managed investment schemes. From what I have seen I do have concerns about the supervisory aspects, the auditing and the oversight of these schemes—not by ASIC or the ATO but by the responsible entities which, in law, are required to oversight the schemes they are operating. I do have some concerns, and indeed ASIC has indicated concerns and it has put out a discussion paper around improving the supervision of these entities. I accept there are some valid concerns.
However, there are a range of financial and economic circumstances which, to be fair to at least some of these schemes, were not anticipated. Those circumstances include: the financial crisis, the increase in borrowing costs, the increase in the value of the Australian dollar, the world recession—which thankfully we did not have in Australia, but the markets into which many of these products are going have been hit hard by the world recession. There are a range of other financial and economic issues that have contributed to at least some of the failures, but, as I said earlier, there are valid concerns. Each concern that has been raised is under very close examination by a number of government ministers. But in terms of the commissioner’s discretion, it is an answer I am not able to provide, because I am legally not allowed to do so. The tax commissioner is arms-length; he is independent. You will have the opportunity—I am not giving this a flick; this is the legal situation I am in—to challenge and question the tax commissioner at estimates, for example, on this issue.
That the amendment (Senator Milne’s) be agreed to.
by leave—I move amendments (1) and (2) on sheet 6105 standing in my name:
(1) Clause 2, page 2 (after table item 7), insert:
7A. Schedule 4A
1 July 2010.
1 July 2010.
(2) Page 34 (after line 6), after Schedule 4, insert:
Schedule 4A—Public benefit test
Income Tax Assessment Act 1997
1 After section 50-50
50-51 Public benefit test for items 1.1 and 1.2
Public benefit test
(1) The regulations must formulate a test (to be known as the public benefit test) against which the aims and activities of an entity may be assessed.
(2) The public benefit test must include the following key principles:
(a) there must be an identifiable benefit arising from the aims and activities of an entity;
(b) the benefit must be balanced against any detriment or harm;
(c) the benefit must be to the public or a significant section of the public, and not merely to individuals with a material connection to the entity.
(3) The public benefit test may contain provisions relating to the manner in which the test is to be applied to the aims and activities of an entity, as well as ancillary or incidental provisions.
(4) The Minister must take all reasonable steps to ensure that regulations are made for the purposes of subsection (1) before 1 July 2010.
Entities must meet public benefit test
(5) An entity covered by item 1.1 or 1.2 is not exempt from income tax unless the entity meets the public benefit test.
During the last sitting session I moved two Senate motions calling for an inquiry into the Church of Scientology and in particular into the need for a public benefit test for organisations that receive tax exemptions from the Australian government. Recommendation 41 of the Henry tax review supports the establishment of a national charities commission which would monitor, regulate and streamline tax concessions for the not-for-profit sector. Importantly, it would also be tasked with codifying the definition of a charity.
The government’s response during the last sitting session was that they did not want to pre-empt the Henry tax review in relation to considering the motions I had put before the Senate—in particular, one motion which specifically targeted the whole concept of a public benefit test like that which exists in the United Kingdom. The review is out and the recommendation is there, but the government has chosen not to adopt it.
A public benefit test currently exists in the United Kingdom. This amendment would introduce a similar process here. In the United Kingdom it applies to religions and charitable organisations. It says that there must be an identifiable benefit arising from the aims and activities of such an entity, the benefit must be balanced against any detriment or harm and the benefit must be to the public or a significant section of the public and not merely to individuals with a material connection to the entity.
This amendment puts in place a reasonable test for bodies seeking to be recognised as charities and seeking to get tax-free status. It ensures that their aims and activities are of true benefit to the community as a whole. For charities and other entities to receive tax exemption it seems only fair that they must meet this public benefit test if they are to be propped up and supported by the Australian taxpayer.
I make no apology for introducing this amendment here in the context of this legislation. I have flagged previously that I will be persistent and relentless in pursuing a just outcome for the victims of Scientology to ensure that this organisation receives appropriate scrutiny. Indeed, for any organisation that receives the benefit of a tax-free status there must be a degree of accountability, and that is lacking in our current laws. This would fix that, by adopting the tried and tested UK test of a public benefit test. Some of the allegations that have been made against the Church of Scientology include criminal behaviour, coerced abortions and stalking. There is completely unconscionable conduct in relation to the way their members are treated. There are issues in relation to child labour laws and in relation to the way employees and volunteers are treated. The whole issue of the conduct of this organisation—the hundreds of thousands of dollars they charge, and more, for their courses—seems extraordinary. People are put under pressure and families are ripped apart. It causes harm and devastation to individuals.
I acknowledge the support of Professor Pat McGorry, an Australian of the Year and one of Australia’s pre-eminent experts in mental health, and others, such as Professor Ian Hickie, who have expressed real concern that this organisation is against people seeking assistance from medical practitioners, psychiatrists or psychologists for mental health issues—that is dangerous. And that is why it is appropriate that we have once and for all a public benefit test. I seek the support of my colleagues to do so.
If this is defeated, as I expect it will be, I indicate that, every week that this Senate sits, there will be a motion related to this issue. Senator Sherry is smiling and he does so with good grace, but this is an issue that will not go away. Too many people have been hurt by this organisation. We need to have a degree of accountability and public scrutiny. This mechanism of a public benefit test is a significant way forward. It has been tried and tested and been subject to robust scrutiny in the United Kingdom. We should adopt it here.
Although we can empathise with many of the statements of Senator Xenophon, we do not find it appropriate to deal with this issue in this piece of legislation. It is an entirely different issue to clearing houses. We look forward to a debate and to the processes that will be more suited to this. But, in this instance, we will not be going down the path of talking about attributes or otherwise of Scientology or other groups in a debate about clearing houses.
The government will not be supporting this amendment. There are legitimate issues that Senator Xenophon raises—some of which I agree with, some of which I do not agree with. As Senator Joyce has indicated, this legislation is about a clearing house for superannuation; it is not about a public benefit test for religion. It is about protecting 19,000 investors who have lost money in forestry investment schemes from an inappropriate tax outcome. The legislation is also about eligible managed investment trusts. It is about as far away as you could get from a public benefit test that would apply to charities.
Senator Xenophon, you have pointed out that there were some recommendations in the independent tax review. I am also aware a Productivity Commission report has been finalised on this issue of charities. So, whilst I accept that you are keen to make your point—and you are perfectly entitled to make your point—this is not the appropriate place to be cross-inserting a public benefit test in this type of legislation.
I thank my colleagues for their contribution, in particular Senator Milne for indicating the support of the Australian Greens in relation to this. To Senators Joyce and Sherry, I indicate they should think of this particular amendment as a ‘cult’ clearing house. Think of it in those terms because this is about behaviour. It is not about belief; it is about behaviour. It is important that having this sort of legislation would be a clearing house for determining who is legitimate and who is not in the public benefit. Senator Sherry may be bemused by my analogy, but I still think it is valid. It may be stretching it, but it is not improper under the standing orders to introduce this amendment in the context of this debate. We are dealing with tax laws. This is an amendment to the Income Tax Assessment Act and I am sure this chamber and my colleagues are more than capable of chewing gum and walking at the same time—they can consider other concepts. I appreciate where we are at on this. I will continue to pursue this issue through motions and other means, whether it be a private senator’s bill. I will continue to persist with this issue because too many people are being hurt, too many victims are coming forward and, if we had a public benefit test, I think that would solve many problems.
Very briefly, I accept your brave attempt to connect a ‘cult’ clearing house with a superannuation clearing house and I would suggest that if we were to have a clearing house for cults you would not want them to escape without penalty.
That the amendments (Senator Xenophon’s) be agreed to.
by leave—I move government amendments (8) to (18) on sheet CG234:
(8) Schedule 5, page 37 (after line 11), after item 3, insert:
3A Subsection 701-58(2)
After “(5A)”, insert “, (5C)”.
3B At the end of Division 701
701-90 Valuable right to future income treated as separate asset
(1) This subsection covers a valuable right (including a contingent right) to receive an amount for the performance of work or services or the provision of goods (other than *trading stock) if:
(a) the valuable right forms part of a contract or agreement; and
(b) the *market value of the valuable right (taking into account all the obligations and conditions relating to the right) is greater than nil.
(2) For the purposes of this Part, treat a valuable right covered by subsection (1) as a separate asset.
(3) For the purposes of this Part, if:
(a) a valuable right is treated as a separate asset under subsection (2); and
(b) the contract or agreement mentioned in paragraph (1)(a) also includes one or more other rights;
for the purposes of this Part, treat the contract or agreement (excluding the valuable right) as a separate asset.
(4) For the purposes of this Part:
(a) take into account all the obligations and conditions relating to a valuable right treated as a separate asset under subsection (2) in working out the *market value of that separate asset; and
(b) if a contract or agreement (excluding the valuable right) is treated as a separate asset under subsection (3)—take into account all the obligations and conditions relating to each right (other than the valuable right) that forms part of the contract or agreement in working out the market value of that separate asset.
(9) Schedule 5, item 4, page 39 (lines 4 to 7), omit paragraph 716-405(2)(a), substitute:
(a) unless paragraph (b) applies—the amount determined under subsection (3A); or
(10) Schedule 5, item 4, page 39 (after line 22), after subsection 716-405(3), insert:
(3A) For the purposes of paragraph (2)(a), the amount is the lesser of the following:
(a) the *unexpended tax cost setting amount for the asset for that income year;
(b) the unexpended tax cost setting amount for the asset for the first income year ending after the joining time, divided by the lesser of:
(i) 10; or
(ii) if the contract or agreement giving rise to the valuable right mentioned in paragraph 716-410(a) is for a specified period—the number of days in that period that end after the joining time, divided by 365 and rounded upwards to the nearest whole number.
(11) Schedule 5, item 4, page 40 (lines 23 and 24), omit paragraph 716-410(a), substitute:
(a) the asset is a valuable right covered by subsection 701-90(1); and
Note: Such a valuable right is treated as a separate asset for the purposes of this Part (see subsection 701-90(2)).
(12) Schedule 5, item 4, page 40 (lines 28 to 30), omit paragraph 716-410(c), substitute:
(c) it is reasonable to expect that an amount attributable to the asset will be included in the assessable income of the entity or any other entity after the joining time; and
(d) Division 230 does not apply in relation to the asset (disregarding section 230-455).
(13) Schedule 5, item 8, page 43 (lines 12 to 14), omit paragraph (4)(a), substitute:
(a) on or before 30 June 2011; or
(14) Schedule 5, item 84, page 66 (lines 2 and 3), omit “leaving entity” (wherever occurring), substitute “partnership”.
(15) Schedule 5, page 86 (after line 18), after item 146, insert:
146A Section 715-230 (note 1)
Omit “a direct or indirect interest in a subsidiary member”, substitute “certain kinds of interests in a member”.
(16) Schedule 5, page 86 (after line 28), after item 148, insert:
148A After section 715-260
715-265 Head company does not have relevant equity or debt interest in a loss company if widely held top company does not have such an interest
(1) For the purposes of Subdivision 165-CD, treat the *head company of a *consolidated group as not having a relevant equity interest in a *loss company at a particular time if:
(a) the head company is an *eligible tier-1 company of a *top company at that time; and
(b) the top company is a *widely held company at that time; and
(c) because of subsections 165-115X(2A), (2B) and (2C), the top company does not have a relevant equity interest under section 165-115X in the loss company at that time.
(2) For the purposes of paragraph (1)(c), disregard the operation of subsection 701-1(1) (the single entity rule) in determining whether subsection 165-115X(2C) has the effect that the *top company has the relevant equity interest mentioned in that paragraph.
(3) For the purposes of Subdivision 165-CD, treat the *head company of a *consolidated group as not having a relevant debt interest in a *loss company at a particular time if:
(a) the head company is an *eligible tier-1 company of a *top company at that time; and
(b) the top company is a *widely held company at that time; and
(c) because of subsections 165-115Y(3A), (3B) and (3C), the top company does not have a relevant debt interest under section 165-115Y in the loss company at that time.
(17) Schedule 5, page 87 (after line 11), after item 150, insert:
150A Section 715-450 (note)
Omit “a direct or indirect interest in a subsidiary member”, substitute “certain kinds of interests in a member”.
150B Subdivision 715-H (heading)
Repeal the heading, substitute:
Subdivision 715-H—Cancelling loss on realisation event for direct or indirect interest in a member of a consolidated group
150C Paragraph 715-610(2)(d)
Omit “a consolidated group.”, substitute “a consolidated group; or”.
150D At the end of subsection 715-610(2)
(e) all of these conditions are satisfied at that time:
(i) the realised interest was an equity or loan interest, an *indirect equity or loan interest or an external indirect equity or loan interest, in the *head company of a consolidated group;
(ii) the owner was not a member of the group;
(iii) the head company was an *eligible tier-1 company of a *top company.
150E Subsection 715-610(3)
Omit “a *subsidiary member”, substitute “a member”.
150F Subsection 715-610(3)
Omit “the subsidiary member” (wherever occurring), substitute “the member”.
(18) Schedule 5, item 193, page 102 (lines 20 and 21), omit the item, substitute:
193 Application provision
(1) The amendments made by this Part apply in relation to a consolidated group or MEC group on or after:
(a) if the head company of the consolidated group (or the head company or provisional head company of the MEC group) makes a choice in accordance with subitems (2) and (3)—10 February 2010; or
(b) otherwise—1 July 2002.
(2) A choice mentioned in paragraph (1)(a) must be made:
(a) on or before 30 June 2014; or
(b) within a further time allowed by the Commissioner.
(3) A choice mentioned in paragraph (1)(a) must be made in writing.
Question agreed to.
Bill, as amended, agreed to.
Bill reported with amendments; report adopted.