Senate debates

Thursday, 21 June 2012


Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Pay As You Go Withholding Non-compliance Tax Bill 2012; Second Reading

3:44 pm

Photo of Penny WongPenny Wong (SA, Australian Labor Party, Minister for Finance and Deregulation) Share this | | Hansard source

I table the revised explanatory memoranda relating to the bills and move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speeches read as follows—

Tax Laws Amendment (2012 Measures No. 2) Bill 2012

This Bill amends various taxation laws to implement a range of improvements to Australia’s taxation laws.

Schedule 1 protects workers’ superannuation entitlements and Government Pay As You Go withholding revenue, and deters phoenix operators. It strengthens the director penalty regime by extending it to cover superannuation obligations and, in some instances, making directors and associates liable to Pay As You Go (PAYG) withholding non-compliance tax.

These amendments provide disincentives for directors to allow their companies to fail to meet superannuation and PAYG obligations. They do not introduce new obligations on the company but rather bring company directors within the scope of the existing director penalty regime where they have failed to ensure that their companies meet their obligations.

The Legislative and Governance Forum for Corporations has been consulted and has approved the amendments to the Corporations Act contained in this Schedule. These amendments commence on Royal Assent.

Schedule 2 amends the taxation of financial arrangements (TOFA) consolidation interaction provisions where a financial arrangement (such as an asset or liability) of a joining company is acquired by the head company pursuant to a joining/consolidation event. Where this occurs, this Bill ensures the tax treatment of the financial arrangement is consistent with the TOFA tax timing rules, which recognise gains and losses from financial arrangements on an accruals basis as opposed to a realisation basis.

The changes also recognise the fact that, like financial assets, the value of a financial liability can change other than from the repayment of the liability.

Schedule 2 also amends the TOFA consolidation transitional balancing adjustment provisions to ensure the transitional balancing adjustments for existing arrangements that the head company acquired as part of a joining/consolidation event are worked out taking into account the proposed changes to the TOFA consolidation interaction provisions.

These amendments address the technical issues raised by industry as part of the post-enactment consultation on the TOFA consolidation Stages 3 and 4 regime and maintain the integrity of the tax system by ensuring symmetrical tax treatment of financial assets and liabilities.

These changes will apply from the start of the TOFA consolidation Stages 3 and 4 regime.

Schedule 3 amends the Income Tax Assessment Act 1997 to modify the consolidation tax cost setting rules so that the tax outcomes for consolidated groups are more consistent with the tax outcomes that arise when assets are acquired outside the consolidation regime.

Under the consolidation regime, when a consolidated group acquires an entity, the tax costs of the entity's assets are reset at an amount that reflects their respective share of the group's cost of acquiring the entity.

The consolidation regime was amended in 2010 to clarify that, for some assets, this reset tax cost (rather than the original tax cost) is used when a taxing point later arises for the asset. The amendments applied from 1 July 2002 as they were thought to be merely returning the regime to its originally stated intent.

Shortly after passage of those amendments, it became clear that the new rules could result in the recognition of the tax costs of some assets being brought forward in an unanticipated way. Consequently, the Board of Taxation was asked to examine the operation of the rules. The Board concluded that the scope of the new rules, as enacted, is broader than was originally intended at the time of their announcement in 2005 and could allow consolidated groups to access deductions that are not available to taxpayers outside the consolidation regime.

The changes in this Bill take away the unintended retrospective benefits arising from the 2010 amendments and are necessary to protect a significant amount of revenue that would otherwise be at risk. These changes demonstrate the Government’s commitment to maintaining the equity, fairness and integrity of the tax system.

Schedule 4 makes consequential amendments to the Tax Administration Act 1953 to give effect to the increase in the managed investment trust (MIT) final withholding tax rate to 15 per cent for payments made in relation to income years commencing on or after 1 July 2012.

Full details of the measures in this Bill are contained in the explanatory memorandum.

Pay As You Go Withholding Non Compliance Tax Bill 2012

This Bill accompanies Schedule 1 to the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 to make directors, and in limited circumstances their associates, liable to Pay As You Go (PAYG) withholding non compliance tax.

The tax liability arises where the company has failed to pay the Commissioner amounts withheld under PAYG withholding arrangements and the director, or their associates, is entitled to a credit for amounts withheld from payments made by the company to them.

This Bill will impose a tax to reverse the economic benefit of a credit entitlement for directors and their associates. This produces a result consistent with the Government’s election commitment.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.