Senate debates

Thursday, 23 August 2018


Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2018; Second Reading

1:12 pm

Photo of Jenny McAllisterJenny McAllister (NSW, Australian Labor Party, Shadow Assistant Minister for Families and Communities) Share this | | Hansard source

Labor will support the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017. This bill clarifies eligibility for the lower corporate tax rate for small and medium businesses. It is a legislative fix to an unintended outcome of the government's tax plan. Labor have clearly stated that we will deliver tax cuts for small and medium-sized businesses, but we will stop Mr Turnbull's tax handout for the big banks and properly fund schools and hospitals. Doubtless that project will continue no matter the outcome of the negotiations which are presently taking place in every back room of this building on the part of the coalition members and senators.

That said, in relation to this bill, clear rules on eligibility for the lower rate are important for all parties. However, we would be remiss not to note that the government has been forced to introduce legislative fixes such as this as a result of their own slapdash approach to policymaking. Bodies such as the Tax Institute and Chartered Accountants Australia and New Zealand, whilst welcoming the clarification, have recommended a postimplementation review of the legislation, possibly by Treasury or by the Board of Taxation. We hope that the government heeds their calls.

Support for this technical amendment has no further implications for Labor's position on the threshold at which a lower corporate tax rate applies. This is simply about giving clarity about the operation of tax laws as long as a two-tiered company tax rate system stands. Under the measure contained in this bill, if more than 80 per cent of a company's assessable income is income of a passive nature—for example, rents or dividends—it will not be eligible for the lower rate. Many of these entities are known as bucket companies associated with discretionary trusts.

This legislative patch-up is a result of the government's poor implementation of their intended $80 billion corporate tax giveaway. In fact, it is rather embarrassing that, with government debt soaring ever higher, the Turnbull government continued to pursue its plan to give big business that multibillion dollar tax cut for so long—and there is no assurance that they won't try it again under another leader or if they were to win the next election.

Eligibility for lower tax thresholds was intended to be contingent on carrying on a business, with the receipt of passive investment income not having been regarded as enough for a taxpayer to be able to demonstrate that. The government claims that, during the phase-up of company revenue thresholds eligible for lower tax rates, there was no intention for passive companies to receive lower tax rates. Passive income entities would only be eligible for the same tax rate as other corporate entities if and when the corporate tax rate was uniform for all entities—the 2023-24 income tax year, if the second phase of the companies tax plan is passed.

Interestingly, the government are silent on why they exclude passive income entities during the intended phase-in of the tax cut but include them at full implementation. No policy case has been given, which is telling. Thankfully, the Australian public has a temporary reprieve from this ill-conceived plan. In July last year, despite months of tax practitioner consternation since 2016 about the test for carrying on a business, the Minister for Revenue and Financial Services finally commented on the issue of eligibility by describing concerns as premature. But, instead of fixing the issue, the government was so focused on ramming through half of its tax plan before the 2017 budget that detail was not a priority. Draft legislation to fix this mess finally arrived in September 2017.

Despite these delays, Labor will support the legislation to provide clarity to business and tax practitioners this year in order to avoid the chaos that permeated last year's tax time. I commend the bill to the Senate.

1:16 pm

Photo of Anne RustonAnne Ruston (SA, Liberal Party, Assistant Minister for Agriculture and Water Resources) Share this | | Hansard source

Firstly, I thank those opposite for the contribution that they've made to this debate. The amendments in this bill will clarify the eligibility criteria for the lower company tax rate under the enterprise tax plan. The bill will introduce a new bright-line test to exclude passive companies. Under this test, companies that generate more than 80 per cent of their income in passive forms will not have access to the lower company tax rate. This test will replace the test for carrying on a business. The new test will operate from the 2017-18 income year and will help companies identify their applicable tax rate. I commend the bill to the Senate.

Question agreed to.

Bill read a second time.