Wednesday, 16 October 2019
Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019; In Committee
I table a supplementary explanatory memorandum relating to the government amendment to this bill and move government amendment (1) on sheet PM105:
(1) Schedule 3, item 3, page 12 (after line 13), at the end of section 26-102, add:
Exception—structures affected by natural disasters or other exceptional circumstances
(6) Subsection (1) does not stop you deducting a loss or outgoing relating to holding land if:
(a) had an earlier time been the critical time (see paragraph (1)(b)), paragraph (1)(b) would not have applied to you for the land because of the existence at that earlier time of a substantial and permanent structure on the land; and
(b) after that earlier time, paragraph (1)(b):
(i) began to apply to you for the land wholly or mainly because of a circumstance affecting that structure; and
(ii) continued to do so at the critical time; and
(c) the circumstance was exceptional and beyond the reasonable control of you, and of all the entities referred to in paragraphs (2)(b), (c) and (d); and
(d) the critical time happened before:
(i) the third anniversary of the time paragraph (1)(b) began to apply to you for the land as described in subparagraph (b)(i) of this subsection; or
(ii) such later time as the Commissioner allows.
(7) If subsection (6) applies to you and you deduct the loss or outgoing, you must keep written records of:
(a) the circumstance; and
(b) the circumstance's effect on the affected structure;
until the fifth anniversary of the end of the income year in which you incurred the loss or outgoing.
Note: There is an administrative penalty if you fail to keep these records (see section 288-25 in Schedule 1 to the Taxation Administration Act 1953).
Exception—land held by primary producers
(8) Subsection (1) does not stop you deducting a loss or outgoing relating to holding land if, at the critical time (see paragraph (1)(b)):
(a) the land is under lease, hire or licence to another entity; and
(b) you are, or an entity referred to in paragraph (2)(b), (c) or (d) is, carrying on a *primary production business; and
(c) the land does not contain *residential premises; and
(d) residential premises are not being constructed on the land.
Exception—land in use or available for use in carrying on a business
(9) Subsection (1) does not stop you deducting a loss or outgoing relating to holding land if, at the critical time (see paragraph (1)(b)):
(a) the land is under lease, hire or licence to another entity as a result of a dealing at *arm's length; and
(b) the land is in use, or available for use, in carrying on a *business; and
(c) the land does not contain *residential premises; and
(d) residential premises are not being constructed on the land.
I have a question for the minister. I note that Mr Sukkar expressly said to the Daily Telegraph on 2 September 2019 that the proposed changes in this bill would not affect owners of unsafe residential towers in Sydney, but two days later the Senate committee reported recommending that the problems for residential towers suggested in this bill needed to be dealt with through amendments. I'm inquiring as to the basis on which Mr Sukkar made his public remarks.
Can I indicate that we do support the government's amendment to schedule 3 of the bill. We thank the minister for her responsiveness to the suggestions made in the Senate committee report, and we note that the amendment will prevent farmers and owners of uninhabitable residential properties, including those affected by building defects, from being affected by the bill's changes to negative gearing.
I have a question for the minister on this amendment. In relation to the point at which negative gearing ceases for primary producers' land, the amendment says in (1)(8)(d):
Subsection (1) does not stop you deducting a loss or outgoing relating to holding land if, at the critical time …
… … …
… residential premises are not being constructed on the land.
So at some point in time, when you start construction on the land, that will knock you out of negative gearing. The question I have is: is it from the point in time when you lodge a development application or is it when the slab is first raised? What is the time in relation to that particular provision?
by leave—I move Centre Alliance amendments (1), (2), (3), (4) and (6) on sheet 8742 together:
(1) Schedule 5, item 2, page 15 (line 15), after "the entity", insert "(the taxation entity)".
(2) Schedule 5, item 2, page 15 (line 25), after paragraph 355-72(1)(d) in Schedule 1, insert:
(da) in the case of a condition of the primary entity's inclusion in the declared class of entities relating to the Inspector-General of Taxation—immediately before disclosure of the information occurs to the credit reporting bureau:
(i) the taxation entity has consulted with the Inspector-General of Taxation; and
(ii) the Inspector-General of Taxation has confirmed the condition applies in relation to the primary entity; and
(3) Schedule 5, item 2, page 16 (line 1), omit "21 days", substitute "42 days".
(4) Schedule 5, item 2, page 16 (line 2), omit "given to", substitute "served on".
(6) Schedule 5, item 2, page 16 (line 23), after subsection 355-72(3) in Schedule 1, insert:
(3A) If the primary entity has a *registered tax agent or BAS agent, the Commissioner must serve a copy of the notice on the agent.
Sheet 8742 proposes seven separate amendments to schedule 5, disclosure of business tax debts. The amendments propose additional terms be set into legislation that additional consultation be had with the Inspector-General of Taxation, that additional information be provided to the taxpayer ahead of disclosure and that the information relating to a disclosure be shared with the taxpayer's tax or BAS agent. The government's position is to oppose these amendments. We don't agree to support the amendments to schedule 5. We believe that they are unnecessary, they may impact the effectiveness of the measure and they risk breaching the confidentiality of the taxpayer.
Some of the changes include actions that are already undertaken by the ATO or are not clear in their intent and others should not be included as they seek to insert terms that are not defined in the Income Tax Assessment Act 1997. They extend the time frame for reporting and that will impact the overall effectiveness of the measure and increase the risk of a business extending credit to another business with an outstanding debt to the ATO of more than $100,000 for more than three months. They require additional consultation for changes that go above and beyond that which is necessary and which may impact the time it takes for a business's information to be corrected with the credit bureaus, disadvantage the business when they have engaged with the ATO over their debt and potentially require a business's tax information to be shared with a tax agent or BAS agent, risking unauthorised disclosure—for example, when that tax agent is no longer employed by the taxpayer or the taxpayer does not want confidential information to be shared with that agent. In addition, illegal phoenixing has a significant impact on creditors, including businesses, employers and government, of up to $5.13 billion annually and prevents small businesses from operating on a level playing field.
I should give an indication of the opposition's voting position on the same matters. Labor will not be supporting these particular items, although I can foreshadow that there are other amendments on the same sheet that we are supporting. In relation to amendment (1), we're concerned that the concept of a taxation entity is an undefined term under the act. In relation to amendment (2), which requires the ATO to confirm with the Inspector-General of Taxation prior to disclosure of information to credit agencies, we're concerned that this would introduce undue delays into the administration of this schedule, including delays where it's important to provide correct information, which is to the benefit of taxpayers.
We are also not supportive of amendment (3). We consider that the extension of the notice period from 21 days to 42 days in this amendment is excessive. We would support an extension to 28 days. We note that's been moved. While fairness and the ability to contest processes where appropriate is important, we don't want to see companies extending credit to businesses that have excessive tax debts while they're unaware of those tax debts. In relation to amendment (4), this changes the words 'given to' to 'served on'. We consider that might create confusion and is not strictly required from a drafting perspective. Finally, in relation to amendment (6), this is the matter Senator Hume has already referred to. We understand that the ATO does allow taxpayers to elect any given address as their preferred address for correspondence. This addresses the concerns around the ability of tax agents to have access to the relevant information.
by leave—I move amendments (5) and (7) on sheet 8742:
(5) Schedule 5, item 2, page 16 (after line 16), after paragraph 355-72(3)(b) in Schedule 1, insert:
(i) why the primary entity is included in a class of entities declared under subsection (5); and
(ii) the steps (if any) the primary entity may take to no longer be included in that class before the disclosure occurs; and
(7) Schedule 5, item 2, page 17 (after line 16), after subsection 355-72(5) in Schedule 1, insert:
(5A) Before making an instrument under subsection (5), the Minister must:
(a) consult the Inspector-General of Taxation; and
(b) consider any submissions made by the Inspector-General of Taxation because of that consultation.
As I indicated, Labor will support these amendments. In relation to amendment (5), we support the provision of additional information to taxpayers as outlined in that amendment. In relation to amendment (7), we do support consultation with the Inspector-General of Taxation on all legislative instruments under this bill. We understand that this is something that occurs already, but we think it is important that it is placed in the primary legislation.
The TEMPORARY CHAIR: The question is that amendments (5) and (7) on sheet 8742 be agreed to.
by leave—I move opposition amendments (1) and (2) on sheet 8749 together.
(1) Schedule 5, item 2, page 16 (line 1), omit "21 days", substitute "28 days".
(2) Schedule 7, item 18, page 25 (line 17), omit "1 July", substitute "1 January".
These amendments do two things. In relation to schedule 5, as I indicated in my earlier remarks, they extend the notification period for businesses whose tax debts are being disclosed from 21 to 28 days. As indicated in earlier remarks by Labor senators, we feel that this will provide an opportunity for affected businesses to lodge an appeal if necessary and that this is a more appropriate time frame. This will enable the processes through the Inspector-General of Taxation to be accessed by affected businesses. In relation to the second amendment, we seek to amend schedule 7 of this bill, and the effect of this would be to close the superannuation salary sacrifice loophole six months earlier than initially proposed by the government. While it may have been legally acceptable, any employer who has been using this loophole has really been engaging in wage theft from their employees. It is actually quite shocking it has taken the government as long as it has to close this basic loophole. But, more broadly, I acknowledge the constructive engagement from the minister in relation to our amendments, and I thank her in anticipation of her remarks.
The first of these amendments extends the time frame on schedule 5 for the disclosure of business tax debt information from 21 to 28 days. That is something the government is comfortable with. The second amendment brings forward the start date of schedule 7, the salary sacrifice integrity measures, to 1 January 2020. Again, may I reiterate Senator McAllister's position of gratitude for the constructive engagement between the opposition and the minister's office on this.
The government has agreed to support the opposition's amendments to schedule 5. They were entirely expected. Those amendments extend the time frame for the disclosure for business tax debt from 21 to 28 days. We think that is reasonable, as the government has previously stated. This is, we believe, a very important measure that is designed to help businesses and lenders who are considering providing credit to another business. Without this measure in place, these businesses would have no way to know about a business's debt with the ATO until court action is taken against that business. By that point, of course, they may have already provided the credit. Extensions to this time frame do increase the risk that businesses, including small businesses, may provide credit to a borrower with large outstanding debts, as they would have no way to know about a business's debt with the ATO until court action is taken against the business. Of course, if the credit has already been provided, it is too late by then.
The government doesn't support any further extension to the time frame for this measure. However, the government has agreed to support the opposition's amendment to the start date for schedule 7 of the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 from the original start date of 1 July 2020 to 1 January 2020. We believe this is an important measure. The government is committed to preventing employers from using their employees' salary sacrifice superannuation contributions to reduce their own superannuation contribution obligations and to ensuring that the superannuation guarantee is paid on the pre-salary-sacrifice base. The government has already introduced a suite of superannuation guarantee integrity reforms to crack down on employers who are doing the wrong thing by employees, but we recognise that it is important to give small business employers the opportunity to comply with the law prior to imposing significant penalties upon them. A start date of 1 January 2020 for this measure does, we believe, provide sufficient time for industry to prepare for the measure, including by allowing payroll software providers time to make any required system changes to their software. Employers have time, then, to make sure that they are using this updated version of their payroll software and also time for the very important conversations to be had between employers and employees to amend and update any individual salary sacrifice agreements to ensure compliance with this measure.