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Wednesday, 20 June 2012
Page: 7196


Mr BUCHHOLZ (Wright) (10:41): What an interesting group of bills: the Tax Laws Amendment (2012 Measures No. 2) Bill 2012; the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012, which has the retrospectivity linked to it; and the Pay As You Go Withholding Non-compliance Tax Bill 2012. It is quite a complex group of bills. However, I rise today to speak about the Tax Laws Amendment (2012 Measures No. 2) Bill, the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill and the Pay As You Go Withholding Non-compliance Tax Bill.

I express my concerns in relation to these bills because I believe they are inadequate in their process and assessment and they fail to pay consideration to a number of associated issues and recommendations. In particular, the government has not adequately addressed the bipartisan concerns of the House of Representatives Standing Committee on Economics inquiry into the government's previous attempts at legislating these measures. A prospective undue increase in taxation and proposed retrospective measures without proper justification to raise automatic and indiscriminate liabilities to directors add pressure on investments and are not acceptable. The potential automatic increase in the liability of directors under the PAYG bill raises concerns about the preservation of natural justice and the considerable burden to business.

Before I go on, I just want to start with a very basic point. Let us get a determination on what a company director is. When you think of a company director, depending on your background, does your mind go to someone who is maybe taking a board position on one of the major banks or an influential organisation and who could be paid enormous amounts of remuneration, or does your mind go to your local mechanic or butcher, who could have a net household income of around 100 grand a year and who could have taken advice from their accountant that, because they are around that $100,000 level, it is more advantageous for them from a tax perspective as a small family business to set up a company structure as opposed to a partnership? This bill captures the mechanic. It captures the butcher. It captures the bloke in the main street. I have not heard anyone from the other side stand in this House to defend the rights of the common man and the worker. This bill is doing them over. I want you to take your mind to a place where when you hear the word company director during the debate on this bill you think of the mechanic, the bloke who has grease up his arms. Do not think of the bloke in the suit in Collins Street on a million bucks a year—or a million bucks a month in some cases. Making directors personally liable for the failure of someone else will only add more red tape to the business and will add more bureaucracy, and would most definitely cause most potential directors to run a mile in the other direction. What will happen to the future of Australian business and thus the economy?

Phoenixing is a terrible practice. We do not support phoenixing in any capacity whatsoever. For those of you that may not totally understand what phoenixing is, it is a horrible practice where a business bloke might see that he is getting into trouble and is going to go out the back door, so he transfers the assets out of his business with the distinct intention of avoiding paying super and other liabilities that his staff are entitled to. We will not have a bar of that. We will crack down on phoenixing and assist in whatever capacity we can because we do not support that. Phoenixing is corrupt and there is enough corruption going on in this nation as it is.

The previous speaker spoke about evidence the Taxation Office gave to the House of Representatives Standing Committee on Economics. I happen to sit on that committee. This bill seeks to give the Taxation Office enormous, overreaching powers. The tax office claims this will give it the capacity to stop phoenixing. But guess what? These powers reach to every single business in the nation. The evidence was there are only 6,000 cases of phoenixing. But this bill allows the Taxation Office, under the auspices of investigating phoenixing, to go into your business, to tear the place apart, find whatever other anomalies that may be happening in your business and go after it. This is just a trigger to get through the front door of your business to try and grab more cash.

One of the people who gave evidence to the economics committee was John Colvin. He is the CEO of the Australian Institute of Company Directors. He said:

The bill was conceived to target phoenix operators. The regulatory impact statement prepared in June 2011 in respect of the bill only addresses the measures the context of phoenix activity. There have been some minor amendments to that regulatory statement as we understand it; however, the premise of the bill and the way it is constructed is basically still targeting or based on phoenix activity. Even if you accept the ATO figures which have been put forward, less than half a per cent of directors may be engaged in phoenix activity and yet the bill potentially imposes liability on the whole 2.2 million. That is a very big and damaging net to catch a few fish, we would contend.

If you are serious about wanting to shut down phoenixing then why, when a business shuts down one day, do you give a tax file number to directors to open up the next day? Would it not just be easier to not give them another tax file number? Where did that idea come from, out of the blue? Do not let them start up again. Your mechanism is so big and so clumsy you do not know who they are. There are not enough rigorous checks. The ACCC has powers already that can prohibit it but they are not exercised. The Taxation Office has powers that can stop this type of practice but it is not exercising them. What does this government do? It continually says the answer is: 'More red tape, more bureaucracy! We'll fix it and we'll go and affect every other small business in the nation.' I say that is wrong because I stand on this side of the House as a small businessman who believes in less government, less interaction, less bureaucracy. Let the punter on the street, the bloke who is trying to drive the prosperity of this nation have a go.

I am not going to support anything that goes towards fraudulent activity where staff liabilities are in question, but please let common sense prevail on phoenixing. You have provisions that already exist to stop phoenixing in its tracks by not giving directors a tax file the very next day when they go to transfer. You are going to affect the lives of 2.2 million businesses, company directors and mechanics; that is the link. Do not think we are chasing the end of top end of town. This affects everyone. It is a bad bill.

This bill would impose liability to all directors, including those of charities and not-for-profit organisations. They are limited by guarantee, as many directors are. Many of these organisations are the lifeblood of the community and should not be placed under unnecessary stress and inconvenience. Overall these bills will punish taxpayers who, in good faith, abide by prevailing laws. This bill is nothing more than a blatant tax grab, an attempt to remedy Labor's erosion of the Australian fiscal position.

The bill represents a number of issues each of which has been examined at length by the House Standing Committee on Economics. The first issue I raised today was in relation to making directors personally liable for unpaid superannuation guarantee amounts to their company employees. I raised the question as to whether directors of companies may be liable for these measures if they join the board after the fact. The government cannot answer this question about if an existing board is in place. Now we are back at the top end of town, and the organisation has been going for 15 or 20 years.

I go on and take a position on that board and, because of my diligence and my strong governance procedures, I instigate investigations to make sure that we have contingent liabilities for staff entitlements. As a result of those investigations, I find that the company that I have just joined may be negligent in that and I want to remedy it. As a result of this, I am in the tin for the 20 years of liability.

So what is my motivation then as a company director? What is the actual intent of this legislation? It is encouraging me not to say anything, because I am going to be liable for it. Why aren't we promoting good faith for directors to come out and be transparent? Who knows? One of the most important aspects that has been omitted from these bills is that phoenixing activity, and I could go on all day about that.

According to the Australian Institute of Company Directors, there are some 11,700 companies in Australia that are limited by guarantee. We are talking about charity organisations, grower groups, and businesses that serve the Australian people. As John Colvin from the Australian Institute of Company Directors mentioned in his speech to the parliamentary estimates committee, it targets almost all of Australia's 2.2 million directors including those who volunteer their time to work with charities and community organisations. Mr Coleman also pointed out that following submissions to the parliamentary estimates committee in 2011, the committee recommended the government investigate whether it was possible to amend the bills to better target phoenix activity. Yet the government has made virtually no attempt to target phoenix activity in revising the bill.

But it has not just been to the economics committee, it has been to a Senate committee. They raised concerns about this part of the bill, and still there is no amendment. It is just typical of Labor's attempt to burden the directors of those companies, even where there was no illegitimate activity, with undue liability. And why, I ask: because the Labor government has no interest in the successful operations of business in Australia.

These bills also look at amending the taxation of financial arrangements provisions, TOFA, to ensure that the tax treatment of financial arrangements that are part of a consolidation event is consistent with the TOFA tax-timing rules. This is both a revenue protection measure and a revenue gain over the forward estimates. These amendments are said to protect a significant amount of revenue over the forward estimates and generate a revenue gain of $253 million over that period.

The consolidation tax cost-setting arrangements and related taxation of financial arrangements are in simple terms retrospective tax changes. The government have failed to justify the retrospective aspect of this legislation. The government describe this measure as 'revenue protection', but have not quantified the amount of tax revenue which would be lost if the tax measure was not passed. That is important—a lot of this stuff is important. The government describe this measure in the bill as 'revenue protection', but have not quantified the amount of tax revenue that would be lost if the measure were opposed. So they are saying that it is not going to have any impact on budget if it goes through, but if it does not go through we are going to have to find some money. I just do not get that part of it.

Retrospective measures can expose taxpayers to penalties when taxpayers could not possibly have taken steps to mitigate the potential for penalties to be imposed. As an opposition and as a coalition, we fundamentally oppose retrospectivity. When you pay your tax bill on 30 June each year, it is fundamentally the security of your business to know that you are clear. What a horrible day it is when you wake up the next day and find that you have got an eight-year tax bill, knowing that in good faith you had paid your tax. This bill is bad for the country. It is bad for business confidence, confidence that is lacking in our market at the moment. Thank you.