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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016



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BILLS DIGEST NO. 47, 2016-17 29 NOVEMBER 2016

Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 Kali Sanyal Economics Section

Contents

Glossary .............................................................................. 3

Table 1: Abbreviations and acronyms ................................... 3

Purpose and Structure of the Bill .......................................... 4

Committee Consideration .................................................... 4

Senate Standing Committee for Selection of Bills ................... 4

Senate Standing Committee for the Scrutiny of Bills .............. 4

Statement of Compatibility with Human Rights .................... 7

Parliamentary Joint Committee on Human Rights .................. 7

Schedule 1—Commissioner’s remedial power ...................... 8

Background .............................................................................. 8

New, limited power allowing Commissioner to modify operation of taxation law ...................................................... 9

Breadth of ‘taxation law’ ....................................................... 9

Consultation on the instrument .......................................... 10

Key Issues .............................................................................. 10

Consultation ........................................................................ 10

Instrument has effect generally or to a specified class of entities or in specified circumstances ............................. 11

Commissioner’s powers available if effect on Budget is ‘negligible’ ........................................................................... 11

Financial implications ............................................................ 11

Position of major interest groups .......................................... 11

Key Provisions (Schedule 1) Commissioner’s Remedial Power ..................................................................................... 13

Schedule 2—Primary producer income averaging ............... 14

Background ............................................................................ 14

Date introduced: 14 September 2016

House: House of Representatives

Portfolio: Treasury

Commencement: various days detailed in the body of the Bills Digest.

Links: The links to the Bill, its Explanatory Memorandum and second reading speechcan be found on the Bill’s home page, or through the Australian Parliament website. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at

November 2016.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 2

Financial implications ............................................................ 15

Key Provisions (Schedule 2) ................................................... 15

Table 2: Option for re-accessing income averaging scheme after opting out ...................................................... 16

Schedule 3—Cars for display by public institutions ............. 16

Background ............................................................................ 16

How does the LCT work, in general? ................................... 17

Proposed amendments ....................................................... 18

Financial implications ............................................................ 18

Table 3: Financial impact of the measure in Schedule 3 of the Bill, $m ...................................................................... 18

Main provisions (Schedule 3) ................................................ 18

Schedule 4—Miscellaneous amendments ........................... 19

Background ............................................................................ 19

Main provisions (Schedule 4) ................................................ 20

Part 1—Community Development Employment Projects Scheme .................................................................. 20

Part 2—Other amendments of principal Acts ..................... 20

Part 3—Amendments of amending Acts ............................. 20

Part 4—Repeals of Excise Tariff Acts ................................... 20

Part 5—Other repeals ......................................................... 21

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 3

Glossary Table 1: Abbreviations and acronyms

Abbreviation or acronym Definition

AIA Acts Interpretation Act 1901

APRA Australian Prudential Regulation Authority

APS Australian Public Service

ASIC Australian Securities and Investments Commission

ATO Australian Taxation Office

CDEP Community Development Employment Projects

CGC Act Commonwealth Grants Commission Act 1973

Commissioner Commissioner of Taxation

CTA 1995 Customs Tariff Act 1995

DGR Deductible gift recipient

ETA 1921 Excise Tariff Act 1921

GST Goods and services tax

GST Act A New Tax System (Goods and Services Tax) Act 1999

Income tax averaging Averaging rules under Division 392 of the Income Tax Assessment Act 1997

ITAA 1936 Income Tax Assessment Act 1936

ITAA 1997 Income Tax Assessment Act 1997

Item 7 Item 7 of Schedule 4 to the Customs Tariff Act 1995

LA Legislation Act 2003

LCT Luxury car tax

LCT Act A New Tax System (Luxury Car Tax) Act 1999

Primary producer Taxpayers who carry on a ‘primary production business’ as defined in section 995-1 of the Income Tax Assessment Act 1997

RIS Regulation impact statement

SSA Social Security Act 1991

SSLA Bill Social Security Legislation Amendment (Community Development Program) Bill 2015

TAA Taxation Administration Act 1953

TFN Tax file number

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 4

Purpose and Structure of the Bill An identical version of this Bill was introduced into the 44th Parliament on 17 March 2016.1 The Bill lapsed on the prorogation of Parliament in April 2016.2 For the purposes of this Bills Digest, that Bill is referred to as the earlier Bill.

The Bill consists of four schedules:

• Schedule 1 amends the Income Tax Assessment Act 1997 (the ITAA 1997) and the Taxation Administration Act 1953 (the TAA) to establish a remedial power to enable the Commissioner of Taxation to make, by disallowable instrument, one or more modifications to the operation of a taxation law to ensure the law can be administered to achieve its intended purpose or object

• Schedule 2 amends the ITAA 1997 so that primary producers can re-access the benefits of income tax averaging ten income years after choosing to opt out, rather than being permanently excluded from the scheme as a result of that choice

• Schedule 3 amends the A New Tax System (Luxury Car Tax) Act 1999 (the LCT Act) to provide tax exemption to certain public institutions that import or acquire luxury cars for the sole purpose of public display

• Schedule 4 makes minor technical amendments to taxation, superannuation and other laws as part of the government’s commitment to the care and maintenance of the taxation and superannuation systems.

The structure of this Bills Digest follows the structure of the Bill, outlining information related to each schedule under separate headings.

Committee Consideration Senate Standing Committee for Selection of Bills On 13 October 2016, the Committee resolved to recommend that the Bill not be referred to a committee for inquiry.3

Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills commented on the earlier Bill in Alert Digest No. 5 of 2016, released on 3 May 2016.4 The Committee then repeated those comments in relation to the current Bill.5 In both comments, the Scrutiny Committee sought advice from the Minister on aspects of the Bill. The Minister’s response was included in the Committee’s Eighth Report of 2016, released on 9 November 2016.6

On the measure in Schedule 1 of the Bill, the Committee commented:

Schedule 1 to this Bill proposes to confer upon the Commissioner of Taxation a new and significant ‘remedial power’ to modify, by a disallowable legislative instrument, the operation of a taxation law. Although the remedial power does not empower the Commissioner to make a textual amendment to the relevant taxation law, it is akin to a so-called Henry VIII law as it enables a legislative instrument to modify the operation of primary legislation. As applied, the power therefore clearly enables the content of the law to be changed.

7

The Committee observed that the remedial power is an extraordinary power and it confers legislative power on an unelected official to modify the operation of significant primary legislation:

1. Parliament of Australia, ’Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 homepage’, Australian Parliament website. 2. Ibid.

3. Senate Standing Committee for Selection of Bills, Report, 8, 2016, The Senate, 10 November 2016. 4. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 5, 2016, The Senate, 3 May 2016, p. 23. 5. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 7, 2016, The Senate, 12 October 2016, p. 95. 6. Senate Standing Committee for the Scrutiny of Bills, Report, 8, 2016, The Senate, 9 November 2016, p. 504. 7. Ibid., p. 504.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 5

The Explanatory Memorandum… sets out in detail the reasons why the remedial power is considered necessary (see p. 14). In principle, the Committee agrees that the complexity of taxation laws may give rise to unintended outcomes. It is also accepted that where the only response available is to amend the primary legislation this may (properly) involve a lengthy process.

8

Nevertheless the Committee had a number of questions and concerns.

First, the Committee questioned the breadth of the remedial power proposed to be conferred on the Commissioner and asked whether consideration had been given to limit its application or exercise, such as through identifying, in the legislation, circumstances where Parliamentary amendment of the primary legislation was required.9 The Committee was concerned that nothing in the Bill ensures that the power will only be used as a complement to, rather than a substitute for, parliamentary legislative amendment processes. The Committee sought the Minister’s advice on these issues.10 In response, the Minister pointed to the restrictions provided in the Bill on the exercise of the remedial power:

… the proposed legislation is subject to strict limitations:

 the modification must not be inconsistent with the intended purpose or object of the provision;

 the modification must be considered reasonable, having regard to both the intended purpose or object of

the relevant provision and whether the costs of complying with the provision are disproportionate to achieving the intended purpose or object; and

 the Secretary of the Department of the Treasury, Secretary of the Department of Finance or an authorised

APS employee of either department advises the Commissioner that any impact on the Commonwealth budget would be negligible.

In addition, a modification will not apply to an entity if it would produce a less favourable outcome for the entity … Prior to the Commissioner contemplating using this proposed power, he would have had to exhaust his current powers, such as, applying a purposive approach or his general powers of administration. 11

The Committee considered that the Minister’s response did not engage with the issue it had raised regarding the possibility of including legislative guidance as to the circumstances in which changes to the primary legislation, rather than use of the remedial power, would be appropriate. Accordingly, the Committee remained ‘concerned that the full breadth of the remedial power may not be necessary and that there is scope for further legislative guidance as to the use of these powers’.12 The Committee left the appropriateness of the Bill’s approach to this matter for the consideration of the Senate as a whole.13

Second, the Committee noted that although judicial review would be available to determine whether or not a determination made by the Commissioner in exercise of the remedial power exceeded jurisdictional limits, the scope for testing the reasonableness of the determination would be limited.14 In this context, the Committee sought the Minister’s advice on whether breach of the budget notification requirement in proposed paragraph 370-5(1)(c) of the TAA (at item 3 of Schedule 1) is intended to result in the invalidation of the determination.15 Proposed subsection 370-5(1) of the TAA sets out the prerequisites for the exercise of the remedial power by the Commissioner. Proposed paragraph 370-5(1)(c) provides that the Commissioner must

8. Ibid., p. 505-506. 9. Ibid., p. 506.

10. Ibid.

11. Ibid., pp. 507-508. 12. Ibid., p. 508. 13. Ibid.

14. Ibid., pp. 508-509. 15. Ibid., p. 509.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 6

receive advice from Treasury or the Department of Finance that any impact of the proposed modification on the Commonwealth budget would be negligible.

In response to the Committee’s request, the Minister explained:

… if the Commissioner acts without this advice, the exercise of the power would be invalid. However, if the Commissioner acts on advice given under the paragraph that is for some reason incorrect, the incorrectness of the advice would not invalidate and is not intended to invalidate the exercise of the power. 16

The Committee asked for this information to be included in the Explanatory Memorandum to the Bill and left the appropriateness of the limited grounds for review of the Commissioner’s decision to exercise the remedial power to the Senate as a whole.17

Third, the Committee drew attention to the complexity of application of the ‘less favourable result test’. The Committee recognised (and welcomed) the need to ensure that changes to the operation of taxation laws made through exercise of the remedial power do not adversely affect taxpayers. However, the Committee questioned whether the complexity, and resultant uncertainty, of applying the remedial power, including the ‘less favourable result test’ could negate any potential benefits of the proposed regime (given that the scheme aims to ‘increase certainty in the administration of taxation laws’).18 The Minister advised that it was expected that the benefit to taxpayers of the use of the power would outweigh any costs. She further advised:

… in circumstances where the less favourable test created onerous requirements on an entity to assess the initial outcomes of a modification on itself, as well as complicated consequential impacts, the remedial power would most likely not be appropriate to use. 19

The Committee asked for information to be included in the Explanatory Memorandum and left the appropriateness of the proposed approach to the Senate as a whole.20

Fourth, the Committee noted that while all legislative instruments are subject to the general consultation requirement in section 17 of the Legislation Act 2003, the Bill itself does not specify a specific consultation process. The Committee queried whether affected taxpayers will be consulted in each instance on a proposed exercise by the Commissioner of the remedial power; whether consideration has been given to including more specific consultation requirements in the Bill; and whether the validity of the legislative instrument encapsulating the Commissioner’s exercise of the power should be contingent on compliance with those requirements.21

The Minister advised that consideration had been given to specific consultation requirements, but this was not determined to be the preferred course as:

Creating a formal legislative requirement to consult, that extends beyond the requirements of the [Legislation Act] and which must be complied with in order for a modification to be validly made, would be inconsistent with wider processes for resolving tax law issues. This would also create a requirement that could be used to challenge the legality of the remedial power's use, creating the opportunity for disputes on issues of process to impede the remedial power's use to resolve substantive issues.

22

While noting the Minister’s response, the Committee reiterated its view that the remedial power was an ‘extraordinary’ one and, given this, the Committee considered that ‘it would be appropriate to include more

16. Ibid.

17. Ibid.

18. Ibid., p. 510. 19. Ibid., p. 510. 20. Ibid.

21. Ibid., p. 511. 22. Ibid., p. 512.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 7

specific consultation requirements in the Bill and make compliance with these requirements a condition of the validity of the determination’.23

Fifth, the Committee considered the retrospectivity of the application of the remedial power by a non-elected executive:

Retrospective changes to the law may undermine public confidence in the legal system even if there are strong reasons to justify a particular change being applied from a date prior to commencement. In light of the fact that, in this instance, it is the determination of a non-elected official that may generate retrospective application, the committee seeks the Minister’s advice as to whether consideration has been given to including limits in the Bill on the extent of retrospectivity allowed in determinations made under the remedial power (for example, that laws as modified may only be given retrospective operation for a limited time).

24

In response, the Minister pointed out any determination would be subject to section 12 of the Legislation Act, which provides:

… any retrospective application of the legislative instrument cannot affect a person's rights so as to disadvantage them, nor can liabilities be imposed on a person in relation to anything that occurred prior to the instruments registration. 25

The Committee thanked the Minister for her response and left this matter to the consideration of the Senate.26

Finally, the Committee sought the Minister’s advice as to why the Minister’s power to cause a review to be undertaken of the remedial power provisions within three to five years of them commencing has not been made mandatory:

Given the extraordinary delegation of legislative power involved the Committee considers that there should be a mandatory report provided to the Parliament within three years. 27

The Minister’s response noted the importance of maintaining flexibility to ensure the review takes place at an appropriate time. The Committee remained of the view that the Bill should provide for a mandatory report to Parliament on the operation of the new remedial power.28

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011, the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.29

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights considers that the Bill does not raise human rights concerns.30

23. Ibid., p. 513. 24. Ibid.

25. Ibid., p. 514. 26. Ibid.

27. Ibid.

28. Ibid., p. 515. 29. There are separate Statements of Compatibility with Human Rights for each Schedule of the Bill. The Statement for Schedule 1 is at page 38 of the Explanatory Memorandum to the Bill. The Statements for Schedules 2, 3 and 4 are at pages 74, 92 and 109 of the Explanatory Memorandum.

30. The Committee commented on the earlier Bill in: Parliamentary Joint Committee on Human Rights, Thirty-seventh report of the 44th Parliament, 2 May 2016, p. 2; and on the current Bill in Parliamentary Joint Committee on Human Rights, Report, 7, 2016, The Senate, 11 October 2016, p. 100.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 8

Schedule 1—Commissioner’s remedial power Background Because of their complexity, there is potential for the operation of tax law provisions to have unintended consequences. For instance, business practices may change in ways not contemplated at the time provisions were drafted. In consequence, taxpayers may incur extra, unintended tax liabilities or be ‘subject to record keeping or other compliance requirements that were not intended or are no longer necessary’.31

Consistent with section 15AA of the Acts Interpretation Act 1901 (AIA), the Commissioner of Taxation applies purposive principles to the interpretation of the taxation laws to give effect to the purpose or object of the law.32

However, there are some instances where an interpretation that gives effect to the purpose or object of the law is not available from the words of the law. In these circumstances, the Commissioner would continue to have a duty to apply the law, even where it may produce outcomes that are not consistent with its intended purpose or object.33

Having regard to this potentiality, the Government announced on 1 May 2015 that it would provide the Commissioner ‘with a statutory remedial power to allow for a more timely resolution of certain unforeseen or unintended outcomes in the taxation and superannuation law’ than is presently available by way of legislative amendment.34

The measures proposed in Schedule 1 of the Bill would provide the Commissioner with the power to make a disallowable legislative instrument to modify the operation of a taxation law to ensure the law can be administered to achieve its intended purpose or object. The Minister has said that this ‘will help to create flexibility, allowing the Commissioner to resolve smaller unintended outcomes’, and that the ‘proposed power is to be used as a power of last resort, when unintended consequences cannot be ameliorated by the Commissioner in any other way’.35

It is proposed that the exercise of the remedial power would be valid where the modification in question is not inconsistent with the intended purpose or object of the provision which is sought to be modified. The Explanatory Memorandum explains that this limitation would reflect ‘the intention that the power would enable the Commissioner to administer taxation provisions in accordance with their intended purpose or object’, and that it would not ‘allow the Commissioner to alter or extend the intended purpose or object of the law’.36

It is proposed that the Commissioner would continue identifying the intended purpose or object of a taxation law provision objectively, with regard to the extrinsic materials referred to in subsection 15AB(2) of the AIA.37 However, as stated in the Explanatory Memorandum, in contrast to the approach to the interpretation of the words of a legislative provision referred to above:

… there would be no requirement for the text of the relevant provisions of the taxation law to be considered in ascertaining the intended purpose or object. While these provisions could still be considered, they would not be given primacy, or a greater weight, in ascertaining the intended purpose or object of a provision. 38

31. K O’Dwyer, ‘Second reading speech: Tax and Superannuation Amendment (2016 Measures No. 2) Bill 2016 ’, House of Representatives, Debates, 14 September 2016, p. 859. 32. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, p. 10. 33. Ibid.

34. J Frydenberg (Assistant Treasurer), Providing more certainty and better outcomes for taxpayers, media release, 1 May 2016. 35. O’Dwyer, ‘Second reading speech: Tax and Superannuation Amendment (2016 Measures No. 2) Bill 2016, op. cit., pp. 859-860. 36. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 48. 37. These materials include, but are not confined to, relevant committee reports, the Explanatory Memorandum to the Bill and the Minister’s

second reading speech. 38. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 49.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 9

New, limited power allowing Commissioner to modify operation of taxation law The measures proposed in Schedule 1 of this Bill would provide the Commissioner with the power to make a disallowable legislative instrument to modify the operation of a taxation law to ensure the law can be administered to achieve its intended purpose or object. The Commissioner could make such an instrument if three conditions were met (proposed subsection 370-5(1) of the TAA at item 3 of Schedule 1 to the Bill):

• first, the modification must not be inconsistent with the intended purpose or object of the provision (proposed paragraph 370-5(1)(a)). If the Commissioner has to determine the purpose or object of a provision, consideration must be given to any documents referred to in subsection 15AB(2) of the AIA, such as the Explanatory Memorandum, the second reading speech or a report of a parliamentary committee (proposed section 370-10). Consideration may also be given to any other material that may be of assistance (proposed paragraph 370-10(b)). In determining the purpose or object, the Commissioner is not required to give primacy to the actual words of the provision (proposed paragraph 370-10(c))

• second, the Commissioner must consider that the modification is reasonable (proposed paragraph 370- 5(1)(b)). In assessing whether a modification is reasonable, the Commissioner is to have regard to the intended purpose or object of the provision and whether the cost of complying with the provision is disproportionate to the intended purpose or object (proposed subparagraphs 370-5(1)(b)(i) and(ii))

• third, any impact on the Commonwealth budget must be negligible, as advised by either the Treasury or the Department of Finance (proposed paragraph 370-5(1)(c)).

The modification would apply generally, unless expressed to apply to a specified class of entities or in specified circumstances (proposed subsection 370-5(3)). A modification could not expressly affect a single entity.

The modification must not be applied in a way that produces a less favourable result for a taxpayer (proposed subsection 370-5(4)).

The modification must not take effect before the first day on which the instrument was no longer liable to be disallowed, or taken to have been disallowed, by the Parliament (proposed section 370-20). Section 42 of the Legislation Act 2003 (LA) deals with disallowance of legislative instruments. It provides that a Member of the House of Representatives or a Senator may give a notice of motion to disallow a legislative instrument within 15 sitting days of the tabling of that instrument in the relevant House.39 If such a notice of motion is given, the legislative instrument will be disallowed if:

• within 15 sitting days of the relevant House after the notice of motion was given, that House passes a resolution on the motion that disallows the instrument (or a provision of the instrument) (subsection 42(1)) or

• at the end of 15 sitting days of the relevant House after the notice of motion was given, the motion has not been withdrawn and has not been resolved, the instrument is taken to have been disallowed (subsection 42(2)).40

Accordingly, the modification will be able to take effect no sooner than 15 sitting days have passed for each House since the tabling of the legislative instrument. However, if a notice of motion to disallow the instrument is given in either House before the expiry of those 15 sitting days, the legislative instrument will not be able to take effect unless the motion is rejected by the House. If the motion is not resolved, the instrument will be taken to have been disallowed at the end of 15 sitting days after the notice of motion was given.

Breadth of ‘taxation law’ As explained above, Schedule 1 proposes to give the Commissioner power to determine a modification of the operation of a provision of a taxation law. ‘Taxation law’ is defined in section 2 of the TAA as having the same meaning as that given in the ITAA 1997, where the term is defined as:

39. Section 38 of the LA requires all legislative instruments to be tabled in each House of Parliament within six sitting days of registration. 40. J Odgers, H Evans and R Laing, Odgers' Australian Senate practice, 13th edn, Department of the Senate, Canberra, 2012, p. 421.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 10

(a) an Act of which the Commissioner has the general administration (including a part of an Act to the extent to which the Commissioner has the general administration of the Act); or

(b) legislative instruments made under such an Act (including such a part of an Act); or

(c) the Tax Agent Services Act 2009 or regulations made under that Act. 41

As set out in the Explanatory Memorandum:

A taxation law therefore could include superannuation laws or other laws dealing with matters other than taxation, provided that the Commissioner has the general administration of the relevant Act or parts of the relevant Act. 42

Consultation on the instrument The Explanatory Memorandum says that ‘before exercising the power [to make a disallowable instrument] the Commissioner must be satisfied that any appropriate and reasonably practicable consultation has been undertaken’, and that ‘the Commissioner will consult with a technical advisory group (which will include private sector experts) and the Board of Taxation prior to any exercise of the power’.43 Consultation requirements are not included in the Bill. However, section 17 of the Legislation Act 2003 (LA), provides that before a legislative instrument is made, the rule maker must be satisfied that any appropriate and reasonably practicable consultation has been undertaken.

Section 17 further provides:

[i]n determining whether any consultation that was undertaken is appropriate, the rule-maker may have regard to any relevant matter, including the extent to which the consultation:

(a) drew on the knowledge of persons having expertise in fields relevant to the proposed instrument; and

(b) ensured that persons likely to be affected by the proposed instrument had an adequate opportunity to comment on its proposed content. 44

Section 19 of the LA makes it clear that while the Act encourages appropriate consultation, a failure to undertake consultation does not affect the validity or enforceability of a legislative instrument. However, an explanation why no consultation was undertaken must be documented in the explanatory statement to the instrument (subsection 15J(2) of the LA).

Key Issues As a general proposition, it is for the Parliament to amend laws, including in order to address unintended consequences. Where executive government is given the power to alter the operation of primary legislation, the Parliament will want appropriate checks in place. Exposure of the legislative instrument embodying the exercise of remedial power to the risk of disallowance is one such measure. It is for Parliament to determine whether that, and the following measures proposed in the Bill, represent a sufficient check on the exercise by the Commissioner of the power.

Consultation As noted above, the LA does not mandate consultation in all cases, contemplating in section 19 that consultation may not occur, and providing, in that event, that non-consultation does not affect the validity or enforceability of an instrument. A recent illustration that the scope of the consultation requirement is not free from doubt is

41. Income Tax Assessment Act 1997, Dictionary at section 995-1. 42. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 15. 43. Ibid., p. 11. 44. Legislation Act 2003 (Cth), section 17.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 11

provided by the fact that section 17 is also the provision under which the Attorney-General is required to consult before making Legal Services Directions.45

Instrument has effect generally or to a specified class of entities or in specified circumstances As set out above, any modification made by the Commissioner would apply generally, unless expressed to apply to a specified class of entities or in specified circumstances (proposed subsection 370-5(3)). The Explanatory Memorandum says:

The Remedial Power cannot be used to modify the operation of a taxation law for a particular entity. This includes exercising the power in relation to a class that is so narrowly defined that it could practically only consist of a particular entity. This can be distinguished from a class that may be capable of consisting of many entities but actually only applies at any given time to one particular entity (emphasis added).

46

Commissioner’s powers available if effect on Budget is ‘negligible’ As discussed above, proposed paragraph 370-5(1)(c) provides that one of the prerequisites for the exercise of the Committee’s modification power is that the Treasury or the Department of Finance has advised that the impact of the proposed modification on the Commonwealth budget would be ‘negligible’. The Oxford Dictionary defines ‘negligible’ as ‘of a thing, quantity, etc.: able to be neglected or disregarded; unworthy of notice or regard; spec. so small or insignificant as not to be worth considering’.47

The effect on the Budget may be ‘negligible’ while still involving material dollar amounts.

Budget Paper No.1 records estimated outgoings for 2016-17 at about $451 billion.48 The Commissioner might regard an amount of less than, say, one thousandth of the Budget, as being negligible, but it could still be a material amount to affected entities, particularly if the class of entities affected by an instrument is small. (As set out above, under proposed subsection 370-5(4) only non-negative impacts on entities would be given effect to.)

In the end it will be a question for Parliament whether the convenience offered by the proposed remedial instrument-making power outweighs the burden on Parliament of considering amendments to the primary legislation. On this point, the Minister’s second reading speech says of the volume of such changes:

The challenge of effecting primary law change is illustrated by the 92 announced changes to the tax law that had not been enacted at the time the government was elected in September 2013. Had the remedial power existed, it may have been able to address some of these smaller unintended outcomes and could have allowed constrained legislative resources to deal with more significant primary law change.

49

Financial implications The Government has stated that this measure has no impact on revenue over the forward estimates period.50

Position of major interest groups The Commissioner of Taxation has reportedly said that he:

… welcome[s] this move by government to give me the ability to resolve some issues for taxpayers where tax and super law has unintended consequences. The powers can only be used to resolve issues in a way consistent with the purpose or object of the law and it must have a beneficial outcome for taxpayers. This will increase certainty for taxpayers, allowing these types of issues to be resolved more quickly, with less red tape.

51

45. E Brooks, ‘Solicitor-General resigns over "broken" relationship with Brandis’, Huffington Post, (online edition), 24 October 2016. 46. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 25. 47. Oxford English Dictionary, ‘Negligible, adj.’, 3rd edn, Oxford University Press, Oxford, 2003. 48. Australian Government, ‘Statement 5: expenses and net capital investment’, Budget measures: budget paper no. 1: 2016-17. 49. O’Dwyer, ‘Second reading speech: Tax and Superannuation Amendment (2016 Measures No. 2) Bill 2016 ’, op. cit. 50. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 4. 51. C Jordan quoted in F Anderson, ‘Tax Commissioner Chris Jordan gets new power to close tax loopholes’, The Australian Financial Review,

(online edition), 1 May 2015, and ‘ATO chief gets power to unilaterally close loopholes’, The Australian Financial Review, 2 May 2015, p. 10.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 12

Chartered Accountants Australia and New Zealand have also expressed their support for this measure, indicating:

The remedial power will allow the Commissioner to provide greater certainty for taxpayers. This will benefit individuals and the business community. This power would have been helpful in the past where some of the announced but un-enacted taxation measures created a burden and backlog for Parliament, and which prolonged the uncertainty in the tax laws. The statutory remedial power will build-in the necessary flexibility to make the tax system more agile and responsive where the words in the law produce unintended outcomes that are contrary to the original intent. This should enhance productivity within the tax system.

52

The Rule of Law Institute of Australia has indicated that it is encouraged by the safeguards that are built in to the remedial powers. However, the Institute considers that the Commissioner’s power to limit the application of a determination undermines the principle that laws are to be applied equally and fairly. The Institute argues that the Bill proposes to allow the Commissioner to exercise the power in relation to a class so narrowly defined that it could practically only consist of a particular entity:53

The Institute considers that, as currently phrased, section 370-5(3) does not meet this principle of equal application of laws, insofar as it permits the Commissioner to identify a specified class of entities, or specified circumstances, for which a determination may operate. This deviates from the equal application of laws, and raises the possibility of the planned Remedial Power being exercised in a preferential or discriminatory manner. This is so, notwithstanding the ‘no less favourable’ test of section 370-5(4), as any modification of the law which is favourable to one may produce an unfavourable effect on the rest who are subject to the law unmodified.

54

The Institute also considers that the reporting mechanisms surrounding the planned remedial power should be strengthened to maintain transparency and accountability:

The Institute notes, for example, that the Australian Securities and Investments Commission regularly reports on the use of their relief powers, including their power under section 926A of the Corporations Act 2001 (Cth) to exempt persons or products from the operation of that Act, or to modify the application of that Act. 55

As noted, the Bill proposes that the ATO annual report must set out information on the exercise of the Commissioner’s remedial power during the relevant year.56

The Australian Institute of Superannuation Trustees is broadly supportive of the proposed remedial power, noting that, in some instances, it will help cut red tape. The Institute suggests that the ATO be required to report at least annually on any cases in which the power was used, including the justification for its use.57

The Head of Policy and Technical in AMP’s self-managed superannuation fund division, Peter Burgess, is positive about the proposed powers saying:

I think [the new powers] are a good news story for the industry: it’s all about providing more certainty and reducing complexity. 58

52. Chartered Accountants Australia and New Zealand, ‘Commissioner to be given statutory remedial power’, media release, 1 May 2015, updated 6 September 2016. 53. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 25. 54. The Rule of Law Institute of Australia, ‘Submission regarding the Commissioner of Taxation’s power to modify taxation laws’, Submission to

the Treasury consultation on the Exposure Draft, Commissioner’s power to modify law, 8 January 2016, p. 2. 55. Ibid.

56. Item 2 of Schedule 1 of the Bill; see also Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 24. 57. Australian Institute of Superannuation Trustees, ‘Re: Commissioner of Taxation’s power to modify law’, Submission to the Treasury consultation on the Exposure Draft, Commissioner’s power to modify law, 15 January 2016. 58. P Burgess quoted in, ‘ATO details new commissioner powers’, Accountants Daily, (online edition), 2016.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 13

Representing the Chartered Accountants Australia and New Zealand in the consultation process, Greenwoods Herbert Smith and Freehills Lawyers state that the proposed remedial power will result in beneficial outcomes for relevant taxpayers:

The SRP [statutory remedial power], if appropriately utilised, will allow the Commissioner to provide greater certainty for taxpayers, which should in turn be beneficial for both individuals and business. The SRP should allow the Commissioner to deal with certain issues in a timely manner, though the requirement that the Commissioner’s power be exercised through making a disallowable instrument means it will involve a degree of formality. On the other hand, it means that the decisions will be public and contestable in the Parliament.

59

The Tax Institute observes that there are limited circumstances in which the remedial power could be utilised ‘particularly as the impact on revenue must be negligible’.60

Key Provisions (Schedule 1) Commissioner’s Remedial Power Item 2 inserts proposed subsection 3B(1AA)(e) into the TAA to require details of the exercise of the Commissioner’s remedial power to be included in the ATO’s annual report. It is expected that these details would include information regarding the process for deciding that particular matters would be subject to an exercise of the remedial power, and those matters that were not, as well as consultation undertaken prior to an application of the power.61

Item 3 inserts a new Part 5-10 and Division 370 into Schedule 1 of the TAA to accommodate the Commissioner’s proposed remedial power.

Proposed subsection 370-5(1) provides that, subject to certain prerequisites, the Commissioner may, by legislative instrument, determine a modification of a provision of a taxation law. (The breadth of this term and its potential to include laws dealing with matters other than taxation is discussed above.) Prerequisites include that the Commissioner considers the modification to be reasonable; that the cost of complying with it would be reasonable having regard to the intended purpose or object of the provision; and that any impact on the Commonwealth budget would be negligible. Proposed subsection 370-5(2) provides that, if the Commissioner determines a modification of the operation of a provision of a taxation law under proposed subsection 370- 5(1), the provision will operate with the modification.

Proposed subsection 370-5(3) provides that a modification applies generally unless the determination states that it only applies to a specified class of entities or in specified circumstances. The Explanatory Memorandum states that this is consistent with the LA, which allows a person granted a legislative instrument making power to exercise it in relation to a class.62

Under proposed subsection 370-5(4) an entity (the first entity) must treat a modification made under the power as not applying to it and any other entity if the modification would produce a result for the first entity that is less favourable than would have been the case had the relevant provision not been modified. The particular modification will therefore have no effect for an entity if it would produce a less favourable result, although it can still be valid and apply to entities that do not have a less favourable outcome from the modification.63

The Explanatory Memorandum indicates that ‘favourable’ is to be understood in the context of taxation laws, and that it could mean, for instance, that a tax liability or the costs of complying with the taxation law are reduced or that overall, taking into account changes in liabilities and compliance costs, the modification is favourable.64

59. A White and G Cooper, ‘Statutory remedial power for Commissioner’, Greenwoods Herbert Smith and Freehills Lawyers website, 5 May 2015. 60. The Tax Institute, ‘Tax Laws Amendment (2016 Measures No. 1) Bill 2016: Commissioner’s remedial power (Exposure Draft)’, Submission to the Treasury consultation on the Exposure Draft, Commissioner’s power to modify law, 28 January 2016, p. 2. 61. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 24. 62. Legislation Act 2003 (Cth), subsection 13(3); Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2)

Bill 2016, op. cit., p. 25. 63. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 26. 64. Ibid., p. 25.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 14

Under proposed subsection 370-5(5) a determination made under the remedial power would not apply to an entity where it would affect a right or liability of that entity under an order made by a court (including any judgment, conviction or sentence) before the commencement of the determination. The Explanatory Memorandum notes:

Ensuring that a determination would not apply in such circumstances reflects the importance of the separation of powers, and ensures that there is not an interference with federal judicial power in a manner that is inconsistent with the Constitution. 65

Item 4 provides that the Minister may cause a review to be undertaken of proposed Subdivision 370-A within three to five years of the commencement of the provisions. Following receipt of a review report, the Minister must table the report in each House of Parliament within 15 sitting days.

Schedule 2—Primary producer income averaging Background Income tax averaging ‘smooths out’ the income tax liability of eligible individuals from year to year.66 When a farmer’s average income is less than their basic taxable income, they receive an averaging tax offset. When their average income is more than their basic taxable income, they must pay extra income tax on the averaging component of their basic taxable income.

The basic taxable income is constituted by a farmer’s taxable income, excluding the following amounts:

• net capital gains

• certain superannuation lump sums and death benefit termination payments and

• above-average income of an author, inventor, sportsperson or other special professional.

Deductions excluded under the non-commercial loss provisions are excluded from the calculation of basic taxable income.

The averaging rules take into account:

• the comparison rate of tax—the rate of tax that a taxpayer would pay in the current year at basic rates of tax on their average income. Medicare levy is not included in the basic rate of tax

• the averaging component—that part of their basic taxable income that can be subject to an averaging adjustment (made up of both taxable primary production income and taxable non-primary production income) and

• the gross averaging amount—the difference between the tax payable at the comparison rate and the tax payable at basic rates.67

Under the current income tax law averaging scheme, farmers can elect to even out income over a maximum five-year period. Farmers who opt out of the farm-averaging scheme cannot re-enter. 68

In 2015, in recognition of the need for greater flexibility for farmers in this regard, the Government announced a proposed policy change that would permit farmers to opt back into the income tax averaging scheme ten years after they had elected to opt out:

Income tax averaging should be as accessible as possible for primary producers. The Government recognises the changing circumstances of primary producers and will now allow farmers to opt back into income tax averaging 10 years after they have elected to opt-out. Income tax averaging relieves the burden of high marginal tax rates in high-income years and ensures farmers pay tax at rates representative of their average level of income. In a rapidly

65. Ibid., p. 30. 66. Ibid., p. 69. 67. Ibid.

68. See Australian Taxation Office (ATO), ‘Tax averaging for primary producers’, ATO website, last modified 24 August 2016.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 15

changing world with increasing climate and price volatility, income averaging is more important than ever for smoothing farm income tax liabilities over time. Increasing the flexibility of tax averaging allows farmers to pay a fairer amount of tax when business circumstances change. Setting a 10 year period for opting back in will help ensure this new flexibility is being used for the intended purpose.

69

Financial implications The Explanatory Memorandum states that the measure will have no determinable impact on revenue over the forward estimates period.70

Key Provisions (Schedule 2) Division 392 of the ITAA 1997 deals with the long-term averaging of primary producers’ tax liability. Section 392-5 of the ITAA 1997 provides an overview of the averaging process and subsection 392-5(6) explains that no adjustment will be made in certain circumstances. Item 1 of Schedule 2 amends subsection 392-5(6) of the ITAA 1997 by omitting the phrase ‘the rest of life’ and substituting the words ‘10 income years’, in order to enable taxpayers to re-access the income tax averaging system after ten years of opt out.

Item 2 inserts proposed subsection 392-10(3) into the ITAA 1997 to provide that, if a primary producer has opted out of the averaging system, none of the years in the ten year opt-out period can be counted for the purposes of income tax averaging after the opt-out period has ended.

Item 3 amends subsection 392-25(1) of the ITAA 1997 to allow primary producers who opted out of the averaging to re-access the system after ten income years. However, they may again opt out where averaging does not suit their purpose due to changes in circumstances. If they choose to do this, their choice will apply for the subsequent ten income years.

Table 2 below outlines how the proposed measure would work for a primary producer who opted out of income averaging in 2006-07, or any previous income year.

69. Department of Agriculture, Agriculture competitiveness, White paper, The Department of Agriculture, Canberra, July 2015, p. 44. 70. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 5.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 16

Table 2: Option for re-accessing income averaging scheme after opting out Income year Year Measure

2006-07 1 Primary producer has permanently opted out of

income tax averaging for this income year (or any previous income year).

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2

3

4

5

6

7

8

9

10

Ten-year waiting period.

2016-17 1 Income tax averaging automatically starts to reapply

as if they were a new primary producer.

2017-18 2 Year two: offset becomes available if the basic

conditions are met.

Source: Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, p. 71.

The ten-year waiting period in the above example applies to primary producers who opted out in any subsequent income years. For example, if a primary producer opted out in 2009-10, under the proposed measure they are eligible to re-access income tax averaging in the 2019-20 income year. Furthermore, if they run a primary production business for two years in a row (after the ten year opt out period) and in the second year their basic taxable income is more than or equal to the first year, they are eligible for a tax offset. No tax offset applies if the income for the two years is the same. This means that the earliest time at which they would be eligible for a tax offset after re-entering the averaging system would be the 2020-21 income year.

Item 5 provides that the amendments apply for the 2016-17 income year and later years. That is, Schedule 2 applies prospectively, with the first possible averaging year being 2016-17, and the benefit of the tax offset being available, at the earliest, from the 2017-18 income year. The Explanatory Memorandum explains that ‘the tax offset will not be available until the second year after commencement because income from two income years must be averaged in order for the Commissioner of Taxation to pay an averaging tax offset’.71

Schedule 3—Cars for display by public institutions Background In 2000, A New Tax System (Luxury Car Tax) Act 1999 (the LCT Act) was introduced as a part of the Goods and Services Tax (GST) tax reform package. Before the introduction of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act), items such as expensive cars, furs, jewellery and electronics were all subject to wholesale sales tax. The Government’s 2015 Re:think: Tax Discussion Paper outlined the origins of the luxury car tax (LCT):

Since 1979, luxury cars had been subject to a wholesale sales tax of 45 per cent. Following the introduction of the GST and the abolition of the wholesale sales tax regime, the LCT was introduced at a rate of 25 per cent of the GST exclusive value of the car to maintain the higher rate of taxation. The aim of this tax was to ensure that the price of

71. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 74.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 17

luxury cars did not fall dramatically. The LCT applies to a range of vehicles including passenger cars, station wagons, four wheel drives and limousines. 72

How does the LCT work, in general? Currently, the LCT Act provides for the application of LCT to cars sold in or imported into Australia for home consumption, where the value of a car exceeds a GST inclusive threshold (some limited exemptions are detailed below). The rate of LCT is currently 33 per cent of the GST-exclusive value of the car (including accessories) when it exceeds the LCT threshold. For the 2015-16 financial year, the threshold for regular vehicles was $63,184 and for fuel-efficient vehicles, $75,375.73

As explained in the 2015 tax discussion paper, the LCT applies to both domestic and foreign-manufactured vehicles:

Some stakeholders have raised concerns that the LCT falls mainly on imported cars originating from a limited number of jurisdictions and is therefore a barrier to trade. However, the LCT applies to all cars purchased in Australia, regardless of where the car is manufactured and therefore does not discriminate against imports.

Whilst the LCT does not discriminate between domestic and foreign manufactured vehicles, the majority of LCT revenue is derived from imported vehicles. Industry estimates indicate that in 2014 around 94 per cent of vehicles subject to LCT were imported. This has increased from around 89 per cent in 2005. 74

The LCT is levied against the vendor, not the buyer. The vendor will then often pass this cost on to the buyer by adding the amount of LCT to the car’s retail price.

Current concessions and exemptions from LCT

A car, specifically fitted out for transporting a person with a disability seated in a wheelchair, is not a luxury car and is not subject to LCT. However, if the car is GST-free under GST law, then LCT will apply.75

A number of exemptions may be available if the entity is registered for GST and the car is usually held as a trading stock, used in research and development, or reimported after paying the LCT.76

Under related provisions of the Customs Tariff Act 1995 (the CTA 1995), the sale of such cars for the use of foreign governments; foreign military service use; personal effects of travellers or crew; warranty and safety recalls; repair and export and deceased estate are also exempt from the LCT.77

Similarly, supplies of luxury cars by a GST-registered supplier in Australia may not be taxable if the car is more than two years old or the car is re-exported and the export is GST-free.78

Exemptions from customs duty for works of art or collectors’ pieces

Schedule 4 to the CTA 1995 sets out concessional rates of duty that are payable on certain goods that are imported into Australia. Item 7 of Schedule 4 provides that no duty is payable on works of art or collectors’ pieces that are covered by:

• Annex B to the Agreement on the Importation of Educational, Scientific and Cultural Materials79 or

72. Australian Government, Re:think: tax discussion paper: better tax system, better Australia, The Treasury, Canberra, March 2015, p. 162. 73. ATO, ‘Luxury car tax rate and thresholds’, ATO website, last modified 27 May 2016. 74. Australian Government, Re:think: tax discussion paper, op. cit., p. 162. 75. ATO, ‘Exemption from luxury car tax’, ATO website, last modified 7 October 2016. 76. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 78. 77. Ibid., p. 78. 78. Ibid.

79. Agreement on the Importation of Educational, Scientific and Cultural Materials (Florence Agreement), done in New York 22 November 1950, [1992] ATS 12 (entered into force for Australia 5 March 1992).

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 18

• Annex B to the Protocol to the Agreement on the Importation of Educational, Scientific or Cultural Materials.80

and which are consigned to a library, museum, gallery or other institution that is endorsed as a Deductible Gift Recipient (DGR).

A luxury car may come within the definition of a work of art or collector’s piece that is not liable to customs duty on importation into Australia. 81

Deficiencies of the current regime

The Productivity Commission views the LCT as a ‘higher cost and less efficient method of raising revenue than more broadly based taxes’. The Productivity Commission recommended that, as part of the Government’s Taxation White Paper project, consideration be given to removing the LCT and replacing it with ‘more efficient sources of revenue’.82

The Government’s 2015 tax discussion paper noted that the ‘LCT has a narrow tax base, is complex and is the Australian Government’s only luxury tax on a specific good or service’.83 This complexity is more evident when it interacts with the GST.

Proposed amendments In the 2015-16 Budget, the Government announced that certain institutions will be LCT-exempt when importing cars for display only, effective from the day the Bill receives Royal Assent.84 The proposed changes, set out in Schedule 3 to the Bill, are expected to provide relief from LCT to public institutions that import or acquire luxury cars for the sole purpose of public display. The proposed exemption would apply to importations and acquisitions by museums, galleries, and libraries that are registered for GST and that have been endorsed as deductible gift recipients.85

Schedule 3 also provides for a decreasing LCT adjustment to recipients of luxury cars for LCT paid on the supply of a luxury car, and other adjustment rules to increase the importer or recipient’s liability to LCT where the car is used for a purpose other than public display, or supplied to another entity.86

Financial implications This measure is estimated to have a negative $0.8 million impact on revenue over the forward estimates period.87

Table 3: Financial impact of the measure in Schedule 3 of the Bill, $m

2014-15 2015-16 2016-17 2017-18 2018-19

Nil -$0.5 - $0.1 - $0.1 - $0.1

Source: Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, p. 6.

Main provisions (Schedule 3) The amendments in Schedule 3 provide an additional exception to when an importation of a luxury car is a taxable importation under the LCT rules.

80. Protocol to the Agreement on the Importation of Educational, Scientific or Cultural Materials of 22 November 1950, done in Nairobi on 26 November 1976, [1992] ATS 13 (entered into force for Australia 5 September 1992). 81. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 80. 82. Productivity Commission (PC), Australia's automotive manufacturing industry, Inquiry report, 70, PC, Canberra, 31 March 2014, p. 17. 83. Australian Government, Re:think: tax discussion paper, op. cit., p. 157. 84. Australian Government, Budget measures: budget paper no. 2: 2015-16, p. 23. 85. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit., p. 5 86. Ibid., p. 82. 87. Ibid., p. 6.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 19

Section 7 of the LCT Act sets out circumstances when a taxable importation of a luxury car is deemed to have occurred. Basically, such an importation will have occurred if a car whose value exceeds the luxury car tax threshold (referred to above) is imported into Australia and entered for home consumption (subsection 7- 10(1)). Subsection 7-10(3) then sets out circumstances where, despite meeting the requirements in section 7- 10(1), an importation of a luxury car is not considered to be taxable. Item 1 inserts proposed paragraph 7- 10(3)(ba) to provide that an importation of a luxury car will not be taxable under the LCT Act if the car is a work of art or collectors’ piece covered by item 7 of Schedule 4 to the CTA 1995 (as discussed above), that has been imported by the relevant library, museum, gallery or institution for the sole purpose of public display.

Division 15 of the LCT Act provides that circumstances that occur after a luxury car has been supplied or imported may mean that too much or too little LCT was originally imposed. In these circumstances, adjustments need to be made to ensure that the correct amount of LCT is paid. Section 15-30 deals with adjustments that are required to deal with changes to how a luxury car will be used. Item 2 inserts proposed subsection 15- 30(1A) into the LCT Act to provide that an entity that is supplied with a luxury car in circumstances that, had the entity imported the car, the importation would have been covered by proposed paragraph 7-10(3)(ba), is entitled to a ‘decreasing adjustment’ of LCT. In simple terms this means that a relevant library, museum, gallery or institution that obtains a luxury car for the sole purpose of public display, but does not directly import the car, will receive a refund of any LCT paid when the car was supplied.

Item 3 inserts proposed subsections 15-30 (3A) and (3B) into the LCT Act, to provide that an entity that obtained a luxury car and had a decreasing LCT adjustment due to the operation of proposed subsection 15- 30(1A) (discussed above), will be subject to an ‘increasing LCT adjustment’ if they use the car, or allow it to be used, in a manner which would have disqualified them from obtaining an exemption from LCT; or if they supply the car to another entity (proposed subsection 15-30(3A)). However, the first entity will not be subject to an increasing LCT adjustment if the entity to which they supply the car (the second entity) would have been entitled to an LCT exemption on the same basis as the first entity (proposed subsection 15-30(3A)). This means that no LCT is payable if, for example, a public art gallery that obtained the car for the sole purpose of public display supplies the car to a public museum for the sole purpose of public display. Item 4 applies equivalent amendments to those in item 3, but applies to entities that directly imported the car.

Item 5 inserts proposed paragraph 15-35(4)(c) into the LCT Act to ensure that, if the importer is liable to an increasing LCT, the amount payable is such that they will be returned to the position that they would have been in had they not claimed the LCT.88

Item 6 provides for these measures to apply to supplies made, or importations occurring, the day after the Act receives the Royal Assent.

Schedule 4—Miscellaneous amendments Background Schedule 4 contains miscellaneous amendments to taxation, superannuation and other laws. They include style and formatting changes; the repeal of redundant provisions; the correction of anomalous outcomes, and corrections to previous amending Acts.89

The Explanatory Memorandum states that the amendments address technical deficiencies and legislative uncertainties within the taxation regime, superannuation and associated laws.90

The amendments have various commencement and application dates. The dates are set out at relevant points in Chapter 4 of the Explanatory Memorandum. Most amendments commence from the first quarter beginning on or after the day the Bill receives Royal Assent.

The proposed amendments in Schedule 4 are contained in the following parts:

88. Ibid., p. 90. 89. Ibid., p. 93. 90. Ibid.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 20

• Part 1: Community Development Employment Projects (CDEP) Scheme

• Part 2: Other amendments of principal Acts

• Part 3: Amendments of amending Acts

• Part 4: Repeals of Excise Tariff Acts and

• Part 5: Other repeals.

Main provisions (Schedule 4)

Part 1—Community Development Employment Projects Scheme The CDEP scheme was originally introduced in 1977 to assist Indigenous job seekers to find and retain employment. The scheme was absorbed into the Remote Jobs and Communities Program in July 2013 and, with effect from 1 July 2015, the scheme ceased operation.91

The Social Security Legislation Amendment (Community Development Program) Bill 2015 (the SSLA Bill) will, if enacted, amend the social security law to reflect the cessation of the CDEP Scheme. However, the SSLA Bill lapsed on the dissolution of the 44th Parliament and at the time of writing this Digest has not been reintroduced.92 If the Bill is not reintroduced and enacted, Part 1 of Schedule 4 to the Bill will not commence (see clause 2 of the Bill—commencement information).

Part 1 of Schedule 4 proposes amendments to the taxation law to remove redundant references to the CDEP Scheme.

Item 8 is an application provision, which provides that the existing (unamended) provisions continue to apply in relation to payments made under the CDEP scheme before it is discontinued by the SSLA Bill.

Part 2—Other amendments of principal Acts Part 2 addresses technical issues in various provisions of the TAA 1953, ITAA 1997, ITAA 1936 and the GST Act to improve the clarity in the taxation law.

Items 9 to 83, and 86 to 91 propose technical amendments to provisions of the GST Act; the Commonwealth Grants Commission Act 1973; the ITAA 1936, the ITAA 1997 and the TAA.

Item 84 proposes an amendment to section 42 of the Product Grants and Benefits Administration Act 2000 to remove an incorrect reference to section 350-10 in Schedule 1 of TAA.

Item 85 changes an incorrect reference to the ITAA 1936 to the ITAA 1997 in the Superannuation (Unclaimed Money and Lost Members) Act 1999.

Part 3—Amendments of amending Acts This Part proposes technical amendments to provisions of the Indirect Tax Laws Amendment (Assessment) Act 2012, the Tax and Superannuation Laws Amendment (2014 Measures No. 7) Act 2015, the Tax and Superannuation Laws Amendment (2015 Measures No. 1) Act 2015, and the Treasury Legislation Amendment (Repeal Day) Act 2015. Further information is available at pages 96 to 107 of the Explanatory Memorandum to the Bill.93

Part 4—Repeals of Excise Tariff Acts Items 99 to 143 of Schedule 4 repeal 45 amending Acts that the Government considers to be ‘largely redundant’.94

91. Ibid., p. 94. 92. Parliament of Australia, ‘Social Security Legislation Amendment (Community Development Program) Bill 2015 homepage’, Australian Parliament website. 93. Explanatory Memorandum, Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016, op. cit. 94. Ibid., p. 107.

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Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 21

Items 144 to 148 include general savings provisions to preserve the rights and obligations of taxpayers, despite the repeals proposed in Part 4 of Schedule 4.

Part 5—Other repeals Item 149 of Schedule 4 proposes repeal of the Income Tax (War-time Arrangements) Act 1942 as it is already inoperative.

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