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Thursday, 29 May 1997
Page: 4491

Mr TONY SMITH(10.36 a.m.) —By way of preface, by not referring to some of the observations on withholding tax made by the honourable member for Curtin (Mr Rocher)—whose experience in this area is recognised right across the chamber—

Mr Slipper —Right across the country, too.

Mr TONY SMITH —And right across the country, as my honourable friend points out. I do not wish to in any way minimise what he said. Any element of retrospectivity in any law is a matter that has to be taken seriously. It is something I would like to revisit at the end of the debate. However, I do not in any way wish to be seen to be ignoring what he said in not taking it any further. Some of these matters are quite complex and I do not hold a candle to the honourable member for Curtin when it comes to expertise.

The particular measure before the House, the Taxation Laws Amendment Bill (No. 2) 1997, contains a number of initiatives in relation to elements of tax avoidance and abuses in relation to other areas that have been addressed and have been visited with a view to closing those loopholes. Referring generally to those, the bill will amend the income tax law to rectify anomalies in capital gains tax provisions dealing with the carry forward and transfer of net capital losses. These follow announcements in last year's budget.

Under the existing capital gains tax provisions, taxpayers can carry forward net capital losses into a later year of income for recoupment against future capital gains which, as with the carry forward of revenue losses, is subject to a number of recoupment tests. These tests prevent capital losses incurred by a company from being recouped where there has been a substantial change in the beneficial ownership of the company since the losses were incurred and the company does not carry on the same business.

It is worth while observing that some of the provisions in relation to this area, and particularly the position of companies generally in relation to tax, are somewhat elevated when compared with those of PAYE taxpayers. I will reflect further on that later on. However, it is worth mentioning that companies have at their disposal very high-powered legal advice and taxation expert advice.

It is almost a constant movement—a constant tennis match, if you like—where one side is looking for a further advantage and the other side, being the government, is attempting to close the loopholes or any abuse areas that are thereby created. The other areas, generally speaking, are withholding tax avoidance, dual residence companies, removal of the standard superannuation contribution limit, leases of luxury cars, interest withholding tax and related provisions.

In relation to the issue of luxury car leases, this measure relates to taxation treatment of leases of luxury cars. The cost limit for depreciation of luxury cars was first enacted in 1980 and has been circumvented by leasing arrangements under which the lessor is largely unaffected by the limit. A common technique to avoid this is to ensure that the lessor is a tax exempt or other tax preferred entity, such as a loss trust.

The new measures will treat leases of luxury cars in much the same way as other forms of vehicle finance. The lessor will be treated as having disposed of the car to the lessee at the beginning of the lease and as having lent the lessee the money to buy the car. The lessor will be taxed on the finance charge component of the notional loan to the lessee, but not on the actual lease payments. If the lessee uses the car for income producing purposes, the lessee will be entitled to deduct an appropriate proportion of the finance charge component. No deduction will be allowed for actual lease payments, but the lessee will be treated as the car owner, entitled to taxation depreciation allowances. The amount of depreciation allowed will be reduced under the depreciation cost limit rules.

Just turning to some of the problems that arise and some of the advantages and tax shields that some of the companies have and, in particular, multi-nationals, it is interesting to note the article in the Business Review Weekly, 17 March 1997. I refer to the "No profit, no tax Japanese multi-nationals" article in that particular edition of BRW. In that particular edition it was quite significant—as the article says—that the most important national contribution multi-nationals make is paying tax. If they do not pay tax, they are, in effect, receiving free benefits from infrastructure and institutional protections.

What is quite illuminating—and this was drawn to my attention by a constituent—is that in terms of tax payment, there really has to be, as the article goes on to say, a question mark against leading Japanese multi-nationals. The Japanese companies in Australia's top 20 foreign companies, excluding Toyota, had a revenue of $22.8 billion, but—wait for it—they made a net loss of $10.4 million dollars. As the article goes on to say—and I pose this as a significant issue—there are three obvious explanations: the Japanese companies are aggressively buying market share by running low profits; they do not have very profitable businesses, or the true profits are being repatriated to Japan. It may simply be, as the article says, part of the culture of Japanese business.

I think that it is a matter that we, as a government, must very carefully address, not only in the context of the Japanese multi-nationals—that is bad enough when you think of the revenue of that extent and the net loss involved where there is a revenue of that extent—but across the whole of board of multi-national investment in this country. I contrast this with the position of ordinary PAYE taxpayers in this country, in particular, those who might be unfortunate enough to have been caught by the child support system which is also part of the Australian Taxation Office.

Just the other day, a constituent raised with me an issue of provisional tax. He was running a small business and his liability to pay provisional tax was assessed at $7,000. He paid his provisional tax annually—as opposed to a lot of other taxpayers who pay it three monthly. That assessment of $7,000 was not brought into account in relation to his child support liability. This is an extraordinary situation where, in reality, his actual income is $7,000 less on account of his liability for provisional tax, yet that was not taken into account in terms of his actual exempt income, for child support purposes.

In effect, his net position is in this extraordinary minus $7,000 position and yet, for child support purposes, the Taxation Office, through the Child Support Agency, will assess him and will penalise him if he does not pay his child support liability—irrespective of the assessment of provisional tax. I think that is an extraordinary situation which yet again highlights the discrepancies between the Japanese multinationals and the ordinary, average small-business, one-person operation which has to pay a liability on that basis.

In addition, it is worth reflecting on a letter that I received earlier this week from someone not in my electorate. Again, it raises the issue that those who are subject, by virtue of a child support liability, to the taxation rigours of the Australian Taxation Office are caught but that those who happen to be a bigger company manage to escape. This particular letter reads:

I wish to voice my concern in regard to the cost of child support. It is a very big concern not only for me but all separated fathers. The government needs to consider this matter as it affects many Australian lives, and everybody, even separated fathers, should be given a fair go. As the years pass, more and more people are going to be affected by child support. It is a very important issue.

Firstly, I would like to state I have no problem in paying maintenance and, ever since separation from my family, I paid child support every week to my ex-wife before the Child Support Agency informed me that they must become involved.

The separation from my ex-wife was not my choice. I love my family very much and thought I would spend the rest of my life with them. It nearly destroyed me when I had to leave my two children. I worked very hard for them so we could own one of many things, a house. I walked away from my family with only my clothes and a few items valued at approximately $500. Everything else I left for my family.

At separation, my ex-wife requested that I pay $50 a week for each of my two children. She said that this was ample. Eight months later I received a letter from the Child Support Agency stating that approximately $245 per week would be deducted from my pay. This was based on 27 per cent of my annual wage. I contacted my ex-wife in regard to this. She stated she could not believe how much the Child Support Agency was going to deduct from my wage. She said it was way in excess of her needs. She agreed that each month, once she received the payment, she would return to me the amount in excess of the agreed $100 per week. This of course did not happen. Once my ex-wife started receiving the payment, she would not part with any of the money.

I am left, as I am sure all separated fathers are left, with only enough money to survive. Once food, bills, work travel expenses, rent, et cetera, is taken from my wage, I am left with nothing.

Mr Slipper —Subsistence living.

Mr TONY SMITH —Yes. The letter continues:

It is as if child support had been made a form of punishment. I have already been punished enough by having to be separated from my children. I have to start again and rebuild my life. I once again tried to buy a house, but this is impossible with the present child support laws. There is no way I can even afford to save for a deposit. I am only 29 years of age and have since met another lady whom I wish to spend the rest of my life with. She supports me financially for my entertainment and additional expenses. This deeply hurts my pride, as I am sure it would any man. We wish to marry and raise a family, but we are afraid that we will not be able to afford it. The man is the main money earner in most families.

If my ex-wife remarries or lives in a defacto relationship, she will have the benefit of another man's wage but I am still required to pay the same amount of child support even though she and my children are being supported by another man. If my girlfriend and I were to marry and have a child, the child support reduced by a mere five per cent. I am currently working 55 hours per week as a transport manager, for which, after child support and tax is taken out, I receive $1,600 per cent calendar month. I am working extremely hard to better my career and hopefully get somewhere in life like everybody wants to do but every time I receive a pay rise or even a bonus, my child support is increased. How can I get ahead at this rate. I do not understand how the government can say that the more money I earn, the more children cost to raise.

Good point.

Child support should be a reasonable fixed amount per child. When the government pays family allowance, this is on a fixed amount per child. This rule should also apply to child support. If parents decide to send their children to private schools et cetera then such expense should be borne as to one half each by the respective parents.

I want to be able to provide a home for my children when they come to visit me. I want to be able to purchase toys, clothes and learning equipment for them but, under the present system, it is impossible without the help of a third person such as my girlfriend. I cannot even afford the petrol to pick up my children in Windsor when I have access. The relationship between myself and my ex-wife has deteriorated which is due to the cost of child support and the fact that I cannot survive.

My ex-wife knows I cannot afford 27 per cent of my wage but now has become solely interested in her own well-being. My ex-wife would have been happy with the agreed $100 per week if it had not been for the Child Support Agency stepping in. Our relationship would still be good and our children would not be affected as they are now by the deteriorated relationship. The men of Australia need your help. Everybody affected is talking about the extremely high rates payable. It has been published in newspapers articles . . .

That again emphasises the discrepancy between how we can close laws and how we can shore up loopholes for companies that are not paying tax or are attempting to avoid paying it and ordinary, average PAYE taxpayer who is caught by the system and penalised for his trouble if he does not come into it. Tax reform is a matter that has to be addressed in this country and I am glad to see the debate is widening on that of late.

It is important that measures like this address the revenue so that we can ensure that that revenue is protected from abuse by those who seek to get around the taxation laws of this country. At the same time we have to consider, in the context of a wider debate on tax reform, just where we are going in this country in relation to tax. I am very pleased that the member for Melbourne (Mr Tanner) has recognised that need. It is unfortunate that he cannot carry many of his colleagues along with him in that particular enlightenment that has come upon him.

Unfortunately, yesterday's men of the opposition are not prepared to look at tax reform in the way that it should be looked at. In any tax debate in this parliament, we should be thinking about tax reform on a much broader scale. If we did have a better taxation system, I am sure that the constant amendments that need to be made to the taxation laws of this country would reduce markedly, and directly in proportion, I would have thought, to the change that is needed to ensure that taxation is fair and reasonable. It needs to cover a fair spread and it needs to cover the multinationals who quite clearly are avoiding tax, in my analyses of that article in the Business Review Weekly. This change is also addressing the areas that need to be addressed and it is looking again at the system that I referred to, the iniquitous chid support system. In general, subject to any reservations that I have on any matter that I speak on, I support these measures.