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Thursday, 27 November 1997
Page: 11485


Mr KELVIN THOMSON(1.48 p.m.) —Thank you, Mr Deputy Speaker. I am most appreciative that members of the government have provided me with an audience.

This bill is the sixth omnibus taxation bill for 1997. It covers 10 separate issues relating to avoidance schemes, manipulating capital losses, simplifying the tracing rules for company losses, closing of a sales tax loophole on reimported goods, changes to fringe benefits tax, adjusting capital gains tax to take into account some deductible expenses incurred on real property assets, tightening of expense claims for insurance companies and clarifying depreciation rules for previously tax exempt entities—for example, assets which have been privatised.

The first area I want to concentrate on relates to those in the area of fringe benefits tax. The bill proposes to exempt certain benefits from fringe benefits tax and to alter the so-called arranger provisions. In 1995, Labor reviewed the operation of the fringe benefits tax with a view to simplifying the compliance burden and exempting some benefits where this was considered justified. Some considerable changes were made, including providing an exemption for outside hours taxi travel—that is to say, between 7 p.m. and 7 a.m., the night hours—conducted by employees between work and home, and the provision of laptop computers to employees by employers to facilitate work away from the office.

These were sensible changes which recognised that there was little or no private benefit by the employer paying for the items as they were really connected with work. In particular, the out of hours taxi travel exemption simply recognised the practice of many employers, including the Commonwealth, of providing taxi travel to their employees who either work late or have to come to work very early. The reason for this benefit being provided is not to provide any kind of rort to employees but merely to recognise that out of hours travel has special features. We know in the first place that public transport services are less available or, in some cases, are not available at all, particularly late at night. It is not fair to tax an employer for providing an employee with what amounts to their only option for getting home.

Secondly, the issue of safety of the employee, particularly late at night, dictates that taxi travel may well be preferable in many situations and that it would be poor social policy for a government to tax such an arrangement. Accordingly, Labor exempted this travel in this context from fringe benefits tax.

This bill is introducing further changes to exempt all taxi travel from fringe benefits tax. Mr Deputy Speaker, in the view of the opposition, this will be an unlimited right to tax-free travel to and from work for those lucky enough to enjoy it. This will mean that directors and executives will be able to negotiate tax-free travel by taxi to and from work if they so desire. In practical terms, people working in low income jobs will not benefit from this proposal—it will be restricted to the better off. Ordinary people will continue to have to pay for their own travel to and from work on bus, train or tram and the like from their own income after they have paid their PAYE tax.

Labor believes that this exemption should be opposed on equity grounds—that is, the exemptions which Labor introduced and which recognise the special circumstances of late night or early morning travel should remain but that no further exemption should be granted. Labor considered this issue in 1995 but rejected it on cost and equity grounds, and we remain convinced that that was the correct decision.

The second proposed exemption relates to certain car parking fringe benefits provided by small business. Quite properly, if an employer provides an employee with subsidised or free use of commercial car parking facilities, for example, in the central business district of Sydney or Melbourne, that is a fringe benefit and is properly liable to fringe benefits tax.

It is fair to say that this has been an unpopular tax measure with some employers, especially when the car parking facility is simply allowing employees to park on the premises. Substantial record keeping is required in some circumstances and it is appropriate to look at the car parking issue in the context of lessening the compliance burden on small business. To address these issues, the bill is proposing to exempt car parking benefits for some employers. The exemption will be limited to those small and medium businesses which are delineated by the tests of not being a public company for the purposes of the income tax law, not being a government body and having less than $10 million per year in gross income.

The exemption will be provided only where the benefit is not provided in a commercial car parking facility—that is, it addresses the perceived anomaly where employers simply make space available for parking, but it will still ensure that high value commercial car parking spaces will be liable for fringe benefits tax. The opposition will support this exemption and the benefits that it provides to the small business sector. It will save a very substantial $35 million for business each year and will eliminate record keeping and compliance costs, which can be substantial in some cases.

The third set of changes proposed to the fringe benefits tax are to change the so-called `arranger provisions'. As well as benefits provided by employers to their employees, fringe benefits tax includes, in general terms, a benefit provided to an employee where that benefit is provided by some other party—a third party, a different party from the employer—under an arrangement with the employer. They are necessary provisions to ensure that fringe benefits tax cannot simply be avoided by getting people other than the employer, such as clients, to provide benefits on the employer's behalf.

The government is proposing to alter these so-called `arranger provisions' in this bill. The new proposals purport to simplify the rules, but they may actually make more complex and less certain the liabilities of employers in some circumstances. There will now be two ways in which an arranger benefit will arise. It will be provided either under an agreement between the employer and the third party or if the employer is involved in a particular way in the provision of the benefit. So there will now be a test of whether the employer knowingly participates or facilitates the provision of a benefit. In this case, `knowingly' includes a situation where the employer ought reasonably to have known about the benefit.

The government is pretending that this is an improvement on the current situation. This is a matter of some debate. The Financial Review carried a report on this issue on 31 October written by Fiona Buffini. A tax partner from Coopers and Lybrand, Mr Chris Blake, is referred to in the article as stating that the changes highlighted the glaring complexity of the fringe benefits tax. It points out that Mr Blake, who is an expert in this area, said that if a third party invited an employee to lunch and the employer did nothing to stop it then fringe benefits tax would apply. If the third party invites the employee directly, there is no tax. But if the third party calls the employer first or invites them and the employee to lunch then under the new rules the employer may have to pay fringe benefits tax on the employee's lunch because the employer may have facilitated the benefit. Mr Blake then goes on to comment that this raises the question of how high up the level of employment has to go before the tax applies. He is quoted in the article as saying:

It's hilarious until you actually have to advise someone.

That is a pretty damning commentary on these provisions. An industry expert is saying that the government's legislation is a joke. If this is what the government means by simplifying and improving legislation, then the tax profession has perhaps passed judgment on this particular aspect.

Labor will not be opposing the new regime. I note that it is one thing for rhetoric to be employed by the coalition in opposition in terms of simplifying taxation legislation but, when they actually come to try to implement what they have claimed is so simple, they find that things are rather more complex and difficult in the real world of government. The government is increasingly on the nose in the business community as business finds that the government cannot deliver on the glib promises that it made whilst it was in opposition.

I want to turn briefly to some of the other measures in the bill. I would indicate at the outset that these are generally of an anti- avoidance or base protection nature and, hence, are supported by Labor. The first matter is the denial of artificially created capital losses. The provisions of schedule 1 of the bill will limit the total amount of certain capital losses incurred by corporate groups under the law to the level of the corporate group's actual economic loss. The general anti-avoidance provisions of part IVA are also amended to allow these provisions to now apply to schemes artificially creating capital losses in the year in which the capital losses are created.

These amendments will protect around $100 million per year and have the support of Labor. This is further evidence that tax avoidance scheming never stops. There have been many earlier amendments on the capital gains tax provisions to stamp out artificially generated losses, yet clearly further loopholes are always being found and exploited. To paraphrase a famous maxim, `The price of a decent tax system is eternal vigilance.' I can assure the House that the Labor Party will continue to be vigilant in this important area of tax avoidance. Our attempts to stamp out tax avoidance got no support from those opposite.

The second matter is the concessional tracing rules for company loss provisions. The company loss and debt deduction provisions of the income tax law will be amended by the provisions in schedule 2 to extend to companies two concessional tracing rules available to trusts. These are not actual concessions on amounts of tax payable but, rather, are simpler rules for tracing the underlying ownership of entities where such information is relevant. These simpler rules should lower the cost of compliance with the law and are supported by the opposition.

The third item concerns the temporary importation of goods. These provisions close a small loophole in the sales tax law whereby goods imported into Australia under a temporary importation exemption, used in Australia and then exported and reimported are not subject to sales tax. This bill imposes sales tax at the time of the reimportation and revenue is only around $2 million per annum. The problem is clearly not a major one from the revenue point of view. However, experience shows that small leaks in the tax base do tend to increase significantly over time and that it is worth the effort to close off avoidance avenues when these are identified.


Mr SPEAKER —Order! It being 2 p.m., the debate is interrupted in accordance with standing order 101A. The debate may be resumed at a later hour and the member will have leave to continue speaking when the debate is resumed.