Mr ANTHONY (Minister for Community Services) (10:57 AM) —in reply—I certainly would like to thank all members from both sides of the House for their contribution to the debate on the Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies—Integrity of Means Testing) Bill 2000, particularly the member for Grey, the member for Curtin, and the member for Wannon, who made some fairly lucid remarks at the end of his speech today regarding the integrity of the Australian taxation system and ways of improving it.

The purpose of this measure is to restore equity and integrity to the social security and veterans' affairs means test. Social security payments are intended for people who are unable to adequately support themselves. Social security payments are targeted to those most in need through a means test and assessment of the person's available income and assets. Successive governments have held that the means test is the fairest way to ensure that taxpayers' funds for social security purposes are targeted to those greatest in need.

Under the current social security and veterans' affairs legislation, assets and income are only attributed to a person where legal ownership or fixed right to income is established. Assets held in private trusts and companies cannot generally be assessed under the social security means test. What this means is that individuals can currently arrange their affairs such that they use private trusts and companies to hold and control assets outside the current means test. The result is that some quite wealthy people can receive income support payments. If allowed to continue, this approach by individuals is likely to undermine public confidence in the taxpayer funded income support system.

The idea that some individuals may be treated more favourably than others because of the way they choose to arrange their affairs is completely at odds with one of the fundamental principles of the social security system. People with similar levels of private resources should receive similar levels of payment. By changing the means test through the measures in this bill, the government seeks to maintain an affordable and sustainable income support system and is committed to targeting benefits to those most in need.

The government estimates that fewer than one per cent of all income support recipients will be affected by this measure—approximately 35,000 existing Centrelink customers and 2,500 Veterans Affairs' customers. Of these, approximately half will have their payments reduced and half will have their payments cancelled. Despite the relatively small number of customers affected, the government expects to achieve significant savings to the taxpayer of more than $100 million per year from the commencement of the measure.

The change proposed by the measure is that, when a private trust or private company is recognised as a designated private trust or company, the assets and income of these private trusts and private structures may be attributed to a person who controls, or has contributed to, these structures. Two alternative tests will be applied. The first of these is the control test. Often the controller of a structure can be considered to be the de facto owner of the structure's assets where he or she can use the assets for his or her own purpose or benefit. The test will also make it possible to determine who is the ultimate or actual controller of a structure.

The second test is the source test, which is designed to identify the original source of assets in a trust or company. The source may need to be traced back through several intermediaries. Generally a person transferring assets to a private trust or company does so because the assets will continue to be used for that person's benefit or for their family's benefit. The source test will apply only to contributions made to structures after 7.30 p.m. on 9 May 2000. A source test of assets is appropriate because a person transferring assets to a private trust or company generally does so because the assets will continue to be used either for that person's benefit or for their family's benefit.

Once it has been established that a person passes the control of the source test, the facts of each person's case will be examined closely to determine the extent to which the assets and income of the relevant private trust or company will be attributed to the person. This process will be guided by decision-making principles that will be set down in a disallowable instrument. Policy guidelines will also be publicly available. The discretion that applies to this measure is necessary to ensure that the operation of the measure is not overly restrictive and does not create unintended consequences. Normal review processes will be available to people who are dissatisfied with the decisions resulting from the attribution process.

The measure will commence on 1 January 2002. It is not retrospective. The legislation does apply to structures already in existence. However, for an individual to pass the control test and therefore have the structure, assets and income attributed to them, they will have to be in control of the structure on or after 1 January 2002. The legislation does not reduce any entitlements paid to Centrelink or Veterans' Affairs customers before its commencement on 1 January 2002.

The measure was announced on budget night, so individuals and financial advisers will have sufficient time to acquaint themselves with the content and operation of the legislation prior to the commencement of the measure on 1 January 2002. As I have said, the government expects only a relatively small number of people to be affected by this measure. However, those who are affected will have considerable resources to support them. This measure will help to ensure that income support payments are targeted to those people most in need.

I stress that this measure is about ensuring that income support entitlements are based on a person's level of resources, not on the way a person holds these resources. It is important for parliament to note that only trusts and companies of a small and private nature will be subject to this measure. Shares or units in publicly listed companies or unit trusts with more than 50 members are already assessed under the social security and veterans affairs' means test. This bill in no way signifies discrimination against private trusts and companies as legal forms of holding investments and conducting business. However, attributing the income and assets of these structures to individuals involved in their operation addresses the inequity that exists under the current system whereby those kinds of closely held family structures can be employed as a way of avoiding the social security means test.

The bill will provide the power to the secretary to obtain taxpayer information from the tax office in relation to trusts. This will include the trust's tax file numbers. Tax file numbers are the only unique identifiers to identify trusts. The use of the tax file number will ensure that customers can be sure that they are only attributed with the income or assets of the trust in which they are involved.

This bill recognises the importance of succession planning issues to the rural community and makes a special concession for farmers who hold their farming properties in a family trust. Through this concession retiring farmers will be able to hand the farm over to the next generation and to retain some limited powers in regard to the trust deed without the assets or the income of the trust being assessed against the retiring farmer under the means test. The concession allows retiring farmers a power of veto in the event of a sale or a break-up of the farm, therefore ensuring that a farm stays in the family. The concessions will be available to all primary producers whose primary production assets are less than $750,000 and whose average income in the preceding three years is less than $28,200. These amounts are subject to indexation. Existing means test provisions, such as asset hardship, pension loan scheme, aggregation and forgone wages, will where applicable be extended to primary producers who hold their primary production assets in a private trust.

The government consulted with the rural community and a number of peak bodies in formulating the measures that provide concessions to the primary producers. A retiring farmer will also retain a power to appoint a new trustee in the event of the death or the invalidity of a current trustee. This government is committed to maintaining an affordable, sustainable social security system that supports the most vulnerable in our community and those in genuine need. The bill contains provisions to disregard income and/or assets if appropriate. This will ensure that people are not treated unfairly by this measure. This bill removes the inequitable and inconsistent treatment under the existing income test that provides a more favourable treatment for people who hold their assets in private trusts or companies. As a result, the bill will encourage self-provision by those who are able to support themselves.

This bill ensures that the income support entitlements will be based on a person's level of resources and not on the way in which a person holds their resources. I would like to also just note the cooperation of a number of members of the department who have been very involved in this and members of the coalition who have been involved in the formulation of the legislation. I commend the bill to the House.

Question resolved in the affirmative.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.

Ordered that the bill be reported to the House without amendment.