Mr PROSSER (12:05 PM) —I rise in support of the Tax Laws Amendment (2005 Measures No. 2) Bill 2005, which proposes changes by way of eight schedules that will provide improvements to various taxation laws. Schedule 1 to this bill amends the simplified imputation system that was introduced to have effect from 1 July 2002. The rules for its operation are contained in part 3-6 of the Income Tax Assessment Act 1997. The proposed amendments will ensure that greater flexibility is provided to private companies to allow them, in certain situations, to pay franked dividends during the income tax year in which they first incur a tax liability without incurring the penalty that reduces their franking deficit tax offset by 30 per cent for that year. The payment of franking deficit tax allows a company to claim an offset equal to the amount of the franking deficit tax paid when calculating its income tax liability for that income year. The franking deficit tax offset can also be carried forward to later income tax years to reduce the company’s future income tax liability.

The current legislation discourages corporate entities from paying franked distributions in excess of the relevant franking credits arising in an income year. Subsection 205-70(2) provides a reduction in the franking deficit tax offset by 30 per cent if it exceeds 10 per cent of the total amount of franking credits that arose in the relevant year. This franking deficit tax penalty has been a disincentive to private companies in declaring dividends in the year in which they first make profits after incurring losses in previous years because it will give rise to a franking deficit and attract a franking deficit tax penalty. There will be no countervailing franking credits if the losses of previous years are fully offset against the profits of the first profitable year.

Schedule 2 to this bill also proposes to amend the Income Tax Assessment Act 1997 to provide an automatic capital gains tax rollover for the transfer of assets of registrable superannuation entities that merge during the transitional period to comply with licensing requirements under the superannuation safety reform. The capital gains tax rollover ensures that the capital gain or capital loss that would otherwise be recognised when the transfer of assets occurs is disregarded and that the recognition of the accrued capital gain or loss is deferred until later disposal of the asset by one or more successor registrable superannuation entity trustees.

The new superannuation safety arrangements, which modernise and strengthen the prudential regulation of superannuation funds, commence on 1 July 2004 and have been two years in the transitional period. The arrangements, amongst other things, require trustees of registrable superannuation entities to meet the new licensing requirements to ensure better management and protection of members’ benefits. If the trustee of a registrable superannuation entity is unable to meet the new licensing requirements, the superannuation safety arrangement will allow that entity to merge with one or more registrable superannuation entities with a licensed trustee.

An automatic capital gains tax rollover applies during the period from 1 July 2004 to 30 June 2006 inclusive, being the transitional period for the transfer of assets by registrable superannuation entities whose trustee is not licensed to one or more registrable superannuation entities whose trustees are licensed. The amendments made by schedule 2 will therefore apply to mergers taking place after 30 June 2004 and before 1 July 2006.

Schedule 3 of this bill will again amend the Income Tax Assessment Act 1997 to provide appropriate taxation treatments of expenditure incurred on acquiring certain telecommunications rights. These amendments will provide capital allowance deductions for expenditure incurred on acquiring indefensible rights to use domestic telecommunications cables. Additionally, the changes will provide capital allowance deductions for expenditure incurred by telecommunications carriers licensed under the Telecommunications Act 1997 on acquiring telecommunication site access rights.

Under the uniform capital allowance regime, depreciation deductions are available for physical assets and a number of defined intangible assets. Indefensible rights to use international telecommunication cables are already defined within the uniform capital allowances as depreciable assets. This measure extends the capital allowance treatment to domestic indefensible rights of use. The proposed amendments are intended to better match the taxation treatment of expenditure incurred on acquiring domestic indefensible rights of use and telecommunications site access rights with the economic characteristics of the underlying asset. They are also intended to better facilitate sharing of telecommunications equipment within the telecommunications industry, thereby decreasing inefficient duplication of the infrastructure.

Schedule 4 of the bill proposes amendments to division 45 of schedule 1 of the Taxation Administration Act 1953 to simplify the movement of taxpayers from paying annual pay-as-you-go instalments to paying quarterly pay-as-you-go instalments where they become ineligible to pay annual instalments in certain cases. These amendments apply in cases where ineligibility is the result of registering or becoming required to register under the goods and services tax law or, in the case of a company, becoming a member of an instalment group. This will be achieved by requiring affected taxpayers to commence paying quarterly instalments from the following year rather than immediately. Currently, when taxpayers become ineligible to pay annually during the instalment quarter, in an income year they must generally commence paying quarterly instalments from the current quarter. Taxpayers who are eligible to pay two quarterly instalments annually commence paying quarterly instalments from the latter of the current or third quarter in an income year. Where taxpayers become ineligible to be an annual PAYG instalment payer after the first quarter in an income year, they must still pay an annual PAYG instalment. The annual instalment is reduced by the total of the quarterly instalments for that income year. The rules changing from paying annual PAYG instalments to paying quarterly PAYG instalments due to GST registration or becoming a member of an instalment group and the requirement to pay both annual and quarterly instalments for the same income year have caused confusion for taxpayers and practical problems for the Australian Taxation Office. The amendments will simplify these rules and reduce compliance costs for taxpayers.

A further amendment to the Income Tax Assessment Act 1997 is proposed by schedule 5 of this bill, which lists several organisations as deductible gift recipients. The income tax law allows taxpayers to claim income tax deductions for gifts of $2 or more to DGRs. To become a DGR, an organisation must fall within a category of organisations set out in division 30 of the Income Tax Assessment Act 1997 or listed under that division. Such deductible gift recipient status will assist the listed funds and organisations to attract public support for their activities. There are five new DGRs on the list.

Schedule 6 amends the GST law under A New Tax System (Goods and Services Tax) Act 1999 to uphold the original policy intent that the GST is payable where the value is added to real property once it enters the GST system. Under the GST act, registrable businesses can calculate GST payable on supplies of new residential or commercial property under the basis of the rules being one-eleventh of the GST inclusive price—or, subject to certain conditions under the margins scheme, GST is one-eleventh of the margin. Use of the margin scheme generally ensures that GST only applies to the value added to real property held by registered owners on or after 1 July 2000.

Purchasers of real property under the margin scheme are not entitled to claim an input tax credit for GST remitted by the supplier. Consistent with this, the margin scheme does not apply where property has been acquired under the basic calculation of tax payable, as an input tax credit would generally have been claimed on the purchase of the property, and GST would effectively not have been collected. The effect for many of the arrangements is that the value added to the real property before the arrangement is imposed is excluded for GST purposes. This is contrary to the policy intent that the GST be collected on the value added of real property held by registered owners on or after 1 July 2000. These amendments prevent property owners from reducing their GST liability on sales of real property by manipulating various special rules in the GST act.

Other amendments provide certainty on the operations of the margin scheme and ensure entities joining the GST group have appropriate adjustments to claim for input tax credits. Most of the amendments will apply from the date this bill was introduced into parliament, as they are an integrity measure addressing the unintended consequences in the GST law. However, amendments requiring written agreement to use the margin scheme will apply from the date of royal assent to this bill.

The amendment that requires the supplier and recipient to agree in writing to apply the margin scheme, that being items 9 and 10, applies from the date this bill receives royal assent. This date has been chosen to allow time for entities purchasing property to ensure they have written agreement where they wish to apply the margin scheme. It also ensures that those entities who settle on the sale of property on the date this bill is introduced into parliament are not unexpectedly denied the use of the margin scheme because they do not have written agreements.

Schedule 7 of this bill amends the Income Tax Assessment Act 1936 to provide appropriate taxation treatment for superannuation annuities that have been split on marriage breakdown. The broad aim of these amendments is to ensure that, where a superannuation annuity is split upon marriage breakdown, the taxation consequences will be the same as those that currently apply where an equivalent benefit in a superannuation fund is split.

Legislation under section VIIIB of the Family Law Act 1975, which allows separating couples to split their superannuation on marriage breakdown, commenced on 28 December 2002. This legislation, and related legislation, provided for the splitting of superannuation on marriage breakdown but it did not apply to superannuation-like annuity products, such as annuities purchased from life offices with rolled-over superannuation money. The government has recently amended the Family Law Act 1975 to allow these superannuation annuities to be split between separating couples on marriage breakdown in the same way as other equivalent superannuation benefits.

As a result of the amendments to the Family Law Act 1975, amendments are required to be made to the income taxation law so that superannuation annuities split on marriage breakdown are taxed in the same way that equivalent superannuation benefits are taxed on marriage breakdown. These amendments clarify the law in several areas and give effect to the original policy intent of the superannuation family law arrangements.

Finally, schedule 8 to this bill amends the Fringe Benefits Tax Assessment Act 1986 to remove the condition that contributions to approved worker entitlement funds must be required under an industrial instrument in order to be eligible for an exemption from fringe benefits tax. Currently, certain contributions to approved worker entitlement funds are exempt from FBT. The exemption was designed to ensure that these contributions are not taxed twice: once as a fringe benefit when paid into the fund and again as income when paid out of the fund. From 1 April 2003, funds have been able to obtain prescription as an approved worker entitlement fund if it meets certain criteria. Long service leave funds established and operated by or under Commonwealth, state or territory legislation are also approved worker entitlement funds.

These amendments will replace the current condition that contributions to approved worker entitlement funds must be required under an industrial instrument in order to be eligible for an exemption from FBT. Following the amendment, contributions to an approved worker entitlement fund must be made under an industrial instrument. These amendments will apply in respect of the FBT year beginning on 1 April 2005 and all later FBT years.

I am happy to support the proposed measures outlined as they will allow for improvements to be implemented for the smooth operation of our taxation laws. I commend the bill to the House.