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Wednesday, 11 February 2009
Page: 969

Mr NEUMANN (5:05 PM) —I speak in support of the Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008. This piece of legislation has been a long time coming, like so many other pieces of legislation that the Rudd Labor government has brought to this chamber. This came back to this chamber after a lot of procrastination. I mean, we talked about the review of business taxation commonly known as the Ralph review; that urged change in 1999. The Howard government’s bill lapsed when parliament was prorogued back before the 2007 election.

This is a bill which on the surface of it does not look particularly exciting or interesting, but there will be accountants and businesses all over the country that will be very happy with what is a very business-friendly and economically savvy piece of legislation which will allow proper accounting methods to be used in the taxation of the vast array of financial arrangements which the Australian public now engages in. It is true to say that words like ‘options’ and ‘futures’ are ones that our parents and grandparents and their parents before them would never have imagined; they are like something out of science fiction. But for businesses today those types of terms are things they know about and deal with every day.

Our response as a parliament to tax reform has been erratic. There seems to be little consistency in our treatment of the types of products that I referred to. The way we deal with the taxation of financial arrangements really does not reflect business reality. There is a great deal of inconsistency in how we treat these financial arrangements from a taxation point of view. So we need effectively a new code—we have called it a new division here—an all-encompassing definition of a financial arrangement, and some consistency. So we have the new proposed division 230. This is really the third and fourth stages of the reforms. The earlier amendments were done in 2001, when the debt equity rules, division 974, were introduced—that is known as stage 1—and in 2003, when the foreign currency gains and loss provisions, division 775, were introduced; that is known as stage 2. Stage 3 governs the treatment of hedges for taxation purposes, and stage 4 deals with the tax timing in relation to financial arrangements other than hedges.

This amendment will go a long way to ensure we have certainty, specificity and coherence in the way we treat our financial arrangements. It is a very good reform. Accruals calculations can be very difficult for business and accounting purposes. They are complex and there are significant compliance costs for businesses every single day of their operation. For more than 20 years, before I got elected to parliament in 2007, I ran a business. It frustrates people in business enormously to have to deal with the Taxation Office. We all know we have to pay our fair share of tax, because that is how we get hospitals, roads and schools, but making sure people are taxed fairly and justly and making sure there is efficiency in the system is extremely important. Aligning the character and timing of eligible hedging arrangements is important. Having a definition of a financial arrangement is extremely important for accountancy purposes.

We have got broad support. The Institute of Chartered Accountants in Australia on 20 January this year came out in support of this piece of legislation. The institute commended the government for introducing the bill. The institute expressed strongly its pleasure that the government had adopted a number of recommendations raised by the institute and other professional and industry bodies during the extensive consultation process following the exposure draft released by the Assistant Treasurer—who is in the House at the moment—on 1 October 2008. The institute foreshadowed there would be a number of other reforms as the legislation worked in reality for businesses in this country, and it said there would be a need to examine how the complex financial arrangements would interact with other provisions of the income tax law.

We need to be a financial hub in South-East Asia. Our competitors—places like Hong Kong and Singapore—have really stolen the march on us in so many respects. We need our businesses, in a time of global financial crisis, to be as efficient and effective as possible and to ensure that, when they engage in financial arrangements, they know with certainty how tax will be treated, how capital and income will be treated for taxation purposes.

It is extremely important that we also ensure that accountancy standards are used when we line up our tax laws. I commend the minister for ensuring that the Australian accounting standards—with respect to financial instruments and their recognition and measurement; with respect to the effects of changes in foreign exchange rates; and with respect to consolidated and separate financial statements—have been taken into consideration and aligned for the purposes of taxation and accountancy law.

It is extremely important that we pass this amendment. It is extremely important for businesses such as the business that I ran and others to ensure that we have the proper arrangements in place so that we have alternative methods for bringing gains and losses arising from financial arrangements to account for taxation purposes. This is not, as I say, the kind of bill that most people would like to speak on in this House, but I think, as someone who was in business for a long time, it is important that we get our tax laws and our business laws aligned. Anything we can do to streamline the efficient and effective payment of tax in this country is good for business, good for the people of Australia and particularly good for the people of my electorate, who speak to me all the time about these types of issues. I commend the minister for bringing this bill to the House, I commend the government for what they have done in relation to reform in the area of taxation law and I warmly welcome the legislation that is before the House.