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Monday, 20 June 2011
Page: 6482


Mr TONY SMITH (Casey) (18:47): I rise on behalf of the opposition to address the Tax Laws Amendment (2011 Measures No. 5) Bill. I want to briefly do two things—to run through some of the detail of the five schedules in the bill, and to address a related issue on one aspect of one of those schedules. The opposition will not be opposing this tax law amendment bill. The five schedules deal with, as you would expect, a range of aspects—some of them are rectifications to the tax law; others are to implement budget decisions. While the coalition obviously have varying views on each of the schedules, ultimately we will not be opposing the bill.

As was outlined by the Assistant Treasurer in the second reading speech some days ago, and as is detailed in the explanatory memorandum, this tax law amendment bill has five schedules. Two of them deal with trust law, and I will deal with both of them together. The first schedule deals with changes to trust law regarding income averaging and farm management deposits. As we know, income averaging is used to smooth primary production income over time. Under tax ruling 95/29, a beneficiary of a rural trust was considered to be carrying on a rural enterprise in a year when the trust suffered a loss and could thereby continue to average their income and maintain their farm management deposits.

In a 2010 High Court case, Commissioner of Taxation v Bamford, it was decided that a beneficiary to a rural trust could not be presently entitled to a share of trust income if there was no income to be distributed. This had the flow-on effect of the beneficiary losing status as a primary producer and therefore, naturally, the ability to retain farm management deposits. In essence, as outlined in the government's second reading speech and in the explanatory memorandum to the bill, the effect was to overturn the substance of that tax ruling. As sometimes occurs, this schedule reinstates the law to the place where it was before the Bamford case, and we on this side of the House acknowledge that that will be welcomed by rural businesses that use trust structures.

Schedule 2 deals with trust income streaming and affects trusts in receipt of capital gains or franked distributions. The changes within the schedule are also a result of that same decision which altered some of the legal definitions of trust beneficiaries. In particular, it raised fundamental issues regarding the mismatch between the amount beneficiaries can be assessed for tax purposes with the amount they are entitled to under the tax law. This mismatch, according to the explanatory memorandum, could result in the potential for tax manipulation and avoidance. The government asked the Board of Taxation for advice on what changes were required immediately, pending a broader review of trust taxation. The measures in the bill flow from that advice. The government released a discussion paper back in March. The consultation resulted in the inclusion of specific anti-avoidance rules and a carve-out for managed investment trusts. The new law allows trustees to stream capital gains and franked distributions to specific beneficiaries. It also introduces the concept of a specific entitlement to ensure a beneficiary's share of this stream reflects their entitlement under the trust deed and it introduces specific anti-avoidance rules so that income cannot be sheltered in exempt beneficiaries. We are told through the explanatory memorandum that the financial impact of both of these first two schedules is nil.

Schedule 3 makes some technical amendments to the National Rental Affordability Scheme. I will not elaborate on that beyond what has already been pointed out. Schedule 4 and schedule 5 deal with two budget announcements. The first is the phasing out of the dependent spouse tax offset, which was announced just a few weeks ago. The dependent spouse tax offset will not be available for spouses 40 years old or younger, meaning that it will be phased out over time as fewer and fewer people are eligible to claim it. The budget announcement dressed this up as a measure to remove the disincentive for younger dependent spouses without children to remain out of the workforce, but given the financial impact it is obvious for all to see that this is a savings measure that the government has jumped on at the first opportunity. Whilst it was in the budget, it was not identified by the government itself at any prior point in time.

The final schedule deals with fringe benefits tax rules for motor vehicles. This has received a significant airing. All of the legislative changes for this measure will have an ongoing gain of nearly $1 billion in revenue over the forward estimates. We are told that it will be $961.9 million precisely over the next four years. The member for Fremantle and I will check in four years time to see whether it is $961.9 million precisely, but that is what we are told in the explanatory memorandum. It obviously occurs from significant changes to the way that FBT works for motor vehicles. It was well aired in the days after the budget. It will mean those who drive fewer than 15,000 kilometres a year will pay less FBT. We are told that those who drive 15,000 to 25,000 kilometres a year will pay about the same, and those who drive more than 25,000 kilometres will, in all likelihood, pay more fringe benefits tax. I will not go through all of the details other than to say that it is obvious that the government has also grabbed this measure to raise as much revenue as it can. The increase in revenue is actually over five years, so the member for Fremantle and I will have to wait a little bit longer. Most of the gain is in 2014-15, so it is mostly over the forward estimates. We are told in the table of revenue gains that there will be a small gain in 2010-11.

I did say at the outset that there was another issue I want to address and that relates to trusts. As I said in relation to the first measure, the coalition welcomes the changes in the bill which make improvements in laws relating to primary production trusts. However, coalition senators in particular have identified other taxation laws relating to primary production trusts which should be improved. Under the Income Tax Assessment Act 1997 primary production trusts can defer taxation liabilities on profits from the sale of livestock in years where they have been affected by drought, flood, fire or disease, but if the beneficiary of a trust dies this is considered a disentitling event. Tax liabilities cannot continue to be deferred after a disentitling event. As a result, tax deferrals cease and the trust is liable for tax on profits deferred in the year that the death occurs. That is all outlined in section 385/163(3) of the 1997 act.

I am told that under the previous tax law the Commissioner of Taxation had discretion and under the current act that discretion does not exist. The coalition was prepared to move a second reading amendment to this bill to give it an airing and to try to have that matter rectified. There were discussions with the Independents and with the government. The coalition recognises and appreciates those discussions which were led by my colleague Senator Cormann. As I said, those discussions were not only with the crossbenchers but also with the government. Following those discussions, the coalition has decided not to move an amendment to this bill on this issue as a result of the fact that the government have agreed to make the necessary legislative changes to rectify this issue in the near future. On behalf the coalition, I say that we take the government and the Assistant Treasurer at their word.

We welcome the government's comm­itment on this important issue which was identified in the recent Senate estimates hearings, I am told. We look forward to the government and the tax office bringing forward the relevant amendment—no doubt in a future tax law amendment bill that will come before this House in the not-too-distant future.