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TAXATION (UNPAID COMPANY TAX) ASSESSMENT BILL 1982
- Parl No.
The ACTING DEPUTY PRESIDENT
- Question No.
- System Id
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Table Of Contents
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- Start of Business
- DAY AND HOUR OF MEETING
- BUILDING (AMENDMENT) ORDINANCE (No. 2) 1982
QUESTIONS WITHOUT NOTICE
(Senator ROBERT RAY, Senator Sir JOHN CARRICK)
(Senator WATSON, Senator Sir JOHN CARRICK)
PROPOSED WAGES FREEZE
(Senator BOLKUS, Senator Sir JOHN CARRICK)
BLUETONGUE DISEASE: BOVINE SEMEN
(Senator ARCHER, Senator PETER BAUME)
PROPOSED WAGES FREEZE
(Senator COLSTON, Senator CHANEY)
(Senator MARTYR, Senator Sir JOHN CARRICK)
ORANGE JUICE INDUSTRY
(Senator ROBERTSON, Senator CHANEY)
COST OF LABOUR: EFFECT ON EMPLOYMENT
(Senator SCOTT, Senator CHANEY)
BANK CHEQUE ACCOUNTS
(Senator HAINES, Senator Dame MARGARET GUILFOYLE)
(Senator WALTERS, Senator CHANEY)
CANADIAN SEAL HUNT
(Senator CHILDS, Senator Dame MARGARET GUILFOYLE)
(Senator TOWNLEY, Senator PETER BAUME)
HEIDELBERG REPATRIATION GENERAL HOSIPTAL
(Senator PRIMMER, Senator MESSNER)
BUILDERS LABOURERS FEDERATION
(Senator HILL, Senator CHANEY)
SOUTH WEST TASMANIA
(Senator COATES, Senator PETER BAUME)
SENATE STANDING COMMITTEE FOR THE SCRUTINY OF BILLS
LAND RIGHTS LEGISLATION
(Senator KEEFFE, Senator PETER BAUME)
DELAWARE RIVER BASIN COMMISSION
(Senator JESSOP, Senator Sir JOHN CARRICK)
PROPOSED WAGES FREEZE
(Senator FOREMAN, Senator Dame MARGARET GUILFOYLE)
PROPOSED CANBERRA-COAST TOLL ROAD
(Senator REID, Senator MESSNER)
SECONDARY SCHOOL STUDENTS: PART TIME JOBS
(Senator HARRADINE, Senator PETER BAUME)
(Senator GEORGES, Senator Sir JOHN CARRICK)
(Senator Sir JOHN CARRICK)
POLAND: FREEDOM OF ASSOCIATION
(Senator Dame MARGARET GUILFOYLE)
- PRICES CONTROL
- PERSONAL EXPLANATION
- TAXATION (UNPAID COMPANY TAX) ASSESSMENT BILL 1982
- APPROPRIATION (PARLIAMENTARY DEPARTMENTS) BILL 1982-83
- SELECT COMMITTEE ON SOUTH WEST TASMANIA
- ADVANCE TO THE MINISTER FOR FINANCE 1981-82
ANSWERS TO QUESTIONS
(Senator Bolkus, Senator Messner)
(Senator Jones, Senator Messner)
(Senator Tate, Senator Messner)
Uranium Enrichment Plants
(Senator Jones, Senator Messner)
(Senator Douglas McClelland, Senator Dame Margaret Guilfoyle)
(Senator Bolkus, Senator Dame Margaret Guilfoyle)
Split Rock Dam
(Senator Walsh, Senator Sir John Carrick)
- Procedural Text
- C-3 Stations
Friday, 19 November 1982
Senator CHIPP (Leader of the Australian Democrats)(11.28) —I admire the speech delivered by Senator Hill and agree with everything he said. I am resolutely opposed to this legislation for the reason that it is retrospective legislation.
Senator Missen —What does that matter?
Senator CHIPP —Senator Missen, with whom I rarely disagree, wishes to challenge the statement that this is retrospective legislation. The second reading speech of the Treasurer (Mr Howard) stated:
Our normal and general reluctance to introduce taxation legislation having any retrospective element has, on this occasion, been tempered by the competing consideration of overall perceptions as to the equity and fairness of our taxation system and the distribution of the tax burden.
Let us pad away to the slips, if I can use that cricketing term, any humbug that this is not retrospective legislation. It is retrospective legislation and it is on that basis that I oppose it.
Senator Missen —You are talking nonsense, as usual; nobody has said it is not retrospective.
Senator CHIPP —I do not know why Senator Missen has to be so offensive. I thought I was being extraordinarily courteous.
Senator Missen —I didn't make the point you are trying to put in my mouth.
Senator CHIPP —If the honourable senator wants to be offensive that is his prerogative. I will not go with him down that track. He can go down that pathetic little track that he has made if he wants to. I will come back to the issue of fairness versus retrospectivity in a moment. Having stated that I am opposed to the legislation, I now state for the record, as one of the facts of life in this place: 'Be thou as pure as ice, be thou as chaste as snow, thou shalt not escape calumny'. Senator Martyr will realise in a flash that that quotation comes from Shakespeare. I am totally opposed to tax cheats and to those people who, because of their privileged position can avoid tax, whereas pay-as-you-earn wage and salary earners cannot.
I regard tax evasion as, among other things, not stating income earned, understating income or overstating expenses. These are clear-cut cases of evading tax properly due. Then there is the second category of tax avoidance. I am not quite sure what 'tax avoidance' means. One can get clear examples that are quite legal and quite proper. It is not improper to avoid paying a certain amount of tax by inviting one's wife or one's brother to join in a partnership which is earning income. That is an honourable institution that goes back almost to the beginning of English law. That is a tax avoidance mechanism used in many cases. It is perfectly proper and perfectly legal. Every person who has been in business has been advised by an efficient accountant at one stage or another that when his level of income reaches a certain point it is better, for tax- purposes to form a private company than to continue paying tax as a private person or as a partnership. Quite apart from the protection that a company gives a person operating a business, that advice is normally given essentially for the purpose of minimising tax. The minimising tax and avoiding tax mean the same thing but certainly they are not illegal.
I can remember some very smart life assurance salesmen conning me 25 years ago into paying a hefty insurance premium which I certainly could not afford. But I signed on the dotted line. The thing that finally swung me was the fact that by signing a policy to mature at the age of 60 or 65, I would be receiving a handsome benefit and at the same time I would be avoiding tax. I remember the salesman's words. He said: 'If you sign this the tax man will pay half your premiums'. Are we getting to the stage where we say that that is improper? It is certainly tax avoidance. I have a great deal of confusion in my mind as to when an arrangement made by a taxpayer is proper or improper. This is where the subjectivity referred to by Senator Hill in his excellent speech becomes a problem. If we take fairness as the criterion of whether retrospective legislation should be applied, the fairness will depend on the judgment of the government, the Treasurer or the Prime Minister of the day. What might be fair to one person might not be fair to another.
Senator Hamer —Surely the distinction is whether there is fraud?
Senator CHIPP —I thank Senator Hamer for his interjection; it is a valuable contribution. There is no question of fraud in this legislation, as I understand it.
Senator Hamer —Bottom-of-the-harbour schemes are fraudulent.
Senator CHIPP —I acknowledge Senator Hamer's second interjection. If they were fraudulent or are fraudulent, surely there is existing law to cope with them. Fraud is an offence against existing statutes. One would not need a sledge hammer to hit the tack, namely, the retrospective legislation. I know that any true liberal-that does not only include members of the Liberal Party-is opposed to retrospective tax legislation. I know even the Prime Minister (Mr Malcolm Fraser) is opposed to retrospectivity as a principle.
The third type of scheme is between evasion and avoidance. I refer to the artificial scheme. Clearly, one could say that dreadful scheme and I hope I have it right-Senator Hamer, I think, exposed this one--
Senator Hamer —I am not involved.
Senator CHIPP —I know that the honourable senator is not involved. I think he exposed that scheme. It had to do with works of art where a person bought a work of art overseas for, say, $10,000 and donated it to a museum. It was valued at $ 100,000 and the donor was able to claim $100,000 as a deduction off his income. That is, clearly, an artificial scheme; it is clearly a fraudulent scheme. I have no problem identifying that and saying that it should not be allowed to go on.
A great number of schemes are entered into which one could well argue are proper. Senator Walsh referred to the Prime Minister's family trust schemes. I have not one, but I cannot see anything terribly improper in a situation where a person is able to minimise his or her income tax. One of the great problems in this area, in my view, was caused by Sir Garfield Barwick and his then colleagues on the High Court of Australia when they virtually torpedoed the powers of the Commissioner of Taxation under section 260 of the Income Tax Assessment Act which in effect said that if, in the opinion of the Commissioner, a contract was entered into essentially or primarily for the purpose of escaping tax, the Commissioner had the power to declare it void. It was unfortunate that the Barwick decision torpedoed that sort of legislation.
One could argue also that the bottom-of-the-harbour schemes, as we know them, no doubt were artificial and should not have been permitted. They should have been stopped as soon as they were discovered. When that was we do not know because the Government will not produce the documents to the Senate that have been asked for by Senator Evans and the Australian Democrats. We still have not given up hope of obtaining those documents, but it would seem fairly clear that as early as 1978 the present Government did know about bottom-of-the-harbour schemes and no action was taken. I suggest that this would have made it unnecessary for these particular Bills to be brought before the House.
What is a bottom-of-the-harbour scheme? I place on the record my oversimplistic concept of such a scheme. Subsequent speakers may for the record and for people who will, no doubt, devour as a study of what is right and what is wrong every word that is spoken in this debate by honourable senators correct me if I am wrong in my judgment of it. Let us assume that a man and his wife are in business and call themselves Melbourne Bakeries Pty Ltd. Let us assume that last year they made a profit of $100,000 and that a Mr Maher, or some other unscrupulous crook like him, approaches the couple who have no knowledge of law, no knowledge of tax and are barely literate; but they have run a business, the Melbourne Bakeries, for many years. The promoter gets them to sign a few documents, forms another company called Melbourne Bakehouse Pty Ltd-a company very similar in name, with the same address-and transfers all the assets, including machinery, ovens, goodwill and furniture, from Melbourne Bakeries Pty Ltd to Melbourne Bakehouse Pty Ltd. But he leaves $100,000 in the bank account of the original company, Melbourne Bakeries Pty Ltd, which fortuitously, to make the example easy, represents the profit that the couple made last year. On that $100,000, the company owes $46,000 in tax which it has not paid. Before the assessment comes in Mr Maher offers the couple $80,000 for the company. They grab the offer with alacrity because they are elderly and they see an opportunity to take $80,000 and buy a little shack at Gosford, on the Gold Coast , or in some other pleasant place, in which to live out their days.
This legislation, as I understand it, will reclaim $46,000 from that couple who did not mean to do anything crooked and who were advised correctly by their lawyer or accountant that in 1972 what they were doing was legal. Now, 10 years later, when they are 67 years of age, they suddenly receive a demand from the Australian Taxation Office to pay $46,000. The Prime Minister talks about fairness and the Treasurer talks about equity. That does not seem terribly fair to me. That is why in the Committee stage I will move an amendment-the celebrated so-called innocence clause. This clause has two components; namely, the onus will be on the taxpayers to prove, firstly, innocence and, secondly, hardship. If they can prove those two things, I believe that they ought to escape the provisions of this legislation. The bottom-of-the-harbour scheme that I have just mentioned was good for that couple because they received $80,000 for something which virtually was worth $54,000. The very good point might well be made that surely, if someone offered them an amount which was so far in excess of what the company was worth they should have smelled a rat. They should have said: 'What are you after?'. That is a fair point. But had they done so, they would have then said to their lawyer or accountant: 'Look, I don't want to do anything shady. Is this legal?' In many cases this kind of scheme was legal. There is no question at all about that.
Senator Walters —Was it moral?
Senator CHIPP —That was a very good interjection by Senator Walters. If they did not know about the transaction what they did was not immoral; if they knew, it was immoral. I am saying that provision ought to be made for those people who did not do something which they knew to be immoral or improper but something which was legal. I do not think that the purpose of this Parliament is to legislate for morality. I do not want to score a point off Senator Walters because she and I have many tussles on the question of morality and the capacity or place of parliaments in legislating for morality. I have said for many years, since I was Minister for Customs and Excise, that parliaments cannot and should not try to legislate for morality. They should make the law and people who abide by the rule of law should be able to live unencumbered by governments or their instrumentalities. Under this arrangement the promoter does very well, too, because he obtains $100,000 cash to put in his bank account. He has paid only $ 80,000 for the company, so he is $20,000 in front. The old couple who own the bakery also do very well out of it. I have no sympathy whatsoever with the promoter in regard to what is done to him. That would be all right with me. I am worried about the innocent and the principle involved. In answer to the interjection by Senator Walters, I say that the actions of the promoters and of those who knowingly went into bottom-of-the-harbour schemes was contemptible but nevertheless legal. One asks: Why has the Fraser Government changed its attitude ? I quote the Prime Minister, who said:
We must place the principle of fairness above the principle of retrospectivity.
I think this is the crux of the debate. That is why I am indebted to Senator Hill for highlighting the fact that what constitutes fairness is a subjective judgment. I would say that in the Senate at the moment there are 10 senators. If we took a range of issues we would get 10 different opinions on what was fair and what was unfair.
Senator Gietzelt —Who is going to determine it?
Senator CHIPP —I ask the honourable senator through you, Madam Acting Deputy President, who indeed is to determine it. We have changing governments and changing Prime Ministers. If we are to have changing standards of fairness, morality or whatever and legislate retrospectively to accommodate those differing definitions it will be a nightmare for anybody who lives in this country. We will not know what to do because if we do something today a future Prime Minister might say, 'That is unfair. Therefore what you did last year was unfair. We will make what you did last year punishable notwithstanding that it is legal this year.'
Senator Hill —Like your partnership example.
Senator CHIPP —Yes. When Senator Gietzelt's party takes office, if a local store -keeper takes his wife into partnership this year and in so doing escapes tax, will that government or some member of it say, 'That was unfair, therefore we will legislate back to the time that act was committed and make it illegal'?
Senator Gietzelt —That judgment is exercised by the Taxation Office now.
Senator CHIPP —With great respect, if it is, why do we need this legislation?
Senator Gietzelt —Because there are people who have contrived to bring about this situation.
Senator CHIPP —During the last elections the Australian Labor Party stated quite honestly, out in the open, that it favoured retrospectivity in regard to tax avoidance. I was forced, by a blunt question from the editor of the Australian as to whether I agreed with retrospectivity, to come out on the issue. I said no . The Labor Party was honest and, with great humility, let me say that I also gave an honest reply. I hope that Mr Fraser and the Liberals can live with their consciences because during that campaign they won hundreds of thousands of votes by saying that under no circumstances would they have a bar of the Labor Party's proposal to introduce retrospective legislation to catch tax avoiders.
Senator Teague —I didn't say that.
Senator CHIPP —Senator Teague allowed his leader to say it. He should not hide behind the thunderous cloak of silence that he puts around himself to evade responsibility. When his leader said that the Liberals would not have a bar of retrospectivity, as a candidate for office the honourable senator should have risen and said, 'I don't agree with Mr Fraser'.
Senator Missen —When did he say that?
Senator CHIPP —I will give chapter and verse at the conclusion of my speech, also the relevant news cuttings. It occupied page 1 of the Australian for many days. I wonder where these people were at that stage. Why is it wrong? I do not trust politicians; that is why it is wrong. I do not trust politicians to legislate retrospectively. One of the few protections that the ordinary citizen has is that he knows the law. If he abides by that law he knows he is safe from prosecution and safe from the instruments of politicians, namely, the police. He knows exactly where he is.
Good heavens; give politicians the chance to legislate retrospectively and we will open a Pandora's box. I find that quite frightening. On this occasion a Pandora's box is opened in the excuse of catching the filthy people who cheat on tax. It is done for a noble purpose, one might say, and I agree. But I have never been one to subscribe to the view that the end justifies the means. That sort of proposition leads one down a track which is fraught with disaster. That is the track that Adolf Hitler went down. It is the track that every tyrant in history has gone down; that is, to make illegal today something which was legal last year.
Senator Missen —Like slavery.
Senator CHIPP —If Senator Missen wants to continue to amuse himself by making ridiculous statements, he may do so.
Senator Gietzelt —Morally, tax evasion has never been legal.
Senator CHIPP —Tax evasion is not and never will be legal, and the present law will catch offenders. I agree with the honourable senator. But why have prosecutions not been launched under existing legislation? Why has the Senate not been given the documents that Senator Evans, the Labor Party and the Democrats want to see if prosecutions were possible? I am told that there are at least three legal opinions in those documents which the Senate has been denied which state that prosecutions were possible and should have been proceeded with. Why can we not see those opinions?
Senator Georges —Having failed in that direction--
Senator CHIPP —We have not failed yet. I am prepared to go to the barricades in respect of this matter and have public servants appear at the Bar of this chamber. If the Senate is to be denied that kind of information upon which it must base its judgment it is almost a waste of time for the Senate to be sitting . If this lofty Parliament in the national Capital introduces retrospective legislation we will be amazed-heed this warning-at how quickly the retrospective concept will be copied around the nation. It did not take Mr Wran long to copy the concept in respect of stamp duty. He was not going back 10 years. He introduced legislation requiring stamp duty on documents that were signed 62 years ago. This was not just 10 years ago; it was 62 years back. That legislation met with so much opposition, thankfully, that I believe he has dropped it. But I am not singling out Mr Wran. This legislation is as regressive and dangerous as that proposal.
I believe the strengthening of section 260 and a responsible attitude by the High Court of Australia, which in the past has been totally irresponsible-Madam Acting Deputy President, if you rule that statement to be unparliamentary, I regret it is one statement I will not withdraw, even to the extent of being thrown out of this chamber--
The ACTING DEPUTY PRESIDENT (Senator Coleman) —Senator Chipp, I remind you that you must not make reflections on the judiciary while you are debating in this chamber.
Senator CHIPP —I thank you for your reminder, Madam Acting Deputy President. I hope that in future the High Court will be responsible in following the wishes of the national parliament and the democratically elected legislators with regard to tax evasion and other matters. I hope that the Government will be more diligent in prosecuting when it sees a need and an opportunity to prosecute.
How can we cope with artificial schemes? I do not know whether there is merit in the suggestion put forward in respect of these schemes because one has to be fair to Consolidated Revenue and taxpayers generally and to individuals who have been advised by their accountants or lawyers that a tax avoidance scheme or a tax minimisation scheme is proper. If somebody's lawyer or accountant says to him: 'If you do this you will minimise tax', how is he to know whether a future government, be it Labor or Liberal, will not go back five years and say: 'We are going to undo what you did in 1982; we are going to legislate retrospectively'? That sort of thing is not satisfactory for governments; it is not satisfactory for individuals. Is it not possible to have an arrangement under which a taxpayer who is advised by his accountant or lawyer that a scheme is legal is able to notify the Taxation Commissioner of that scheme and the Taxation Commissioner has to refer the matter to the government of the day and within three months and the government has to come back and say that the scheme is all right or that if that person goes ahead with that scheme, which the government regards as an aritifical scheme, the government will legislate to make it void.
Senator Georges —If they are doing that 12 months later it will apply retrospectively?
Senator CHIPP —Yes, exactly.
Senator Georges —That is almost what has happened in this case, is it not?
Senator CHIPP —That, to me, is not retrospective legislation. I do not know whether that sort of scheme would work. However, I believe it would be preferable to the one before the Senate at the moment.