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Tuesday, 3 May 1994
Page: 102

(Question No. 1050)

Senator Watson asked the Minister representing the Treasurer, upon notice, on 14 February 1994:

  With reference to the new accrual arrangements announced by the Australian Taxation Office, will the new accrual regime, particularly as it affects interest income, extend to individuals including self-funded retirees; if so will this impose additional complexities and costs on that section of the community least able to cope with such complexities.

Senator Cook —The Assistant Treasurer has provided the following answer to the honourable senator's question:

  The Government's Consultative Document "Taxation of Financial Arrangements" released by the previous Treasurer in December 1993 makes it clear that the financial transactions of individuals would not be affected by proposals to tax gains and losses from financial transactions on an accruals basis.

  The suggested exclusion of natural persons is to minimise the compliance difficulty of accruals calculations for taxpayers whose financial dealings are on a modest scale and relatively unsophisticated.

  If the accruals tax proposals were carried into law, however, an exception to the natural persons exclusion would apply to a financial transaction which incorporates significant tax deferral benefits e.g., where accumulated returns are paid only infrequently or at maturity, such as occurs under deep discount security investments. That exception largely would reflect the accruals tax rules that apply under the present law in relation to discounted and other deferred interest securities.

  Another suggested exception is where a natural person's holdings of financial arrangements exceed a specified minimum value threshold. The Government's Consultative Document suggests that a quite high threshold of around $500,000 would be appropriate. Without such an exception, there would be avenues for wealthy individuals to minimise tax by manipulating income flows from substantial holdings of financial instruments.

  Ordinary retirees who rely on investments which pay interest on a regular basis, either as a major source of income or to supplement their pensions, therefore need have little concern about the accruals tax proposals.