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Tuesday, 25 March 1997
Page: 2407

Senator KEMP (Assistant Treasurer)(6.04 p.m.) —These arguments in relation to this clause have got tied up with the debate on a later clause—the so-called third line forcing issue. I think we will be dealing with the third line forcing issue under clause 68 of the bill. A lot of the arguments that Senator Sherry ran related, I think, to the third line forcing issue, which we will deal with later. If you are concerned about third line forcing, I think that is the place to deal with that particular issue.

These amendments are to clause 40, which relates to interest offsetting; in other words, paying the interest from an ordinary account into an RSA. This can lead to tax avoidance because an RSA is concessionally taxed. Our clause is a tax avoidance clause. That was the reason we put it in: to avoid tax avoidance, because an opportunity may have been opened up for people to pay the interest on an ordinary account into an RSA. That was the purpose of the clause.

We oppose these amendments. There are a number of technical problems with what has been proposed. The existing clause prohibits interest offsetting arrangements where one of the accounts involved is an RSA. The policy rationale for that is to prevent interest from an ordinary deposit account, as I said, to be paid into a concessionally taxed RSA, therefore resulting in tax minimisation. This is a tax avoidance clause. It is not the third line forcing issue, which I think is what some were debating.

The proposed amendments, we believe, are too broad and unnecessary because they prohibit offsetting arrangements where no concessionally taxed vehicles are involved. In other words, we are conscious of tax avoidance and we have drafted this clause to prevent what we saw as a potential for tax avoidance. My view would be that we will deal with the third line forcing issue when we deal with clause 68, so this issue will remain unresolved until then.

As I said, we think the proposed amendments are too broad. This is because the trigger for the prohibition in the amendments is simply that the employer has established an RSA and not that an RSA is involved. There is a distinction there. This would prohibit legitimate interest offsetting arrangements currently permitted under the tax act.

I am also advised that the term `established' has no meaning in the bill. Under the RSA Bill, the employer opens in the name of the employee. Thereafter, the account is controlled by the employee. The notion of an employer establishing an RSA does not fit into this framework because there will be no reference to the employer in the holder of the RSA. This is a tax avoidance measure.

Senator Sherry —Your clause.

Senator KEMP —Our clause. We believe it tackles the issue of tax avoidance. We believe there are some technical problems. I think the underlying principle is consistent in the debate. This clause does what we think is the required job. We see that the amendment is too broad. We see that the third line forcing issue is one that we can undoubtedly join later in the evening under clause 68.

We all agree that we have to stop tax avoidance in relation to this issue. I think there would be blazing agreement right around the chamber on that. To summarise, we believe there are some technical problems in the proposal put forward in the amendment. Therefore, I urge the Senate to defeat this amendment. I think our clause achieves the result that you are seeking. As the debate continues, we can get on to third line forcing.