Senator COOK(6.02 p.m.) —I move:

(2)   Schedule 2, page 29 (lines 4 to 32), omit item 1, substitute:

1 Paragraph 23(pa)

   Omit subparagraphs (ia), (ib) and (ic), substitute:

      (ia)   those rights to mine were acquired by the person before 7.30 pm, by legal time in the Australian Capital Territory on 20 August 1996; and

      (ib)   the income was derived prior to 20 August 2001; and

      (ic)   the person on or before 20 August 1996 was a bona fide prospector, that is to say—

I have moved this amendment because I believe this is a more literal translation of what was intended by the Senate when it last deliberated on this provision at the end of last year.

I am mindful that my Senate colleagues representing the Australian Democrats, the Greens and now Senator Harradine have all indicated that they will not support this amendment on the argument thus far produced. Obviously, the government will not either—it has called for all of my amendments to be defeated. You do not have to be Einstein to know that, therefore, I am without a majority in this chamber at the present time.

I do, though, out of respect to the chamber, want to take some moments to present some arguments which ought to be considered before this amendment is put aside. I think this amendment, given the failure of the first amendment, should be carried.

The two issues here are issues that have been set out in correspondence to me by the Australian Minerals Council and by various prospectors. Those issues relate to the question of a prospector not being entitled to an exemption unless he satisfies the test of being a bona fide prospector—which we do not object is an appropriate test—when he sells the lease, transfers it or assigns his right to mine and at the time in which the income is derived from the sale of the lease transfer or the assignment of his rights. Both those tests have to be satisfied: he or she has to be a prospector when he or she sells it and he or she has to be a prospector when income is derived from that.

One of the provisions of this amendment would mean that they only have to be prospector at the time in which the lease is sold. I think there is a fair bit of argument here to justify that as a reasonable proposition. One has to understand the goldmining industry or the mining industry to understand the proposition. It is clear the government does not. It is surprising to me that Senator Campbell from Western Australia does not.

For income to be derived may mean that, after the sale of the lease, a payment is made directly and the income is derived, and there is no substantial difference in time between the agreement to sell and the deriving of the income. It is frequently the case that there is a considerable delay in which the income is properly derived. No-one is foxing here. It is the nature of the industry that sometimes the income is derived by means of shareholding equity, a return on the mining venture or matters of that nature. The delay can be up to years. Certainly, it is not unsurprising if it is for several months.

What this provision is asking for is that a person remain a prospector until such time as they have received payment upon the agreement to sell, whether or not they choose to remain part of the industry. Given the price of gold, which this government has helped to depress, and given the more onerous natures of these taxing provisions, there are a number of prospectors who will not choose to remain part of the industry. Why should they be kept artificially prospecting or actually prospecting until such time as payment is made?

This point is strenuously made to me by the AMEC in notes that it has provided to me about its concerns about this provision. I have referred to that extensively in my speech during the second reading debate. Let me go to a couple of other points that I made during the second reading debate.

The loss of exempt status could arise where the purchaser moves onto the area and carries out extensive work such that the field work of the prospector is subsequently swamped by the purchaser's field work. So when you are talking about what the value of the field work done by the prospector is in order to make a valuation, as you are required to in the provision as the government now proposes it, how do you make that valuation when, immediately upon a sale, the purchaser can go along and conduct further and different work? You have got to have someone there at the site all the time. It just makes a ridiculous proposition. I put that to the government as well and ask the minister whether he can answer that question. What happens in the situation where a purchaser has done subsequent work which blanks out or swamps the field work done by the prospector?

The other point I make is that there is no evidence that the exemption was previously allowed only when the taxpayer could prove that they were a bona fide prospector at the time the income was derived. So given that there was no evidence that that was the past practice, perhaps the minister would like to enlighten the chamber as to why it is now proposed to introduce it as a new practice. I do not think there is any evidence to show that it was the case previously.

Even if one wants to say that this practice now ought to be introduced, while we are going through the transitional phase of introducing a new tax—a tax that did not exist before—I would suggest that it is advisable to tread easily and carefully and not to put up onerous provisions during the transitional stage. Allow the provision that I have moved to reflect the entitlement for exemption at the point of sale and not when the income from that sale has been derived.

I might also further say that a case decided at tax law, admittedly under old section 23(p), which the minister should be aware of, is the Biggs case. That involved a number of transactions which delayed settlements. My advice is that the court made no inquiry in that case as to the work carried out by the purchaser after the prospector had sold the tenements; further, the commissioner in that case did not raise any questions. So there is no particular material difference in the wording between that part of old 23(p) and the part that we are now looking at. So perhaps the minister might answer for me why he therefore thinks the provision should now be included when, in the particular case that was decided on in this matter, the extra work that was done was not considered an issue.

Finally on this point, the ATO in its tax ruling on bona fide prospectors makes it clear that the status of a bona fide prospector is determined at the time of disposal, not when the proceeds are received. To back my assertion, I will quote the following extracts from tax ruling 92/19 issued by the Australian Taxation Office in 1992. I think they prove that the government and you, minister, are wrong in your assertion that this represents a change of policy, because the policy has always been to determine eligibility for section 23(pa) exemption at the time the rights to mine are disposed of. In TR 92/19, under the heading `Future field work,' point 7 reads:

Field work carried out after a prospector disposes of rights to mine the relevant material doesn't affect the prospector's claim to have carried out the major part of the field work when the rights were disposed of.

That is fair enough. Then section 48 states:

A prospector may have carried out the whole or a major part of the field work at the time the rights to mine are sold, transferred or assigned. Any further field work after that disposal (by the prospector or by someone else) is irrelevant to the application of paragraph 23(pa). So further prospecting by future parties will not affect the status of a prospector when the rights to mine are disposed of.

I draw your attention to those concluding words: `when the rights to mine are disposed of'. Those are probably more than enough questions to go on with for the moment. But in trying to be complete within the time allocated to me, the other element here concerns the fact that you will need to obtain a valuation of the lease. There are certain rules about how valuations of mining leases are obtained. The Australian Institute of Mining and Metallurgy sets out a Code and guidelines for assessment and valuation of mineral assets and mineral securities for independent expert reports —that is, the Valmin code, which was issued in June 1995. I am sure you are familiar with this code, minister, so you might explain to me why it is you are proposing legislation which transgresses it. More importantly, in terms of weight of argument at least, the Australian Securities Commission, which is of course the government regulatory authority, has a Practice note 43 on valuation reports and profit forecasts . That practice note was released in 1993. Practice note 43, paragraph 48, says:

The complex valuations in an expert's report necessarily contain significant uncertainties. Because of this an expert who gives a single point value will usually be implying spurious accuracy to his or her valuation.

It goes on. I put that to you in terms of the type of valuation that is now required by the tax office in order to assess the value at the particular point of the mining lease. The Securities Commission does not believe that that type of valuation has credibility. So why do you, minister, believe it has? I think these are the two major deficiencies in what the government's position is. My amendment No. 2 will clarify those and resolve them. I hope that the chamber may be persuaded to join me in voting to do that.