Senator SHERRY (5:04 PM) —We are dealing with the Taxation Laws Amendment (Superannuation Contributions) Bill 2000. On 30 June 2000 the Assistant Treasurer, Senator Kemp, announced legislation relating to superannuation and fringe benefits tax. This was designed to stop tax planners exploiting existing tax structures to maximise their clients' tax deductions through aggressively marketed employee benefit arrangements. When announcing the amendments contained in the bill, the Assistant Treasurer, Senator Kemp, explained the reasons for the government's actions:

We might well ask: why is the Senate dealing with changes to the law with respect to this area when the tax office says that they are, in fact, illegal? But more of that a little later.

As outlined in the explanatory memorandum to the bill and in the second reading speech, the intention of the bill is to achieve three main objectives: firstly, to defeat the abuse of controlling interest superannuation schemes by clarifying the definition of `eligible employee'; secondly, to defeat the abuse of offshore superannuation schemes by removing deductions for employer contributions knowingly made to non-complying superannuation funds, including non-resident superannuation funds; and, thirdly, to ensure that only superannuation contributions made on behalf of an employee, not an associate of an employee, are excluded from fringe benefits tax. In his speech, my colleague Senator Conroy pointed out in his usual incisive and enthusiastic manner that we are in fact dealing with legislation that represents a crackdown on one of the most significant tax avoidance schemes in the last decade. We are dealing here with a possible revenue size of $1½ billion up. As Senator Conroy said, the tax office has not finished counting.

In terms of clarifying the definition of `eligible employee', schedule 1 of the bill amends section 82AAA of the Income Tax Assessment Act to clarify the definition. Under the current legislation, `eligible employee' includes an individual who is an employee of a company in which a taxpayer, including an individual tax holder, holds a controlling interest. Currently, a taxpayer who holds a controlling interest in a company can claim a deduction for a contribution to a superannuation fund for an employee of the company, subject to certain limits which are varied over time. The intention of the amendment is to put beyond doubt that a taxpayer and an eligible employee cannot be the same person. Clearly, it would be absurd if this were allowable.

The second area, `Contributions to noncomplying superannuation funds' in schedule 1 of the bill, amends the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 to deny deductions for employer superannuation contributions knowingly made to noncomplying superannuation funds. This includes funds that do not meet the government's criteria for concessional taxation treatment and nonresident superannuation funds. The Labor opposition has bipartisan agreement that this is an absolute abuse of noncomplying superannuation funds. To qualify as a complying superannuation fund, current legislation directs that the central management and control of the fund must be in Australia. The fund must also have at least one active member, and resident active members must hold 50 per cent of its accumulated entitlements.

Under the current law, contributions to noncomplying superannuation funds—both resident and nonresident—are deductible to employers and subject to FBT. The intention of this law is to ensure that these funds are not attractive in comparison to complying funds, which is the government and Labor opposition's preferred vehicle for retirement savings. Evidence suggests that some of the noncomplying funds domiciled overseas escape a number of tax obligations, including the contributions tax on superannuation and the so-called superannuation surcharge tax. When these funds are returned to Australia, the contributors pay no income tax. In other words, these noncomplying offshore superannuation funds are being used as a massive area for laundering money to avoid paying any tax whatsoever. This is clearly not the intention of either the government or the Labor opposition in respect to its retirement incomes policy and its retirement incomes framework.

It is very clear from the evidence presented to the committee that those taking advantage of these schemes are, overwhelmingly, higher income earners. The average lower to middle income earning Australian is not involved in the schemes. Legally, it is very difficult for them to even participate. To date, however, some tax planners have been marketing schemes as a complete tax wipe-out, using existing tax planning structures to maximise deductions while claiming that the FBT does not apply. This is a truly appalling situation. The amendment aims to ensure that superannuation contributions could be deductible only if made to a complying superannuation fund from 30 June 2000. This is because noncomplying funds have been judged as not having been used for retirement income purposes and not subject to prudential regulation.

In regard to the fringe benefit exemption for employee section, part 3 of schedule 1 of the bill amends the Fringe Benefits Tax Assessment Act 1986 to ensure that the exclusion of payments to superannuation funds and retirement savings accounts from the term `fringe benefits' would apply only to payments made for the employee, not for associates of the employee. Clearly, it would be utterly absurd for associates of the employee to attract an exemption in this fringe benefit area when, in fact, the payments are being made on behalf of the employee. The government has claimed that business should slightly benefit from these measures by some reduction in ongoing compliance costs by virtue of greater simplicity and clarity. The Labor opposition is very sceptical of this claim. Everything the government has done with respect to superannuation—measure after measure—has made the tax system and the tax issues relating to superannuation more complex, not simpler.

As I mentioned earlier, this bill was introduced in an attempt to address aggressive marketing of employee benefit arrangements. On 20 June 2000, when announcing the amendments contained in the bill, the Assistant Treasurer explained the reasons for the government's actions in relation to the aggressively marketed employee benefit arrangements. This statement from Senator Kemp made it very clear that tax office advice was that these arrangements were being promoted. They are still being actively promoted; the arrangements have continued, despite the taxation commissioner's clear advice that the schemes are ineffective under existing law. In other words, the tax office and Senator Kemp claim that the schemes we are cracking down on in respect to this legislation are, in fact, illegal. It begs the question: why are we dealing with legislation to change the law when in fact the schemes are illegal anyway according to the tax office and Senator Kemp?

On 15 November 2000 in his speech to the Taxation Institute of Australia in Melbourne, the Commissioner of Taxation, Mr Michael Carmody, stated:

In May 1999 the first public ruling was issued. This appears to be consistent with the ATO's position as stated in its October 1998 draft ruling. In addition, the May 1999 ruling covers mass marketing of aggressive tax planning schemes. It also provides for exemptions for taxpayers who have received a private ruling. The draft ruling and the final ruling are somewhat different. They are available for senators to peruse in the Senate committee's report on this legislation.

In the statement that I referred to earlier, Commissioner Carmody asserted:

I pose the question again, as we have never had this satisfactorily answered: if it is an existing law, why are we changing the existing law if the existing law prevents this tax laundering from going on? We would like an answer from Senator Kemp with respect to that central point.

The committee held hearings and we had evidence presented to us by the Australian Taxation Office. The total contributions by clients to promoters of employee benefit arrangements was around $1.5 billion, with about $500 million claimed in relation to superannuation arrangements. Of these, $100 million was related to offshore funds. These are amounts identified so far, with some auditing still to be completed. We heard evidence from the Australian Transactions Reports and Analysis Centre, AUSTRAC, which provides a data analysis platform to the Australian Taxation Office. It confirmed that the number of international fund transactions increases every year—obviously, many of those legitimate. AUSTRAC's submission records that the number and value of international fund transfer instructions reported to AUSTRAC have increased by more than 30 per cent over the last five years. There would appear to be a potential for a continued and growing incidence of revenue loss by a deliberate abuse of the system if the law is not clarified.

The Labor Party does have some concerns about this legislation and about the policy process leading up to the introduction of this bill. We have concerns about the explanation and the evidence provided by the government and the ATO concerning aspects of the bill, the lack of cooperation with the committee by promoters of these schemes, the claimed financial impact of the legislation, the prospective operation of the legislation and the lack of legislative action by the government against other employee benefit arrangements which involve massive tax avoidance. Firstly, in respect of the reporting date, this legislation was urgent. The Labor Party believes it is urgent and should be passed as quickly as possible. We could not get to it late last year, but the Senate committee was presented with an extremely tight deadline. We held three hearings over, I think, three days, including six hours of questioning to the tax office. A very unrealistic reporting date was forced on the committee by the government. There were limited opportunities to examine witnesses on the issues covered by the bill, and this has raised serious questions regarding the widespread tax avoidance practices and the inactivity of the Assistant Treasurer, Senator Kemp, and the government, in particular, in curbing these practices.

In addition, we are concerned that the ATO has consistently not made available the witnesses requested by the Labor Party. The result is that there are some unanswered questions by the ATO that we will be pursuing at another time. In addition, material in the possession of the Labor opposition appears to conflict with the evidence provided by some ATO witnesses. As I said earlier, hopefully we will be holding some further examination on some of these issues. The evasive behaviour practised on some occasions before the committee is consistent with the recent practice of the government and the ATO regarding tax avoidance. We do not blame the ATO or the public servants; we blame the minister fair and square. The Assistant Treasurer is responsible for tax administration and it is his responsibility, not the ATO's.

At least one new issue emerged, and that was the lack of adequate resources and the pretence that the government makes that it has allocated sufficient resources to deal with the enforcement of the existing law. One example of this is the extraordinary and disturbing claim made by Second Commissioner D'Ascenzo that the ATO has still not raised assessments for around half of the revenue from participants in employee benefit arrangements identified so far by the ATO. Indeed, of approximately half of the identified revenue that have had assessments issued, less than half of the money has been raised—that is, less than one-quarter of the outstanding revenue identified has been collected. Many of these arrangements relate to schemes dating back several years. Labor senators find this practice of not collecting tax, which the ATO claims is clearly payable under the current law, very disturbing. This is an obvious indication of this government's and, in particular, this minister's total lack of commitment to providing the ATO with the necessary resources to collect moneys that should be collected on behalf of the Australian community.

The position of the government contains fundamental contradictions. It claims that the two major tax avoidance schemes covered by this bill that we are considering today—namely, controller superannuation schemes and non-complying superannuation schemes—are not legal, they are ineffective in law. Despite this claim, the bill amends the law to make it consistent with the intention of parliament. Claiming that there is no revenue flowing from this bill is simply not credible and is rejected by the Labor Party. Why are we changing the existing law if it is sound and if, in fact, the schemes we are considering are illegal? It is a fundamental contradiction. What is even more alarming is that the Australian Taxation Office has given numerous rulings, including to tax scheme promoters, that clearly indicate an ATO policy on matters covered in the bill that are a direct contradiction of the ATO's current claims. The tax office has been issuing private binding rulings which are contrary to the existing law. Mr Kevin Fitzpatrick said:

Mr Kevin Fitzpatrick, First Assistant Commissioner, admitted that the tax office has made private binding rulings in contradiction of the existing law when we have at risk at least $1½ billion of revenue. If these arrangements are illegal, if they are not in accordance with the intention of superannuation law and retirement income practices, a bipartisan policy of both the Liberal government and the Labor opposition, it begs the question of why these changes that are being considered today are not being made retrospective until at least the date at which the tax office made its preliminary ruling on this matter.

The Labor Party amendment that we will be dealing with during the committee stage will make these changes retrospective to that date. After all, these are schemes that are apparently illegal. These are schemes that should never have existed in the first place. Therefore, Labor strongly believes—and this is only on rare occasions—that these changes to the law should be made retrospective. After all, why should a relatively small number, a couple of thousand, of high income earners manage to avoid all tax on noncomplying offshore superannuation payments? Why should this relatively small number of high wealth Australians not pay superannuation contributions tax, the so-called superannuation surcharge tax? They transfer it offshore, and then they bring it back and do not pay income tax. This is an absolutely appalling situation that I do not think 99 per cent of Australians would even think of doing, let alone be able to access. Why should this be allowed to be legal for the last couple of years? Why shouldn't this be made retrospective so that this money could be collected? It is only fair and equitable that this should occur.

We are concerned about the ATO evidence, because we believe that the stated figures of $1½ billion may in fact understate the real level of funds involved. Indeed, one witness estimated that one individual firm is known to have put $2 billion into offshore New Zealand superannuation funds. So, in conclusion, the government has a number of questions to answer with respect to this legislation. (Time expired)