Senator COONAN (Minister for Revenue and Assistant Treasurer) (8:53 PM) —I thank colleagues for their support for the Taxation Laws Amendment Bill (No. 2) 2004. I do not need to delay the Senate very long but I want to make just a few comments about each of the schedules. The bill does amend the tax laws to give effect to several tax measures and each of the measures will refine the operation of the current law and go some way towards improving the fairness and equity of the tax system. As Senator Murray says, they are sensible measures.

Schedule 1 of the bill will ensure that a GST registered supplier of an eligible first aid or lifesaving course is able to treat the supply as GST free. The amendment will preserve the original policy intent that such services would not be subject to the GST. Schedule 2 modifies the general value shifting regime so that as a transitional measure the consequences arising under this regime do not apply to most indirect value shifts involving services, such as when consultancy services are provided by one company to another related company at non arm's-length prices. This measure will help to reduce compliance costs for businesses during the transition to consolidation. The general value shifting regime is an important integrity measure—and I once again thank senators for their support for it—designed to prevent the manipulation of tax rules by a shifting value between related entities that are not part of the same consolidated group. The new regime is complementary to the consolidation regime and reproduces the structural value shifting integrity achieved by the consolidation regime to those groups outside consolidation. The measure in this bill ensures that groups that consolidate during a transitional period do not incur compliance costs associated with setting up systems to identify service related indirect value shifts when those systems will not be needed after consolidation. The measure would also allow groups that do not consolidate extra time to establish systems to track service related indirect value shifts that may require adjustments under the general value shifting regime.

Schedule 3 will improve the operation of the alienation of personal services income provisions. The fringe benefits tax law will be amended to remove the potential for double taxation payments that are made non-deductible by the personal service income provisions and which may also be subject to fringe benefits tax. It was never intended that such double taxation was to apply. This schedule also makes further amendments to allow an individual working through a personal services entity to deduct a net personal services income loss. Under the existing law the entity rather than the individual providing personal services through the entity is entitled to any net loss. The change proposed by the bill is consistent with the intent of the rules generally, which is to put the individual earning personal services income through an entity in the same situation as if the individual had been deriving the income as an employee. These amendments were sought by tax professionals and will align the operation of the law with the original policy intent.

The amendments in schedule 4 will specify the tax treatment of sugar industry exit grants made under the Sugar Industry Reform Program. One component of the Sugar Industry Reform Program is Commonwealth government assistance for cane growers who wish to leave the sugar industry. The assistance consists of a one-off payment, one sugar industry exit grant of up to $45,000. Sugar industry exit grants that are paid to taxpayers who leave the agricultural industry altogether will be exempt from income tax. Grants that are paid to taxpayers who leave the sugar industry but continue to carry on in other agricultural enterprises will be included in assessable income.

Schedule 5 will ensure that the foreign resident withholding rules will apply to an alienated personal services payment, and that will obviously help the efficient collection of tax on the payments. The foreign resident withholding rules require an entity to withhold an amount of tax from a payment of a kind prescribed by regulations, and the government has not yet prescribed any payments. An alienated personal services payment is one that is received by an entity but is attributed to the employment-like services provided by an individual. These payments may also be of a kind to be prescribed by the foreign resident withholding rules. Under the existing law, where an entity receiving a payment of this kind is a foreign resident, withholding rules will not apply and the entity may be liable to pay an amount under the alienation of personal services income rules. In these circumstances the tax relating to the payment may not be paid by the entity that is outside Australia and recovery of the tax debt may be difficult. The amendments will ensure the effective operation of the foreign resident withholding rules so that tax is collected on any prescribed payments before they leave Australia.

The amendment in schedule 6 will ensure that mutual friendly societies that are life insurance companies and which restructure by demutualising can benefit from the taxation framework that applies to other mutual life insurance companies. In recent years some friendly societies that qualify as life insurance companies have restructured by demutualising. However, due to technicalities in the existing law, the tax framework that applies to other life insurance companies that demutualise does not apply to those friendly societies, and the amendments will remove this inconsistency. I will make a brief comment in a moment about Senator Murray's comments further in relation to mutual friendlies.

Schedule 7 will amend the simplified tax system to provide rollover relief when there are partial changes in the ownership of a partnership. This rollover relief will ensure that a taxable gain or loss will only arise when the partnership ultimately disposes of its depreciating assets. These amendments will remove a barrier that may be deterring some small businesses from entering the simplified tax system and accessing the benefits that system offers—notwithstanding its title, Senator Murray. Schedule 8 amends the consolidation regime under which wholly owned corporate groups are treated as a single entity for income tax purposes. The amendments will provide additional flexibility in the transition to consolidation by allowing certain choices made by a head company to be revoked or amended before 1 January 2005. The amendments also ensure that the rules governing eligibility for the research and development tax offset apply appropriately in cases where companies join or leave a consolidated group part way through an income year.

I thank senators for their support. I have listened carefully to what Senator Murray said in his comments and I thank him for his contribution. I am aware of the concerns about the use of the mutuality principle. I recall that Senator Murray wrote to the Treasurer on this issue last year and that the Treasurer, in his response, noted that the Australian Taxation Office would be maintaining what I think one might describe in colloquial terms as `a watchful eye' over these arrangements to ensure that the principle of mutuality was not being misused. I had thought that was being done, but as Senator Murray has raised this—and I do think he raises some points that may need to be addressed—I will ask the commissioner for further advice on this. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.