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Wednesday, 3 September 2008
Page: 4362


Senator XENOPHON (10:08 AM) —At the outset—with an abundance of caution, given that I have not yet filed my register of senators’ interests as I have only recently been sworn in—I think it is important to disclose that, just like thousands of Australians, I am a trustee and a beneficiary of several private trusts, including a private super fund and one associated with my very small legal practice.

That said, the Tax Laws Amendment (2008 Measures No. 4) Bill 2008 has three schedules. Schedules 1 and 3 are uncontentious. However, schedule 2 has proven to be the source of some debate. Schedule 2 relates to family trusts and the way ‘family’ is defined in relation to these trusts. I note the proposed changes to that definition as outlined in schedule 2 will significantly impact on between 200,000 and 400,000 family trusts, many of which have been set up by family businesses and farming families.

I also note a comment in the Age on 21 June 2008. It was in an article by V Burrows and was titled ‘Wither wax and wane tax changes?’ It stated:

The Rudd Government has revoked changes made by the Howard government, which allowed the revenue collected by family trusts to be distributed to “lineal descendants”. That means, anyone outside the immediate family will have to pay tax of 46.5% on distributions. For those in the know, this is the most controversial change in tax law this year, a change that will affect millions of people who have family trusts attached to small businesses.

This new bill, by seeking to limit the definition of ‘family’ to lineal descendents—to children or grandchildren—of the test individual or the test individual’s spouse, has significant ramifications. There are a number of minor exceptions, but the thrust of schedule 2 is quite significant in its scope.

This is a significant departure from the previous definition, which allowed non lineal inclusions within a family over a period of no more than 80 years. My concern is that these changes will have a large and detrimental effect on family run businesses, small businesses and farms. It will limit the way small businesses can be structured and family farms can be run. I agree with Senator Coonan that the definition of ‘family’ has broadened in terms of contemporary society, and I think that the definition that the government is seeking to introduce is a retrograde one, given the realities of modern life. I am also concerned that many of these family businesses and family farms have already structured their affairs around the previous broader definition of family and that a redefinition may cause an unfair burden on many of them. Many will have to undertake a significant restructuring of their affairs, and some families may face the very real prospect of having to tell relatives who were previously in that they are now out.

Of course, there is the issue raised by Senator Joyce of compliance costs. It concerns me significantly that there will be compliance costs which could well be in the tens of millions of dollars in order to comply with these changes, and I note that the opposition’s position is that the revenue raised from this would be in the order of $6 million. I think the government’s position in terms of forward estimates over the next four years would be in the order of $20 million. But even on the best case scenario in terms of what the government thinks it will gain from this, I cannot see that it is worth it given the compliance costs to hundreds of thousands of small businesses. I think it is fundamentally unfair in that regard.

I have one question for the government, and it relates to the issue of the administrative costs of these changes: have they been factored in by the government? Obviously there will administrative costs if these changes to schedule 2 are passed. What has the government allowed for the compliance costs? What does the government say it will actually rake in over the next four years with these proposed changes? Having posed that question, on balance I see this as an unnecessary and fundamentally unfair change, and it will impact on the small businesses and farming families of Australia.