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Thursday, 26 May 1983
Page: 1071

Mr DAWKINS (Minister for Finance)(8.45) —I move:

Clause 2, page 2, lines 1 and 2, omit sub-clause (3).

I take the opportunity to speak to the range of amendments moved by the Government because they are related. I first of all point out that what the Government is moving tonight does not represent any abrogation of the basic principles which have been enunciated by the Government in relation to the Taxation (Unpaid Company Tax) Assessment Amendment Bill but indicates its preparedness to amend its approach to accommodate certain views which have been put to it.

The principal amendment concerns the facility for persons to meet their tax liability under the legislation by arrangements with the Commissioner of Taxation whereby, typically, they are allowed 12 months to pay without late payment penalty being charged. The existing law contains provision on these lines for former owners of companies who are liable to pay a share of unpaid company tax.

Clause 19 of the Bill proposes the deletion of this provision, but only from a date to be proclaimed. The Government has now accepted that provision for payment over 12 months should be retained and indeed extended to the personal tax liability and associated dividend recoupment tax liability in respect of profits of stripped companies that are proposed by the Bill now before the Committee.

Amendment (3) will ensure the retention of the special facility to pay over 12 months and, in consequence, amendment (1) will omit the provision in the Bill that would have abolished the facility from a proclaimed date. The provisions governing the facility are being changed so that a time-to-pay arrangement need apply only to a company's unpaid primary company tax and not also its unpaid undistributed profits tax. These changes reflect the fact that when, in due course, the persons concerned are made liable for personal tax in respect of the company's profits-on the basis that the profits have been distributed to them- there is then no case for retention of the undistributed profits tax liability and it is, by the Bill as it stands, being abolished.

Amendment (3) will insert in the law a facility to pay over 12 months, modelled on the existing provisions that are now to be retained, for persons who, by the Bill, become liable to personal income tax in respect of a share of a stripped company's accumulated profits. An application for time to pay will need to be made within 30 days after service of the notice of assessment relating to the personal tax.

Consistent with this, and with the proposed strict limitation to 12 months of the period for which an arrangement to pay unpaid company tax may be made, it is envisaged that it will generally be necessary that applications for such arrangements be made within 30 days after the company's tax liability is notified to former owners. A similar facility is also included for companies or trusts that become liable to the dividend recoupment tax that may be levied at the interposed company or trust level as an alternative to collection of personal income tax. These measures will, of course, have a revenue impact in 1983-84.

Payment of personal tax by instalments over a period of 12 months in lieu of payment within 30 days will result in revenue which would otherwise have been collected in 1983-84 not being collected until 1984-85. This is not revenue lost but merely revenue deferred. An accurate estimate of the amount involved has not , in the time available, been possible. Preliminary estimates indicate that a figure of up to $100m could be involved. Studies are currently being made of administrative measures by which this impact on revenue in 1983-84 might be lessened.

I draw attention also to amendment (2). This amendment arises against the background that the hardship relief provisions of the income tax law are available to provide relief to persons who are, or become, liable under the recoupment legislation to pay recoupment tax or personal tax. Amendment (2) will ensure that the relief provisions cannot stand in the way of a transfer of recoupment liability from an interposed company or trust to the owners of that entity in a situation where any of the owners are entitled to relief from the transferred liability on the grounds of hardship.

I take this opportunity to refer again to one matter that has been the subject of much debate, and that is that personal tax liability under the Bill attaches to profits of stripped companies that have been effectively distributed to former owners, regardless of whether those profits were, in the hands of the company, of a revenue or a capital kind. This rule reflects the clear and long- standing position that a distribution by a company out of any kind of profit is classed as taxable income of the shareholders.

But it also does no more than follow the way in which Part IVA of the income tax law-which received the unanimous support of this Parliament when it was introduced in 1981-operates in cases of dividend stripping and similar schemes, including schemes of pre-tax profit stripping. Where Part IVA operates, the shareholders concerned are liable to tax on profits that are stripped from the company under the scheme, and that is so regardless of whether those profits are of a revenue or capital kind. In other words, we are not by this Bill introducing any new concept of taxation in relation to distributions to shareholders out of capital profits of companies. I commend the amendments to the Committee.