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Thursday, 26 May 1983
Page: 1072


Mr HOWARD(8.52) —The Opposition will not oppose these amendments because in reality they make a deplorable Bill marginally less deplorable by inserting into the legislation just a zephyr of commercial recognition and commercial reasonableness regarding the payment of the tax liability under this legislation. I take the opportunity of saying that those people who either in this chamber or in another chamber regard the so-called concessions by the Government to reasonable representations on this legislation as some kind of triumph of the reasonable approach of this Government in relation to the legislation have no idea at all as to the real implications of this piece of legislation. These amendments do nothing to alter the fact that this Bill imposes a retrospective capital gains tax in defiance of the clear promise and undertaking of the Prime Minister (Mr Hawke) that there would never be a capital gains tax under a Labor government in Australia. This legislation will do nothing other than defer the inevitable liquidation of some companies which will face a tax liability far in excess of their asset position-a reality that does not appear to have impressed itself at all upon members of the Government who are supporting this legislation.

It is one thing to pass legislation to recoup unpaid company tax; it is another thing to pass legislation to tax retrospectively retained earnings, some of which may go back 60 or 70 years, on which both ordinary company tax and probably Division 7 tax has been paid. To suggest that those two acts are in some way complementary to each other, as I said yesterday, defies all reasonable understanding of those words and the reasonable implications of this legislation . So, in expressing the Opposition's support for these amendments, let me make it perfectly plain that the only reason we do so is that in a very marginal way they make slightly less deplorable the deplorable concept and nature of this piece of legislation.

I make one other comment on the speech of the Minister for Finance (Mr Dawkins) . The Minister said that all that this legislation does in respect of retained earnings is to apply, albeit retrospectively, the principles of Part IVA which were passed at the instigation of the former Government. Let me remind the Committee that Part IVA is that general anti-avoidance section of the Income Tax Assessment Act passed by the Fraser Government which has done more to smash the sophisticated tax avoidance industry in this country than any other single piece of legislation supported or sponsored by any government or any political party in this country's history. To suggest that in some way it is an explanation of what the Government is doing to say that the legislation applies retrospectively the approach of Part IVA is totally to misunderstand reality. This legislation deems that a hypothetical situation must automatically exist before tax liability can be imposed. The hypothetical situation in practice as a result of Part IVA will simply never in the future arise unless people, quite in defiance of normal commercial practice and common sense, having paid ordinary company tax and perhaps Division 7 tax, and having retained earnings in their company, indulge in the sort of conduct and make the sort of dividend declarations that this legislation hypothetically deems to occur before taxation liability attaches.

So I say to the Minister for Finance that it is no excuse, it is no explanation , it is of no satisfaction to the community or to this Parliament to say: 'Oh, we are not imposing a retrospective capital gains tax because all we are doing is retrospectively applying the principles of Part IVA'. He knows as well as anyone else who knows anything about taxation that as a consequence of Part IVA in practice people simply would not do the things which hypothetically this legislation deems are done so as to attract the liability for personal income tax.

So we have the quite extraordinary situation that not only does this legislation retrospectively impose a capital gains tax but also it creates two classes of taxpayers so far as certain commercial arrangements are concerned. A very large group of taxpayers have indulged in what are colloquially called dry Slutzkin arrangements over a long period. Companies with retained earnings have been sold and no taxation liabilities, because of the Slutzkin decision, have been incurred. Those practices were effectively and prospectively brought to an end by the Fraser Government passing in May 1981 Part IVA of the Income Tax Assessment Act. That group of taxpayers is totally and properly unaffected by the reach of this legislation. Another group of taxpayers, as well as doing that , as part of the same transaction have sold companies that have current year profits and have subsequently been caught by the operation of the recoupment legislation passed last year. As a result of that recoupment legislation primary company tax has to be paid on those current year profits. That is fair enough. But having paid that company tax, having recouped the unpaid taxation liability that has been illegally evaded because of the stripping of the company's assets subsequent to the sale and having redeemed their obligations to the Commonwealth Treasury and the Australian community, as some kind of punishment the dry Slutzkin element of their transactions, the proceeds of the sale of the retained earnings which have borne company tax and probably Division 7 tax, are also to be subjected to some kind of personal taxation. However, the other group, which has done exactly the same thing in respect of the sale of retained earnings, is totally unaffected, as it should be, by this legislation. There is no excuse for that other than a decision by the Government not to levy taxation by this legislation but to use the taxation power to punish those people. It is one thing to recoup retrospectively taxation that should have been paid in the first place; it is entirely a different thing, on top of that, to put a retrospective monetary penalty on the people who have engaged in those transactions.

Nothing has been said by the Minister for Finance in the course of this debate that can possibly justify the Government drawing a distinction between the group of people who have simply engaged in so-called dry Slutzkin arrangements and those who have engaged in those arrangements along with arrangements, as part of the same transaction, which were caught by the former Government's recoupment legislation of last year. No argument has been advanced as to why a different treatment should be meted out to those two groups of people. The only possible conclusion that I can reach is that the Government has made some kind of moral judgment that as well as the sale of the retained earnings there has also been a sale, in effect, of the company which had current year profits. Although the Government has recouped the taxation payable it is also going to punish those people through the penal imposition of what is contained in this legislation. So I say very simply to the Government on behalf of the Opposition that whilst we will support these amendments, because they make slightly less deplorable a very deplorable Bill, no one either here or in the Senate should believe that some great compromise has been engineered. I read in the Press that some people in another place believe they have saved the day, that they have been the great heroes in respect of the legislation and have saved hundreds of firms from bankruptcy. Nothing in these amendments will stand in the way of bankruptcies if , in consequence of the passage of the legislation, that is to happen. While these amendments make slightly better a very bad piece of legislation, let no one imagine that they in any way reduce the culpability of the Government or ameliorate the fact that, despite the promise of the Leader of the Australian Labor Party, the present Prime Minister (Mr Hawke), made during the election campaign, that we would not have a capital gains tax, this legislation imposes upon a small group of Australian taxpayers a capital gains tax and for good measure, does so retrospectively.

Amendment agreed to.

Clause agreed to.

Remainder of the Bill-by leave-taken as a whole.