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Wednesday, 7 September 1983
Page: 470


Mr SPENDER(12.30) —We have just heard from the Treasurer (Mr Keating) one of the most rambling, disjointed and incoherent addresses that this House could ever have heard upon an important issue. The address makes clear one of two propositions; either that he is a party to seeking to deceive this House and the Australian people about the underlying principles that activate the Taxation (Unpaid Company Tax) Assessment Amendment Bill 1983 [No. 2], or that he does not understand his own legislation.

I remind the House at this stage that in the course of his reply-if it could be so termed-to what the honourable member for Bennelong (Mr Howard) said, he said two things about the only two things he said upon the Bill which is now before the House. He stated that once stripped, tax distribution could never be made. Honourable members should note the use of the word 'stripped'. Lastly, just before he referred to the honourable member for Bennelong making an apology-I thought how apt it was that the Treasurer should use those words, since he could only be described as an apology for a Treasurer-he stated that the honourable member for Bennelong was defending people involved in bottom of the harbour activities. The Government, through the Treasurer, through the second reading speech and through the explanatory memorandum to the Bill has said that we are here dealing with bottom of the harbour activities, that this Bill is concerned with evasion and stripping, and with getting at people who were involved in bottom of the harbour activities. That is a grave, fundamental and deliberate misrepresentation of what this Bill proposes to do.

Let me make clear just how far the Government has gone in seeking to mislead the House and the Australian people. The second reading speech which was delivered by the Minister for Housing and Construction (Mr Hurford), who would not have understood what he was saying, so I excuse him of any deliberate complicity, in reference to the earlier Bill of the same title, stated:

The major purpose of that Bill was to . . . recover personal tax avoided by former owners of companies that were the subject of bottom of the harbour schemes.

That same second reading speech stated that the Bill:

covers essentially the same ground . . .

It was stated on page 2 of the second reading speech as circulated:

The Government has now decided that the recovery of personal tax should be confined to such tax avoided in respect of the liberated after tax profits of those years of income where evasion of primary company tax was involved.

Later, reference was made to stripping of pre-tax profits. One sees again and again the reference to stripping and evasion. The speech continued:

. . . The recovery of personal tax will, however, be confined to the tax related to after-tax revenue profits of the stripped company for those years of income in respect of which primary company tax was evaded.

Once again, we see the juxtaposition of two concepts: Stripping, a deliberate action designed to denude a company of its capacity to pay company tax, and evasion, a deliberate act. For those who do not understand the meaning of the word 'evasion' or the difference between evasion and avoidance, I remind the House how the word 'evasion' was described by Mr Justice Dixon who, in the case of Denver Chemical Manufacturing Co. v. the Commissioner of Taxation, whilst pointing out that it was unwise to try to define the word 'evasion', said this:

It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. One is therefore dealing with deliberate activity, deliberate wrong-doing.

In the presentation of this Bill the focus has been on wrong-doing. If one refers to the explanatory memorandum, one finds precisely the same thing. At page 3 of the explanatory memorandum, this statement appears:

This Bill together with the associated 'Rates' Bill will extend the scope of that legislation so as to also recover from the former owners of companies stripped of pre-tax profits the personal income tax they avoided through those schemes in respect of the profits on which primary company tax was evaded.

At page 8 of the explanatory memorandum, to round off but a few of the references to evasion and stripping which are to be found in the second reading speech and the explanatory memorandum, this statement appears:

One of the tests which must be satisfied before a liability for recoupment tax can arise requires the identification of the particular arrangement (the ' stripping arrangement') which rendered the target company unable to pay all its company tax. This test accompanies other tests in the legislation that effectively limit the scope of the legislation to those cases where the company has been stripped of its pre-tax profits.

That statement is demonstrably false. But anyone who read the second reading speech and the explanatory memorandum and who listened to the one or two brief words that the Treasurer was able to direct to the Bill would believe that this Bill had, as its fundamental premises, first, that it was concerned with stripped companies-that is, companies which were deliberately stripped-and, second, to cases where company tax had been evaded as a consequence of companies being deliberately stripped. That supposition would be to misunderstand gravely what this legislation does. One of the key clauses in this legislation is to remove from the Act which was passed last year-the Taxation (Unpaid Company Tax) Assessment Act 1982-sections 5 (1) (h) and 5 (2) (h). The relevance of those sub -sections is that it is those sub-sections, and those sub-sections only, which bring into play the concept of evasion and stripping. I remind the House what was said by the former Treasurer, the honourable member for Bennelong, when he presented the Taxation (Unpaid Company Tax) Assessment Bill (No. 2) 1982 to the House last year. In his second reading speech he stated:

. . . a Bill . . . to recover from former owners of companies that were stripped of a pre-tax profits the amount of company tax that has been evaded as a consequence of such strips.

The emphasis was upon stripping and evasion and that was central to the whole exercise, as the present Treasurer should know and as his advisers most certainly know. It was pointed out in the explanatory memorandum that there were nine tests for determining whether a vendor-shareholder would have a liability to recoup the unpaid company tax liability of the stripped company. The key test is now to be removed. It was also pointed out in the explanatory memorandum that the test in sections 5 (1) (h) and 5 (2) (h)-the paragraphs which are to be removed by the legislation now before the House-reflect the basic test of the Crimes (Taxation Offences) Act 1980 that a person who has entered into an arrangement for the purpose of securing a company will be unable to pay its income tax. That is to be removed. It is no longer to be of any consequence that all the actions of all the parties were quite innocent. They may still be caught . It is no longer of any consequence that legal avoidance may not have been contemplated. They may still be caught.

Let me emphasise that the very thing on which the original legislation was predicated is to be removed, and this removes the elements of evasion and stripping. All one can say is that for this Government to pretend, as the Treasurer does, that we are here concerned with stripping, with evasion or with bottom of the harbour schemes-and he dredged up bottom of the harbour scheme events in 1982 in his sad attempt to answer what had been put by the honourable member for Bennelong-is, as I have said, either a deliberate misrepresentation of the effect of the legislation now proposed or evidence that he as Treasurer does not understand what the Bill does. The seriousness of what is contemplated may be judged by the consequences. Once stripping and evasion are removed the whole case put by the Government to this House and to the people is falsified, as the advisers to the Treasurer must know, and as the Government, if it has the least degree of competence, must know. It is not the fault of the advisers; the Government stands or falls on what it puts before the House, and it is the Government that must accept responsibility for the explanatory memorandum, for the second reading speech and for what the Treasurer has said.

The practical consequences of the removal of the two provisions to which I have referred are that, once a primary taxable amount is established where a company is sold and it attracts the operation of the formula in section 5 (1) (d), all that has to be shown is in effect a shortfall under the formula for the purposes of determining whether the Taxation (Unpaid Company Tax) Assessment Act applies, no matter that the vendors sought to provide fully for tax, no matter that we are concerned with a shortfall of only a few dollars and no matter that the reason that the tax was not paid thereafter was due to commercial misadventure. But where that takes place, unless the same business is carried on, which most frequently is not the case, the vendors are to be caught. They are to be caught back to 1972 under these proposals. They are to be caught for a primary taxable amount which was in no way attributable to any wrong-doing on their part, to any attempt to avoid or evade. In short, there is a complete derogation of any attempt to distinguish between those who engaged in stripping exercises and those who acted honestly and who fairly sought to provide the taxation liability . That approach degrades the need for certainty before the law, degrades equally the essential and elementary proposition of fairness in the application of laws, be they revenue laws or any other laws, and certainly degrades any argument that this Government is concerned with fair taxation shares.

Debate interrupted.

Sitting suspended from 12.45 to 2 p.m.