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Wednesday, 7 September 1983
Page: 508


Mr SPENDER(5.38) —There has been agreement that we should spend only a limited amount of time in Committee. Therefore, I should like to be as brief as I can in my remarks on certain provisions of the Bill. Firstly, I will deal with the proposal contained in clause 5 which would delete section 3 (12). In respect of that matter I would like to associate myself with the remarks of the honourable member for Curtin (Mr Rocher). Because of the limited time available I wish to say nothing more on that clause. Also I should like to refer to the proposal contained in clause 6 which is that there should be reports on those who fail to pay tax which falls within the ambit of the existing Act and of the Act as it is proposed to be amended. In regard to that matter as well I associate myself with the remarks of the honourable member for Curtin. I point out that there are a great number of reasons why a person can fail to pay tax and that the failure may be in no way linked to any wrong-doing or any desire to avoid that payment of tax.

I should like to say something about the proposal in clause 7 to delete sections 5 (1) (h) and 5 (2) (h). The Minister for Housing and Construction (Mr Hurford) said that the answer to what has been put in an argument against that proposal by me and by others is to be found in three propositions. The first proposition is that there should be unpaid company tax. I point out that company tax can be unpaid for a number of reasons, including simple business failure. The second proposition is that the excess consideration test which appears in section 5 (1) (d) is satisfied. I point out that the excess consideration test operates on the basis of assets, minus the total liabilities of the company, plus an amount equal to the total amount of the company liability immediately before the relevant sale time. If one makes a miscalculation and if one has sought to make proper provision but it turns out at the end of the day that one is a few dollars on the wrong side of the ledger, one is caught by that excess consideration test no matter how small the amount of the difference between what should be the consideration calculated in accordance with the Act and what is the consideration actually paid. Of course, people who sell companies in the course of a financial year must always make an estimate of what the tax liability will be. The third proposition, which the Minister failed to elucidate , relates to the same business test. Anyone who has had the least bit of experience dealing with companies in commercial or business terms, or who has had to look at them, knows that frequently when a sale takes place the nature of the business changes, either partially or wholly.

The Minister has sought to defend what is proposed on the basis that we are here dealing with bottom of the harbour tax evasion, and he has called in aid what was said by the honourable member for Bennelong (Mr Howard) when Treasurer in addressing the proposal which was earlier before the House, which is the Act which was passed in 1982. But that Act had within it certain mechanisms which attracted evasion and stripping as the triggers which would bring about an assessment for liability. What this Bill proposes to do-and this has never been answered-is to take away that trigger. For the Minister to say that that trigger to which I refer does nothing, for him to suggest that the three elements to which he has referred constitute a substitute, demonstrates that he could not know what will be the effect of this Bill if it were enacted into law. He and the others who have spoken have all referred to bottom of the harbour tax evasion and to stripping. For none of those activities does anyone on this side of the House have any support. We would all condemn them. But there is a great difference between those activities and the kind of activities that can be caught as a result of what is proposed to be done in this Bill.

I now refer to what is proposed to be done by section 5A as it would be if this Bill were to become an Act. Section 5A is the section which makes provision for the imputation of a dividend. For the purposes of that section, a calculation is proposed by sub-section (3) of what amounts to the undistributed profits for the purpose of ascertaining tax. If one looks to sub-section (3) one sees that the undistributed profits are to be calculated on a basis that disregards any declaration of dividends that may in fact have taken place. Effectively, a declaration of dividend is deemed not to have taken place. Let me give an example. Let us assume that we have a company which in the 1977-78 taxation year has taxable income of $200,000. Let us assume that it attracts the operation of the proposed section. It has received an assessment of $92,000, and it pays tax of $90,000. Because there is $2,000 unpaid, the operation of section 5A is attracted. But let us also assume that there was a distribution before sale of $ 40,000, on which tax has been paid, which would be in the vicinity of $25,000. The effect of section 5A, sub-section (3), is to ignore that declaration of dividend and to arrive at a figure, for the purposes of the section, which includes the dividend on which tax has already been paid; so effectively the same shareholders are assessed twice; once on the distribution of the dividend, and once again under section 5A (3) by the formula which ignores the fact that a distribution of dividend has been made and tax has been paid on that distribution.

It cannot be the contemplation of any just government that that should take place; but it is apparently in the contemplation of this Government that it should take place, just as I should have thought that it could never have been in the contemplation of any just government that the provisions which formed the linchpin of the Act as it presently stands should be extirpated so that stripping and evasion are no longer of any consequence. What we have is a continuation of the rhetoric but an extirpation of the basis on which the rhetoric is founded; that is, that there should be an act of evasion, an act of stripping. In future, if this proposal becomes law, the intentions of those concerned, the honesty with which they acted, will be quite beside the point. They will be caught so long as they come within the narrow confines of the formula which is presently expressed in the existing Act with the amendment that the saving part of the formula, the part which makes a stripping or an evasion essential, is to be taken away.