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Thursday, 14 May 1987
Page: 3251


Mr ROCHER(5.30) —Before the debate was interrupted, I gave an example of how a tax free dividend may be obtained under the tax imputation legislation, and I sought almost immediately to qualify that by saying: `Well, almost tax free'. It was necessary to do so because although the Medicare impost is not really a tax on income-but only, of course, if we believe this Government-nevertheless the levy must be paid on all dividends, whether they be franked or unfranked. If an excess rebate cannot be offset against other income in the tax year in which it is received, that benefit will be lost forever. Excess rebates cannot be refunded, nor can they be carried forward into consequent years. In summary, any unutilised imputation tax rebate will be lost if it is not offset against other income in the tax year during which a franked dividend is received.

These Bills-the Taxation Laws Amendment (Company Distributions) Bill, the Income Tax (Franking Deficit) Bill, the Income Tax Rates Amendment Bill, the Taxation Laws Amendment Bill (No. 2) and the Bank Account Debits Tax Amendment Bill-also stipulate that individual and corporate shareholders in non-resident companies will not receive tax free dividends, even if the profits enabling the dividend were earned all or in part within Australia. In addition, foreign tax credit laws come into play and will interact in a peculiar and complex way with dividend imputation provisions, something that has been discussed by previous speakers. All that I wish to say is that it should be clearly understood that there will be an added imposition because foreign earnings, even by an Australian-owned company or a company based in Australia, cannot be credited for imputation, thereby reducing the profits available for distribution as franked or tax free dividend. That will occur despite the fact that such companies' tax will be levied on the new and increased rate of 49c in the dollar.


Mr Braithwaite —The highest possible rate.


Mr ROCHER —Yes, indeed. I have given just a few examples of the traps for the unwary. Those most likely to be uninformed are not the corporate investors, nor are they even individual investors of substance; they are individuals who, sooner or later, come to believe that any dividend income is to be tax free in future. No one would be wise to buy shares if he had the expectation of obtaining tax free dividend income without first getting hitherto unnecessary information about the source of profits of the company in which he intended to invest. Even then, if the company at some time wants to share the bounty from, for example, a share premium reserve and issue bonus shares, a tax obligation may well exist.

There are other reasons why shareholders can dip out, in circumstances about which a less than professional investor could not reasonably be expected to know. Any potential investor with an expectation or perception that all company dividends are tax free when these Bills become law, runs the risk of disappointment. In addition, those who are psychologically attracted by the prospect of tax free dividends should also remember that a better return on invested funds might still be available from more mundane opportunities, even after paying income taxes, capital gains taxes and the whole raft of taxes introduced by this Government. After all, shares bought in companies with a dividend yield of 4 or 5 per cent or less may not be all that attractive, even if the dividends are tax free. Nevertheless, it must be said that there are some attractions, especially for the corporate sector. That might come as something of a surprise to those gullible enough to listen to and believe the rhetoric of the Treasurer (Mr Keating). In this Parliament, we have all had to endure the sort of codswallop which, with the fervour of a born-again Christian in the United States, the Treasurer espouses the cause of the not-so-fortunate in our society, while actually practising the delivery of riches to the corporate giants in Australia. How many times have we heard the Treasurer say, in his frustration, how the Opposition parties will favour the rich at the expense of the poor? Even those who like to hear that sort of nonsense could not number the times that he has actually indulged himself in that way. Yet with this dividend imputation legislation, as with other government legislation, we can give the lie to the assertions peddled by the Treasurer in his attempts to exploit latent envy in the community.

One reason for that assertion is that buyers of shares may claim a full tax deduction of interest expenses on funds raised to buy shares attracting imputed, tax free dividends-and thereby, another consideration is introduced into the corporate takeover scene. A company making handsome profits and, therefore, with an under-utilised franking account, will have an asset of value previously not available, and able to be exploited along with other assets in takeover targets. We do not need statistics to convince us that, despite the Treasurer's rhetoric, under his stewardship the very rich get richer and the rest become poorer.


Mr Cowan —That is what is happening at the moment.


Mr ROCHER —That is precisely what is happening at the moment. For those who think that this imputation legislation ushers in a brave new world, it is sobering to reflect on the fact that only an estimated 15 per cent of Australian shareholders will derive any benefit from it. On top of that, its complexity defies description by all but the most specialist of professionals in the tax field. It is not immediately clear why the Government did not opt for a much simpler alternative, and allow dividends received to be tax free, full stop. The franking nonsense, confused as it is to the point of absurdity, would be hardly necessary if the objective were simply to put an end to double taxation of company profits.

That brings me to the point that simple legislation, along such lines, was introduced by the present Leader of the Opposition, the honourable member for Bennelong (Mr Howard), and passed by the Parliament prior to the election of the present Government in March 1983. Admittedly it was a modest enough start along the road to ending double taxation of company profits, in that there was to be a limit of $1,000 of tax free dividend income. One of the first acts of this socialist Government was to repeal that legislation. So, when the Treasurer mouths his completely misleading nonsense about this trail-blazing initiative, it should not be overlooked that between March 1983 and very recent times, the Government has had ample opportunity to legislate on what it now seeks to describe as a new and desirable reform. Law was already in place before it come to office, yet that self same Hawke Government repealed it. While, with all the complexity and imperfections, these imputation Bills are different, the underlying philosophy is identical to actual law put into the statute books by the previous coalition Government.

Another aspect of the legislation on which I wish to touch is a matter that I have raised previously. It is my genuine and very real concern about the extent and increasing incidence of discretionary power being given to or exercised by-or both-the Commissioner of Taxation and, therefore and importantly, to his delegates in the Australian Taxation Office. Examples of more discretionary power are to be found in at least two of the Bills being debated cognately. One concerns company tax imputation, and it is stipulated that the Commissioner may, at his discretion, remit the whole or part of the penalty additional tax where a company errs if it gives an incorrect dividend statement to a shareholder; fails to furnish a return in respect of a franking year; or makes a false or misleading statement resulting in a reduction of the franking deficit tax properly payable.

At first reaction it might seem that the exercise of the Commissioner's discretion to remit penalties, in fact, confers a benefit and, therefore, is unobjectionable. To those who may be tempted to adopt that viewpoint it should be said that total discretion to remit penalties confers yet another instrument on officers of the Australian Taxation Office to wield ruthlessly in what has become a horse-trading approach to settling differences between the ATO and taxpayers in general. The power to bestow a benefit offers the opportunity to follow that course in return for a concession from the taxpayer or taxpayers. That is unwise in the extreme. If tax law is so inadequate or imprecise, it should be changed. Granting power to hector or otherwise depart from normal standards of decent and preferably exemplary behaviour by public servants is an unwarranted cop-out by government.

Another type of discretion is also to be afforded to the Commissioner and, through him, to officers of the Australian Taxation Office by provisions in the legislation to amend the Taxation Administration Act 1953. Over recent times officers of the ATO have increasingly abused formal and informal powers in dealing with taxpayers. The need to exercise greater formal power when making inquiries about group tax deductions from the remuneration of employees has simply not been demonstrated.

In conclusion, and in the absence of a demonstrated need, extending power beyond the present requirement that tax inspectors be allowed access without obstruction to premises and records is simply not warranted. Because of the speaking arrangements, I conclude on that note. I support the amendments moved by my colleague the honourable member for Mackellar (Mr Carlton).