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Thursday, 26 March 1998
Page: 1664


Mr GARETH EVANS (10:30 AM) —There are a variety of amendments here which have been made, essentially, to cover drafting errors and technical matters. None of them are opposed by the opposition.

I take this opportunity, however, to draw attention to one amendment to the legislation that has not been accomplished in our process in either house and which certainly ought to have been—that is, to deal with the absolutely unacceptable expanded exemption to the trafficking in trust loss legislation which is contained in this bill and which has been the subject of previous controversy.

The Labor Party's bill, as originally introduced in 1995 to cover the problem of trafficking in trust losses, did, as a significant concession to family business situations, enable the beneficiary of a family trust carrying a loss to inject into that trust income obtained from other sources and to apply it against the trust loss which that beneficiary would otherwise have to bear, for tax saving purposes.

Treasury and the tax office at the time did explicitly advise Treasurer Willis that this concession was already very generous and should certainly not extend to any further exemption. The version of the legislation, however, brought forward belatedly by the present Treasurer (Mr Costello) does include a further exemption which makes it possible for a very wide range of extended family members who are not already beneficiaries of the trust to themselves inject income to apply against a trust loss to avoid tax.

For example, a non-beneficiary as remote as a wife's grandmother or a niece's husband who wants to avoid paying tax on, say, $200,000 of property income can inject that amount into the relevant family trust, write off the income against any loss up to that value being carried by that trust and then have the $200,000 distributed back tax free. This particular exemption is a classic rorters' paradise. Our estimate, on the information available to us, is that the cost to revenue of allowing this enhanced exemption is measurable at least in tens of millions of dollars.

We asked a number of questions about this publicly and in the parliament during the passage of the legislation. We did not get answers to any of them. But, in a spirit of optimism, encouraged by the actual presence in the chamber on this occasion, unusually, of the Treasurer himself, I ask the questions again. What public policy justification, if any, was there for this expanded exemption, given the obvious scope for its use in tax avoidance by high-wealth families? Did up to 19 members of his front bench who have family trusts stand to benefit from this expanded exemption? Did the present Treasurer have the same negative advice from Treasury and the tax office as Labor did about any expanded exemptions for loss trafficking in family trusts? With whom did the Treasurer or his staff discuss the expanded exemption? In particular, were representatives of high-wealth individuals now being investigated by the tax office involved in those discussions? Why did the Treasurer mislead the House on several occasions by misstating, as he did, the effect of Labor's 1995 legislation, in particular refusing to acknowledge that our legislation did not allow non-beneficiaries to inject income for tax avoidance purposes? What was the precise estimated cost to revenue of this expanded exemption as compared with what would otherwise have been brought in by a properly crafted legislative package?

The truth of the matter is that here, as on so many other matters, the Treasurer talks big, claims that there are major problems in the tax system which need redress and talks endlessly about fairness, but when he has an opportunity right in front of him to correct an anomaly or not to create new ones, to actually genuinely ensure that a piece of anti-tax avoidance legislation has a genuinely anti-avoidance character and does not become a birthday party for a whole new category of avoiders, he throws it away. I think he continues to have a great deal to answer for in relation to this legislation. I invite him to give those answers right now.