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Monday, 16 November 2009
Page: 11738


Mr NEUMANN (7:08 PM) —I speak in support of the Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009 and related legislation before the House. As the shadow minister said, there are three schedules in relation to this legislation. Schedule 1 deals with fairness and integrity with respect to the tax laws relating to employee share schemes. I must say that I am comfortable with the legislation as it is currently before the House. I am a supporter of employee share schemes. Under existing arrangements, employees who take part in an employee share scheme are required to pay tax on any discount on the market value of a share or right they receive from their employer.

Employee share schemes are good because they allow working people the opportunity to be involved in decision making with respect to ownership of companies, and that is a good thing to engender enthusiasm, commitment and motivation to a workforce. So anything we do to support employee share schemes through tax concessions should be lauded and supported. We cannot, however, upset the balance and allow people to evade tax. The government, after much consultation with unions, stakeholders, employees and employers, have finally got the balance right. I say this because I think that when we do things, say things and announce things in politics, we need to think carefully about it. The government’s intention in the budget was good, noble and right, and I think the legislation before the House today is a better piece of legislation in relation to this particular matter than that which was announced earlier. People who earn $60,000 do not consider themselves rich. We need to give incentives to ensure that employees take ownership of the companies that they work for and that they can participate and get the benefits that employers do.

The legislation ensures that there is means-testing with respect to the $1,000 upfront tax exemption. It provides that the tax exemption will be available to taxpayers with an adjusted taxable income of less than $180,000. Deferral arrangements that apply to a capped salary sacrifice scheme will be limited to $5,000 worth of shares. Eligibility for deferral treatment will flow from the structure of the scheme rather than any choice that an employee makes. The minister and the government have said that removing the employee’s election to defer will decrease the ability to avoid taxation. There is a limitation with respect to the maximum time for deferral of tax from 10 years to seven years. I commend the government for the better reporting measures with respect to shares and rights acquired under employee share schemes at issue and the employee taxing point. That is better. Of course, there is an onus on employees to do that, but that needs to be done by employers if we want to maintain these types of schemes that are beneficial to employees and if we want to maintain the integrity of the tax system. We want to make sure that it is fair and that it supports jobs and investment in nation building and infrastructure. That is the reason that we need to raise taxes. This measure will raise money for the government which will assist people in my local community as well as across the country.

The measures will have effect from 1 July this year. Employees who have already entered into a share scheme under existing law will be covered by transitional arrangements in the legislation. The shadow minister was quite critical of us in relation to this measure, but we have listened and learnt. The consultation process was important. A comprehensive process was undertaken to develop these reforms. We have worked with many people to develop the most effective method by which tax can be paid and not evaded, as was allowed by the previous government.

Schedule 2 deals with non-commercial losses. The proposal is to ensure that non-commercial losses are tightened for high-income earners. One of the experiences I had when I was practising as a lawyer was that many people would come to see me in relation to tax or litigation matters. I would get statements of assets and liabilities. For example, if I were acting in a personal injuries claim or, indeed, a family law dispute or a property settlement, you would find on numerous occasions that they were quite high-income earners, but they had, by virtue of their lifestyle, hobby farms, avocado farms or banana plantations, or they decided that they would run commercial aircraft, because, for example, they had an interest in aircraft and had previously been a pilot so they could do that. But many of these very high-income earners for whom I acted when I was involved in cases were quite open about the fact that they intended to solely make losses with these enterprises. It was solely to offset against the high income they earned from their other businesses or other salaries and entitlements that they got from employers. It was a means by which they could reduce their taxable income.

The truth is they should have been paying tax; they should not have been allowed to do this. We want to make sure by this legislation that only those businesses which are commercial in nature and likely to make a profit are allowed to operate in a way so that people can offset tax losses in those businesses against income earned elsewhere. We do not want the manipulation which can easily happen by high-income earners. They can, by the miracles of modern accountancy and by the fact they have resources available, adjust their affairs in such a way so they can avoid tax that all of us PAYE taxpayers pay.

The integrity of the tax system is at stake. We are not about trying to change genuine business activities. We are not about trying to prevent people who want to pursue avocado farms or banana plantations or run commercial aircraft in a way to make a profit. It is not about that; it is about simply ensuring the integrity of the tax system. It is about treating all Australians equally I think in the circumstances and it is about fairness and justice for all of us.

The four tests do remain. I am not going to repeat those four tests. The shadow minister went through that at length. The existing rules do remain for all taxpayers with an adjusted taxable income below $250,000, and the existing exemptions for primary production and professional artists remain as well. That is important, particularly in an electorate like mine—Blair in South-East Queensland, which is a rural and regional seat that is becoming more regional and rural with the redistribution, although it is taking in more of the city of Ipswich. Having the current arrangements apply to those earning less than $250,000 is important. It means that low-income, middle-income and, indeed, high-income earners can pursue genuine commercial activities, but excessive income earners—if I can put it like that; those earning way above $250,000—will be prevented from manipulating the system.

There is a discretion that the Commissioner of Taxation has. If the business is objectively assessed as being commercial in nature—not just a hobby farm and not just a lifestyle choice but something that is there to make a profit—the offsets can take place. They are entitled to make that application and I think they are entitled to expect the Commissioner of Taxation to deal with that application in a timely way.

This measure will, on the evidence that is before the House, raise hundreds of millions of dollars. Those hundreds of millions of dollars are necessary to do a lot of things, including our community infrastructure package. In my electorate, for example, there is $34.7 million for constructing and repairing social housing, the $124,900 that was recently announced for the Lake Dyer bikeway circuit, the $3.4 million that was recently announced for the lagoon project in Ipswich and even the $2.5 billion for the upgrade of the Ipswich Motorway. We cannot afford these types of things unless we have integrity, fairness and justice in our tax system.

The final thing I want to talk about relates to the third schedule, which is very uncontroversial in the circumstances. It really is about lost members’ superannuation. There is a growing problem as people move from job to job and pick up superannuation in little bits and pieces. They have very small amounts of superannuation, which are lost or often eaten up by fees, charges and administration costs. It is estimated that the reforms in this schedule will mean that government revenues will benefit by $238 million over the forward estimates.

People who have lost superannuation can get it back, but superannuation providers will be required to transfer that lost member’s account from the Commissioner of Taxation to the government. If the superannuation account is lower than $200, as is specified in the schedule, it is going to be chewed up easily by administration fees and just wither away, so transferring it to consolidated revenue is a sensible way to go about it. It does not mean that former holders cannot claim. It does not mean that they cannot get their money back. It does mean that there are some long-term benefits to the Australian taxpayer.

This legislation before the House is not particularly controversial. It does bring about some justice and fairness in the tax system and improves integrity. It means that higher income earners cannot adjust their affairs in a way that low-income earners cannot. It means also, with respect to employee share schemes, we have a better balance when giving incentives to employees to participate and have ownership in businesses, which is a great thing in the free market system that we have. It also means that people cannot manipulate their employee share schemes in a way that evades tax.

Most of the legislation that we put forward in this House in relation to tax is noncontroversial but it does improve the tax system, and that is good for all of us. Any way that we can reduce the Income Tax Assessment Act and improve the tax legislation in this country is of benefit to us and those who come after us. I commend the legislation before the House.