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Tuesday, 22 June 2010
Page: 6168


Mr NEUMANN (7:44 PM) —I speak in support of the Tax Laws Amendment (2010 Measures No. 3) Bill 2010. This bill amends the tax laws, as so much tax legislation does, by way of schedule. There is a plethora of issues raised in it, but I will just go through them briefly, from schedule 1 to schedule 5. The first schedule deals with the government’s budgetary measures relating to freezing of indexation of co-contribution income thresholds for the 2010-11 and 2011-12 income years. It also relates to the matching rate and the maximum contribution payable at $1,000. Currently the government’s co-contribution scheme matches the eligible personal superannuation contributions for qualifying individuals at a rate of 100 per cent to a maximum of $1,000. The current rate reflects changes in the 2009-10 budget, when the government announced a temporary reduction in the matching rate and maximum government co-contribution payable for eligible personal superannuation contributions to the level of 100 per cent and $1,000. The maximum co-contribution is payable to assist individuals who have low incomes. For those individuals with incomes at or below $31,920 in the 2009-10 income year it applies, and it phases out at 3.333c for every dollar above the threshold. For contributions made in that year no co-contribution is payable for an individual’s income where it is greater than $61,920.

It is quite clear that this is the government’s way, in terms of co-contributions, to assist middle- and low-income earners with superannuation to allow them to live their retirement years with dignity, respect and financial security. This is a good scheme that we have. The superannuation industry, a trillion-dollar industry in this country, does provide opportunity for people, particularly those on low incomes, to save for their retirement. It is a compulsory form of saving. Those opposite oppose steadfastly the superannuation industry and the superannuation guarantee, but we are pleased that there seems to be at least some agreement that this is a good thing for the country.

Proposed amendments mean a number of things. They mean for the 2010-11 and 2011-12 income years the low- and high-income thresholds will remain at those figures I said. Current indexation arrangements will recommence for 2012-13 and later income years. Proposed amendments also mean some other changes with respect to the assistance provided. These changes have a fiscal impact of a not insignificant amount. We are talking about $645 million over forward estimates, an enormous sum of money which will assist the government to get back into surplus within three years, as we have committed in the budget speech of the Treasurer.

There are two components, as I said, to the government’s action on superannuation for people on low incomes: changes to the co-contribution and the new low-income earners superannuation contributions tax rebate. We are keeping, as I said, the very compassionate and generous co-contribution worth up to $1,000 per year, and matching eligible contributions dollar for dollar.

There are a number of other things we are doing with respect to superannuation, which I think is so important. The government has announced, and the Treasurer and the Prime Minister have made it crystal clear, that we intend to boost superannuation savings of middle- and low-income Australians through what we have described as our stronger, fairer and simpler superannuation reforms. From 1 July 2010 the government will provide a contribution of up to $500 for workers with incomes up to $37,000. This is going to assist a total of about 3.5 million Australians who have income up to that amount. They currently receive very little in terms of assistance and so this is a very generous thing to do. It is the right and decent thing to do to assist those Australians. In contrast, only about 20 per cent of eligible low-income earners benefit from the existing co-contribution scheme, and the government will still provide the co-contribution of up to $1,000 to give them a helping hand.

The government’s commitment to superannuation is crystal clear in our very strong commitment with respect to the resource super profits tax and what that will enable the Australian community to receive. One aspect of what we will use that superprofits tax money for is to help fund a higher superannuation guarantee of 12 per cent, which will assist 8.4 million Australians, phased in over seven years from 2013-14. As I said, the superannuation for low-income earners will give 3.5 million Australians up to $500 from 2012-13.

The government’s commitment to the superannuation industry is clear. The government believes that superannuation is an important part of the Australian way of life. It is a great reform initiated by the Hawke and Keating governments across the 1980s and through the 1990s. It is one of the lasting legacies of governments which made a significant impact in terms of financial reform, tax reform and industrial relations reforms as well. The Rudd government is committed to the superannuation industry and providing generous superannuation assistance which will enable Australians to live free from the anxiety of living their retirement years in poverty and deprivation. We are keen to make sure that occurs.

There are other changes. Schedule 2 deals with the operation of what is called the thin capitalisation rules with respect to authorised deposit-taking institutions to take into account the January 2005 adoption of the Australian equivalent to International Financial Reporting Standards. The thin capitalisation rules are important for the Australian economy. A thinly capitalised entity is one whose assets are funded by a high level of debt and a relatively small amount of equity. An entity’s debt-to-equity funding is sometimes expressed as a ratio. Economists and financial advisers talk about this sort of thing from time to time. Accountants also use this sort of expression. For example, a ratio of three to one means that for every $3 of debt the entity is funded for up to $1 of equity. Commonly they call that ‘gearing’. So thin capitalisation rules are important. The Australian Taxation Office rigorously pursues these issues. We think they are important for maintaining the integrity of the tax system and maintaining the economy and they are important for the interaction between Australian and international companies as well.

Schedule 2, which, as I said, deals with this, amends division 820 of the Income Tax Assessment Act 1997 to amend the operation of the thin capitalisation rules for authorised deposit-taking institutions to make sure that they take into account the adoption of the Australian equivalent to International Financial Reporting Standards. The operation of the thin capitalisation rules is amended to make sure that certain assets which the Australian public would probably consider unnecessary to be considered as equity are taken into consideration—for example, Treasury shares. The value of a business enforced component—for example, what is often described as an excess market value over net assets—is taken into consideration. There is capitalisation of software costs, which will increase the amount of equity that an ADI must hold in Australia by only four per cent of its value.

These are important changes. The thin capitalisation rules are important for ensuring that Australian and multinational companies do not allocate to Australian companies or entities a gross or excessive amount of debt incurred overseas. So this is a particularly important change, because the thin capitalisation rules take into consideration the treatment of equity and debt. The adoption of this amendment is important for maintaining the consistency of our rulings, particularly with respect to the tax laws of this country.

The third schedule deals with the removal of any possibility that the use of information which arises as a result of the operation of the Income Tax Assessment Act which is provided to, say, the Australian Taxation Office conflicts with or potentially reveals information which will prejudice national security. For example, a disclosure of information while the tax authorities are administering the Income Tax Assessment Act may end up prejudicing or providing information which may impact upon our security and intelligence services. This schedule gets rid of the potential conflicts in these circumstances. The measure removes any prospect of doubt about whether the taxation authorities’ general practice of agreeing to the security agency’s request not to seek that information is always legally justified by providing a legal justification and framework. It does that by making sure that the directors-general of ASIO and ASIS declare that the tax laws do not apply to specified transactions. It provides a legal framework, justification and authority in circumstances in which in the past this was simply a practice. This is an important reform to protect the national security and intelligence services and their effective operation.

Briefly, the fourth and fifth schedules are also important changes. The fourth schedule deals with special disability trusts, which were introduced in 2006 to assist families and carers to make private provisions for current and future care and accommodation of a family member, particularly someone who, sadly, suffers from severe disability. That person is referred to as a ‘principal beneficiary’ of that particular trust. Income of that SDT which is not expended for the care and accommodation of the principal beneficiary is taxed at the top rate, which simply sounds unfair. That money could be unexpended. It is income in the trust. It is now going to be taxed at the beneficiary’s marginal tax rate, and that is a fairer system in the circumstances. I think it is a measure which shows the government compassion. I think it is simply wrong that those individuals should ever have been taxed at the top personal rate in addition to paying the Medicare levy, especially given that these trusts were established to provide for people with severe disability and those in serious need as a consequence thereof.

The fifth schedule amends the definition of a managed investment trust. A media release of the Assistant Treasurer talked about this in detail. I will not go through it, but he makes it plain that the changes to the definition are part of a move to closer align the definition of a managed investment trust for withholding tax purposes with a definition of same for capital account purposes. He makes it plain—and I have seen what has been said about this—that this is part of the government’s strategy to ensure that we have a strong system for international transactions of government businesses that involves better security and better certainty and clarification of the definitions of managed investment trusts and to make sure that Australia is a more competitive place with respect to financial services—that we can compete with the likes of Singapore, Hong Kong, China and Japan. We need to make sure, if we are going to attract business investment and the many entities in the myriad corporate structures that are being created these days, that we have a legal framework that will provide security. We want to make sure that Australia has a competitive funds management industry, which employs many people in the service industry across this country. They were hit hard by the global recession. We want to make sure that we can advance our economy, and that is done through the service industry and through financial advice. These amendments add certainty. They will make sure that we attract foreign capital and that businesses know where they stand on the definition of a managed investment trust. These are important reforms. They sound a bit esoteric, a bit obscure, but they add benefit to our business community, our investment community and our superannuation community and thereby add benefit to the Australian community. I support the legislation.