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Monday, 21 November 2011
Page: 12979

Mr BUCHHOLZ (Wright) (17:51): I rise to speak on the Tax Laws Amendment (2011 Measures No. 8) Bill 2011. Certain schedules in the bill make changes to taxation laws. Schedule 1 gives the commissioner discretion in certain circumstances to disregard events that would otherwise trigger the assessment of certain incomes on primary production costs. We support that part of the schedule. It is not contentious. Schedule 2 speaks to making a retrospective change to the taxing point of the petroleum resource rent tax and schedule 3 makes directors personally liable for the unpaid superannuation of employees and PAYG withholding tax. Schedule 4 enacts consequential amendments regarding the tax on gaseous fuels, which we support and which is not in contention. I would like to address each of these schedules and the proposed changes one by one.

Schedule 1 relates to the commissioner's discretion pertaining to certain income on primary production trust. This schedule returns the laws to the position prior to the introduction of the Income Tax Assessment Act 1997. Specifically, it relates to section 385-E, 385-F and 385-G of the act, which, among other things, allows primary production trust and deferred taxation liabilities from the profit of the sale of livestock in years where they have been affected by drought, flood, fire and disease. Under the current laws, if any beneficiary of a trust dies, then this tax liability cannot continue to be deferred. In effect, this means that the primary production trust can be liable for a large and unexpected tax liability in the event of an untimely death. In fact, tax liability is triggered on the death of any beneficiary of the trust, regardless of whether or not the deceased beneficiary is presently entitled to the income from the deferral. This would seem to me to serve no public interest and only compound personal grief in a time of need. Under the previous 1936 Income Tax Assessment Act, the Commissioner of Taxation had discretion over whether a death would trigger a tax liability or not. The change to remove the discretion was made as part of a general limiting of discretion, but led to unforseen and harsh consequences for family farm enterprises. Consequently, this change to the taxation law was proposed by the opposition to correct this. It is my understanding the government has accepted it as a sensible change, recognising there is low financial impact, and we commend the government for that.

Schedule 2 relates to the taxing point for the petroleum resource rent tax, or PRRT. This tax is a profit-based tax which is levied on petroleum projects in Commonwealth waters, except the North West Shelf project. Under the changes developed in conjunction with the mineral resource rent tax, the current PRRT regime was proposed to be extended to all Australian onshore and offshore oil and gas projects, including the North West Shelf. However, the legislation does not deal with that change; rather it is a technical change supposedly clarifying the taxation point of the existing PRRT regime—that is, petroleum recovered in Commonwealth waters excluding the North West Shelf project. More specifically, this change will have application only to the Bass Strait ExxonMobil project, which BHP is partnering. In fact, the taxation point, along with other matters, has been challenged in the courts by Exxon for many years since the Bass Strait project was brought into the PRRT regime in 1990-91.

The schedule gives effect to an announcement by the Treasurer in the federal budget on 10 May 2011 and is specifically directed at curtailing ongoing litigation between the Australian Taxation Office and Esso Australia Resources, a wholly owned subsidiary of ExxonMobil Australia. This litigation was the subject of a recent Federal Court decision, Esso Australia Resources Pty Ltd v the Commissioner of Taxation [2011] FCA 360 on 13 April 2011, and is the subject of an ongoing appeal. In light of all this dubious history, I am amused that the government has variously claimed that the PRRT is working well and is well understood. In fact, here we are in relation to one of the major offshore projects coming under the PRRT and yet the government has been in litigation for more than 20 years on issues such as the appropriate definition of the taxing point. As a result, I cannot help but conclude that this part of the bill seeks to undercut the court proceedings currently underway. It enables potentially two things: either the government's views prevail—in which case this amendment will not be necessary—or the government loses its argument in court—in which case this is retrospective tax legislation going back more than 20 years on the current prevailing tax laws.

In light of this background, this schedule should be opposed or amended for the following reasons: it seeks to retrospectively alter tax law to a 1990 act, reaching back over 20 years, and it targets one taxpayer who is currently in litigation with the Australian Taxation Office and the government as to the correct interpretation of the tax law as it stood at the time of relevant investment decisions. Tax laws which retrospectively disadvantage taxpayers—in this case going back to 1990—are highly unfair. The following are some comments from industry representatives to the House's economics committee on this matter. The comments from the Business Council of Australia's submission to the House of Representatives Standing Committee on Economics included:

… the BCA has been unable to identify a precedent for the introduction of retrospective tax law where there is an ongoing dispute between government and an individual taxpayer involving a debate as to the meaning of the law.

…    …    …

For this reason the BCA is asking the committee to recommend to parliament that it reject the retrospective elements of the bill.

There are additional comments from the Tax Institute of Australia in its submission to the same committee. They said:

In our view …

The Government will amend the tax law to provide greater certainty around how the taxing point is calculated for the purposes of the Petroleum Resource Rent Tax (PRRT), with effect from 1 July 1990. This measure will confirm existing application of the PRRT in relation to the taxing point and will provide greater certainty for PRRT taxpayers.

…    …    …

The amendments will provide further statutory support for the Court's judgment, and will be consistent with the established application of the PRRT law.

Additional comments come from the Institute of Chartered Accountants in Australia along the lines of:

As our written submission to this inquiry has highlighted, the institute is apprehensive that the risk presented to Australia is a governance framework from a failure to strictly adhere to the longstanding doctrine of separation of powers between the legislature and the judiciary. The government should not be allowed by the parliament to retrospectively amend PRRT laws dating back 21 years and should not be encouraged to usurp the role of the judiciary by amending tax laws part way through a major litigation that is seeking to test certain key concepts embedded in the PRRT regime. If the government is determined to introduce retrospective tax laws, it should at very least wait for the finalisation of this long-running litigation before deciding on an appropriate course of action in respect of the relevant issues.

The economics committee and parliament must consider the implications of the passage of this bill. It appears that the parliament is being asked to intervene in what is a longstanding legal case as it comes to the stage of a final appeal. This intervention by the parliament will in effect prevent such an appeal. This would appear to be creating a grave precedent and should be resisted at all points. Both the matters raised have the potential to create substantial uncertainty in the business environment, with repercussions for investor perceptions of the investment climate in Australia.

Schedule 3 covers the Pay As You Go Withholding Non-compliance Tax Bill 2011 regarding directors being personally liable for unpaid superannuation and PAYG withholding tax. This schedule proposes the following changes to tax law: making directors personally liable for unpaid superannuation guarantee amounts—not to mention, directors are already liable for unpaid PAYG withholding amounts; allowing the commissioner to estimate unpaid superannuation guarantee amounts—not to mention, they can already estimate unpaid PAYG withholding amounts; allowing the commissioner, once a company's unreported and unpaid debts regarding superannuation guarantee and PAYG withholding are over three months old, to immediately commence proceedings to recover the penalty; giving the commissioner discretion to reduce PAYG withholding credits where a company has failed to pay PAYG withholding amounts; where a director or an associate is entitled to claim a withholding tax credit and the company associated with that credit has not paid its PAYG entitlement in full to the ATO, then the ATO may levy a withholding non-compliance tax on the director or associate—up to the value of the credit being claimed—to recover the amount of unpaid PAYG.

The final three measures in this schedule target 'phoenix' activity and the personal use by directors of PAYG entitlements. Phoenix activity is typically associated with directors who transfer the assets of an indebted company into a new company of which they are also directors. The directors then place the initial company into administration or liquidation with no assets to pay creditors, meanwhile continuing the business using the new company structure. This schedule also targets companies which fail in their obligations to pay superannuation guarantee and PAYG withholding amounts.

Let me make this point very clear upfront: we absolutely support the right of every employee to be paid their rightful entitlements regarding employee superannuation contributions, or any other obligations under law an employer has. However, the Australian Institute of Company Directors in their report to the committee, outlined serious reservations about this schedule, believing the legislation has been drafted far too broadly. The implication of this was highlighted in Minister Shorten's own media release on 13 October where he said:

The ATO estimates that there are approximately 6,000 phoenix companies in Australia. This equates to approximately 7,500-9,000 company directors who will have personal liabilities under this legislation.

In fact, the legislation applies to around 1.2 million company directors in Australia; it throws a far broader net. It also applies the same penalties to new directors for events that occurred in a company prior to their appointment. But specifically I would like to highlight feedback from the submission of the Australian Institute of Company Directors which states:

1. The Bill applies to ALL directors of Australian companies, not just to directors of companies suspect of phoenix activity;

2. The Bill makes directors personally liable for the company's unpaid superannuation guarantee amounts—regardless of the directors' culpability;

3. The Bill makes directors liable for actions of the company, regardless of the circumstances in which the breach occurred (i.e. even when the company's breach is inadvertent);

4. The Bill makes new directors, that is, directors who have joined a company after a breach has occurred, personally liable for the actions of others and for which they were in no way responsible.

As a result, the AICD concludes and subsequently suggests limiting the application of the personal liability of directors to companies where phoenix activity has taken place and limiting the liability of directors to matters that occurred after their appointment.

Schedule 4, regarding consequential amendments to tax on gaseous fuel, seeks to clarify the treatment of LPG, LNG and CNG following the introduction of the taxation of alternative fuels legislative package which received Royal Assent on 29 June 2011. In particular, the changes confirm excise does not apply to CNG for transport use manufactured in a home refuelling unit on a non-commercial scale and fuel tax credits are available to distributors of LPG in a wider range of circumstances. Given these changes offer a reduced tax burden in each case, they are non-controversial and therefore the coalition supports this clarification.

In conclusion, as a result of this background and subsequent analysis, the coalition supports the changes in schedules 1 and 4. However, schedules 2 and 3 raise a number of issues that require greater prudence. There is nothing conclusive in the bill that has taken my mind nor convinced me that this bill will deject or dampen the entrepreneurial activities of repeat phoenix operators. This bill throws a wide net that will affect every employer in the country. I repeat it will affect every business that is currently struggling with layers and layers of compliance, which in my electorate is one of my small business sector's greatest barriers to business, coupled with the Consumer Confidence Index data which remains at record lows. Either way, the House of Representatives should have proper opportunity to consider the economics committee report before being asked to consider the schedules as they are not entirely straightforward.