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Tuesday, 30 October 2012
Page: 12513


Mr TONY SMITH (Casey) (12:26): It was remiss of me earlier when I spoke not to congratulate you, Mr Deputy Speaker, on your long overdue election to the office of Deputy Speaker. The Tax Laws Amendment (Clean Building Managed Investment Trust) Bill 2012 will not be opposed by the opposition. Members in this House would recall that this year's budget announced an increase to the managed investment trust final withholding tax rate on payments to residents in countries with which Australia has entered into an exchange of information agreement. The withholding tax rate was doubled, from 7.5 per cent to 15 per cent. The coalition quite rightly opposed that in the Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 2012. As the shadow treasurer articulated at the time, we opposed it because it was an increase in taxation. It had the potential to discourage investment in long-term infrastructure. It had the potential to decrease future foreign investment in Australia, increase Australia's sovereign risk profile and put Australia out of step with tax rates in the Asia-Pacific region, undermining our objective of becoming a financial services hub in the region.

I will take some of the time of the House to recount the history of this matter. It is a history that is well known to the Assistant Treasurer sitting opposite. Back in 2008, with great fanfare, the incoming Labor government, the Rudd government as it then was, announced it was reducing the relevant tax rate to 7½ per cent. It was announced in Labor's first budget and, back then, the Assistant Treasurer—not the Assistant Treasurer sitting at the table now but the Assistant Treasurer at the time, the member for Prospect and now Minister for Immigration and Citizenship—lauded this important reduction to 7½ per cent and pointed out that the reduction to 7½ per cent was designed to send a signal to the international community. It was designed to send a signal from the Labor government.

The sudden decision to double the 7½ per cent in this year's budget also sends an undeniable signal, which is that, when it comes to matters of taxation, this government cannot be trusted. When it comes to matters of certainty, the business community has every reason to hold the belief that the only guarantee from this government is that guarantees cannot be kept.

It was not just those on this side of the House who pointed that out at the time of those debates in late June this year.

The respected financial commentator Jennifer Hewett summed it up very well in the Financial Review at the time, when she made the point that the debate through the course of that last week in June showed:

Labor has developed an unenviable reputation for its willingness to change tax rates and structures for investments.

This completely undercuts faith in the permanence of reforms that do occur …

The legislation through this parliament of that tax increase took some time and had various permutations. We are back here today dealing with what is perhaps the last of those. At the time, the government decided to reward the Greens for their support for increasing the 7½ per cent rate to 15 per cent by announcing that they would come forward with a lower withholding tax rate, of 10 per cent, that would apply to payments to nonresidents by managed investment trusts that hold newly constructed, energy-efficient commercial buildings. That is what the substance of this tax law amendment bill is about.

I will run through the key elements briefly. They include a withholding tax rate, as I just said, of 10 per cent, to cover certain trust payments to a resident in a tax information exchange country. To be taxed at the final 10 per cent withholding rate, the managed investment trust's payments can comprise only income and capital gains from clean buildings and assets incidental to clean buildings. A clean building must be constructed after 30 June 2012, be a commercial building—that is, an office building, hotel or shopping centre—and hold a five-star Green Star rating as certified by the Green Building Council of Australia or a 5.5 star energy rating as accredited by the National Australian Built Environment Rating System. Even if a building meets the relevant green standards, it will be ineligible if construction began earlier than 1 July 2012. This will be the case even if significant works had not commenced by that date.

There are some commercial obstacles presented by the bill that might prevent this concession being widely utilised. They relate to making sure that the trust satisfies the conditions to be a clean building MIT and will require careful structuring of the trust. A clean building MIT is restricted to holding taxable Australian property assets. Income from assets reasonably incidental to clean buildings—billboards and signage, telecommunication infrastructure attached to a building, and car parking facilities—will not affect the trust being a clean building MIT so long as the incidental assets are of some substance. Income from past incidental assets will not prevent the trust being an MIT, provided that income is not greater than five per cent of the trust income from clean buildings. Refurbished buildings, even where the works would lead to satisfying the standards, are ineligible. Holding other types of buildings from which it receives income will prevent the trust being a clean building MIT. The 15 per cent rate will therefore apply to payments to these nonresidents. The criteria to qualify as a clean building could lead to the precaution of quarantining these types of buildings into discrete trusts, which of course would add to costs and inefficiencies.

The concession is probably going to prove quite difficult to assess. Certainly that is the view of industry bodies and advisory firms expert in this area. The explanatory memorandum is being overly conservative in stating that the cost to revenue of the measure will be small and unquantifiable over the forward estimates. Nevertheless, as I said at the outset, the coalition is not opposing this bill. It does represent a tax cut over and above the tax hike introduced by this government some months ago, albeit to a very discrete area. As I said, it cuts the rate of withholding tax to 10 per cent from 15 per cent for these clean building managed investment trusts. Its purpose is to repay the Australian Greens for their vote to double the tax from 7.5 per cent to 15 per cent, but, as I said, on behalf of the coalition, it is a tax cut and we will not be opposing it.