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Tuesday, 19 March 1985
Page: 413


Senator PETER RAE(5.28) —The Senate is dealing cognately with the Trust Recoupment Tax Assessment Bill 1985 which provides that the trustee of a trust-the head of a trust where a chain of trusts is involved-the income of which was stripped under a new generation trust stripping scheme, will, subject to election arrangements, be liable to trust recoupment tax on the amount of the stripped income at the rate of 60 per cent. It also provides a right of election to beneficiaries of the stripped trust to enable them to eliminate the liability of that trust to trust recoupment tax by electing to be assessed for personal income tax on amounts equal in aggregate to the stripped trust income. It also provides that, where an election is not made and the stripped trust has ceased to exist, its beneficial ownership has changed or it is unlikely to pay the tax imposed, those persons who have directly or indirectly benefited from the stripped income will be jointly and severally liable for trust recoupment tax. It further provides rights of contribution and apportionment of liability via the courts to persons who are jointly and severally liable for trust recoupment tax. It further requires payment of additional penalty tax where a new generation trust stripping scheme is or has been entered into after 28 April 1983, and it renders void arrangements entered into after 28 April 1983 which have the dominant purpose and effect of directly or indirectly defeating, evading or avoiding any liability to tax arising under the legislation. The magic of that date-28 April 1983-is that it is the date upon which the present Government, when first elected, announced an intention to take action of the type proposed under this legislation.

The first of the associated Bills is the Trust Recoupment Tax Bill, which will formally impose the trust recoupment tax. It declares that the rates of tax on such taxable amounts shall be 60 per cent, 75 per cent and 46 per cent, depending upon whether certain elections have been taken, whether primary or secondary taxable beneficiaries are involved, and whether companies are involved. The Trust Recoupment Tax (Consequential Amendments) Bill 1985 makes a number of consequential amendments to legislation from the Administrative Decisions (Judicial Review) Act 1977 through to the Local Government (Personal Income Tax Sharing) Act 1976.

The provisions contained in this legislation have the broad general support of the Opposition, the broad general support of an opposition which when in government took more action to stamp out the tax avoidance and evasion industry than had been taken by any previous government. I commend the action taken by the former Government in the series of steps it took, commencing in 1978, in relation to trust stripping. On 12 June 1978 the then Treasurer and present Deputy Leader of the Opposition, Mr Howard, stated that measures would be taken with effect from that date in relation to trust stripping which at that time, as known and as acted against, related primarily to capital trust stripping. Further action was taken subsequent to that time by the former Liberal and National Party coalition Government. Further remedial measures to counter variants of the arrangements were taken in 1981 and further general anti-tax avoidance legislation was enacted with effect from 27 May of that year. The next date of particular relevance is 12 May 1982 because on that date the then Treasurer announced:

Should existing legislation be found inadequate to strike down any scheme of the trust stripping type, the Government will introduce appropriate remedial legislation. That legislation will have the effect after today-

I pause to interpolate that that day was 12 May 1982-

that is, it will apply to trust income of the current and subsequent income years, except where the income has been paid to or applied for the benefit of a beneficiary before tomorrow. The legislation will be structured so that taxes borne by the persons who are found to have rights to effectively enjoy the income, whether in a capital form or in any other way.

It was made perfectly clear that, so far as the government of the day was concerned, anyone who engaged in that practice after that time could expect to find legislation introduced to make such action unlawful and subject to legislative requirement of recoupment to the revenue. So it is quite clear that the Opposition has every intention, as expressed in government and exemplified by action taken repeatedly in government, to stamp out tax avoidance. We support entirely the intention of this legislation to take action to stamp out tax avoidance. However, we do have an attitude in relation to the question of retrospectivity which is important in this case.


Senator Jack Evans —And which changes from time to time.


Senator PETER RAE —My attitude in relation to retrospectivity has not changed in the past quarter of a century.


Senator Jack Evans —You said 'we'.


Senator PETER RAE —I simply say that my attitude has not changed since I first became involved in debating these matters. The Opposition's attitude to retrospectivity, which Opposition members have made clear in the debate on this legislation in the House of Representatives, is that we will support its being retrospective to 11 May 1982, the date upon which a member of the public could have had a reasonable expectation that the action he or she took with regard to trust stripping would be legislated against if it was found to exist and was contrary to the general intention of stamping out trust stripping. I believe, and have always believed, that it is extremely important that people do not find that that which was lawful at the time they did it is subsequently made unlawful by any government in any parliamentary democracy. It is of the most fundamental importance that people have the assurance that they can act with reasonable reliance upon two things. The first is that the law will be enforced as it stands; and the second is that if they have been given a statement of intention to act, they should have regard to that statement of intention to act, as has been the practice in relation to Budget Bills which announce the introduction of excise duty changes, which announce changes to tariff duties, which announce changes to all forms of legislation, and which very often announce in particular quite dramatic changes to taxes on consumer goods such as cigarettes and alcohol and other items.

Over the years such changes have always been taken to date from the time of the announcement of the Budget, although the legislation itself is not introduced and passed by the Parliament and cannot physically be passed by the Parliament immediately at the time of announcement. Chaos would exist in our type of society were it not for the application of that principle. As I said, the principle is that one can take the law as it stands with the exception, or warning, that one should base one's actions on a statement of intention when a government with the likely capacity to carry through its statements of intention makes it clear that it has the intention to act in a particular way to change the law. We have no quarrel with the legitimate prospective operation of this measure in accordance with the warning, the clear statement of intention, given by Mr Howard that legislation would operate from 11 May 1982.

I will at the appropriate time in the Committee stage move an amendment that will change clause 5 of the Bill, which provides for primary taxable amounts. It says that 'subject to sub-sections 2 and 3, where . . . at any time, whether before' and the rest of the things I roughly summarised in opening, will become subject to taxation. It refers also to tax avoidance schemes entered into on or after 1 July 1980. Were it the situation that there was a legitimate argument that some warning or statement upon which people ought to act and ought to rely have been given by the Government of the day, which indicated that action would be taken from 1 July 1980, the Opposition would see no reason why the legislation should not date from that day.

However, in all the second reading debate in this chamber and in the debate in another place, at no stage was any legitimate reason given, which we could find, which indicated why it should be dated back to 1 July 1980. Therefore, the amendment which I will be moving will be to change the date from 1 July 1980 to 12 May 1982. It is consistent with what has been done in this chamber, with the support of some members of the Australian Democrats, and the support of Senator Harradine on occasions. It is consistent with the operation of a system of law in which people are entitled to act upon the law as it stands or the law as they can reasonably anticipate it to be likely to be as a result of a clear and unequivocal announcement by the Government of the day.

I noticed that in another place an argument was put and rebutted. The argument that was put was akin to the fact that all tax avoidance was something which would be stamped out and, therefore, every measure of tax avoidance could be dated back to any date. The honourable member for Bennelong, Mr Howard, in answering the point on the raising of section 260 of the Income Tax Assessment Act, pointed out that that section had been introduced in about 1936. He said that that would justify the date of retrospectivity in relation to any amendment of legislation making unlawful any tax avoidance measure; it would be legitimate to date the legislation back to that date. With respect to the person who put the argument, I think that is a fatuous argument which would not be likely to gain general support. The only basis upon which one can put the argument is the basis upon which it was put. As I understood it, it was put on the basis that it is the policy of the present socialist Government that it will change the law retrospectively to whatever date it believes suits its case and its purpose. The Government will make unlawful actions which were lawfully taken by somebody at the time they were taken, wherever the Government deems it appropriate and in the public interest so to do.

I can understand the public interest argument where there is something foul, reprehensible, anti-social, destructive of the economy and inequitable insofar as the payments share between citizens of this country is concerned, such as tax avoidance. I can understand that there should be some enthusiasm to act in this way, but I do not see justification as opposed to enthusiasm. I do not see that there is any basis upon which the extremely important foundation principle of being able to find out what the law is, rely upon the law and act in accordance with the law, subject to that qualification of a clear and unequivocal announcement of an intention to amend it, should not be used as the system that prevails in our type of society.

We entirely accept the need for the taxation system to be amended in a variety of ways, including this amendment to date from the date on which it was announced that action would be taken, and we acknowledge the extreme importance in Australia today of action being taken to review the whole of the taxation system. I recall speaking on many occasions in 1971, in the period leading up to the Government of the day forming the Asprey Taxation Review Committee, on the failure of the taxation system. What had developed in Australia was a system which was patched up from time to time, rather in the way of a colander with water pouring into it, using band-aids to try to cover the holes, and after a little while the band-aids would fall off as somebody found a way through the amendments; what was needed was an overall review. However, I will leave to another occasion the debate on the overall review, because I do not want to muddy the waters of this matter by discussing the general, notwithstanding that we are dealing with the biggest spending, highest taxing, as a percentage of our wealth, government that this country has known since it became a nation at Federation.

The Opposition is proud of the record it has in taking anti-tax avoidance measures. It is proud of the fact that it squashed the tax avoidance industry. It is proud of the fact that when the coalition parties were in government, tax avoidance as an industry-except for a few small bits and pieces, of which this is one example-was squashed. The extent to which it was squashed is the fact that this example, at the very most, will involve $10m. Ten million dollars, in the total revenue of this country, is a very small part, which has been bypassed or overlooked in the measures which were taken by the former Government in acting to squash tax avoidance.

We do not believe that retrospectivity is justified to make illegal that which was legal and of which the public had no notice of the Government's intention to make unlawful. When in Government we gave warning that the legislation would date from 12 May 1982. We therefore support the measure as from the date of the giving of that warning. We would also, with that amendment, support the consequential Bills, and on that basis I would commend the legislation to the chamber. We look forward to, and hope that there will be, support for a continuity of a rational approach to the question of retrospectivity, that is, that retrospectivity in relation to this type of tax legislation can date from the date of a clear and unequivocal statement of government intention to act in relation to the particular measure which is to be introduced. On that basis, we will support the passage of the legislation as amended in the manner which I have indicated.