Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard   

Previous Fragment    Next Fragment
Thursday, 4 December 1986
Page: 3345


Senator VIGOR(11.53) —As Senator Messner has said, the Taxation Laws Amendment Bill (No. 4) 1986, the Australian Capital Territory Stamp Duty Amendment Bill 1986, the Australian Capital Territory Tax (Transfers of Marketable Securities) Bill 1986 and the Sales Tax (Exemptions and Classifications) Amendment Bill (No. 2) 1986 are a batch of Bills which contain a medley of amendments to the Income Tax Assessment Act, the Australian Capital Territory Taxation Administration Act, the Bankruptcy Act and the Crimes (Taxation Offences) Act. Most of these amendments are consequential amendments relating to other Bills passed in the course of this session. However, certain provisions introduce new aspects into the taxation laws of Australia. The shadow Treasurer, the honourable member for Mackellar (Mr Carlton), when debating this package of Bills in the House of Representatives, stated:

It would not be necessary to introduce fringe benefits tax, capital gains tax, foreign tax credit systems, resource rental taxes, non-deduction of entertainment expenses and all the various additions to the taxation system if it were not for the insatiable demands of this Government for additional and unnecessary public expenditure.

That is a rather extraordinary statement, given that resource rental tax is a more generous tax regime than the one which it replaces, and that the remaining tax measures referred to close off various avoidance mechanisms by which a relatively small number of privileged individuals avoid carrying their fair share of the tax burden.

This package of Bills closes off some further tax avoidance mechanisms which even the Opposition seems unwilling to defend, despite the fact that some of its friends appear to have benefited greatly from them. The Australian Capital Territory Tax (Transfer of Marketable Securities) Bill closes off the mechanism by which companies incorporated in the Australian Capital Territory avoided Australian Capital Territory stamp duty on the transfer of marketable securities by the process known as the Darwin shuffle. Under the Darwin shuffle a company incorporated in one jurisdiction would transfer marketable securities on the register of another jurisdiction, such as that of the Northern Territory, where stamp duty was up to 90 per cent lower. By taking advantage of the varying stamp duty regimes companies were able to avoid substantial sums of stamp duty. A recently reported system of doing this involved the Bond Corporation. The New South Wales Finance Minister, Mr Debus, recently drew attention to an Elders IXL share transfer worth $460m on which $360,000 of stamp duty was avoided. According to Mr Debus, Bond Corporation, by the use of the Darwin shuffle, trusts and the Claytons contract-a verbal agreement, which is not subject to stamp duty-apparently the Bond Corporation managed to avoid $10m of stamp duty on the purchase of a hotel chain from Tooheys Ltd. This Bill will close off the Darwin shuffle in the Australian Capital Territory by subjecting all transfers by Australian Capital Territory incorporated companies to stamp duty irrespective of where the transfers occur. We totally support these provisions and believe that they are overdue.

The Taxation Laws Amendment Bill (No. 4) addresses a number of matters including further tax avoidance and tax minimisation measures. The Australian Democrats support the levying of tax being adjusted to the balancing date of the company; the levying of provisional tax on the real beneficiary in the case of artificial partnerships and closely held trusts; and the full taxation of natural resource income and royalties paid to non-residents. We also support the beneficial changes to the taxation of life assurance bonuses and of options to acquire shares or debentures in a company. However, we do not support the levying of a $200 fee on any person who wishes to apply to the Administrative Appeals Tribunal for review of a decision by the Commissioner of Taxation. We will move an amendment during the Committee stage to change this provision in the Bill.

I was disappointed to hear from Senator Messner that the Liberal Party would not support this amendment, especially after what he said on this point. I agree totally with the sentiments that he expressed in his speech and I am very disappointed that he is not translating them into action by voting for our amendment which would lower the fee collected from people appealing to the Tribunal from $200, which I believe is extortionate in the case of ordinary taxpayers, to $10, which I think would reasonably cover administration costs that may be incurred in the appeal process.

I now come to the Sales Tax (Exemptions and Classifications) Amendment Bill (No. 2). It is apparently an innocuous little Bill. Clause 3 is said simply to put beyond doubt that a rule of statutory interpretation-namely, that a specific provision overrides a general provision-applies to the Sales Tax (Exemptions and Classifications) Act. This is really a case of Yes Minister. Anybody who has been a regular viewer of Yes Minister or who has had detailed dealings with government bureaucracies will immediately wonder why such an innocuous little Bill is put forward. If the rule of statutory interpretation is firmly established, why has it been thought necessary to put this statement into legislation? It seems an amazing situation. As one might have expected, the answer appears to lie in an attempt by the bureaucracy to conceal an error in the drafting of an earlier amendment to the Sales Tax (Exemptions and Classifications) Act, which made bathroom fittings subject to sales tax without amending certain other exemption provisions of the first Schedule which apply to some bathroom fittings. Senator Messner has mentioned this as well.

A letter from Firmstone and Partners, chartered accountants of Phillip Street, Sydney, supported by a telex from a Melbourne sales tax discussion group, comprising a number of leading accountancy firms, contends that the effect of clause 3 will go well beyond correcting the anomaly relating to the taxing of bathroom fittings. I seek leave to incorporate that letter in Hansard to save some of the time of the Senate.

Leave granted.

The letter read as follows-

FIRMSTONE & PARTNERS

130 Phillip St., Sydney

GPO Box 4644, Sydney 2001

Telephone (02) 231 2933

Telex AA72058

12 November 1986

Senator D. Vigor,

Parliament House,

Canberra, A.C.T. 2600

My Dear Senator,

SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) AMENDMENT BILL (NO. 2) 1986

The abovementioned Bill, which will shortly come before the Senate, seeks to amend the sales tax law to ensure that specific taxing provisions override generally expressed exemptions.

This Firm considers that Parliament has been deliberately misled (on the reason for the Bill) and its potential impact on charities, schools, and the like.

The amendment should not be allowed and we hope that you and your colleagues will oppose its enactment.

Misleading Statements by the Minister

In introducing the Bill in the House of Representatives, the Minister Assisting the Treasurer, The Hon. Chris Hurford M.P. stated that the amendment sought only to put beyond doubt the approach that had always been adopted in the administration of the sales tax legislation. I have attached a copy of the Minister's speech and the Explanatory Memorandum (which supposedly illustrates the type of problem the Bill will rectify).

In this Firm's view, both documents contain grossly misleading statements. Moreover, it appears that there has been a deliberate attempt to conceal from Parliament the real reasons for the Bill and its potential impact.

Real Reason for the Amendment

The examples given in the Explanatory Memorandum to illustrate the need for the amendment relate to the possible exemption of precious stones (taxation at 30%) under exemption items applicable to stone and to non-processed primary products derived from operations in fisheries. Without wishing to dwell on technicalities, these examples are nonsense.

The provisions covering precious stones, stone and fishery products have been roughly in their current form for over 30 years. During that time, the Commissioner of Taxation has never needed an amendment to the law to support his view that precious stones are taxable at 30% and quite clearly he does not need one now. In this regard, it would be trite, to say the least, to consider precious stones as being derived from operations in fisheries. Similarly, the context in which the exemption for stone is given makes it clear that it only applies to building materials.

The real reason for the amendment is that an error was made in drafting a sales tax amendment contained in the 1986 Budget. In moving bathroom fittings from the exempt to 10% schedule, the draftsman neglected the fact that other exemption provisions also cover some bathroom fittings. Because of this error, a conflict has arisen between those exemption items and the new 10% item.

Lest there be any doubt as to the real reason for the Bill, I have attached a letter from the Assistant Commissioner of Taxation to the various State Branches of the Australian Taxation Office in regard to the matter. Your attention is particularly drawn to paragraphs 4, 5 and 7 on page 2 of the letter. These paragraphs highlight the conflict and state that action will be taken at the first opportunity to amend the law.

That the real reason for the Bill has been deliberately concealed from Parliament is bad enough. However, the Bill's potential impact and its effect on past administrative practice have also been demonstrably misstated.

Potential Impact

The Bill's stated purpose is to confirm what has always been the administrative practice of the Commissioner of Taxation. This is quite simply untrue.

A number of sales tax provisions categorically state that where goods are covered by an exemption item, they are not subject to tax irrespective of any other provision of the legislation. For over 45 years, the Commissioner of Taxation has accepted that goods which are specifically described under taxable items (e.g. motor vehicles) will qualify for sales tax exemption when also covered by a general exemption provision (e.g. goods for use by public benevolent institutions such as the Red Cross).

That the Bill reflects a new administrative practice is confirmed by paragraph 5 of the Assistant Commissioner's letter which indicates that the practice has been adopted on the basis of recent advice from Parliamentary Counsel regarding the bathroom fittings problem.

It is stressed that the Bill has the potential to deny sales tax exemption currently granted to public hospitals, charities, religious institutions, schools, public authorities and State and Local Governments on a wide variety of goods which they purchase. This is due to the fact that the sales tax exemption items covering these organisations are couched in general terms which, if the Bill becomes law, could well be overriden by specific taxing items. The same would apply to goods used in industries such as agriculture, mining, and manufacturing. To illustrate, I have attached a list of some goods which are specifically described by taxing items. Quite clearly, hospitals, religious organisations, charities, and the like may no longer qualify for exemption when purchasing these goods, if the Bill is passed.

In the short term, the potential impact of the Bill would be confined if the Commissioner of Taxation was to determine that the exemption provided to public hospitals, etc. is not affected by the Bill. However, it is hardly appropriate for bodies such as public hospitals and the Red Cross to rely upon a beneficent Commissioner for the continuation of their sales tax exemption entitlements. Furthermore, it is clearly inappropriate for the Commissioner to be allowed to apply the law to some sections of the community and not to others. That in effect would be a usurping of Parliament's power.

Such an approach would also be highly undesirable for taxpayers. Sales tax is a self-assessing tax and bearing in mind the heavy penalties that apply for incorrect assessment, it is simply not good enough for taxpayers to be left in a position of uncertainty and confusion pending the Commissioner's determination as to whether a taxing item is more specific than an exemption.

Conclusion

The Government and its advisors have over-reacted to the problem experienced with the bathroom fitting amendment. Their hasty attempts to correct their error are akin to driving a nail home with a sledge hammer without considering the damage that may be caused to the fabric of the wall.

The Government should be honest enough to admit that there was a mistake made in drafting the bathroom fitting item. Its resolution should be confined to amending the relevant exemption items. Sloppy drafting is no excuse for the type of sleight of hand that is currently being attempted nor is it a compelling reason to hand to the Commissioner of Taxation the power to determine who will qualify for exemption and who will not.

For the reasons outlined above, we strongly urge your opposition to the amendment as a matter of principle.

If I can be of any assistance in clarifying the matters raised herein, please do not hesitate to contact me.

Yours sincerely,

GERRY TAYLOR, BEc ACA,

DIRECTOR,

FIRMSTONE & PARTNERS.


Senator VIGOR —I thank the Senate. The Bill has the potential to deny sales tax exemptions currently granted to public hospitals, charities, religious institutions, schools, public authorities and State and local governments on a very wide variety of goods which they purchase. I wish to move an amendment to the motion for the second reading so that we may refer this Bill to the Senate Standing Committee on Finance and Government Operations. I commend the Opposition for supporting the amendment. I move:

At end of the motion, add: ``with the exception of the Sales Tax (Exemptions and Classifications) Amendment Bill (No. 2) 1986, and that that Bill be referred to the Standing Committee on Finance and Government Operations for report by the fourth day of sitting in 1987''.

I turn now to the changes which have been proposed to the Income Tax Assessment Act to counter arrangements to avoid provisional tax through the use of trusts or partnerships. There have been considerable changes in this area in respect of the current law. While recognising that this may affect a considerable number of taxpayers and possibly cause some hardship to these taxpayers in coping with the new and changed requirements, the Australian Democrats support the principle that people ought not to abuse family trust arrangements for the purpose of avoiding provisional tax. However, I would like to elaborate on the point I have just mentioned. The difficulties for ordinary citizens nowadays in preparing their taxation returns are enormous. It seems that even our Treasurer (Mr Keating) has found it a task so onerous that he could not find the time to complete his return by the due date. The average taxpayer is in a much less fortunate situation than the Treasurer. I have had numerous calls from taxpayers over the last week. It appears that ordinary pay as you earn taxpayers are given only six weeks of grace after the due date for returns and then they receive a computer-generated final notice. It appears that the Treasurer may have received favoured treatment in this case if he did not receive this notice, or he may have just simply ignored it.

I contend that the current taxation system is very much like a mass of spaghetti in tomato sauce-or more like tagliatelli bolognese-with the meat of the legislation smothered by a tangled mass of red tape. For the ordinary taxpayer, with maybe a savings or investment account or two, and possibly a few shares, it has become a formidable task to keep in mind the myriad of changes which are made to taxation laws each year. The task becomes horrendous and almost impossible for the small businessman or farmer, for the self-employed person paying provisional tax. Of course, this has been quite good for the accounting profession-it is a bonanza for it. As the complications of the tax returns increase, so do the charges made by accountants and tax agents. For all these categories of taxpayers, many of whom will pay no tax beyond what has already been deducted, the cost and hardship in preparing tax returns is a quite unwarranted burden.

While the Australian Democrats can see the need to continue to close off tax rorts and tax avoidance rorts of big business in particular, we believe that the small ordinary taxpayer is bearing a bigger administrative burden due to the red tape which is being tied around this area of government operation. It is no wonder that small businessmen are giving up the unequal struggle with proliferating government regulations, tax amendments and administrative loads and are getting out of business, retiring on their savings or going overseas to find a better way of living. This is not good for the generation and development of new exports for Australian industry and for sensible proposals for getting Australia out of its current problem.

We are not just overtaxed, we are overburdened with tax red tape. My only concern is whether this Government is capable of producing any legislation that is simple enough to operate, non-bureaucratic and equitable. It is time that the Government woke up to the realities of the market-place in Australia and that public servants in the Department of the Treasury woke up to this measure. We need to shift the burden of taxation from taxes on labour to taxes on consumption. We need to encourage employment and to get rid of the cash economy.

The fault is not with the citizens of Australia but with the taxation system itself. No amount of extra amendment and fiddling with the existing tax system can solve the fundamental problem. Australian taxpayers cannot bear any further amendments of this nature. They cannot bear any extra or new taxes to plug things, such as the fringe benefits tax and the capital gains tax, which were introduced earlier this year. It is simply a proliferation of complexity which will advantage only taxation consultants. It apparently also increases the power of the Treasury over government operations. For that reason the Australian Democrats oppose the imposition of high fees for appeals against rulings on people's taxation liability by the Taxation Department. I believe that a $10 fee is all that most self-employed people and small businessmen can afford in the current situation. A $10 fee is already too high for pensioners who have a provisional tax levy because of income from savings. A $10 fee is already steep for a farmer operating under a family company if that farmer has made a loss and has to borrow every cent he pays out, whether for food for his family, or for such increasingly burdensome government charges.

The Australian Democrats are always mindful of the gaping hole in the Treasury purse as unemployment and consequent health and welfare problems swallow more and more of the revenue of those who work. For this reason we propose an amendment to the Income Tax Assessment Act which would raise immediate revenue for the Treasury of around $80m and, in the longer term, would save annually around $450m. This amendment is to disallow income tax deductions for expenses incurred in the marketing and promotion of tobacco products. It fits in with the amendments to the excise legislation and will again attack this particularly insidious industry which is operating within Australia.

The final amendment which the Australian Democrats propose is an amendment to the Sales Tax (Exemptions and Classifications) Amendment Bill (No. 2) 1986. I believe that this legislation, which looks innocuous, is an outrageous sledgehammer being used to crack a nut. I believe that the Committee to which we wish to refer this legislation will be able to extricate from it the bureaucratic mess which will otherwise result from the implementation of this legislation. The Acting Treasurer, the Minister for Immigration and Ethnic Affairs (Mr Hurford), in his second reading speech, implied to the Parliament that the Government's amendments in no way changed existing practice. He said:

Another amendment of the sales tax law being made by the Bill will make it clear that a general exemption item does not override a specific taxing provision. As a matter of statutory interpretation, that has always been the approach adopted in the administration of the sales tax law. The amendment will, however, put the issue beyond doubt. The amendments contained in this Bill are not expected to have any significant effect on revenue.

Because these amendments will have no effect on the revenue, obviously that will not be a major problem. But I believe that this legislation needs to be examined further to make certain that we are not being given more tagliatelli bolognese and are not at risk of being drowned in it.