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Tuesday, 5 May 1987
Page: 2291

Senator HAINES —Is the Minister representing the Treasurer aware of the so-called prepaid section 23q scheme? Does this scheme involve a promoter setting up a borrower in a tax haven where an investor lends money to the borrower at less than commercial rates of interest, the borrower prepaying the interest for a period of, say, five years while the investor pays a small withholding tax? Is the income from this interest prepayment tax free under section 23q of the Income Tax Assessment Act when it comes into Australia? If section 23q is repealed under the proposed foreign tax credit scheme, will the five years of prepaid interest remain tax exempt? Has the section 23q scheme been promoted as a replacement for the use of short term redeemable preference shares as a tax avoidance measure and have hundreds of millions of dollars flowed out of Australia under this scheme? If so, what action does the Government intend taking?

Senator WALSH —The first question I was asked was whether I was aware of the alleged scheme as outlined. The answer is no, I was not aware of it until I read Senator Haines's question a few minutes ago. I have not been able to get an opinion from the Treasurer in the time available as to whether the allegations are soundly based or whether the scheme is even technically or legally feasible. I will seek a response from the Treasurer on that. In the end I was asked: `If it is true, what action does the Government intend to take?' I expect that the Government-this is all on the assumption that it is true-would announce an intention to legislate with application from that day.

It is the Government's preference to stamp out absolutely this type of tax avoidance, such contrived and fraudulent attempts to deprive the Commonwealth of revenue, by legislating retrospectively. Once the credible threat of retrospective legislation was in place, such schemes would never appear in the first place. I find it incongruous, to say the least, to have the Australian Democrats sanctimoniously pointing in the Parliament to alleged tax avoidance schemes when most of them will not vote for legislation which would ensure that such schemes were finished for all time.

Senator Haines —If you were on top of things, they would not get away with it.

Senator WALSH —There is more sanctimony from somebody who voted, every time retrospective tax legislation came before this Parliament, in favour of the tax evaders. At least she is better than Senator Harradine, who used to vote one way on one occasion and another way on another, depending on whether his vote was critical to the passage of the legislation. If Senator Haines is really serious about stamping out alleged tax avoidance of this type and if she will give us a guarantee of support if the Government brings in legislation to wipe it out retrospectively and thereby wipe out all such future attempts to defraud the Commonwealth of revenue, she will support it, I will certainly talk to the Treasurer about bringing in legislation to close off this alleged tax avoidance scheme retrospectively.