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Tuesday, 23 August 1994
Page: 94


Senator WATSON (7.12 p.m.) —I rise this evening to draw to the Senate's attention three topics of taxation importance. The first topic is the general investment allowance. Under the investment allowance provisions a 10 per cent deduction was available for the incurring of expenditure of a capital nature of more than $3,000 in acquiring or constructing a new unit of eligible property. To be eligible, the taxpayer must have first used or installed ready for use the equipment by 1 July 1994 under a contract entered into before 1 July 1994. The deadline has now passed and unfortunately the government failed to extend the availability of the allowance in the 1994 budget to stimulate investment by business in plant.

  There are three points that I wish to raise. Firstly, the provisions relating to the allowance, and particularly section 82AG(1)(a), withdraw the investment allowance where a taxpayer disposes of property or the property is lost or destroyed within 12 months of first being used or installed ready for use by that taxpayer. This provision operates to deny a taxpayer an investment allowance claim where an eligible piece of plant is destroyed, say, by fire and then replaced by an insurance company. There is inequity in denying the allowance to a taxpayer when the taxpayer was not responsible for the loss and the insurance company replaces the equipment with identical equipment used for the same purposes as the original equipment. I believe that the anomaly is an unintended consequence of the relevant provisions and I call upon the government to rectify this matter with a degree of urgency.

  Prior to the 30 June closing deadline there was a flood of orders for plant and eligible equipment. Many firms in the automotive industry sought to take advantage of the allowance—not surprisingly. However, as an article in the Australian Financial Review on 12 August indicated, taxation draft ruling TR94/D37 issued some six weeks after the 30 June deadline considers the meaning of the phrase `rights to use' and `contract or arrangement with another person for the use of the property by that other person' used in the relevant income tax act provisions. I believe that this is quite an appalling situation and I do not really think it reflects too well on the tax office. To issue a draft ruling which seeks to define essential terms of the legislation after the companies have purchased costly equipment is quite unfair. It is another example of the failings of the present rulings system.

  I now turn to the second matter. I refer to an anomaly with respect to superannuation which has particular relevance to that part of Australia that is suffering from drought, where many of the farmers have to go out and take off-farm work. Many self-employed taxpayers are entitled to an deduction for their contribution to a superannuation fund under section 82AAT of the Income Tax Assessment Act. The availability of this deduction is very restricted by section 82AAS, particularly if the taxpayer is substantially self-employed—which most farmers would be. Taxpayers are considered substantially self-employed if they are engaged in eligible employment and derive assessable income of less than 10 per cent of their total assessable income for that particular year. The operation of section 82AAS and 82AAT has caused indignation to taxpayers with mixed sources of income—that is, self-employment and as an employee.

  Let me give the Senate some examples to illustrate the problems that I have just highlighted. People caught by the operation of these provisions are, for example, medical practitioners who have fee for service arrangements with local hospitals and farmers. I note that last week a draft superannuation determination, SGC94/D3, provides that generally a visiting medical officer is an employee for superannuation guarantee purposes.

  This evening I wish to emphasise the unjustness of this situation, particularly for farmers—but it can have relevance to, say, medical practitioners. A consequence of the application of these provisions is that farmers who take employment to supplement the dramatic fall in their income from farming activities as a result of drought, flood or other natural disasters, will often lose the deduction for their superannuation contributions. If their farming income is low, it would be very common for the employment income to exceed 10 per cent of the assessable income, particularly in drought when it is probably negative. In such circumstances, the provisions operate harshly to deny the farmer the superannuation contribution deductions.

  In addition, the employer's superannuation contribution will be so negligible that it could not be said to contribute to the farmer's retirement income. Again, I use this opportunity to call on the government to give serious consideration to amending the relevant provisions to give relief to farmers, particularly as we have such devastating drought conditions in northern New South Wales and southern Queensland.

  The third and final issue I wish to raise this evening relates to the issue on 19 August last year of a draft public ruling TR93/D38. This relates to deductibility under the general deduction section, known as section 51(1). This draft ruling was largely issued as a result of the decision of the full Federal Court in the case of the Federal Commissioner of Taxation v Roberts and Smith in July 1992. Despite the wide importance of this issue, a final ruling has not yet been issued, although a year has passed since the release of the draft. The draft received newspaper coverage, which suggested that the draft could be interpreted as allowing interest as a deduction when a couple borrows to finance the withdrawal of paid-in equity in an income earning investment property and then, while retaining the investment, uses the newly borrowed funds to acquire a family home.

  This ruling would be of immense interest and importance to many couples around Australia. I therefore use this opportunity to call on the tax office to re-prioritise its rulings programs, to ensure that the final ruling is issued post haste. Fortunately, prudent and conservative practitioners have advised clients to await the final ruling. I believe that they have waited long enough, given the time elapsed since the Roberts and Smith decision and especially the resultant issue of the draft ruling.

  Having said that, however, I also draw attention to the fact that another draft ruling on a related topic—EDR 57—has yet to issue in final format, despite the draft ruling's release nearly three years ago. It is simply unacceptable for delays of this magnitude to occur and the Australian Taxation Office needs to revise its mechanisms for dealing with rulings urgently. I stress that a period of three years is far too long.

  If I may close on this point, it is very worrying to note that rulings favourable to the tax office can have a much quicker turnaround time. For example, TD94/D38 took only six weeks from the time of the issuing of the draft to finalisation. That determination held that 1985 or earlier tax office assessing handbooks cannot be relied on as evidence of current tax office interpretation, policy or practice with the result that rulings and determinations less favourable to a taxpayer can have future application. I take this opportunity to ask the government to address these three principal issues and related issues with the degree of urgency that they require.