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Tuesday, 30 August 1994
Page: 578


Senator ROBERT RAY (Minister for Defence) (4.08 p.m.) —I table a revised explanatory memorandum relating to the Taxation Laws Amendment Bill (No. 3) 1994 and move:

  That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

  Leave granted.

  The speeches read as follows—

TAXATION LAWS AMENDMENT BILL (NO. 3) 1994

The bill will amend the taxation laws in a number of respects. It includes measures which give effect to certain announcements in the 1993-94 and 1994-95 Budgets and the Working Nation White Paper of 4 May 1994.

Regional headquarters

In Working Nation the Government announced a number of measures aimed at enhancing Australia's attractiveness as a regional headquarters location.

These include the provision of a wholesale sales tax exemption and credit for imported used computer related equipment, tax deductibility of certain costs of locating regional headquarters in Australia and a removal of withholding taxes on certain dividends distributed through Australia.

The initiatives in this bill will improve Australia's attractiveness as a location for the Asia-Pacific regional headquarters of large transnational corporations including Australian companies. These complement the measures already put in place and first announced in the 1992 One Nation statement to promote Australia as a viable offshore banking centre.

The regional headquarters measures contained in this bill should provide a climate that attracts and retains multinationals without compromising the integrity of our taxation system.

They will help Australia become an expanded financial centre of the region and so integrate more closely with the Asian-Pacific growth economies.

The cost to revenue of the measures is likely to be around $40 million in 1994-95.

Taxation of Australian branches of foreign banks

The bill also proposes new taxation measures for the Australian branches of foreign banks. The new taxation measures were announced on 18 June 1993 in the Banking Policy Statement issued by the former Treasurer.

The proposed new measures will recognise for taxation purposes intra-bank loans, derivative and foreign exchange transactions between the Australian branch and the foreign bank. Non-resident interest withholding tax will be applied to interest treated as being paid by an Australian branch to the foreign bank.

The proposals also treat part of a branch's funding from all sources as equity, through the application of a notional equity requirement. The amendments also provide for revenue and capital loss transfer between the Australian branch of a foreign bank and its wholly owned Australian subsidiaries.

In implementing the decision to allow foreign banks to operate in Australia through branches, the Government has given careful consideration to the taxation measures to apply to the Australian branches of foreign banks. This has been a complex process involving extensive consultation with the banking industry.

As part of the consultation process, the Treasurer released draft legislation and explanatory notes dealing with the proposed taxation measures. The industry comments were carefully considered and taken into account in preparing the branch banking provisions of the bill.

The new measures are estimated to cost the revenue $10 million in 1994-95, $15 million in 1995-96, and $20 million in 1996-97 and 1997-98.

Social Security payments

Home child care allowance and dependent spouse rebate

The "with child" dependent spouse rebate for a taxpayer with a dependent spouse and dependent child or student is to be abolished and replaced with the new home child care allowance from 29 September 1994.

The amendments will remove a taxpayer's entitlement to the dependent spouse rebate where the taxpayer's spouse qualifies for the home child care allowance. The amendments also exempt home child care allowance payments from income tax and exclude the payments from the separate net income test for rebate purposes.

The amendments will also alter the current zone rebates, and rebates for members of the defence forces serving overseas and in the United Nations armed forces. This is necessary to ensure that these taxpayers are not disadvantaged by the abolition of the "with child" dependent spouse rebate.

Amendments to the provisional tax rules are also necessary to ensure the correct rebate entitlements are used in the calculation of provisional tax for 1994-95 and later years.

The amendments contained in the bill provide that where the spouse of a taxpayer qualifies for the home child-care allowance then the taxpayer will not be entitled to claim the `without child' dependent spouse rebate through the tax system.

However, the government considers that families should be able to fall back onto the `without child' dependent spouse rebate if they qualify for that rebate.

Accordingly, the government will be moving amendments in this place to allow taxpayers to claim the `without child' dependent spouse rebate instead of claiming for the home child-care allowance.

Partner allowance

From 29 September 1994, the amount of job search, newstart or sickness allowance or special benefit paid where the recipient has a dependent partner is to be split between the two partners. The recipient will continue to receive the allowance or benefit at half the former rate and the spouse will receive the partner allowance, paid at the same rate.

The amendments to the tax law are necessary to give the partner allowance the same tax treatment as other comparable social security allowances and benefits.

The impact on revenue of removing the dependent spouse rebate is a gain to revenue of $360 million in 1994-95, $870 million in 1995-96 and $1050 million in 1996-97. These gains are offset by outlays on the home child care allowance. The cost of introducing the partner allowance is not significant.

Deductions for bequests of significant cultural value made to certain institutions

The bill will allow an income tax deduction for a testamentary gift of property to specified funds, authorities and institutions under the Cultural Bequests Program, announced last year by the Government.

The amendments will also exempt the gift from the application of the capital gains tax provisions.

The total deductions to be approved under these provisions will be capped at a notional cost to revenue of $2 million per year, commencing in the 1994-95 income year.

Reportable payments system

The bill contains amendments designed to increase the level of compliance within certain industries. The amendments will introduce a new reportable payments system.

Like the prescribed payments system, the scope of the reportable payments system will be prescribed in regulations. Initially the proposed system will apply to certain payments within the fishing and the clothing industries where a high level of non compliance has been identified.

Under the proposed system, a payee who is receiving a reportable payment may quote his or her tax file number to the payer. This quotation will form the basis of reports provided by the payer to the Commissioner of Taxation. The information will then enable the Commissioner to match and verify the declared income of payees.

When a payee chooses not to quote his or her tax file number, the payer will be required to deduct an amount from the payment. The amount to be deducted is consistent with amounts currently deducted from investment income, prescribed payments and salary or wages, when a payee's tax file number is not quoted. Amounts deducted will be forwarded to the Commissioner and credited to the payee on assessment.

The increased revenue from these measures is difficult to quantify. This is mainly due to the difficulties in estimating the precise level of tax evasion and the behavioural changes that will result from the introduction of the reportable payments system.

The Government estimates that increased revenue of up to $100 million per annum will be collected as a result of the introduction of the reportable payments system.

Foreign investment funds and controlled foreign companies

Australia now has a comprehensive system of taxing foreign source income. The first two parts of this system were the foreign tax credit system and the controlled foreign company measures. The foreign investment fund measures which took effect from 1 January 1993 constitute the third and final part of the system.

These measures have been kept under constant review in order to rectify any difficulties which arise in the course of their operation. The bill contains amendments necessary to fine tune the foreign investment fund measures and align them properly with existing provisions, particularly the controlled foreign company measures.

These measures have a minimal effect on revenue.

Eligible investment fund income of registered organisations

The bill will include in the assessable income of friendly societies and certain other registered organisations income derived from certain assets of the organisation. The purpose of the amendment is to ensure that the provisions of Division 8A are not circumvented by the holding of assets separate from the eligible insurance business of the organisation. The amendment is in response to the full High Court decision in Independent Order of Oddfellows of Victoria v FC of T.

The amendments will apply to income derived on or after 1 July 1994 by a registered organisation from eligible investment assets.

It is not possible to reliably estimate the revenue impact of this measure; however, the measure has the potential to prevent a significant future loss to revenue.

Provisional tax

The bill also includes amendments to retain the current provisional tax uplift factor of 8 per cent as announced in the 1994-95 Budget. The uplift factor of 8 per cent will be applied to 1993-94 incomes for the calculation of 1994-95 provisional tax.

The measure defers $170 million of revenue from 1994-95 to 1995-96.

Superannuation: Reasonable benefits limits

The bill will amend the provisions relating to reasonable benefit limits that apply to concessionally taxed superannuation benefits. The reasonable benefit limit provisions apply from 1 July 1994. The proposed amendments will overcome a number of technical deficiencies with the new provisions and ensure that the provisions operate as intended.

The amendments will apply from 1 July 1994 and have no impact on the revenue.

Sales tax measures

Child care centres

In late 1993, to make child care more affordable, the Government introduced amendments to provide certain exemptions from sales tax to child care bodies. In general, to obtain funding for a child care centre and thus access to the sales tax exemptions, the centre must be outfitted and operating. This raises the issue that the goods needed to set up the centre will not be exempted from sales tax. The bill will introduce a new credit ground to allow such bodies a credit of sales tax for goods to be used in the provision of child care where the goods are purchased before a body is approved for funding. The credit will apply from 24 December 1993.

A further issue has arisen with certain child care bodies purchasing luxury motor vehicles free of sales tax. Although there are few occasions where the usage of such a vehicle will meet the criteria for exemption, it is not the Government's intention to allow bodies to gain this level of exemption at the cost of child care. It is proposed to limit the sales tax benefit in the purchase of motor vehicles to the sub-luxury component of the value. Thus the value above the luxury vehicle limit will be fully taxed. This restriction will apply to purchases from tomorrow.

The effect of these amendments on the revenue will be negligible.

Streamlined sales tax review

Since the introduction of the new sales tax on 1 January 1993, the Australian Taxation Office, in conjunction with business and other affected parties, has been reviewing the operation of the tax. The Government has been pleased to find that the vast majority of provisions are operating very well. However, there are some that would be best handled by legislative amendment. The overall cost to the revenue of these initiatives is expected to be small.

In general, where faulty goods are replaced free of charge under warranty, a credit is allowed for the tax borne on the replacement goods. If the defective goods are later repaired and sold, a clawback of the credit, proportional to the price received, is obtained. At present no allowance is made for tax paid parts used in the repair. The law will be amended to reduce the clawback by the amount of tax borne on the parts used in the repair. The amendments will apply to sales of defective goods from today.

Australia has a burgeoning industry in repairing goods for overseas owners. It is also developing a market for used Australian goods which have been refurbished. The law will be amended to allow a credit for parts, fittings and accessories used in the repair, renovation or upgrading of goods to be exported, provided the tax is not passed on in the price of the alterations. The credit will apply to tax borne on parts used after 1 January 1993.

Quotation of a registered number or exemption declaration is the method used to obtain exemption from sales tax. In general this quotation is required in respect of each dealing, although the Commissioner of Taxation has discretion to allow a monthly quotation for all dealings in the month. To assist business to reduce the cost of administration and to provide flexibility, the law will be amended to allow a single quotation for a period up to one year for all purchases from a particular supplier. This periodic quotation will be able to be given by both registered and unregistered purchasers to both registered and unregistered suppliers. It will not require Commissioner approval. The amendment will take effect from the date this bill receives Royal Assent.

In order to gain sales, particularly of new products, suppliers often allow businesses to trial the product before buying or leasing. This practice is described as post-trial sales or leases. The current legislation allows a credit of sales tax borne by the supplier where the person trialling and buying, or leasing for the remainder of the statutory period, is an exempt user and gains the benefit of the credit in the price. The law will be amended to allow for multiple trials by exempt users and final sale or lease to any exempt user. This will ensure that the supplier is able to be flexible in his or her method of selling, whilst ensuring that an exempt user gains the benefit of exemption. The amendment will apply to goods first trialled after this bill receives Royal Assent.

In respect of containers for use with take-away food, it is the Government's policy that the containers be taxed. It has been suggested that delivery containers for take-away food may be exempted in the terms of the current legislation. An amendment will be made to ensure that the legislation is clarified to confirm that delivery containers for take-away food are taxable. The measure will apply to dealings with goods from today.

A consequential amendment made to the legislation in 1992 to align the terminology of the sales tax legislation with the Radio Communications Act 1992 has resulted in wireless transceivers used mainly to make contact with the Royal Flying Doctor Service and other similar services being denied exemption. This particularly affects outback farmers. The law will be amended to reinstate the exemption that applied prior to the consequential amendment and will have effect on dealings occurring after 30 June 1993.

Mining withholding tax

The bill also provides for a reduction in the rate of mining withholding tax from 5.8 per cent to 4 per cent. That tax applies to certain revenues derived by Aboriginal communities and groups from the use of Aboriginal land for exploration and mining. The reduction in the rate takes account of changes in the basic rate of personal tax.

The measure is estimated to cost the revenue less than $1 million in 1994-95, 1995-96, 1996-97 and 1997-98.

Other amendments

The bill also repeals some inoperative provisions relating to short term asset sales and the home loan interest rebate. It also makes some minor technical amendments to the gift provisions.

Full details of the amendments are contained in the Explanatory Memorandum circulated to honourable senators.

I commend the bill to the Senate.

STATES GRANTS (GENERAL PURPOSES) BILL 1994

The purpose of this bill is to put arrangements in place for the provision of general purpose assistance to the States, the Northern Territory and the ACT in 1994-95, consistent with the decisions taken at the Premiers' Conference and Loan Council Meeting of 25 March 1994. The bill will replace the States Grants (General Purposes) Act 1993 and its provisions will have a similar effect as the provisions of that act. The Explanatory Memorandum was presented on 29 June 1994.

The current estimate of the general purpose funding for the States and the Territories to be appropriated by the bill is almost $15 billion, or around 12 1/2 per cent of estimated Commonwealth Budget outlays in 1994-95. Accordingly, these payments constitute a significant element of the Commonwealth Budget and, in combination with the Loan Council Allocations for borrowings by all levels of government agreed at the Loan Council Meeting, they have an important bearing on the spending and borrowing of the public sector as a whole.

The centre-piece of the 1994 Premiers' Conference was the agreement that financial assistance grants to the States and Territories will be maintained in real per capita terms over the next three years. That is, financial assistance grants will be adjusted each year not only for inflation but also for total population growth in Australia.

The agreement reached at the Premiers' Conference will deliver a level of funding that is significantly higher than States and Territories would have received if the real terms guarantee that applied from 1991-92 to 1993-94 had been continued. This will assist the States and Territories to make further improvements to their budget positions. It is important for all levels of Government to make further progress in reducing their deficits over the medium-term in order to augment the public sector's contribution to national savings. The outcome of the Premiers' Conference will also provide considerable financial certainty to the States and Territories and should therefore represent an opportunity to focus on longer term policy challenges.

The major part of the assistance provided under this bill is the provision to each State and Territory of a share of the pool of financial assistance grants. It is currently estimated that financial assistance grants will amount to around $14.1 billion in 1994-95. The distribution of this assistance is determined using per capita relativities provided by the Commonwealth Grants Commission in its Report on General Revenue Grant Relativities, 1994 Update, and estimates of population by State and Territory as at 31 December 1994 as determined by the Australian Statistician. It was agreed at the Premiers' Conference that the per capita relativities recommended by the Commonwealth Grants Commission would be adopted.

The bill authorises the payment of special revenue assistance to the States of around $516 million on current estimates. Of this amount some $183 million is in the form of one-off transitional special revenue assistance of which the Commonwealth will fund directly approximately $103 million and around $80 million will be funded from the pool of financial assistance grants by the States and Territories. The remaining $333 million of special revenue assistance relates to payments to New South Wales and Victoria under the guarantee arrangements associated with the Medicare Agreements. When these arrangements were first introduced at the 1993 Premiers' Conference, it was agreed that in 1994-95 the Commonwealth would halve its contribution to the Medicare guarantee payments. At the 1994 Premiers' Conference it was agreed that, for 1994-95 only, the Commonwealth would continue to maintain its level of funding of these payments in real per capita terms, at a total estimated cost of $111 million in 1994-95. This represents a significant financial benefit to the smaller States. The balance of $222 million will be funded from the pool of financial assistance grants. The ACT will receive an additional $66 million for transitional allowances and special fiscal needs as recommended by the Commonwealth Grants Commission and will be paid from the Appropriation Act.

In 1994-95 the Government will provide $350 million of identified arterial road grants to the States and Territories. These funds will be distributed on the basis of the average of the arterial roads allocation over the three years to 1992. In 1995-96 and 1996-97 the aggregate level of funds will be indexed to the movements in financial assistance grants. These payments replace funding that was provided under the Australian Land Transport Development Act 1988 prior to 31 December 1993.

As was the case last year, the Higher Education Funding condition will again be an important feature of this bill. The bill, in conjunction with Section 25A and the proposed Section 25B of the Higher Education Funding Act 1988, provides for grants to be made for financial support for student organisations in circumstances where the Education Minister is satisfied that a State or Territory, by its actions, has affected the ability of the higher education institutions to provide such support as they see fit.

The States and Territories receive financial assistance on the condition that they will reimburse the Commonwealth for any grants made under section 25A or the proposed 25B of the Higher Education Funding Act 1988. If this condition is not fulfilled, the Treasurer may reduce the financial assistance grant to a particular State or Territory by the amount not reimbursed.

Mr President, this bill is an integral part of the Commonwealth's financial relations with the State and Territory Governments and the Budget.

I commend the bill to the Senate.

  Debate (on motion by Senator Panizza) adjourned.

  Motion (by Senator Robert Ray) agreed to:

  That the bills be listed on the Notice Paper

as separate orders of the day.