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Tuesday, 15 June 2004
Page: 23607


Senator SHERRY (8:09 PM) —The Tax Laws Amendment (2004 Measures No. 1) Bill 2004 introduces a range of new measures. Labor supported the bill in the other place but referred schedules 7, 10 and 11 to the Senate Economics Committee for further consideration. These schedules deal with charities and Labor wanted to further investigate their effect on the charitable sector and the integrity of the tax system. While Labor continues to have some reservations about these schedules in the bill, on balance it will support the bill in its entirety.

Schedule 1 of the bill extends eligibility for the medical expenses tax offset to include the cost of maintaining properly trained dogs for guiding or assisting people with a disability. The medical expenses offset provides a tax offset of 20 per cent of eligible medical expenses over a $1,500 threshold. While the cost of maintaining guide dogs for the blind is already eligible to be a tax offset, this amendment will extend eligibility to hearing and other disability guide dogs. This is an equitable extension to eligibility for the offset and will provide much needed support for people with disabilities in the community.

Schedule 2 of the bill will provide an income tax deduction for certain expenses incurred in travel between workplaces. Prior to a decision of the High Court in 2001, Commissioner of Taxation v. Payne [2001] HCA, it was understood by the ATO and taxpayers that such a deduction was allowable. However, the High Court held that the cost of travel between two separate workplaces was not tax deductible. The amendments will ensure that where an employee is travelling directly between two workplaces the cost of that travel is deductible, for example, the cost of travel between a full-time job during the day to a part-time job in the evening.

Schedule 3 of the bill will ensure that small business do not become ineligible for the small business capital gains tax concessions because deductible gift recipients are beneficiaries of a discretionary trust controlled by that small business. Under the new capital gains tax rules, small businesses must have assets of less than $5 million to be eligible for concessional treatment, including the 50 per cent active asset reduction, the 15-year asset exemption and the retirement exemption and rollover relief. This asset test includes the assets of trusts which are deemed to be controlled by small business. If a discretionary trust lists a charity or a deductible gift recipient as a beneficiary, they are viewed as controlling that charity and assets of the charity are included in the assets of the small business, possibly denying the business access to the capital gains tax concessions. The proposed amendments will ensure that the assets of the charity or deductible gift recipient which is a beneficiary of a discretionary trust are not included in the asset test to determine eligibility for a small business CGT concession. In addition, the amendments will ensure that the determination of whether a trust is controlled by a small business is based on actual distributions, not on simply being a beneficiary.

Schedule 4 of the bill makes changes to the transitional arrangements in place for the move from the Diesel Fuel Rebate Scheme and the Diesel and Alternative Fuels Grants Scheme to the new Energy Grants (Credit) Scheme. On 1 July 2003 the Energy Grants (Credit) Scheme will replace the Diesel Fuel Rebate Scheme and the Diesel and Alternative Fuels Grants Scheme. To facilitate the transition to the EGCS a credit could be claimed for fuel purchased in the three years before its introduction under the EGCS rather than under the Diesel Fuel Rebate Scheme and Diesel and Alternative Fuels Grants Scheme. As a consequence, individuals can make claims under the transitional EGCS that did not exist under previous schemes. For example, the use of diesel to generate electricity in a retail or hospitality business without access to grid power became eligible under the DFRS on 1 July 2002. Under the transitional EGCS such activity would be eligible from 1 July 2000. The proposed amendment will ensure that fuel purchases are only eligible under the transitional EGCS arrangements where they were also eligible under either the DFRS or the DAFGS. The amendment will act retrospectively to include the recovery of claims lodged before the amendment is passed.

Schedule 5 of this bill deals with the cost base of assets for capital gains tax purposes and the impact of the GST. Capital gains and losses are calculated with reference to the cost of the asset when it is acquired—the cost base. The cost base also takes into account any subsequent expenditure or alterations to the asset which have the net effect of increasing or decreasing the value of the asset: for example, renovating a rental property.


Senator Murray —Don't let us keep you up, Nick. There's is a long way to go.


Senator SHERRY —I know. I think that my voice might survive it. Due to oversights in amendments to the capital gains tax provisions at the time the new tax system was introduced the value of net input tax credits are included in the cost base of assets in certain circumstances: for example, to renovations post-September 1999. This inflates the cost base of assets, minimising capital gains and maximising capital losses. The proposed amendment would ensure that net input tax credits are never included in the cost base of an asset, which will make sure taxpayers do not receive a windfall gain from this oversight.

Schedule 6 will ensure that Australian business numbers can be disclosed to the heads of Commonwealth agencies and state and territory departments in respect of all agency and department functions. Regulations already allow for this, but it is uncertain whether these regulations are watertight and would hold up to a challenge in the courts. The amendments will simplify compliance for business as they will not have to provide their ABN to every government department they have dealings with.

Schedule 7 provides a new income tax deduction for contributions related to fundraising events where the donor receives a benefit. Under the current law and consistent with general tax principles, no deduction is allowed where the individual receives any personal benefit. This amendment will allow donors a tax deduction for contributions to charities where they receive a benefit in return. For example, individuals could claim a deduction for the cost of entry to a charity dinner. As political parties are not deductible gift recipients, it will not apply to these functions. While these amendments are contrary to basic tax principles, Labor considers that the limits placed on eligible contributions provide significant safeguards to ensure that the integrity of the tax system is not jeopardised.

Schedule 8 of the bill deals with distributions to certain entities. When the Board of Taxation conveniently recommended that the government not proceed with its promise to tax trusts like companies, it also recommended amendments to section 109UB of the Income Tax Assessment Act 1936. These amendments aim to ensure that a trustee cannot shelter income in a discretionary trust at the company tax rate through creating a present entitlement to a private company without paying that entitlement and then distributing the underlying cash to a beneficiary, usually through a loan payment or forgiven debt. This practice means that the income is only ever taxed at the company tax rate and not the beneficiary's marginal tax rate, creating an obvious tax advantage. The current law deems that loans in these circumstances are treated as dividends and therefore taxed at the beneficiary's marginal tax rate. The amendments in this bill would include a payment from the trust or forgiven debt in the same way as loans are currently treated.

The Senate should note that this amendment is necessary only because of the complete lack of backbone of the Howard-Costello government in relation to tackling tax abuse issues. After accepting the Ralph review's recommendations to tax trusts like companies, the Howard-Costello government performed a 2001 election backflip. This was after the Treasurer had given a signed undertaking to the shadow Treasurer to implement measures contained in the review of business taxation which would have ensured that the government's business tax reforms were revenue neutral.

Section 46FA of the Income Tax Assessment Act 1936 provides certain resident companies a deduction for nonpayment of certain unfranked or partly franked non-portfolio dividends to their wholly owned foreign parents. Schedule 9 reinstates this deduction because it was inadvertently made inoperative when the intercorporate dividend rebate was repealed as part of the consolidation reforms.

Schedule 10 requires public benevolent institutions and health promotion charities to be endorsed by the Commissioner of Taxation to access relevant tax concessions. The amendments are in response to recommendations of the report of the inquiry into the definition of charities and related organisations. Following concerns raised by Labor about the loss of PBI status by a number of organisations, the government has provided transitional relief in the budget. Labor welcomes this. It is another government backflip and it will ensure that workers in crucial sectors do not face substantial drops in income. The amendments will require public benevolent institutions and health promotion charities to be endorsed by the commissioner in order to access all relevant taxation concessions such as income tax, GST and FBT relief. The organisations will be required to display their charitable status on the Australian Business Register.

Finally, schedule 11 of the bill seeks to specifically list three organisations in the tax law as deductible gift recipients. Donations and contributions for deductible gift recipients over $2 provide the donor with an income tax deduction. Organisations that do not meet the general requirements in the tax law can be specifically listed as deductible gift recipients. Schedule 11 of the bill seeks to specifically list in legislation the Dunn and Lewis Youth Development Foundation Ltd from 10 November 2003 to 9 November 2005, Crime Stoppers South Australia Inc. from 19 September 2003 and the Country Education Foundation of Australia Ltd from 20 August 2003. In addition, the specific listing of the Bowral Vietnam Memorial Walk Trust will be extended until 16 August 2005. With those comments I indicate that the Labor Party will be supporting the bill.