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Thursday, 24 June 2004
Page: 25060

Senator CONROY (9:02 AM) —As I indicated last night, I have sought approval from the Opposition Whip and I now seek leave to have my speech on the Tax Laws Amendment (2004 Measures No. 3) Bill 2004 incorporated in Hansard.

Leave granted.

The speech read as follows—

Taxation Laws Amendment (2004 Measures No. 3) Bill 2004 is an omnibus tax bill with three schedules, and no financial impact.

Labor referred this Bill to the Senate Economics Committee for consideration, as it did not consider that adequate time had been provided by the government for proper evaluation of the provisions relating to Venture Capital in the Bill. Labor will support the Bill.

Schedule One of the Bill deals with the Venture Capital Regime.

The venture capital regime came into effect on 1 July 2002 and aims to facilitate the development of a venture capital industry in Australia through providing incentives for non-resident investment in relatively high risk businesses.

Eligible taxpayers and registered Venture Capital Partnerships are exempted from Australian income and capital gains tax on their Australian investments.

The concessions are limited to investments in companies with assets of up to $250 million.

The amendments in this bill aim to ensure that the regime operates as intended and extend the eligibility criteria for the concessions to investments in holding companies that meet eligibility criteria.

Holding companies are often used as investment vehicles by venture capitalists. Investments are made through holding companies in businesses eligible for the venture capital concessions. However, currently, investments through holding companies are not eligible for the concessions.

The amendments deem holding companies to have met the eligibility criteria for the concessions, if they meet the other requirements that a company must meet to access the venture capital investment concessions.

The bill also amends the Permitted Entity Value rules under the venture capital regime.

An eligible venture capital investment cannot be made into a company whose asset value, together with the asset value of any connected entity, exceeds $250 million immediately before the investment is made.

The amendments in this bill will exclude the value of the assets of any connected entity that will not be connected with the investee company after the investment is made.

New integrity rules will ensure that venture capitalists cannot over time purchase connected entities of a group and claim the concessions for each purchase.

Schedule two deals with worker entitlement funds.

Worker entitlement funds are funds that provide for employee entitlements such as leave and redundancy payments. They are used extensively in the building industry to allow workers to transfer their entitlements between employers and ensure that workers entitlements are secure in the event of insolvency.

The transfer of entitlements between workplaces is particularly important for workers in the building industry.

Workers may be employed in the building industry for years, but miss out on redundancy and long-service leave entitlements because of the nature of the industry—workers commonly move from employer to employer as projects are completed.

The ATO issued a taxation ruling in 1999 which would have resulted in payments to worker entitlement funds being subject to Fringe Benefits Tax (FBT) from 1 April 2003.

This would have resulted in payments to worker entitlement funds effectively being taxed twice—once on the way in and then when payments were made to workers.

In response, the government, after extensive pressure from both employer and employee groups, introduced legislative changes in Taxation Laws Amendment Bill (No. 4) 2003 to exempt payments to prescribed employee entitlement funds from FBT.

In order to allow existing funds adequate time to comply with the requirements for prescription under the legislation, an FBT exemption was provided for certain contributions until 30 May 2004.

However, some worker entitlement funds are still making adjustments to their arrangements to comply with the requirements of the FBT exemption. To ensure that these funds are not adversely affected, the Bill extends the exemption period until 30 May 2005.

Schedule 3 contains minor technical amendments that ensure that provision for allowing foreign tax credits to arise in certain circumstances will continue to operate properly following changes to the foreign tax credit provisions that were made as a result of the Timor Sea Treaty.

These changes are needed due to changes in the numbering of sections in the Income Tax Assessment Act 1936 in relation to the Timor Sea Treaty.