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Tuesday, 14 August 2007
Page: 38


Senator ABETZ (Manager of Government Business in the Senate) (3:56 PM) —I 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—

TAX LAWS AMENDMENT (2007 MEASURES No. 4) BILL 2007

This Bill makes numerous improvements to Australia’s tax laws.

Schedule 1 gives effect to the Government’s announcement in the 2005-06 Budget that it will abolish foreign loss and foreign tax credit quarantining and streamline the remaining foreign tax credit rules.  This is achieved by repealing the existing arrangements and replacing them with new simplified foreign income tax offset rules. 

These rules allow taxpayers to claim relief for foreign income taxes paid on an amount included in their assessable income.  These amendments also include transitional rules for the treatment of existing foreign losses and credits.

These amendments also provide a mechanism to allow the Commissioner of Taxation to give effect to Australia’s tax treaty obligations to provide relief from economic double taxation arising from transfer pricing adjustments.

By reducing tax complexity and compliance costs, these changes will assist businesses of all sizes operating, or seeking to grow, internationally.  They build on the previous reforms undertaken by the Review of International Taxation Arrangements to ensure Australia has a competitive international tax system.

Schedule 2 amends the income tax laws to provide a capital gains tax roll-over, similar to the scrip for scrip roll-over, for membership interests in companies limited by guarantee that are also medical defence organisations.  This roll-over will ensure that capital gains tax need not be an impediment to mergers or takeovers of medical defence organisations.

Schedule 3 to this Bill allows investment by superannuation funds in instalment warrants that are of a limited recourse nature. 

In recent years, many superannuation funds, particularly self-managed superannuation funds, have invested in instalment warrants.  These changes will allow superannuation funds to continue to invest in limited recourse instalment warrants with certainty.

Schedule 4 amends the ultimate beneficiary reporting rules in the Income Tax Assessment Act 1936.  These rules target arrangements where taxpayers use complex chains of trusts to effectively obscure the ultimate beneficiary of the assessable trust income.

Under the new rules, trustees of closely held trusts will no longer be required to trace income through interposed trusts to the ultimate beneficiary and report those details to the Commissioner of Taxation.  Instead, trustees of closely held trusts will be required to report only the details of trustee beneficiaries that are presently entitled to income of the trust and tax-preferred amounts.

Family trusts (and their related trusts) will be excluded from the new reporting requirements, on the basis that under the family trust election rules any distributions outside the family group are already subject to a penalty rate of tax.  In addition, the Commissioner will be given a determination making power not to require annual reporting for some trusts where he considers it unnecessary.

These amendments will reduce compliance costs for trustees of closely held trusts whilst maintaining the integrity of the tax system.

Schedule 5 to this Bill assists in a smooth transition to the new Simplified Superannuation regime and clarify the policy intent.

These amendments ensure that where a tax file number is provided by the Commissioner, the tax file number is taken to have been quoted by the member, and the provider can use the tax file number. 

These amendments also address strategies which seek to circumvent the minimum drawdown requirements for superannuation income streams.  Concessional tax treatment will only apply to those assets included in the income stream account balance.

These amendments also further improve the readability of superannuation and taxation provisions rewritten as part of the reforms.

Schedule 6 amends the list of deductible gift recipients in the Income Tax Assessment Act 1997.  Deductible gift recipient status will assist the listed organisations to attract public support for their activities.

Schedule 7 implements various technical corrections and amendments and also some general improvements to the law of a minor nature.  These amendments are an important part of the Government’s commitment to improving the quality of the taxation laws and reducing their complexity.

Schedule 8 to this Bill amends the trust loss regime to provide more flexibility for family trusts.  The amendments allow family trust elections to be varied or revoked in a broader range of circumstances than is currently the case.  The amendments also expand the definition of family to include lineal descendants and distributions to former spouses, widows/widowers and former step-children will be exempt from family trust distribution tax. 

Full details of the measures in this Bill are contained in the explanatory memorandum.


TAXATION (TRUSTEE BENEFICIARY NON-DISCLOSURE TAX) BILL (No. 1) 2007

This Bill is a companion Bill to Tax Laws Amendment (2007 Measures No. 4) Bill 2007.

The purpose of the Bill is to impose trustee beneficiary non-disclosure tax at the rate of 46.5 per cent on certain income. 

This is consistent with the existing ultimate beneficiary rules, which impose a non-disclosure tax where the trustee of a closely held trust fails to disclose certain details about the ultimate beneficiaries.

Full details of this Bill are contained in the explanatory memorandum already presented.


TAXATION (TRUSTEE BENEFICIARY NON-DISCLOSURE TAX) BILL (No. 2) 2007

This Bill is a companion Bill to the Tax Laws Amendment (2007 Measures No. 4) Bill 2007.

The purpose of the Bill is to impose trustee beneficiary non-disclosure tax at the rate of 46.5 per cent on the untaxed part of a share of net income where a liability to tax arises.

Full details of this Bill are contained in the explanatory memorandum already presented.


JUDGES’ PENSIONS AMENDMENT BILL 2007

This Bill would amend the Judges’ Pensions Act 1968 so that, where a federal judge is subject to the superannuation surcharge, reduced rates of surcharge which applied in 2003-04 and 2004-05 apply to the pension entitlements of the judge and the judge has the option of commuting a proportion of the pension to discharge a surcharge debt.

The surcharge is currently applicable in relation to the pension entitlements of judges who were appointed between 7 December 1997 and 30 June 2005 under a formula in the Judges’ Pensions Act.  The surcharge has been abolished and does not apply to pension entitlements accrued from 1 July 2005.

The formula reduces a judge’s pension by averaging the rates of surcharge that applied to the judge in each full financial year of his or her service.  There are, however, two technical deficiencies with the formula which need to be overcome. 

The first deficiency with the formula is that it was drafted in such a way that it reduces a judge’s pension in respect of 2003-04 and 2004-05 by 15%, notwithstanding that the maximum surcharge rates were reduced for those years to 14.5% and 12.5%, respectively.  The Bill would amend the formula to reflect the lower maximum rates in those years.  To ensure equity for any pensioner who had retired after the first of those reductions was made, this amendment would apply whether or not an affected judge retired before the amendment commenced operation.

Secondly, the formula does not recognise payments to reduce a judge’s surcharge debt made by the judge to the trustee of the Judges’ Pension Scheme, unless the debt is paid in full.  The Bill would provide an option for judges to have their pensions commuted to discharge their surcharge debts, rather than have the formula apply.  Commutation would operate on the basis of actuarially-determined age-based factors and would recognise the actual amount of a judge’s surcharge debt.  Commutation would therefore automatically recognise payments which had been made to reduce the amount of the debt.  Commutation would be available to any judge who retires on or after 1 July 2007.

The Bill would also allow the trustee of the Judges’ Pension Scheme to draw on an existing special appropriation to pay judges’ surcharge debts to the Australian Taxation Office as they retire.  Once a debt had been paid, it would be recovered from the former judge concerned under the formula or through commutation.

Finally, the Bill would define salary for pension purposes.  This would ensure increased flexibility for the Remuneration Tribunal in setting serving judges’ entitlements without the Tribunal needing to take into account inadvertent effects that this could have on the pension entitlements of retired judges or their dependants.  This arises because pension entitlements are set as a proportion of the salary of a serving judge.  For example, it would mean that the Tribunal could determine a cash allowance in lieu of other vehicle entitlements for serving judges, without the allowance needing to be taken into account in calculating the pension entitlements of either serving judges who retire or retired judges or dependants.

I commend this Bill.

Debate (on motion by Senator Abetz) adjourned.

Ordered that the Judges’ Pensions Amendment Bill 2007 be listed on the Notice Paper as a separate order of the day.