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Wednesday, 20 June 2012
Page: 3924


Senator FARRELL (South AustraliaParliamentary Secretary for Sustainability and Urban Water) (16:56): 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—

AUSTRALIAN CITIZENSHIP AMENDMENT (DEFENCE FAMILIES) BILL 2012

The Australian Citizenship Amendment (Defence Families) Bill 2012 provides a pathway for certain family members of current and future overseas lateral recruits to the Australian Defence Force (ADF) to satisfy the residence requirements in order to be eligible for Australian citizenship at the same time as the ADF member.

Generally, most permanent residents who wish to apply for Australian citizenship by conferral must satisfy a general resident requirement of 'four years lawful stay', with the last 12 months as a permanent resident immediately before the day the person applied for Australian citizenship. This is an objective way of demonstrating that applicants for Australian citizenship have a commitment to our society, a society in which they are seeking to be a full and formal member.

However, it has long been recognised, both in policy and in legislation, that there is more than one way to demonstrate a commitment to Australia.

One of these other ways is to undertake military service in the ADF, in defence of our nation.

This is an honourable and often dangerous vocation.

In recognition of the danger and degree of sacrifice, Australian citizenship law has had specific arrangements to acknowledge that service in the Australian military demonstrates an extraordinary commitment to Australia. These arrangements have been in place since the then Government decided that 'aliens' could join the Australian Army in 1952.

Currently, under section 23 of the Australian Citizenship Act 2007, for the purposes of section 21, a person has completed 'relevant defence service' if the person has completed:

at least 90 days service in the permanent forces of the Commonwealth; or

at least six months service in the Naval Reserve, the Army Reserve or the Air Force Reserve; or

was discharged from that service as medically unfit for that service and who became so unfit because of that service.

However, there are three issues that the Government considers must be addressed and this bill addresses these issues.

Firstly, the Australian Defence Forces recruit certain highly proficient technical specialists, so called 'overseas lateral recruits', who have previous experience in other defence forces to maintain the operational status of our military forces and to train other ADF personnel.

These specialists often migrate with their families, to begin a new life in Australia.

As currently structured, the arrangements offer a reduced residence requirement to become eligible for citizenship by conferral to the permanent resident ADF recruit and their permanent resident children under the age of 16 years.

Their permanent resident children aged 16 and 17 should meet the general residence requirement of 'four years lawful' or be refused under the Minister's discretionary power in subsection 24(2), unless refusal would cause 'significant hardship or disadvantage'.

However, their permanent resident spouse and any children 18 years and over must fulfil the general residence requirement, in order to be eligible for citizenship by conferral.

We do not believe these arrangements are fair and show due respect to families.

As the law stands, members of the same family unit are treated differently - for example, a father who serves in the ADF and a 15 year old child will become eligible to become citizens after his 90 days of service but the spouse and an 18 year old and a 21 year old child would have to wait up to 4 years - effectively splitting the legal status of the defence family in Australia into two.

It seems contrary to the ideals of fairness that our nation holds dear, to fracture a family, especially the children of that family.

The families of these 'overseas lateral recruits' have accompanied the ADF member to Australia - they too have uprooted their lives and they too have significant challenges in settling into a new life here, while continuing to provide support to the ADF member.

This bill seeks to provide a more consistent approach to eligibility arrangements, allowing an ADF family who migrates together and adjusts to life in Australia together, to be eligible for Australian citizenship together.

The bill will also assist the families of recruits in accessing employment opportunities and education assistance, and demonstrate that we welcome them to Australia, as a family.

Also - and very importantly - the bill provides a pathway for family members to access the relevant defence service eligibility in the tragic event that the ADF member dies while undertaking service. In this instance, the family will be treated as if the ADF member had completed their relevant defence service.

While the loss of their loved one can never be replaced, we as a nation can share that loss with them and assist them in rebuilding their lives.

The scope of this bill is confined to family members or 'relatives' who were members of the family unit of the defence person at the time the defence person was granted their visa to migrate to Australia to serve in the ADF, and those relatives hold the same kind visa because they are a member of the family unit of the defence person. These 'relatives' may include the spouse or de facto partner, dependent children of any age, and a dependent parent.

The new arrangements will apply to those overseas lateral recruits who were granted a visa prescribed in the Australian Citizenship Regulations on or after 1 July 2007, the day the Australian Citizenship Act 2007 came into effect.

Undecided applications now before the Department of Immigration and Citizenship, as well as new applications for Australian citizenship will be considered under these new arrangements.

This has been done in order to give substance to the policy intent. Therefore, it does not extend to those family members who subsequently decide to come to Australia on another visa or those people who migrate to Australia with their families for another purpose and then decide to join the ADF.

Also, these new arrangements do not change the application fee structures that currently apply to ADF members and their families.

The second issue the Government seeks to address here is to clarify what constitutes the relevant defence service requirement as it applies to members of the Reserve Forces.

As set out before, the current arrangements specify a member of the Naval, Army or Air Force Reserve has completed relevant defence service if the person has completed at least 6 months service. Supporting policy sets out that 'six months service' corresponded to 130 reserve force full day's attendance. The spirit of the current arrangements is to extend Australian citizenship to reservists who are actively engaged in the ADF.

It was not intended to extend a preferential treatment to persons who join the reserves and who are not actively engaged in military service. For instance, the current arrangements were not intended to benefit a person who joined the reserves and only attended duty for, say, one day or one week across those six months.

A decision of the Administrative Appeals Tribunal has cast doubt on whether the current law reflects this intention clearly enough. The bill removes this doubt by specifying that service in the Australian Reserve Forces will be counted where the person has undertaken a total of at least 90 days service - a day being one which the person was required for, and attended and was entitled to be paid for, duty in one or more of the Reserves - whether or not that service was continuous.

The bill also clarifies that a person undertakes service in the Permanent Forces or the Reserves only if the person is appointed, enlisted or transferred into any of the Permanent or Reserve Forces. This is to make clear the Government's intent that these arrangements are for ADF members only and not persons who may enter into a contract with the ADF to provide other services, such as contracted interpreting and translating staff.

I am aware one of those opposite, the Member for Fadden, introduced a private member's bill on a similar subject on 21 May 2012.

I acknowledge and welcome the Member's support for improvements to the policy area.

However, in addition to the technical amendments I explained earlier, the Government's bill provides broader and more equitable coverage than the private member's bill.

For instance, this bill will extend the reduced residence requirement to all migrating children of the ADF lateral recruit: not just those who are aged under 18 years or who are students aged under 25. Disabled children and children who are not students but who are wholly and substantially dependent on the ADF parent and who have migrated with their ADF parent will also be eligible to apply for Australian citizenship under the bill the Government is now introducing.

Also, the bill will cover a dependent parent, so families who migrate to Australia and who bring an elderly loved one who is dependent on the ADF lateral recruit can also enjoy the benefit of an earlier pathway to Australian citizenship.

Further, unlike the private member's bill, this legislation gives expression to the Government's clear intent to support the ADF families who migrate together and adjust to Australian life together, to apply for Australian citizenship together.

And very importantly, this bill will ensure that on the tragic occasion of the death of a serviceman or servicewoman, the responsibilities and privileges of citizenship can be extended to the family members.

I am pleased to acknowledge the role of Defence Families Australia in pressing for these important changes to the relevant defence service requirement and for their passionate advocacy on behalf of the families of ADF personnel.

This organisation has indeed blossomed from its beginnings as the 'National Consultative Group of Service Spouses', which the Hawke Labor Government established in 1986.

This bill will allow a key group of migrants - the families of those service men and women who have chosen to migrate to Australia to offer their skills and expertise in the defence of our nation - and ultimately their lives - to become full and formal members of our society at the same time. Not as a group of individuals, but as a family.

I look forward to welcoming these families to join the 4.5 million other people who have chosen to become an Australian citizens since 1949. I commend this bill to the Senate.

FINANCIAL FRAMEWORK LEGISLATION AMENDMENT BILL (NO. 2) 2012

The Financial Framework Legislation Amendment Bill (No. 2) 2012 would, if enacted, amend 21 acts across 6 portfolios to regularise Commonwealth payments supported by special appropriations (including Special Accounts) consistent with the legislative requirements and section 83 of the Constitution.

It is the tenth Financial Framework Legislation Amendment Bill since 2004. It forms part of an ongoing program to address financial framework issues as they are identified and assists in ensuring that specific provisions in existing legislation remain clear and up-to-date. This has been done in collaboration with the relevant Ministers and their Departments.

Specifically, this bill implements amendments that can be discussed thematically.

The bill would amend 9 acts to provide a mechanism, called a recoverable payment. These amendments permit agencies to make payments on the basis of information available at the time but require overpayments, including those made in error, to be recovered in line with section 47 of the Financial Management and Accountability Act 1997 (relating to the duty to pursue recovery of a debt).

The bill would also amend the Taxation Administration Act 1953 within the Treasury portfolio, to enable the Commissioner of Taxation to decide to make a recoverable advance. These advances would apply where the Commissioner, or delegate, decides to make payments because the likely cost of not making these payments would exceed the total of the advances. If a recoverable advance were made, then the amount of the overpayment would remain a debt due to the Commonwealth, and would need to be recovered.

The bill also amends 7 acts that operate in the area of public sector superannuation, to authorise the Commonwealth to make recoverable death payments. These amendments allow payments to be made to recipients until ComSuper or the relevant Departmental Secretary is notified of the recipient's death. Where payments have been made in the interim period, those amounts would be recoverable from the deceased's estate.

The bill provides that where the recoverable payment, recoverable advance or recoverable death payment provisions are used, the relevant Departmental Secretary or Chief Executive is to ensure that a report is published.

This means that Parliament would directly be requiring transparency on these issues in future.

The bill also amends 10 acts to better align current payment practices with the relevant legislation such as in the recovery of administrative costs.

The bill would also validate certain benefits under the Defence Force Retirement and Death Benefits Act 1973 to regularise the treatment of certain benefit recipients, consistent with existing practice.

The proposed acts being amended relate, largely, to routine activities of government and, if enacted, would allow the continued effective management of these activities, while having Parliament require appropriate levels of transparency and accountability.

This bill is, accordingly, another step to help ensure that specific areas of the Commonwealth's financial framework remain effective and up-to-date.

TAX LAWS AMENDMENT (CROSS-BORDER TRANSFER PRICING) BILL (NO. 1) 2012

This bill ensures the effectiveness of Australia's transfer pricing rules.

Transfer pricing rules are critical to the integrity of the tax system. This bill will play an important role in ensuring that an appropriate return, for the contribution of Australian operations to a multinational group, is taxed in Australia for the benefit of the broader community.

This is an important issue: in 2009 cross-border trade within multinational groups was valued at approximately $270 billion, or about 50 per cent of Australia's total trade flows.

Last November the government announced that it would reform Australia's transfer pricing rules. As part of these reforms, the government also announced it would move to end the uncertainty around whether or not the transfer pricing rules contained in our tax treaties could apply independently of the unilateral rules in division 13 of the Income Tax Assessment Act 1936.

The bill deals with the second announcement. It confirms transfer pricing rules contained in Australia's tax treaties and incorporated into domestic law provide assessment authority in treaty cases.

These changes apply to income years commencing on or after 1 July 2004, being the first income year following the parliament's last statement, demonstrating the longstanding legislative intent that the law operated in this way.

There were a number of important issues in the forefront of the government's mind in developing these rules.

Firstly, the government is keen to ensure that the law is fully effective in the way parliament has clearly intended it to operate.

Secondly, we need to ensure the integrity of the tax system is not compromised. This particular measure is designed simply to protect Australia's existing revenue base—it was not designed as a revenue-raising exercise.

Thirdly, these amendments reflect the bargain we have struck in our treaties. They are consistent with internationally accepted transfer pricing rules.

Finally, the government noted the long-held view of the Commissioner of Taxation that, arguably, the current law already gives effect to the intent of parliament. In this context the government is clarifying the operation of the law.

The government was mindful of differing views on this point. A decision to change the law from a date before announcement is not taken lightly. It is generally only done, as in this case, where there is a significant risk to revenue that is inconsistent with the parliament's intention.

There is considerable evidence, across the decades, that parliament intended that the treaty transfer pricing rules operated in addition to our unilateral transfer pricing rules in division 13. This is fully described in the explanatory memorandum accompanying this bill.

In summary, Australia's current unilateral transfer pricing rules were introduced in 1982 in the form of division 13.

The treaty transfer pricing rules and the division 13 rules were intended to operate as alternatives in the event that one more effectively dealt with profit shifting than the other.

The explanatory memorandum circulated by former Prime Minister and the then Treasurer, John Howard, explained that specific amendments would operate that way and I quote:

… the provisions of a double taxation agreement that deal with profit shifting, either under a 'business profits' article …, or an 'associated enterprises' article …, may have to be applied instead of Division 13.

Even in 1982, profit shifting through transfer pricing practices was seen as such a threat to the Australian tax base that there was clear bipartisan support for the measure.

The important role that treaties play in this regard was evident in the debate.

The then shadow Treasurer noted, and I again quote from the House of Representatives Hansard of 28 April 1982:

Possibly the most significant aspect of our treaties, … is the section modelled after Article 9 of the model OECD agreement which allows the reconstruction of profits of associated entities which have obviously been engaging in transfer pricing activities.

This provision has generally been regarded as a more effective weapon against transfer pricing than the current section 136—

which, of course, was the predecessor to division 13—

… because the provisions of the Income Tax (International Agreements) Act prevail over the ordinary provisions of the Income Tax Assessment Act.

The amendments contained in this bill confirm the way parliament intended the law to operate since at least 1982.

There are at least six subsequent statements in the parliament, as set out in the explanatory memorandum, which reflect a strong consistency across decades of parliament's intent in relation to the transfer pricing rules.

Further to parliament's previously stated intent, the amendments contained in this bill are also entirely consistent with the commissioner's long-held and publicly expressed view of the current law.

In light of this there are strong arguments for concluding that under the current income tax law, treaty transfer pricing rules apply as an alternative to division 13.

If this is the case, these amendments constitute a mere confirmation of these rules.

To the extent that there is any uncertainty in relation to the operation of the current law, these amendments ensure the law can operate as the parliament intended.

The potential impact on taxpayers has been carefully considered.

Importantly, these provisions only apply where a tax treaty is applicable and therefore any party that these measures apply to will be able to access the treaty mechanisms designed to relieve any double taxation that could arise. Further, settled cases will not be re-opened as a result of these amendments.

Settled cases would only be re-opened when the taxpayer breaches a term of the settlement, when the settlement has been entered into on the basis of a fraudulent misrepresentation or when re-opening the settlement would deliver a more favourable outcome to the taxpayer.

Penalties are another important issue when considering any law that has application to prior years.

A transitional rule is included in these amendments to ensure the penalty provisions of the income tax law apply as though this bill was never enacted.

The ATO's ruling on how penalties generally apply in transfer pricing cases is to calculate the penalty based on the lesser of the amount determined under division 13 or the treaty.

This transitional rule ensures the practical operation of the penalty provisions is not disturbed.

This government has engaged extensively with the business community in relation to this measure. The measure is not wholly supported by multinationals and their advisors—and given this is a robust integrity measure—this is not altogether unexpected.

That said, the bill has greatly benefited from the inclusion of some important features following consultation.

The bill will essentially achieve three key objectives.

First, as explained, it will ensure the transfer pricing articles contained in Australia's tax treaties are able to be applied and provide assessment authority independent of division 13.

This will be achieved through providing an express liability provision in the Income Tax Assessment Act 1997.

Secondly, it will require that the transfer pricing rules in this bill are interpreted as consistently as possible with the relevant OECD guidance.

The work of the OECD reflects the best international thinking on transfer pricing and has shaped transfer pricing regimes around the world. The OECD's transfer pricing guidelines are widely used by tax administrations and multinational enterprises globally.

This provision will provide a clear legal pathway to the use of OECD guidance. It will avoid the costly necessity for users to get expert advice on whether the state parties to a particular treaty apply the guidance and will make it clear which set of guidelines is to be used.

Finally, as mentioned, the government has had many discussions with the business community in developing these rules. As a result of those talks we are moving to clarify the interaction between transfer pricing and the thin capitalisation rules.

Previously, this interaction was only dealt with through administrative arrangements.

Other provisions of the bill essentially support and enable these key features and ensure the provisions work and interact appropriately with the rest of the income tax law.

They ensure there can be no double taxation at a domestic level.

They ensure that the commissioner can make a determination and provide taxpayers with appropriate information for the ongoing management of their tax affairs; and they ensure that where an adjustment is made, consequential adjustments can also be made to ensure a taxpayer is not unfairly disadvantaged (or subject to double taxation).

Lastly, I have mentioned the contribution of the business community in consulting on these rules. On the subject of consultation, I would like to note the involvement of the NGO community. I would like to thank the Justice and International Mission Unit of the Victorian and Tasmanian Synod of the Uniting Church for its ongoing contribution. Full details of the measures in this bill are contained in the explanatory memorandum.

WATER EFFICIENCY LABELLING AND STANDARDS AMENDMENT (SCHEME ENHANCEMENTS) BILL 2012

This Bill amends the Water Efficiency Labelling and Standards Act 2005. It implements the response of the Standing Council on Environment and Water, comprising Environment Ministers from Commonwealth, state and territory governments, to the 2010 independent review of the Water Efficiency Labelling and Standards scheme. This independent review, which considered the first five years of the scheme's operation, was a requirement under the Act.

The Water Efficiency Labelling and Standards, or 'WELS' scheme was established by the Water Efficiency Labelling and Standards Act 2005 as part of the Council of Australian Governments' National Water Initiative. The WELS scheme is also supported by complementary state and territory legislation to ensure comprehensive national coverage.

The WELS scheme's objectives are to conserve water supplies by reducing water consumption, to provide information for purchasers of water-use and water-saving products, and to promote the adoption of efficient and effective water-use and water-saving technologies.

Products currently in the scheme include clothes washing machines, dishwashers, flow controllers, showers, toilets and tap equipment. All of these products must be registered and labelled with a water efficiency rating. The rating is zero to six stars, with six stars indicating the most water efficient products. The labels inform consumer purchasing decisions in the same way as energy rating labels on electrical appliances. The scheme currently also sets minimum water efficiency standards for toilets and clothes washing machines.

A number of state and territory programs reference WELS water efficiency ratings, which provide a convenient and authoritative source for setting rebates and prescribing water efficiency requirements.

The independent review considered the appropriateness, effectiveness and efficiency of the scheme. Consultation was undertaken with state and territory governments, water utilities, industry and consumer representatives. The review concluded that the WELS scheme is a good policy and that its objectives are appropriate. The review cited research estimating that the scheme would reduce national water consumption by a total of eight hundred gigalitres by 2021.

The review made forty-one recommendations, including recommendations concerning govern­ance, compliance, administration and funding arrangements.

In November 2011 the Standing Council on Environment and Water endorsed the bulk of the recommendations. It also approved a new three year strategic plan for the scheme and determined that eighty per cent of the scheme's costs between 2012 and 2015 should be recovered from industry, with the remaining twenty per cent to be provided by governments. As shown in the review, this level of cost recovery is consistent with the ratio set for the scheme at its commencement in 2005.

This Bill will provide the basis to implement the decisions by the Standing Council. It also makes some other refinements to the Bill to improve the scheme's efficiency and effectiveness.

The Bill will enable the Commonwealth Minister, through a disallowable Ministerial determination, to determine more of the detailed arrangements for the scheme than previously. This differs from the current position in that some aspects of the scheme, such as the five-year period for product registration, are entrenched in the Act and corresponding state and territory legislation. Under the amended Act, it will be easier to adjust matters of this kind without the need to amend nine sets of legislation. Agreement from a majority of state and territory governments will be required before the determination can be made.

Once this Bill is enacted, a new Ministerial determination will be developed. It will include revised registration and fee arrangements, and other changes such as removing the requirement for gazettal of registration decisions and instead specifying that the decisions will be published on the WELS website. The changes will deliver improvements not only for the scheme's adminis­tration, but also for industry. The improvements include simplifying and streamlining product registration processes so that these are easier for registrants, and providing a common expiry date for all registrations so that retailers will know when the registrations of products they supply are due to expire.

The Bill will also introduce a broader range of compliance and enforcement options. Consistent with the recommendations from the 2010 independent review, it introduces civil penalties to match existing criminal offences and remakes some of the existing criminal offences for clarity.

The Bill also provides for orders to be given to persons that they remedy their non-compliance with the Act. An example would be to order the replacement of an inaccurate WELS rating label with the correct label. In this way the Act's objective of providing information for purchasers of water-using products can be better achieved.

WELS labelling plays an important role in consumer purchasing decisions. The scheme also receives widespread support from the industries affected by it. This Bill has been developed taking into account extensive consultations with stakeholders as to the nature of the changes proposed.

Debate adjourned.