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Thursday, 25 September 2014
Page: 7114


Senator FIFIELD (VictoriaManager of Government Business in the Senate and Assistant Minister for Social Services) (12:24): I move:

That this bill be now read a second time.

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

Leave granted.

The speech read as follows—

TAX AND SUPERANNUATION LAWS AMENDMENT (2014 MEASURES NO. 4) BILL 2014

This Bill amends various taxation laws to implement a range of improvements to Australia's tax laws.

This Bill delivers on the Government's election commitment to introduce a tax receipt for individual taxpayers and continues the Government's work in restoring the integrity of the Australian tax system.

Soon after the Government was elected, we were advised that 96 tax and superannuation measures, had not been legislated.

This backlog created significant operational uncertainty for businesses and consumers.

We acted swiftly to clean up Labor's mess, and to provide certainty and reduce red tape for all taxpayers: investors, small business and corporate Australia.

This Bill furthers the Government's commitment to eliminate uncertainty, and to restore simplicity and fairness to the Australian tax system.

Schedules 1 to 3 of this Bill implement measures announced but never developed or legislated by the previous government.

Schedule 1 will improve the integrity and the fairness of Australia's taxation system by tightening and improving the thin capitalisation rules.

The thin capitalisation rules are designed to prevent multinationals from profit shifting by allocating a disproportionate amount of debt to their Australian operations, and claiming excessive debt deductions in Australia, thereby reducing their Australian taxable income. If the Australian operations are funded by excessive debt, they are said to be 'thinly capitalised'.

The rules consist of a number of statutory debt limit tests which calculate the maximum debt deductions allowed to be claimed for a multinational's Australian operations. The current limits were set in 2001.

This Bill amends the statutory debt limits to bring them more closely into line with commercial debt levels or to regulatory requirements in the case of banks and non-bank financial entities. Bringing the limits more closely into line with commercial debt levels reduces the incentive for multinational enterprises to allocate excessive levels of debt to their Australian operations, and claim excessive debt deductions in Australia, thereby reducing their Australian taxable income.

It also introduces a new test for inbound investors to restrict tax deductible gearing of the Australian operations to the level of gearing of the group worldwide.

We are assisting the small and medium enterprise sector that have overseas operations by reducing the cost of determining whether they comply with the thin capitalisation legislation. - The threshold for complying with the regime will be increased from $250,000 to $2 million of total debt deductions.

Schedule 2 will reform the tax exemption for foreign non-portfolio dividends paid to Australian corporate taxpayers. This exemption helps ensure that Australian investments in offshore subsidiaries are able to compete on an equal footing with other businesses located in that country. The reforms will both modernise the rules to provide broader access to the exemption and improve the integrity of the tax system by ensuring the exemption only applies to returns on instruments treated as 'equity' for tax purposes.

This removes a significant tax planning opportunity that has arisen from a flaw in the current tax law. This flaw has allowed multinational taxpayers to claim a tax exemption for interest income from loans to offshore subsidiaries, whereas this income should be assessable.

The Government believes that the reforms contained in Schedules 1 and 2 strike an appropriate balance between encouraging business investment to grow Australia's economy and protecting Australia's tax base.

Maintaining a secure and sustainable tax system is central to the Government's efforts to repair the Budget. The changes to the thin capitalisation rules and the exemption for foreign non-portfolio dividends are expected to provide an achievable increase in revenue of $755 million over the forward estimates period.

Schedule 3 to this Bill amends the income tax laws to improve the integrity of Australia's foreign resident capital gains tax (CGT) regime by preventing the double counting of certain assets under the regime's Principal Asset Test.

The Principal Asset Test applies to determine whether an entity's underlying value is principally derived from Australian real property.

Removing the double counting of certain assets will ensure that a foreign resident's interest in an entity that derives its value principally from Australian real property remains within Australia's tax net.

Under Australia's taxation laws a foreign resident is subject to CGT only where the CGT asset disposed of is either a direct or indirect interest in Australian real property or where the asset is used in carrying on a business through a permanent establishment (for example a branch) in Australia.

The amendments in this Bill extend the original 2013-14 Budget announcement to include interests in unconsolidated groups as well as in consolidated groups held by foreign residents to ensure the Principal Asset Test operates as intended.

Schedule 3 also makes a technical amendment to references to the permanent establishment definition to ensure the foreign resident CGT regime applies where assets are used in carrying on a business through a permanent establishment in Australia.

Schedule 4 to this Bill amends the tax law to require the Commissioner of Taxation to issue a tax receipt to individuals following their income tax assessment.

During the last Election, the Coalition committed to introducing a tax receipt for individual taxpayers.

In his Budget press release of 13 May 2014, the Treasurer announced how the Government would deliver on its commitment to the community.

From 1 July 2014, the Australian Taxation Office (ATO) started issuing tax receipts to individual taxpayers in Australia.

It is expected that around 10 million tax receipts will be issued. Up to 15 July 2014 the ATO had already issued over half a million receipts.

To make tax receipts a formal, ongoing feature of the system, the Government is now introducing legislative amendments to the taxation law, included in Schedule 4 to this Bill.

The tax receipt is a concise one-page personalised and itemised receipt which shows, in dollar terms, how much of a person's tax bill was spent on each area of the Budget. It will also show information about the level of gross government debt.

In most circumstances, the tax receipt will accompany the taxpayer's notice of assessment.

The Government understands that every dollar the Government has, it holds on trust for the taxpayer. We believe taxpayers deserve transparency so that they know how their tax is being spent, what the levels of debt the Government has incurred are, and what we are paying on that debt.

The previous government left $123 billion in deficits with debt projected to reach $667 billion in the medium term. This debt has to be paid back, and it is dead money the Government cannot use to help families or to cut taxes.

Government debt, if left unchecked and allowed to continue on the inherited trajectories of Government deficits and excessive spending would have been $667 billion at the end of the medium term.

Without action, the Budget outlook is deficits and rising debt for at least another 10 years. The budget would never get to surplus and the debt would never start to be repaid.

There is a strong economic and moral imperative to change course and put the budget back onto a secure and sustainable footing.

This Government is committed to living within its means. It is not sustainable for a Government to continue to borrow money to pay for consumption today, at the expense of generations of taxpayers into the future.

Our first Budget outlined a path to return the Budget to a more sustainable footing.

Because of this plan, in our first four years to 2017-18, deficits are now estimated to total $60 billion.

Our policies aim to reduce debt by almost $300 billion over the next decade.

This improvement is built off a significant reduction in payments growth.

At the 2013 Mid-Year Economic and Fiscal Outlook, average real growth in payments over the four years to 30 June 2017 was 2.6 per cent. The average over the four years to 30 June 2018 is now 0.8 per cent.

The Government will redirect spending to measures that will boost productivity and workforce participation, to build a stronger economy.

This includes the Infrastructure Growth Package — the Asset Recycling Initiative and other new investments in infrastructure — to which have committed nearly $11.6 billion in our first Budget. It includes building a new Medical Research Future Fund within the next six years. This will be the largest of its kind in the world.

We are also eliminating waste and targeting government assistance to those who need it most.

This accords with our plan to reduce the Government's share of the economy over time, which in turn will free up resources for private investment.

It will see payments as a percentage of GDP fall over time.

And it will allow us to start to pay down public debt.

We want to reduce the amount Australian taxpayers spend on interest repayments.

We want to ensure that more of their tax dollar is spent on the delivery of front line services.

The benefit of making these decisions now is that, in the years ahead, we will be able to afford a sustainable quality of life.

Every generation before us has helped to build the quality of life that we enjoy, and we can do no less for future generations.

Budget repair is about government living within its means and ensuring the sustainability of government services.

This measure enshrines the Government's election commitment to provide further transparency to taxpayers as we undertake this task to repair the Budget. This initiative will ensure that all governments are held accountable for spending tax revenue wisely and for the levels of government debt they maintain.

Costs for the issuance of the receipt will be met by the ATO.

Schedule 5 makes a number of amendments to ensure the law operates as intended by correcting technical or drafting defects, removing anomalies and addressing unintended outcomes.

Full details of these measures are contained in the explanatory memorandum.

Debate adjourned.

Ordered that the resumption of the debate be made an order of the day for a later hour.