Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Full Day's HansardDownload Full Day's Hansard    View Or Save XMLView/Save XML

Previous Fragment    Next Fragment
Wednesday, 11 November 1964

Senator HENTY (Tasmania) (Minister for Civil Aviation) . - This clause deals with the purchase by companies of companies that have built up losses over some years, thus providing an opportunity for a company making profits to use the losses to offset the profits it has made over a period of seven years. This Bill now gives the companies until this financial year to make use of any losses that they have purchased. After that time the losses cannot be used for this purpose. Quite frankly, I think that this is one of the loopholes in taxation legislation which should be tightened up considerably. I can see no merit' whatever in a company which is trading and making profits purchasing the shares of a company which has failed simply for the sole purpose of not having to pay taxes on its profits.

If that is not a complete avoidance of tax then I do not know what is. It has been legal but it is something which should not be allowed to continue and every indication was given that it would not be allowed to be continued. It is one of those practices which I think should cease. There are only two beneficiaries of this practice. One is the shareholders who have invested in a company which has failed - has reached a stage where it has made considerable losses and its share value is practically nil. The shareholders of that company can, by selling the company to a concern making profits, get some value simply because thenown company has been unsuccessful and has suffered a loss. They can recover something because the other company can avoid paying its due tax on the profits that it is earning. I think it is quite time that this practice stopped and under this Bill it will be stopped after this financial year. Anybody or any organisation which has purchased a company during this financial year has the right to write off its losses against this year's profit. After that time it is prohibited from doing so and, to my mind, that prohibition is correct. This practice is one of those things which I do not think have been a credit to the commercial community. It has been perfectly legal. I am not saying that it has not. But to my mind it is not one of those things which have been a credit to the commercial community. It is not a credit to the community that a profitable company should want to avoid paying tax and should do so simply by buying a company which has failed to make the grade - which has piled up losses - and so write off the losses of that company even though they had not previously been associated.

Senator Wright - The company can still do so if it maintains a 40 per cent, shareholding.

Senator HENTY - That is correct. If the company originally had a 40 per cent, shareholding in the company that failed then that is a different matter. But when the purchasing company had nothing to do with the loss company at all - never owned a share in it - until it took over the losses to write them off in seven years-

Senator Willesee - It is an injustice within the law.

Senator HENTY - I think it should be stopped, anyway. There are one or two things which Senator McKenna raised to which I have an answer. I understood the honorable senator's question to relate to cases in which there has been a reduction in capital of a company with losses. So long as shares carrying the appropriate rights are held in the same rates as before the reduction, the section will not prevent a deduction. Concerning section 80d, this will authorise amendments only where one of four specific sub-sections applies. In other cases there will be no change in limitations upon amendments in other circumstances. The four sub-sections relate only to cases where special arrangements have been made and may well have been made for tax avoiding purposes. The onus of proof as it is under the present law will, 1 understand, be unchanged.

Clause agreed to.

Clauses18 and19 agreed to.

Clause 20 (Application of Division).

Suggest corrections