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Monday, 23 June 2003
Page: 17239

Mr SLIPPER (Parliamentary Secretary to the Minister for Finance and Administration) (6:58 PM) —in reply—I would like the opportunity to sum up the New Business Tax System (Taxation of Financial Arrangements) Bill (No. 1) 2003. As always, the member for Farrer has made a very significant contribution, and it is rather good to see the member for Kingston here making a contribution, although it is a pity that he has not been more fulsome in the support of the measures contained in this bill. Those measures form part of this government's commitment to business tax reforms which are designed to deliver a modern, competitive and fair tax system, and that was one of the matters pointed out by the member for Farrer in her contribution.

In particular, the provisions of this bill reflect the ongoing implementation of the initiatives of the government to reform the taxation of financial arrangements. The measures will amend taxation legislation to remove tax barriers to traditional securities. They will also resolve tensions and uncertainties within the existing law governing the taxation of foreign currency gains and losses by removing anomalies, distortions and gaps in the current laws. These reforms will also reduce ongoing compliance costs for business and will serve to enhance the efficient operation and competitiveness of Australia's business sector—and I am sure that is a laudable aim that all honourable members would agree with.

I am pleased to note that this bill has been the subject of extensive public consultation and is welcomed by both business and investors. That is one of the reasons that I was disturbed at the member for Kingston saying in his speech that he wanted this bill referred to a Senate committee. The government have consulted widely in the community. We have received very strong support. This bill is recognised and welcomed by both business and investors. Given the procedures that the government have followed, it is eminently regrettable that the opposition is wanting to sidetrack this bill and to hold it up so that it is not able to proceed in the expeditious way that is needed for the benefit of the Australian economy.

Referring in particular to provisions of the bill, schedule 1 removes the taxing point on conversion or exchange of certain traditional securities, such as interest bearing bonds and debentures. This addresses the cash flow disadvantage that may arise where the holder of traditional securities that convert or exchange into ordinary shares does not have the cash from the conversion or exchange to pay the tax on any ensuing gains. The amendments address this cash flow disadvantage by removing the taxing point at the time of conversion or exchange. This means that an investor who acquires an ordinary share on the conversion or exchange of a traditional security will not be subject to tax until that ordinary share is ultimately sold. This will improve the ability of business to raise new capital using convertible and exchangeable traditional securities by making them more attractive to investors. Schedules 2 and 3 contain technical corrections to the capital gains tax provisions to ensure that they operate as intended for convertible interests and rights respectively.

Schedule 4 addresses a number of uncertainties and anomalies arising under the current law's taxation treatment of foreign currency gains and losses. These reforms represent the second stage of the government's reforms to the taxation of financial arrangements recommended by the Ralph Review of Business Taxation. They will promote greater certainty and consistency in the taxation of foreign currency gains and losses, by removing uncertainties and anomalies in the current law. The amendments introduce a general translation rule into the income tax law which will translate foreign currency denominated amounts into Australian dollars. This ensures that the Australian income tax liability is calculated by reference to a common unit of account. Schedule 4 also introduces a core realisation principle into the income tax law which, together with the translation rule, ensures that foreign currency gains and losses are brought to account when realised, regardless of whether there is an actual conversion of foreign currency accounts into Australian dollars. It ensures that foreign currency gains and losses have a revenue character, subject to limited exceptions.

In designing this legislation the government was mindful of the sometimes significant compliance costs associated with the taxation of foreign currency denominated transactions and has provided a number of options designed to reduce these costs without compromising the integrity of the measures. Functional currency laws are introduced, under which the net income or loss of an entity or a specified part of an entity that functions predominantly in a particular foreign currency can, under certain circumstances, be determined in that currency, with the net amount being converted into Australian dollars. These rules are directed at reducing the compliance costs of businesses with large international operations. A simplified treatment for certain foreign currency denominated bank accounts is also introduced, as is optional roll over relief for the issuer of certain securities under finance arrangements. These two measures were developed in consultation with the industry and professional bodies to reduce the costs of compliance for small and large business and to reflect commercial finance arrangements.

Before I conclude, I would like to comment on a number of the remarks made by the member for Kingston. Firstly, he sought to criticise the government for the late introduction of the bill. The member for Kingston has suggested that the government has not given appropriate notice to this and other bills. The reality is quite to the contrary, and that is that the member for Kingston was given briefings on taxation laws amendment bills (No. 4) and (No. 6) and the present bill was introduced almost a month ago. So the member for Kingston has had almost a whole month to do his homework. It is truly regrettable that the member for Kingston has not taken the time to look at and support the obvious measures of this bill. Perhaps this indicates—just as an aside—the ALP's preoccupation with its leadership woes. The member for Kingston, I suspect, regrets that he has not had the opportunity to spend the time he would like on this bill, but apparently the price that we have to pay as a parliament is that this bill is to be shunted off to a Senate committee.

The member for Farrer noted that measures in this bill were recommended by John Ralph in A tax system redesigned. The member for Kingston again claimed lack of time to examine the taxation of financial arrangements measures. The bill was introduced on 29 May, and he ought to have looked at the matter in very close detail prior to getting up in the parliament tonight to berate the government for in some way, shape or form providing inadequate notice. The member for Kingston claimed nil revenue cost for convertible and exchangeable instruments. This measure reduces the cost of capital and enhances the ability to raise capital, particularly for start-up companies. This will assist companies to grow and be able to contribute to future revenue. This measure is consistent with measures in a number of tax jurisdictions, such as in the United States of America. It will make Australia a more competitive place and will enhance it as a financial centre.

The New Business Tax System (Taxation of Financial Arrangements) Bill (No. 1) 2003 is a very important bill. It is a bill which we in the government are very proud of. I strongly urge that it be passed not only by this place but also by the Senate.

Question agreed to.

Bill read a second time.