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Thursday, 21 March 1985
Page: 605

Senator WATSON(8.00) —I wish to speak in condemnation of the persistence of the Australian Labor Party in bringing in time and time again legislation which has a minor retrospective thrust about it. I have no argument with the principal thrust of the legislation. The ALP cannot claim any originality in this legislation, other than in its retrospective elements. After all, the legislation basically continues John Howard's theme. Therefore, I speak in support of the amendment foreshadowed by my colleague from Tasmania, Senator Peter Rae, which would change the date from 1 July 1980 to 12 May 1982. After all, that was the date on which John Howard gave notice of the intention to legislate against the rather dubious practice of tax stripping.

The Senate has before it three Bills, two of which are the Trust Recoupment Tax Assessment Bill and the Trust Recoupment Tax Bill, which is a rates Bill. The first illustrates the very clear distinction between the philosophy or attitude of the Government and that of the Opposition on retrospectivity. The Liberal Party of Australia and the National Party of Australia stand for prospective changes to law, especially income tax law. On the other hand, the ALP stands strongly in favour of retrospective tactics. It then seeks to apply highly punitive rates in addition to the usual provisions available under the existing Act. The ALP seeks to justify retrospectivity and apply it, coupled with punitive rates, in certain circumstances. It applies some woolly criteria, saying that it believes retrospectivity is just when applied to blatant tax avoidance schemes. Nowhere does it give us a comprehensive definition of what it regards as a blatant scheme.

Senator Peter Rae —A Dawkins scheme, perhaps?

Senator WATSON —I will not go into the personalities and practices of some members of the ALP. I think they have been well documented, but the point is well taken. In whose eyes is a scheme blatant? Is it in the eyes of the Commissioner of Taxation or in the eyes of certain members of the left wing of the ALP? This creates a further danger of uncertainty. What is a blatant scheme? The ALP then says that such blatant schemes will be taxed retrospectively whenever they are discovered. Discovered by whom? Discovered by the Australian Taxation Office or by some backbencher who believes somebody has claimed a tax deduction for something that may have been allowed under section 51 but which he believes to be a blatant avoidance scheme and that the taxpayer is not entitled to that loss or that deduction?

What does the ALP do? It ignores all the given rules of, for example, three or six years or whatever. It says the law can be applied any time. It plucks a date out of the air. Some people were lucky. In this case the Government picked 1 July 1980. What about all those so-called blatant and contrived schemes that operated before then? The Government would say that there were not many before that date. But who is to say that in future it does not pick a date ten years prior? So it opens up a Pandora's box of uncertainty for the taxpayer because we could have certain circumstances in which the Commissioner believes a scheme could be difficult; it has his tacit approval and he allows it to proceed for years on end. Suddenly, a group within the ALP could say that the scheme was blatant. That group could say that people were starting to use these deductions and that although they are allowed under the Act it believes they come into its category of blatant schemes. Because there is no definition, there is no certainty, it creates all sorts of problems for taxpayers.

There must be certainty before the law. It has been a tradition of taxation law and all sorts of law that a person should be able to plan his affairs with some certainty while operating within the law. This is the point. All taxation arrangements are made within the law. I think we fail to distinguish between tax avoidance and tax evasion. We all recognise that tax evasion is quite abhorrent, but tax avoidance is a different matter. It is a well recognised principle that people can arrange their affairs within the law naturally to minimise their tax obligations. There should not be anything wrong with that. We acknowledge that from time to time one or two people, groups and companies obviously use pretty artificial sorts of devices. There has been plenty of opportunity for these to be picked up. This element of retrospectivity is unfair not only to taxpayers but also to the community. Both the Government and the Opposition acknowledge that the type of activity outlawed in this trust stripping legislation is unsatisfactory.

We must point out that Mr Howard's anti-avoidance provisions in Part IVA have been effective. They have caught most schemes. Even the present Minister for Trade, Mr Dawkins, as late as 29 April 1983 acknowledged this, with a rider that some stripping operations could be exceptions. Mr Howard, on 11 and 12 May 1982, said that Part IVA may not work. Honourable senators will recall that Part IVA was the new general anti-avoidance provision which was introduced to supplement the old section 260 which was designed to prevent tax avoidance undertakings in schemes which were shams and so forth, schemes which were devoid of reality and which had the general purpose and intent of diminishing a person's tax obligations in an unreal manner. Mr Howard said then that should this new Part IVA not work against these trust stripping operations, the Government would introduce remedial legislation. Of course, that would apply to trust income of current and subsequent years. Mr Howard, having given notice, said he would introduce legislation to ensure that these sorts of operations would get caught. It was new legislation which would operate from 12 May 1982. This Government has not demonstrated to the Parliament or to the community its justification for the selection of an earlier date. This earlier date of 1 July 1980 is to be introduced for all the wrong reasons. Presumably operators before that date will get off scot-free.

I do not want to allow this opportunity to pass without drawing attention to at least one of the fairly punitive rates in the second Bill. This Bill would impose in certain circumstances an income tax rate of 75 per cent. That is an extremely high rate. We must bear in mind that it is a rate and not a penal rate. I draw a distinction between the two. I think we are entitled to be given reasons why 75 per cent has been chosen. Why is the Government sticking so firmly to this applying of retrospectivity? I think it is pretty much a gimmick, because the true reason for the introduction of retrospectivity time and again is not to get a trigger mechanism for a double dissolution of the Senate. Not many of us will be frightened by that because on our side we stand by principle. This principle of retrospectivity is pretty important to the Liberal Party. The true motive of the Australian Labor Party is to get a lot of cheap media publicity by trying to attach tags to the Liberal Party and trying to say that we are the party that supports the tax cheats and so on. Without respect for the media, it runs this line-

Senator Walsh —You always have been.

Senator WATSON —The way the Minister carries on brings no credit to him, because it makes cheap gutter politics devoid of accuracy and designed to appeal to the lowest common denominator. I hope that in this forthcoming tax summit the Government will try to do a little better than that. But in the euphoria of contradictory statements preceding this tax summit all that is being given to the community is complete confusion as to what will happen, because we have heard from spokesmen for all the different factions. It was interesting to hear the debate on tax yesterday in which-Senator Dame Margaret Guilfoyle and Senator Peter Rae spoke about this-members of the Liberal Party spoke as a team. Members of the Labor Party are now speaking as representatives of factions, the factions that want high indirect taxes, the factions that want death duties, the factions that want wealth taxes, the factions that want capital gains taxes and so on. The fact is that John Howard's record on tax cheats and avoiders is impeccable. Despite the introduction in recent years, principally from our side, of highly complex anti-avoidance legislation to catch up with this sort of unsatisfactory activity, I think we will find now that the Taxation Office is going back to basics and applying the old section 260, looking at the transactions and in many cases--

Senator Chipp —It was a good section.

Senator WATSON —Yes, and it still applies. As I said four years ago and as I say today, the Taxation Office is now applying section 260, but for some reason it was getting bad advice a few years ago from its legal advisers. Admittedly, the High Court of Australia was not helping at all at the time. The point is that the Taxation Office is now looking at some of the records and is finding that some of these transactions were sham operations through and through-lack of adequate records; money failing to leave the bank account, let alone going overseas or coming back as may have been required; no payment of stamp duty, and so on. The old section 260 cuts the core out of these sorts of sham operations and the Taxation Office is, therefore, collecting the revenue.

I am not saying that new provisions are not required, as provided in this legislation, but a lot more could have been done earlier and a lot more can be done even now in attacking the so-called sham cases under existing legislation. Another precedent the Taxation Office is using is known as the Ramsay decision from the United Kingdom, whereby the Taxation Office looks at the whole of the arrangement to determine the purpose of the scheme or undertaking. As a bit of free advice, I ask why it is not applying that sort of idea under section 26 (a) of the Act under which profit making undertakings or schemes are assessable. The Taxation Office says that it has run into trouble in picking up a lot of undertakings in which people ostensibly try to apply funds of a capital nature which would, in ordinary circumstances, be revenue attracting under section 26 (a) of the Income Tax Assessment Act. I hope that some of the principles enunciated in the Ramsay decision-that case involved outright anti-avoidance-can be applied to section 26 (a) to clear up any misunderstanding and to catch people. I should certainly like a response from the Minister for Finance (Senator Walsh) about this matter because I believe the principles of the Ramsay decision--

Senator Walsh —It would do what? I am sorry, I did not hear you.

Senator WATSON —It was the Ramsay decision of the United Kingdom. The Taxation Office is already applying that decision in respect of some of the sham transactions and is picking up some of the trust stripping operations which would otherwise probably have been caught under this legislation. The purpose of my participation in tonight's debate is to draw attention to the abhorrence of retrospective legislation. Therefore, I support the amendment to be moved by my colleague Senator Rae, and hope that the Australian Democrats will support it.