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Tuesday, 30 November 1965

Mr SPEAKER - Order! There is far too much noise in the chamber.

Mr HAROLD HOLT - I know this is not a very appetising subject, Mr. Speaker. I just wish to place on record some comments which derive from the contributions made by those honorable members who devoted themselves to a study of this complex legislation, which was no easy task for them. The Government introduced a bill - and we have had it before us - which did take account of representations which reached us and which set out to effect some improvements in the existing legislation. In the course of the second reading debate notice has been given to us of amendments which will be moved in Committee. 1 have had an opportunity of discussing several of them with their prospective movers, and I expect to be in a position to indicate the Government's approval of them.

Most of the debate has been on the provisions affecting superannuation funds for employees. It has been suggested that none of the superannuation funds of the traditional type in Australia will meet the tests prescribed before exemption of income from tax is available. This, I venture to suggest, is a quite exaggerated view of the matter and could be fallacious in its reasoning. The position that the Government faced following the report of the Ligertwood Committee was that superannuation funds were being used in a number of instances to avoid taxation. The Ligertwood Committee estimated this avoidance at about £4 million a year in cost to the revenue. The use of superannuation funds for tax avoidance purposes was growing, and there was an imperative need to stop that growth.

Before the 1964 legislation any superannuation fund for employees was exempt from income tax even though it was being used primarily for the purposes of avoiding tax. It would have been quite impossible to prevent the loss of revenue arising from such a position without imposing tests to be satisfied before a fund would qualify for exemption. What the Government did was to take the tests recommended by the Ligertwood Committee. It added one more test to ensure that employers contributed to a fund before the fund became entitled to exemption.

The Government took care to see that the tests written into the law were capable of being met by the bona fide employeeemployer superannuation fund. The Ligertwood Committee, which recommended eight of the nine tests adopted, stated its opinion that the tests it proposed could readily be satisfied by normal bona fide superannuation funds. It is true that in many cases superannuation funds will need to alter their deeds or rely upon the exercise of a discretion by the Commissioner. With very few exceptions, alterations to the deeds of traditional type funds will not need to be either complex or extensive. There have, of course, been many approaches to the Commissioner of Taxation regarding the implementation of the new legislation and the Commissioner has given advice affecting literally thousands of superannuation funds. In some cases the advice has been given directly to the trustees; in other cases it has been given to the sponsors and advisers of the funds. This does not mean, as the honorable member for Sturt (Mr. Wilson) has said, that the Commissioner is directing the conduct of funds. He is merely assisting them to comply with the law. The experience so far - and it is already quite extensive experience - shows that the vast majority of employer-employee funds of the traditional type will not face major difficulties in meeting the tests of the law. From the knowledge already gained, it is extravagant to suggest that many bona fide funds in Australia cannot qualify for exemption from tax. On the contrary, any fund that does not qualify will have features that, at the very least, throw grave doubts on whether there is an equitable case for exemption.

I regret that funds that have, in the past, been conducted in the most praiseworthy manner should be put to even the slightest inconvenience through legislation aimed at defeating tax avoidance arrangements. None of the representations received has suggested how this could be avoided without leaving open the very wide gaps that have been used by skilled tax consultants to advise their clients. The Ligertwood Committee made it quite clear that it considered it impracticable to devise legislation that would be both precise and exhaustive while at the same time protecting bona fide funds and preventing exploitation of the law by others. It could see no way out apart from stating strict tests and giving the Commissioner discretions and authorities. This is the Government's view, which it came to rather reluctantly, because it has no love for discretions if precise requirements can be stated in legislation. The Government, through the Cabinet, came to the conclusion that this was the only practicable way in which what was intended by the legislation could be carried out. I think I can confidently say that nothing has been done by the legislation that will prevent the genuine fund from maintaining an exemption that it has enjoyed in the past. It will always be open to it to meet the tests. Alternatively, it will be open to it to seek the Commissioner's discretion if that should become necessary.

The Commissioner has given considerable guidance on how he will exercise discretions. There have been for many years discretions in the law relating to employer's contributions to superannuation funds. Those discretions have been administered wisely and have not been the subject of criticism. Before this legislation was passed in my term as Treasurer, I do not recall a complaint about the way in which the Commissioner exercised his duty. I am confident that the new discretions will, wherever necessary, be exercised with equally good common sense and justice. From my remarks it will readily be seen that I am quite unable to accept the view that a rate of 10s. in the £1 will, in fact, fall upon superannuation funds set up to provide benefits for employees generally. These funds, I am confident, will have no difficulty at all in meeting the tests of the law. We have the example of two large enterprises in Australia announcing recently that they are establishing new funds for thousands of employees. They have done this since the 1964 legislation was enacted. Hundreds of smaller funds also have become established since that time. They have established themselves without complaint about the legislation and, so far as I am aware, without any difficulty arising with the Commissioner of Taxation. When we look at these examples of new funds entering into new superannuation fields it becomes unreal to suggest that penalties are being imposed upon genuine funds or that the income tax law is operating contrary to the Government's general aim of encouraging superannuation funds.

In his speech during the debate the honorable member for Sturt asked me particularly to explain a point regarding the test that requires that the rights of a member of a fund to receive benefits from it must be fully secured. He referred to the circumstances where the rights of a member can be taken away if he embezzles the funds of his employer. I can put the honorable member's mind at rest. A provision of this kind in a deed of a superannuation fund has been held by the High Court not to affect the security of the rights of the member under deed. On the other hand, if the right's can be taken away at the mere whim of the trustee or the employer, the member would not be considered to have fully secured rights. I do not think the honorable member would have it otherwise.

The honorable members for Parramatta (Mr. Bowen) and Henty (Mr. Fox) have foreshadowed some amendments to the Bill which have arisen out of the consideration of it by the Government Members Committee on Taxation and Finance. I thank these honorable members and other honorable members who served on the Committee for the considerable amount of time and thought they have given to the Bill. I can say now that the amendments that have been foreshadowed by the two honorable members, and which they have been good enough to permit me to examine and to discuss with them, are acceptable to the Government. They will resolve some possible technical ambiguities and generally tend to improve the legislation without reverting to the situation that the Ligertwood Committee set out to overcome.

Question resolved in the affirmative.

Bill read a second time.

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