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Tuesday, 30 November 1965

Mr CLEAVER (Swan) .- I would like to speak to clause 20 of the Bill. I do so for the reason that I am most concerned with its contents. I was looking forward, at least, to having portion of my hopes and ambitions achieved by the amendment which it was my understanding that the Treasurer (Mr. Harold Holt) would probably introduce in connection with clause 20. This is another aspect which gives us concern because of the speed with which we deal with these important matters affecting taxation: The amendment was only available today and when I received it and had the opportunity to analyse it, I found that the Government's amendment, which will affect clause 42 at a later time in this debate, had its impact on clause 20 only to a fraction of the extent that I anticipated. That means that I come hopefully and very genuinely to ask the right honorable gentleman if he will give further consideration to a possible amendment of clause 20. If I cannot achieve that now - because I have had no time to draft the amendment, as only the Parliamentary Draftsman could do it at my request - I hope that the injustice which I portray here might be appropriately fixed at a later date. The amendment which will be brought forward by the Treasurer when dealing with clause 42 I suggest virtually concedes the point which gives me concern.

I am sure he will recall that in my representations I have pointed out the injustice done to people who knew that section 80b, which was inserted in the Act in OctoberNovember 1964, was a very comprehensive piece of new taxation legislation based on the Ligertwood Committee's recommendations that evasion or avoidance of tax in this field should be stopped. This section deals with provisions relating to beneficial ownership of, or rights attached to, shares, and is linked with the acquisition of loss companies.

Every honorable member knows that this field has been exploited. Let it be on record that I hold no brief whatever for the evasion or avoidance of tax as we have seen it presented by the Ligertwood Committee. It is apparent from last year's effort that section 80b was in the mind of the Government. It became law and people then had to try to put their affairs in order. Things they contemplated doing, commitments half made, commitments fully made, all had to be lined up with the new legislation. Within 12 months, between the amendment of the Act by the insertion of section 80b and 28th October this year, a substantial amendment is again made, the purpose of which, I know, is to close a door that might have been partly open. But it goes beyond that. I am making a claim that fairness and justice should be extended to those people who, having entered into contracts or agreements within this 12-month period, now find they are more than embarrassed. I have said that clause 42 would appear to recognise this point, yet when we analyse that clause we find that instead of exempting those contracts or agreements which have been entered into in this period of 12 months since the major amendment of last year, the proposal is that only one year of assessment, not seven years, will be the benefit extended.

I have stressed that section 80b as inserted in the principal Act last year is comprehensive. I urge that it remain unaltered because of the action undoubtedly taken by many taxpayers between the date of its enactment and the date of the introduction of this Bill. I assert that they probably acted in good faith on what we purported the law to be - what was in the Government's mind at the end of last year. Was there any indication that it would be altered? No. It would be the understanding of the advisers to the people who would seek an interpretation in law that this was the mind of the Government. If it is now proposed that the law should be altered, I believe that that could unexpectedly be seriously and, of course, unjustly financially embarrassing to those who have entered into agreements and contracts.

Clause 20 of the Bill proposes a vast extension of sub-section (5.) of section 80b -all, of course, to the detriment of the taxpayer - in an endeavour to catch those who might be contravening the law. If that clause is not deleted, I urge most genuinely that, in accordance with the accepted principles which can be found in clause 42 (1.) of the Bill in respect of bonus shares, it should at least declare that apart from options of the nature mentioned in the existing sub-section (5.), the proposed new sub-section (5.) should not apply to contracts made between the dates that I have so clearly underlined - the enactment of last year and 28th October of this year. The memorandum which accompanied the Bill has the following paragraph at the foot of page 59 -

In broad terms, the proposed new sub-section (5.) will apply in relation to an arrangement entered into for the purpose (or for purposes that included the purpose) of maintaining an overt position regarding beneficial interests in a "loss" company designed to ensure the deductibility of the loss--

I ask honorable members to note these words - and also to ensure that the beneficial interests will change after the deduction for the loss has been obtained.

A study of proposed new sub-section (5.) reveals that it will disallow losses even where contracts that are mentioned in no way ensure that the beneficial interest will change after the deduction for the loss has been obtained. We could take an example of this. If I owned shares in a company free of all encumberances, charges and options, surely my beneficial ownership of such shares is not imperilled by agreeing with another shareholder that, during a certain period, I shall not sell such shares or grant any option thereover. But, by clause 20 as it now stands, such an undertaking would appear to disentitle the company to a deduction for losses of previous years. Similarly, if I did not grant any person an option over my shares but took from him an option, which I might or might not exercise, giving me the right to call upon him to buy my shares, surely my true beneficial ownership of the shares would not be affected. But here again the result would be just as I have stated, as far as clause 20 is concerned. My proposition to the right honorable gentleman is that the clause gets right away from the true object as explained in the explanatory memorandum. I believe it goes too far. So it was that at a much earlier stage than this I appealed that at least those contracts into which people had entered in good faith should be clearly exempt, and unfortunately--

Mr Harold Holt - What does the honorable member mean by " good faith " in this instance? Would he agree that the only arrangements entered into between the enactment of the 1964 legislation and the introduction of the present Bill that could be affected are those that have a purpose of circumventing the intention of the legislation?

Mr CLEAVER - Seeing that the interruption has come from my right honorable friend as my time is about to expire I cannot answer it except to state that I firmly believe that if legal advice were sought, based upon our own enactment of last year, contracts and agreements could be so entered into.

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