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Wednesday, 27 February 1985
Page: 261


Mr McGAURAN(11.58) —As I rise to speak in this debate I must make it clear from the outset that neither I nor any other member of the Opposition would tolerate in any way, if we were in government, the type of taxation arrangement which the legislation before the House attempts to prevent. However, it must also be made very clear from the outset that whilst this Opposition, when in government, had a very good record on attacking blatant taxation avoidance schemes, we would not in any way countenance the type of retrospective legislation which the Government now proposes. The reason for that is that the principle of retrospectivity is so dangerous to our system of law, and indeed to our system of government, that it cannot be countenanced in these circumstances.

The history of the trust stripping scheme before the House this morning is a long one and one which the honourable member for Bennelong (Mr Howard), the former Treasurer, has sought vigorously in the past to work against. That was acknowledged by the Treasurer (Mr Keating) in his second reading speech on the Trust Recoupment Tax Assessment Bill 1985, in which he said:

Legislation against trust stripping was enacted in 1979 and amendments of a strengthening kind were made in 1981. Despite that specific legislation and the enactment of new general anti-avoidance provisions with effect from 27 May 1981, variants of trust stripping schemes continued to be developed.

The first stage against the trust stripping schemes was taken by the honourable member for Bennelong in 1979. The trust stripping scheme, like so many blatant tax avoidance schemes, is very simple in concept although more detailed in execution. It works simply in that the income of the family trust is allocated directly or through a chain of trusts to a charity which is exempt from the payment of tax on that income. An example would be a hospital. By that method the charity is given a vested and indefeasible interest in the income, but-and here of course is the catch-it is not entitled to payment of that income for some 80 years hence. Until the time of repayment, in 80 years' time, the charity receives only a token payment, with the balance of the fund being retained for the benefit of the beneficiaries of the initial trust. In other words, the exempt charity returns the income to the trust beneficiaries by way of loans which are drafted in such a way as to release the income to be made available to the beneficiaries, and does not, in any material way at least, reduce the amount of income thereby returned to the beneficiaries. This scheme is simple in concept but very dangerous in application to the taxpayers of this country as well as to the amount of revenue raised by government and is thereby deserving of the loudest condemnation by all members of this Parliament, which indeed it receives.

The question then for debate today must be only: How do we go about striking down this blatant tax avoidance scheme and recouping the revenue that the Government is entitled to? I believe that the retrospective aspect of the legislation before the House disqualifies it from being the chosen method of striking down this scheme. Instead, the Government should have relied on two measures, the first being the general anti-avoidance provision of the Income Tax Assessment Act, section 260, which was replaced on 27 May 1981; but for any schemes before 27 May 1981, given the present composition of the High Court of Australia and its rulings to date, section 260 may well have been successfully used against this scheme. The second measure is Part IVA of the Income Tax Assessment Act, brought in by the former Government, commencing on 27 May 1981, which I am more confident would have been more successful at striking down this scheme. I base that confidence on the drafting of that part of the Act. When the former Treasurer, the honourable member for Bennelong, introduced it, he said that the anti-avoidance measure, part IVA, 'ought to strike down blatant, artificial or contrived arrangements'. That is the scope and intention of part IVA.

It is interesting to look at the statement from the then Minister for Finance, now the Minister for Trade (Mr Dawkins), dated 28 April 1983, wherein he lays out this Government's approach to retrospective anti-tax avoidance measures. He said:

The schemes against which we would legislate retrospectively are only those highly contrived and artificial schemes generally accepted as being unambiguously inspired by avoidance motives and having little if any legitimate commercial function.

Therefore, the same words that the former Treasurer used in introducing Part IVA anti-avoidance measures into the taxation Act have been repeated by a Minister for Finance of this Government in justifying retrospective legislation.

It may well be that the Government has received advice that Part IVA may not be successful in striking down this legislation. On the other hand, I know from my own legal investigations that there are lawyers who believe that it would be successful. I believe, as so many members of the Opposition believe, if not all its members, that we cannot afford to sacrifice the principle of certainty and predictability in our law by way of retrospective legislation, particularly when so little is at stake. The former Treasurer announced on 11 May 1982 that any schemes of this nature would henceforth be caught by legislation which he would introduce. Therefore, we are looking at taxation schemes between 1 July 1980, which the Government advises us-I am not certain whether this is correct-is when the first scheme appeared, and 11 May 1982. That is the period in dispute by the Opposition. The honourable member for Bennelong has advised the House that he has received advice from the Taxation Office that only $5m-again, this is advice he has received-is at stake during that period.

The Opposition does not in any way contest the Government's ability to enact legislation commencing from the time of the former Treasurer's announcement-11 May. However, it vigorously contests the Government's correctness in striking down arrangements prior to that date. We must take into account the likelihood that section 260, succeeded by Part IVA of the Act, would in any event strike down schemes prior to the former Treasurer's announcement of 11 May 1982. The Government's relying on section 260 and Part IVA is a legitimate exercise of the provisions of the Act, because any person going into such a scheme or any drafter of a trust stripping scheme knew of the existence of section 260 and Part IVA of the Act. Therefore, if the court, by virtue of either of those measures, strikes down a tax avoidance scheme, of course those going into the scheme always knew of and always ran that risk. But, to introduce legislation in 1985 which would change the law for that period-1 July 1980 to 11 May 1982-is to breach the most fundamental tenets of our system of legislative government as well as common law. If we are to adhere to the principle that citizens can arrange their financial affairs or, for that matter, can arrange any aspect of their personal affairs, we must not create uncertainty and we must not make unlawful at this time that which was not unlawful at the time they made those arrangements. It has been an accepted principle of our common law system that retrospective law is bad law. That is certainly a principle to which I adhere very strongly.

Some members of the Government would have it believed that the Opposition, when in government, was less than vigorous and dedicated in its attempts to stamp out tax avoidance schemes. That is certainly not the case. I take as an example the legislation before the House. As I mentioned previously, the Treasurer acknowledged in his second reading speech that legislation against trust stripping was first enacted in 1979. We know further that the former Government introduced Part IVA, which is drafted in the same or similar words with the same intent as those which the then Minister for Finance, the present Minister for Trade, used to justify retrospective legislation. Moreover, the Commissioner of Taxation, in his report to the Parliament of 1983-84, had this to say about trust stripping schemes:

Last year's report indicated that, while the former Government's announcement of 11 May 1982 appears to have curtailed the promotion of the schemes, the backlog of tax avoidance cases included about 4000 incidences of trust stripping. An on-going detection project has identified that over 5000 target trusts have participated in trust stripping schemes one or more times.

As further evidence of the reliability of the previous Government's measures against trust stripping schemes we can refer to a statement by the then Commissioner of Taxation, Mr O'Reilly, as reported in the Australian Financial Review of 9 December 1983. I quote from an article by Andrew McCathie:

Mr O'Reilly said that the Tax Office has received legal advice that it can pursue trust schemes, all of which were entered into during the years up to 1982. Some, he said, were implemented after the introduction of the general anti-avoidance provision of the Tax Act, Part IVA, which came into effect from May 1981.

The then Commissioner for Taxation said in December 1983 that he had received legal advice that he could rely on the general anti-avoidance provisions of section 260 and Part IVA, yet we have the Government now introducing retrospective legislation without taking the advice of the then Commissioner, which was that the previous Government's measures may well have been satisfactory in striking down this blatant tax avoidance scheme.

I believe, therefore, that the Government has not made out a case-indeed, for that matter, has not attempted to make out a case-for its relying on retrospective legislation in place of the general anti-avoidance provisions already in the Income Tax Assessment Act. Instead, we can only conclude that this retrospective taxation legislation is nothing more and nothing less than an attempt to gain political advantage. The Government in some way believes it can make political capital out of introducing this type of legislation, dirtying the waters, confusing the issues, and thereby seeking to embarrass the Opposition.

A close examination of the legislation before the House, in conjunction with the previous Government's record on trust stripping schemes, shows that there is probably no need for retrospective legislation. Indeed, if a case were made out that trust schemes between 1 July 1980 and 11 May 1982 could be caught only by retrospective legislation, I do not believe that the principle so enshrined in our system of law and government in this country ought to be sacrificed for $5m. Even if it were more than $5m, the principle of predictability and certainty in our law which precludes retrospective legislation would not allow passage of these Bills before the House.

A number of supporters of the Government have, I believe, sought to make political capital out of this issue of tax avoidance. They have done so without studying the previous Government's record and without studying the legislation before the House. To accuse the honourable member for Bennelong, or any other member of the previous Government, of not vigorously and fastidiously stamping out the previous tax avoidance is to go against the very acknowledgment of the former Minister for Finance, the Minister for Trade, who, soon after the previous election, told a group of accountants in Sydney that tax avoidance was a non-issue in this country. With an acknowledgment by the former Minister for Finance of the previous Government's record on tax avoidance, it is nothing more and nothing less than political point-scoring for members of the Government to rise now and accuse the honourable member for Bennelong and the previous Government of not doing nearly enough by way of stamping out tax avoidance schemes.

It concerns me greatly that the Government should, in such a cynical fashion, sacrifice the principle of certainty in our system of law and government by introducing retrospective legislation when it need not have done so. If it were to make out a compelling case that retrospective legislation was needed to recover revenue which was avoided by way of these artificial schemes during the period I have already mentioned, being their first discovery on 1 July 1980 to the former Treasurer's announcement of 11 May 1982, it would do so at its great discredit; a discredit which in many ways weakens the foundations of law and government in this country. To have cynically exploited this issue for political point-scoring, at a time when the Government has been shown to be extremely unpopular and would not, I understand from recent opinion polls, even be returned to government, is an abuse of the system of government in his country.