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Wednesday, 31 May 2000
Page: 16665

Mr SLIPPER (Parliamentary Secretary to the Minister for Finance and Administration) (1:05 PM) —I would like to thank all honourable members who participated in this debate on these three important new business tax system bills currently before the chamber. These bills are some of the business bills the government has introduced into the parliament to implement its broad ranging business tax reforms. The government is implementing these business tax reforms following 12 months of extensive consultation with the business community through the review of business tax headed by Mr John Ralph AO. In September and November last year the government announced its response to the recommendations of the review and since then has been consulting with business on implementation details of the measures as was foreshadowed in September.

The government's business tax reforms contain a broad range of measures, including a number of integrity measures, some of which have already been legislated, and the one that we are debating here today. The government has already, for example, legislated important measures preventing loss duplication, preventing value shifting through debt forgiveness and the taxation of consideration received from assigning leases. As part of its business tax reforms, the government has also already legislated sufficient or significant cuts in company tax and capital gains tax rates which will give Australia an internationally competitive business tax system. The government has also introduced scrip-for-scrip rollover relief and additional rollover relief and exemptions from capital gains tax for small business. These business tax reforms complement the broader reforms that the government has introduced, such as cuts to personal income tax rates, changes to family assistance and reforms of Commonwealth-state relations and indirect taxation reform.

The bills being debated today implement an important business tax measure which will improve the fairness of the tax system. The measures are based on the recommendations of the review of business taxation. The bills will prevent individuals from reducing their tax by diverting the income generated by their personal services to a company, partnership or trust and will limit work related deductions available in those cases and to an individual contractor in similar circumstances. The provisions of this bill will apply where individuals and interposed entities receive at least 80 per cent of their personal services income from one source, unless the commissioner makes a determination that the income is from conducting a personal services business. The commissioner may make such a determination on one of four grounds: having two or more unrelated clients, having one or more employees, having a separate business premises or that the individual or entity is producing a result, supplies their tools of trade and is liable for the cost of rectifying defective work.

The government has also introduced in the bill a specific transitional provision to minimise the compliance burden associated with moving to A New Tax System. Under this transitional provision, the Commissioner of Taxation will be able to make a declaration that has the effect that the regime will not apply to a class of contractor under the prescribed payments system who have payee declarations with the commissioner as of 13 April 2000, the day the bill was introduced. The declaration will apply for a period of two years ending on 30 June 2002.

In designing this transitional provision the government has had regard to the fact that taxpayers under the prescribed payments system are currently subject to withholding arrangements and are specifically recognised as independent contractors under the tax laws. The government has also had regard to the logistics of the commissioner being able to process a potentially large number of requests for individual determinations for the 2000-01 income year. The transitional arrangement will remove any additional compliance burden from the new rules that independent contractors currently in the prescribed payments system face in transferring to the A New Tax System.

Before I go on to address some of those matters addressed by honourable members during the debate, I note that this bill deals only with issues of taxation; it does not affect the legal status of an interposed entity or deem an individual to be an employee for the purposes of any other legislation or industrial award. The honourable member for Melbourne raised the issue of some other integrity measures that are not part of this bill. I do not know whether he got mixed up as to what legislation we are actually debating. For example, he raised issues relating to non-com-mercial losses and prepayments. I would like to point out to the honourable member for Melbourne that, as with the measures that are part of this bill, these measures also aim to improve the integrity and fairness of the tax system. The honourable member for Melbourne and other honourable members will have the opportunity to speak to these measures when the relevant bill is debated in this place. The appropriate bill, the New Business Tax System (Integrity Measures) Bill 2000, has already been introduced to the parliament and the government hopes that it will be able to be debated and passed shortly.

A number of honourable members, such as the honourable member for Hotham, raised some concerns about the grounds under which the Commissioner of Taxation can make a determination. In particular, it was claimed that where an entity receives more than 80 per cent of its income from one source it will be easy to meet the unrelated clients test by having two unrelated clients. I would, however, like to note that in fact having two unrelated clients is not sufficient to meet this test. Where an entity receives more than 80 per cent of its income from one source and seeks to rely on the unrelated clients test unusual circumstances would need to exist. For example, a business that takes on one long-term contract would be able to seek a commissioner's determination if it had two or more unrelated clients in preceding years and reasonably expects to do so again in the future.

Alternatively, a business may be in its start-up phase and have only one client in the beginning. A commissioner's determination may also be able to be sought in these circumstances if they reasonably expect to have two or more unrelated clients in subsequent years. I am pleased to note that the opposition seemed satisfied with the employment and separate premises tests included in the legislation and that it intends to support the bill in this place today after the pious amendment is defeated.

The honourable member for Hotham and other members have claimed today that the government has not implemented the measures as recommended by the Ralph Review of Business Taxation and is not in line with the government's commitments in relation to revenue neutrality. The facts simply are that the government's legislation is in line with what was recommended by the Ralph review. The legislation raises revenue of $190 million in the year 2000-01, $290 million in 2001-02, $435 million in 2002-03 and $515 million in 2003-04.

As I noted earlier, the government has included a transitional measure in the bill to assist those affected by the bill that are involved in the transition to the A New Tax System. It is also in recognition of the potentially large number of determinations that might otherwise be requested prior to 1 July 2000. The honourable member for Hotham complained that the government did not consult him—he is being a bit precious, I think—in relation to the transitional measure. The government did not give a commitment that it would consult the honourable member for Hotham on such matters. Since it introduced the measure, the government has been consulting with business on the implementation details. One of the concerns raised related to the need to gear up for the A New Tax System and, in recognition of this, the government has implemented a transitional rule. Honourable members opposite might recall there have been Senate committee hearings into this legislation. I would draw to their attention the fact that even the CFMEU—no friend of the coalition government—recognised there might be a need for a transitional measure.

The honourable member for Hotham has moved a second reading amendment and it will not be of any surprise to the opposition that the government rejects it. The second reading amendment is grossly inaccurate. It claims that the government has in some way been guilty of soft treatment of tax avoiders, and in particular I reject that. In my earlier remarks I pointed out some of the integrity measures that this government has brought in. We do not resile from those. We do not apologise for the fact that we want everyone to pay their fair share. I think people are sick and tired of the kinds of pious amendments to bill after bill that are moved in this place by the honourable member for Wills, the honourable member for Hotham and other Labor members.

The government is implementing the Ralph recommendations on the alienation of personal services income. The government rejects what the opposition is saying. The Ralph report, at page 292, clearly identified the need for an entity conducting an independent trade or business to get a favourable determination from the commissioner. The further grounds referred to by the honourable member for Hotham identify those contractors. This legislation is important legislation. It is delivering on a commitment we have given to the Australian people, and I commend the legislation to the chamber.

Question put:

That the words proposed to be omitted (Mr Crean's amendment) stand part of the question.