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Tuesday, 6 March 1984
Page: 482

Senator CHIPP (Leader of the Australian Democrats) —by leave-By arrangement with the Australian Labor Party and the Liberal Party, we thought this would be the most expeditious way of discussing briefly the notice of motion I have on the Notice Paper, No. 33 on page 2923, before the debate on this Bill ensues. On 2 March I presented the following notice of motion:

That, pursuant to Standing Order 358, there be laid upon the Table all documents containing advice from the Commissioner of Taxation to the Treasurer concerning the desirability or otherwise of the provisions contained in the Income Tax Assessment Amendment Bill (No. 5) 1983.

In moving the motion later I quoted, with the authority of the former Treasurer, some parts of a memorandum dated February 1980 from the then Commissioner of Taxation to the then Treasurer, which, not to put too high a point on it, suggested that at that time, namely, February 1980, firstly, there were more urgent aspects of tax avoidance to be tackled and, secondly, there seemed to be no evidence that there had been massive evasion of tax through the scheme which this legislation sought to arrest. Therefore, I, with my Party and with the support of the Opposition, believed it was reasonable, if in February 1980 it was not considered by the then Commissioner of Taxation to be an urgent matter, to ask why clause 5, I think, of this Bill dates the legislation back to 1 July 1977. I think that is the crux of the matter. Therefore, I put down that notice of motion asking the Treasurer (Mr Keating) to produce that information.

Today I received from Senator Walsh, who represents the Treasurer in this chamber, a letter from the Treasurer to him dated 5 March 1984 in which the Treasurer predictably said, for what in the past were regarded as good reasons by the Liberal Party when it was in government, that he could not comply with that request of the Senate and will not do so because of the long-established convention that these matters, namely, the advice of a public servant to a Minister, should not be disclosed. The Treasurer then gave some reasons why the Government felt impelled to insert clause 5 in the legislation. For the sake of the record I seek leave to have this letter from the Treasurer to Senator Walsh dated 5 March incorporated in Hansard.

Leave granted.

The letter read as follows-

Treasurer PARLIAMENT HOUSE CANBERRA 2600 5 March 1984

Senator the Hon. Peter Walsh

Minister for Resources and Energy

Parliament House

Canberra, A.C.T. 2600

My dear Senator

I refer to our discussion on Friday afternoon concerning the motion moved by Senator Chipp calling for the tabling of documents containing advice to the Government by the Commissioner of Taxation as to the need for the measures contained in clause 5 of the Income Tax Assessment Amendment Bill (No. 5) 1983.

The Government is not prepared to table all documents received from the Commissioner of Taxation tendering advice to it in relation to this matter. These include Cabinet and other materials which are properly kept confidential.

The former Treasurer asserted during the debate in the House of Representatives that he had received advice from the Commissioner of Taxation just before the change of Government to the effect that Part IVA had wiped out all blatant, artificial and contrived tax avoidance schemes and that therefore these particular superannuation practices could not be in that category. On this premise Mr Howard claimed that the practices could not therefore meet the criteria necessary to satisfy the Government's retrospectivity policy confirmed by the Minister for Finance in his statement of 28 April 1983.

By long established convention the Commissioner of Taxation cannot inform me what particular advice he tendered to the former Government, but I have no reason to doubt that the former Treasurer quoted accurately from written advice he received from the Commissioner. Of course, the particular context in which the Commissioner made his remarks may place a different emphasis on them than did the former Treasurer in his speech. I think, however, that what the Commissioner had in mind when giving his advice to the former Government just prior to the election was those schemes which were known as ''paper schemes'', that is those which were quite artificial and, in reality, devoid of any fiscal effect other than the attempted avoidance of tax.

If that, as I suspect, was the case, then there is nothing inconsistent with the Commissioner's advice to me and to the former Government in relation to these particular superannuation tax avoidance schemes. they are not of the extremely artificial variety, nor are they of a kind at which Part IVA was directed.

That does not, however, mean that they are not blatant or contrived or even artificial in terms of the application of the Government's policy on retrospective tax amendments. In the Government's view they are clearly in that category of schemes which we intended would be covered by Mr Dawkins' statement on the Government's retrospectivity policy. Mr Dawkins' statement specifically referred to schemes which might not be caught by Part IVA. Not only are they of a most blatant kind, but they contain elements of fraud against employees, many of whom stood to benefit from many years' membership of a superannuation scheme which has been afforded substantial taxation benefits. The Government's retrospectivity policy was clearly not intended to operate only against purely paper schemes.

The nature of the schemes in question was set out in my press statement of 14 November 1983 (copy attached). During the debate on the Bill in the House of Representatives, I drew attention to a judgment by Mr Justice Wootten which vividly described the type of scheme involved. One of the employees in that case was sacked on a Friday, re-employed as a casual on the following Monday and, as a result, denied a superannuation entitlement of over $53,000. If Opposition Senators do not regard schemes of that kind as blatant or contrived, then that is a view I cannot share.

The decision to propose that the measures in clause 5 should have a retrospective operation from 1 July 1977 was taken by the Government after full consideration of the nature of the schemes, and after noting the essentially fraudulent nature of the activities involved, both in relation to employees of the business concerned and the revenue. The overall monetary effect on the revenue was not the critical consideration, given the unsavoury nature of the practices involved.

I am confident that our decision to propose that the legislation be made retrospective was the correct one in this case and the Government proposes to press ahead with the Bill in its present form in the Senate.

Yours sincerely P. J. KEATING

I have under my own hand circulated to the Leader of the Opposition (Senator Chaney) and Senator Dame Margaret Guilfoyle a copy of that letter, albeit just before the dinner suspension. I hope that I did not offend any confidentiality, but Senator Walsh did not indicate that any confidentiality attached to the letter. So the Opposition is armed at least with the reasons given by the Treasurer.

I can understand the Treasurer's hesitation in not tabling documents received from the Commissioner because they include Cabinet material properly kept confidential. However, in this instance I believe the Treasurer could well have made an exception and would have been wiser had he done so. The Government is attempting to introduce this legislation retrospectively to 1977. Even those in this chamber who favour retrospective legislation-and they do not include me, Senator Haines or Senator Macklin-would realise that it sets dangerous precedents and undermines the rule of law. Therefore, they must be prepared to make out a very good case as to why legislation should be made retrospective. The Government's case for retrospectivity in this instance has been brought into question by the former Treasurer's statement in the House of Representatives on 29 February that the advice that he received from the Commissioner of Taxation in 1980 indicated that this type of tax avoidance was not a major problem then and that an attempt to remedy the situation might create many problems for the large number of funds that are completely genuine and, therefore, for the many small businesses that operate them.

As I said in my speech the other morning, we have suffered an economic downturn in this country. Let us consider what would happen with a small business that had genuinely started a superannuation fund for its 20 employees, including the directors and, through the business having gone badly because of the recession 14 of them, say, had been sacked, for very good legal and proper reasons, and then finally the business had gone into liquidation and the superannuation fund had to be wound up. As I understand it, according to the definition in this legislation, the residual beneficiaries of that fund would have received 'an excessive benefit'. Because they have received a benefit, this legislation will give the Commissioner of Taxation power to deem that they have received an excessive benefit and to tax them in the year in which they receive that benefit or the year in which it accrues to them. He would deem that to be income and that would be assessed, in many cases, at the marginal rate of over 60c in the dollar.

Today we received firm positive assurances from a senior officer of the Australian Taxation Officer, which gave me a great deal of satisfaction, that this would not be the Commissioner's intent, and that the Commissioner will be zealous in applying this Act only in those cases which he regards as barefaced, where an obvious attempt was made way back in 1977, or since then, to avoid taxation by a totally artificial scheme. I respect and believe everything that that officer said to Senator Jack Evans, Senator Macklin and myself in Senator Walsh's office. We just express the view, the five Australian Democrats, that while we honour that sort of assurance and respect it from a respected taxation officer, we would prefer it to be written into the legislation to give that sort of safeguard to the genuine cases.

The officer went on to say that the aggrieved taxpayer can well appeal against the use of the Commissioner's discretion, either through a board of review or, sometimes, a court. But he acknowledged when I pointed it out that, under our taxation law, at that point of time the taxpayer has the onus on him to prove that he was innocent of any misdoing. I have already quoted in this chamber from the document which the Commissioner of Taxation furnished to the then Treasurer. It seemed to me to require a similar response from the Treasurer showing us why the Commissioner had now brought further evidence that the proposed section 26 AFA ought to be made retrospective to 1 July 1977. The Treasurer has not given me, therefore, an adequate response to evidence that fundamentally undermines his case for retrospectivity in this instance.

I have some sympathy with what the officer said to us today: That a great number of these schemes were entered into by employers as far back as 1977 but at the time the then Commissioner of Taxation gave the then Treasurer, Mr Howard , the memorandum the mischief had not surfaced-namely, the employers acted on the advice of those despicable creatures who live on the fringe of the accountancy and legal professions and who make a living out of advising people how to go into these schemes. Senator Hill may laugh, but I hope that he joins me, as a distinguished lawyer himself, in condemning those despicable creatures who live on the fringe of his profession, the legal profession, and of the accountancy profession, who make a fortune out of the tax avoidance industry. They were advising their clients to go into these schemes in 1977, but to make them look fair dinkum until about 1982-83.

Senator Hill —But that is very rare.

Senator CHIPP —What is rare?

Senator Hill —It was very rare that an accountant or a lawyer advised anyone to go into a scheme of that nature and make it look real.

Senator CHIPP —Senator Hill must be talking with his tongue in his cheek in saying that. As a former member of the accountancy profession, I often cringe with shame at some of the advice that I hear is given to taxpayers by qualified accountants in relation to schemes which, when I practised accountancy, I would not have touched with a 40-foot pole.

Senator Hill —What I am saying is that it has to be put in its right perspective . They are very rare exceptions, advising people to enter into totally artificial schemes.

Senator CHIPP —I admire the stand that Senator Hill takes against retrospectivity. I am still against retrospectivity. I do not want that to be misunderstood. However, if Senator Hill were to have a discussion with the admirable taxation officer with whom we spoke today, I am sure that he would be persuaded that many wilful schemes were entered into on the advice of crooked lawyers and crooked accountants in 1977 which did not become manifest as rorts until 1982-83. That is the excuse, apparently, that the present Government uses to date this legislation back to 1977. It is a plausible excuse. If one believes in the principle of retrospectivity, it is a reasonable excuse. I will not have a bar of the principle of retrospectivity at any price. Therefore, notwithstanding how good the reason is, I reject it.

To complete this matter, at about five minutes to eight-I say this with no criticism of Senator Walsh-Senator Walsh handed me a letter addressed to the Treasurer, dated 6 March, from the Acting Commissioner of Taxation, Mr Boucher, pertinent to the point. I have not even had time to make a copy to give to my friend and colleague Senator Dame Margaret Guilfoyle. It would have been extraordinarily valuable had this letter been circulated to the Opposition before the debate proceeded.

Senator Walsh —That will be done shortly.

Senator CHIPP —Perhaps Senator Walsh will make the arrangements. I do not know whether the Government can delay this debate for a quarter of an hour so that Opposition senators can look at the letter before they speak. It contains some pertinent facts. The Commissioner states that the practices are 'brazen and barefaced' and involve 'abuses of the tax law', and so on-with which the Australian Democrats agree. I think that Liberal senators agree about that. We agree with this legislation. The only part of the legislation with which we disagree is its retrospective aspect.

Senator Harradine —What is meant by 'abuses of the tax law'?

Senator CHIPP —The Commissioner does not go on-

Senator Messner —He uses the word 'artificial'?

Senator CHIPP —Yes, and I am persuaded that this is an artificial practice which ought to be stamped out, and therefore I agree with the thrust of what the Government is trying to do.

Senator Watson —Not in all cases.

Senator CHIPP —Before Senator Watson came into the chamber, I had been at pains to cover those aspects about which he now says 'not in all cases', and I absolutely agree with him. We were assured today by a senior officer of the Taxation Office that the genuine cases will not be touched by this legislation. In response to that, I then said that I would prefer to see those safeguards written into the bill rather than being left to the Commissioner's discretion. So Senator Watson and I are at one.

Senator Hill —Why cannot the assessment simply be overcome by section 172?

Senator CHIPP —I am informed that the assessments of those years-say, between 1977 and last year-cannot be reopened because the payments by the employer into the fund constituted at that stage genuine premiums on behalf of employees. The only assessment that can be reopened, as I understand the information given today, is that which was made in the year in which the rort was discovered or deemed to be discovered by the Commissioner. That is the reason given to me. It is a pity that this valuable advice from the Commissioner will not be available to people such as Senator Dame Margaret Guilfoyle, Senator Hill and Senator Watson before the debate ensues.

Senator Walsh —It will be soon.

Senator CHIPP —I thank the honourable senator. With the authority of Senator Walsh, I seek leave to have this letter also incorporated in Hansard.

Leave granted.

The letter read as follows-

6 March 1984 The Treasurer,Parliament House,Canberra, A.C.T. 2600


You have asked that I provide you with further advice as to the nature of the practices against which clause 5 of the Bill is directed and, in particular, whether they can be categorised as blatant and contrived.

In terms of general usage, as I understand it, they can-as I now explain- be so described.

We have a situation where a superannuation fund has been set up ostensibly for the benefit of the employees of a particular firm. The fund is governed by a trust deed the terms of which will have been looked at by the Taxation Office with a view to ensuring its compliance with the law, section 23F in particular. Tax-deductible amounts will have been contributed by the employer for the employees, both those who are proprietors and those at arm's length. The contributions will have been invested and income from the investments accumulated tax-free.

What then happens is that steps are taken with a view to moneys in the fund being re-directed, solely to those employees who are proprietors of the business . This re-direction involves the premature dismissal of the arm's length employees and is either in breach of the trust deed or involves the payment of benefits far in excess of permissible levels.

That kind of thing involves clear elements of raids against the revenue and also against the unsuspecting ordinary employees concerned. It may well have been that there was this intention from the outset, but if that is so the intention is one that is kept masked from ordinary employees and the Taxation Office.

The practices seem to me to be brazen and bare faced and involve abuses of the tax law which, in the superannuation area, contains generous concessions intended for the benefit of the employees on whose behalf contributions are supposed to have been made. The arrangements are ingeniously planned to give the appearance of bona fide superannuation arrangements.

In providing this advice, I am aware of the comments made by the former Treasurer in the course of debate in the House of Representatives. As you would appreciate, there is difficulty in my providing you with comments on or explanations of advice given to the former Government by the Commissioner on the matter. It is, I hope, enough for me to say that, when the advice that Mr Howard has referred to is read in its context, it is not at variance with the advice now provided.

As to the revenue effect of the proposed measures, identified cases of the kind to which clause 5 applies, involve revenue of some $15m.

T. P. BOUCHER Acting Commissioner of Taxation

Senator CHIPP —I thank the Senate for its indulgence. I have no standing in this situation. I am speaking by leave and with the indulgence of the Senate. I do not know what Senator Walsh's view on this matter is but I think that this information is so crucial to an intelligent debate that the debate ought to be delayed for at least a quarter of an hour. If the Government has any other business perhaps it could be called on.