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Wednesday, 26 May 1993
Page: 1297


Senator KERNOT (Leader of the Australian Democrats) (11.10 a.m.) —The Insolvency (Tax Priorities) Legislation Amendment Bill 1993 proposes a major reform of the law and practice of the recovery by the Commissioner of Taxation of certain unremitted moneys and outstanding debts. The proposal was announced on 2 December last year by the Treasurer (Mr Dawkins) and the then Attorney-General in a joint press release.

  At the moment section 221P of the Income Tax Assessment Act grants absolute priority to the tax commissioner over all other debts where an employer has failed to remit tax instalments or PPS deductions deducted from employee's wages, and a receiver or liquidator has been appointed. Where an employer pays wages to employees, deducts tax from their wages and does not remit the tax to the tax office, then that debt to the tax commissioner is granted priority against all other debts whether preferential, secured or unsecured.

  The debt still has to be proven in the usual manner; however, once it is proven it assumes priority. The reason for this provision is quite straightforward. It is designed to ensure that group tax is paid or, in the official terminology, to protect the revenue. The Government has decided to formally remove the priority, but only in respect of amounts that should have been remitted before 30 June 1993. So the reform is prospective from the end of this financial year only.

  The reason for the abolition is probably industrial in nature. We are aware that last year there were some vigorous complaints from various unions about the unfair nature of the priority. The major instances occur in the textiles industry and the building industry where subcontractors perform some work but do not get paid because the main contractor has collapsed. The subcontractors are creditors of the contractor and queue up with the other creditors, for example banks, to try to get paid. In this instance, if the contractor has not remitted its group tax or PPS deductions, then the tax commissioner obtains priority and often takes all the money. The net effect of that action is that subcontractors do a lot of work but do not get paid for it. This measure is fair to employees and other creditors and the Democrats support that.

  Despite the claims made by Mr George Gear in a recent press release, I think we also have to realise and acknowledge that the Government is not being all that generous in this measure. The existing law is quite narrowly drawn in the sense that it can apply only where the employer is in financial trouble. There have been a myriad of cases which actually define when the priority is applicable, and there have been many defeats for the commissioner. Careful business practice can often subvert the priority anyway.

  The President of the Insolvency Practitioners of Australia, Mr Michael Mount, was reported as supporting the abolition of the priority before the Government's announcement last December. Indeed, he is also reported as saying that this section has built more beach houses and holiday retreats for lawyers than any other tax law. With the repeal of the priority, it is important that other systems are put in place to ensure that the tax laws are complied with. Consequently, the Bill also proposes to quite radically overhaul the current recovery procedures. Recovery action is that administrative action to actually bring in the amounts which are owed to the tax commissioner. It must be remembered that establishing a liability does not actually ensure that the liability is met by the taxpayer. Very often taxpayers have to be pursued through the courts and this is often both slow and expensive.

  At the moment, the commissioner is required to establish the precise amount of the unremitted moneys before he can take legal action to recover the amount. This means that there is always a delay between the date of non-remittance and the time of ascertainment of the amount before any recovery action can actually commence. The Bill attacks this problem by using the mechanism of allowing the commissioner to estimate the amount that should have been remitted and suing to recover that amount. This will occur only after the amounts should have been remitted, so it is not putting any additional onus on employers; it will simply ensure that the procedure for those who are in default works more quickly. One could argue that this will increase the efficiency and speed of the recovery processes.

  The Bill also proposes to increase the penalties applied to directors who do not remit the proper amounts of tax to the Tax Office. They will be personally liable for the amounts which are not remitted. The principle here is quite simple. At no time is the tax ever the property of the directors; it is the income of the worker and it is claimed by the government as a prepayment of an employee's tax liability for the year. If the directors do not fulfil the duty to remit the money to the Tax Office, basically they are committing theft. The same consideration applies to superannuation funds, which the committee has looked at.

  Senator Watson has drawn our attention to the consternation that this penalty provision for directors is causing in some circles. I think he is suggesting that it cannot be sufficiently investigated in the hearing of the Standing Committee on Finance and Public Administration which is proposed for today. It is true that it deserves sufficient time for consideration. The committee might even recommend some amendments. But there is one easy way for directors to avoid the problem, and that is to remit the taxation as they are supposed to. If they do not remit moneys that they have withheld as tax, they are committing a theft and theft involves penalties.

  There are a number of consequential amendments to other pieces of business legislation, such as the companies Act and the Bankruptcy Act, to accommodate the change. Senator Watson said that if the Democrats let this through it will be on our head, or something to that effect. I need to put on the record that I said to Senator Watson that probably the best way through is to excise the parts that he thinks are particularly troublesome and let these people who contacted him have a bit more time to look at the provision on penalties for directors, but in the meantime let us not hold up the rightful place of workers in the line of creditors.

  This new section was announced in December, yet it is before us on the second last day of this parliamentary sitting and adequate time probably has not been given to those who feel disadvantaged by it. Nevertheless, the Democrats will support it on the understanding we have been given that the Government can answer the concerns that some bodies have about the increased penalties as they apply to directors.