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Wednesday, 26 May 1993
Page: 1298


Senator McMULLAN (Minister for the Arts and Administrative Services) (11.17 a.m.) —The Insolvency (Tax Priorities) Legislation Amendment Bill is quite an important Bill which deals with issues that a number of honourable senators have been concerned about for some time. It has received public notoriety on occasions when individual men and women, employees of companies, in financial difficulties have not been able to gain access to their wage and condition entitlements because of the priority of the Commissioner of Taxation.

  Over the past three years I have had some cause to examine this in some detail. In the same way as everybody else, I started from the assumption that obviously the priority should be taken away and we should do something to protect the interests of those working men and women particularly, and subsequently of other creditors as well.


Senator Watson —That is not in dispute.


Senator McMULLAN —I want to pursue this matter because I had very severe reservations about it. I support it, but I started from the same presumption as did everybody else. My concern led me to feel that we had to proceed in a very careful fashion. The overwhelming majority of Australians running businesses are law-abiding and scrupulous citizens and, even though their companies were in difficulty, they complied with the tax laws and sent the money that had been deducted. But there were some who were either less scrupulous, or sometimes just less competent, and who failed to meet the requirements—they deducted the money and did not forward it to the Tax Office. Those people got a benefit at least in the short term. They were, in effect, financing their business with the taxpayer's money and getting a benefit over the overwhelming majority, the honest and scrupulous employers who were doing the right thing.

  I had some reservations, and I had to be persuaded. My reluctance is not unique; a number of other people who looked at it came to the same view. I mention it to say that that is why it is not the straightforward measure people might first have envisaged, where we would simply take away the priority. There is a need to look at that in the proper context of the way in which these issues can be dealt with. I appreciate that in the consideration of the abolition of priority, the fundamental issue of the Bill, there is now agreement in this Senate. I was not seeking to reopen that question. I traversed it only to give a bit of background for discussion of the other matters in this legislation which are designed to make this provision effective without in any way undermining the other reasonable priorities of the tax and corporations legislation, and the way in which the consequences of these measures should be dealt with.

  Senator Watson raised some concerns about the legislation and the process. If I have the opportunity, I will respond to him on the process, but the substantial thing I want to deal with is the legislation itself. Let me deal with that and, if I have time at the end, I will deal with the process.

  The first concern Senator Watson raised related to the new recovery procedure and the estimate, and the fact that the estimate is not reviewable under ADJR. My advice and understanding—and I am no longer involved in the day-to-day handling of this in the way I was previously—is that the person who is in receipt of an estimate has an opportunity to declare by statutory declaration what the actual deduction was, and the commissioner will accept the amount in the declaration as being the actual deduction. So the individual has that initial opportunity to determine the amount, and that will be accepted.

  Given that absolute right, the case for ADJR review seems to me to fall over although I am, in the normal course of events, one who is a supporter of the administrative review processes—the Commonwealth's administrative law reforms of the last decade or so. That is the first thing I want to set down. It is possible to run all sorts of hares on this matter, but it seems to me that there is an opportunity for individuals adequately to protect their position.

  We then have a concern about the circumstance in which directors might be penalised. While an individual director may have a proper concern about process, that individual may be unable to convince other directors to act properly and, therefore, the decision would go against that one individual. This is a concern arising under proposed new division 9 where there are unremitted deductions. The liability could arise under subdivision B for the actual deduction, subdivision C for an estimate of the actual deduction or subdivision D for contravention of a payment agreement.

  I am advised that each subdivision contains a provision which clarifies what defences are available to a director in recovery proceedings. For example, in respect of liability for the actual deduction under subdivision B, proposed new section 222AOJ provides that it will be a defence if it can be proved that the person did not take part in the management of the company at any time when the person was a director and the directors were under an obligation to comply. The provisions would prevent the liability arising.

  Further, it will also be a defence if it can be proved that the person took all reasonable steps. In other words, that he or she did the right thing to ensure the directors complied with the provisions preventing the liability from arising. I am advised that these defences are in line with the defences available to directors under the corporations law. On the face of it, it seems reasonable that those defences should be available. That being the case, the position of directors—who, in the minority, may be seeking to persuade their co-directors to act properly—is protected.

  Senator Watson raised a concern about whether there should have been an amendment to section 221Q which allows the commissioner to apply an amount equal to the deductions made in satisfaction of any tax payable by the employee in the same manner as if a group certificate in respect of the deductions had been received. It seems logical—and it has been confirmed in discussions with the officers this morning—that the provisions in the Bill will not affect the operation of section 221Q. The credit currently allowed in section 221Q is employee specific; the estimate provisions are concerned with total deductions made and not remitted in respect of all employees. The current circumstance will prevail.


Senator Watson —That's the problem. You don't know the amount to credit.


Senator McMULLAN —I do not want to enter into a debate with Senator Watson across the chamber, and I am sure the Acting Deputy President, Senator Crichton-Browne, would not allow us to do so for long, but I do not see why Senator Watson thinks this amendment will create a problem for section 221Q. There is no information now available to the commissioner that will not be available after the passage of this legislation. It may be that the manner by which we seek to recover money is different, but the information that we have now on deductions will be unaffected by this amendment.


Senator Watson —You will miss out under an ambit claim by the commissioner because you will have no method of allocating that back to the group tax of the employee.


Senator McMULLAN —It seems that Senator Watson has an extraordinarily convoluted concern.


Senator Watson —The purpose of the Bill is to assist employees.


Senator McMULLAN —Exactly. In terms of their tax, employees will be in exactly the same situation they are in now, and in terms of all their other entitlements from their employer they will benefit. I do not want to see the Senate delaying the passage of this legislation so that individuals who may be adversely affected by the current legislation do not have the benefits of these amendments.


Senator Watson —It is a couple of months.


Senator McMULLAN —It is only a couple of months to us, but it is the whole time in terms of the individuals who will be caught up. On almost every measure that comes into this Parliament, one could argue that there is a case for acting earlier. It is important that we take due care in the determination of any action we take. I accept that it is important in the process of the passage of the legislation that we do the same. But in this situation we are fairly well placed.

  I was in my office listening to Senator Watson through the house monitoring service—I was not able to be in the chamber—but I did not pick up all the points he made relating to the concern expressed by what I understand to be a subcommittee of the Victorian Law Society concerning directors as guarantors and some other matters. It makes a change to deal with such complex nomenclature in an Act other than the tax Act. It shows that this complexity also arises in other circumstances, probably driven by the same requirement, which is to set legislation to cope with complex arrangements in a complex modern society.

  I am advised that proposed section 588FGA is needed to deal with what are acknowledged to be very rare cases because normally there could not be proved any awareness by the commissioner of the insolvency at the time of the payment. The main role of this provision is as a deterrent to directors from running a company while they are insolvent. We are concerned to maintain that deterrent. Therefore, it is our view that that concern—


Senator Watson —You are not maintaining anything; you are adding to an already adequate provision in corporation law. That is the point.


Senator McMULLAN —We are making this consistent with them. It is true that some concern is being expressed. I do not want to pose as an authority in this area, any more than I am sure does Senator Watson. I can only proceed on the basis of the best advice available.


Senator Watson —That's why we need a committee for further evaluation.


Senator McMULLAN —I am always impressed by Senator Watson's great faith in the Senate committee system. I have seen it do some wonderful things, but its capacity to resolve all problems is quite easily disproved by anybody who looks at some of the Bills passed by this Parliament and some of the amendments made by it.

  Honourable senators interjecting


Senator McMULLAN —I am sure both Senator Watson and Senator Kernot are aware of what I am talking about. I do not deny in the slightest that some Bills—some of which I have discussed with Senator Watson and Senator Kernot—have been improved by the consideration of a committee, there is no argument about that. Community understanding of some Bills has been enhanced by the opportunity to participate. I do not resist that point at all. Obviously Senator Watson knows that because we have had this discussion quite a few times on a number of pieces of legislation. However, there is a concern that the tax commissioner's rights might not be adequately protected in handling this matter if some of the amendments to the Corporations Act dealing with the definition of insolvent trading and related matters are not dealt with expeditiously and at the same time as these other changes.

  I understand that it is always the desire of concerned, responsible senators to have more time to deal with everything, but we have to look at the benefits and the costs of taking more time. I acknowledged earlier that there have been circumstances where the committee system has taken more time and has delivered benefits to taxpayers and citizens by reform of legislation. There have been a few other times when committees have made decisions that I have disagreed with, but that is not the point I am making today. The point I make is that delay has a cost, not to government in this instance—it is not a question of loss of revenue—but a cost to the rights of citizens, taxpayers and employees who will be, it is agreed, the beneficiaries of this legislation when it passes.

  It would be extraordinary and untenable for the Parliament to find itself in the position where individuals who otherwise have significant rights which may arise in a matter between now and the Budget session may have to forgo those rights while the Senate goes through its careful processes of deliberation. There is also a concern—it seems to me on the evidence I have to be a very substantial concern; a concern that relates to an issue that Senator Watson, as I recall it, mentioned in passing during his contribution—that if these changes are not made at this time, the new voluntary scheme of administration under the corporations law will not be able to commence on time.

  It seems to me on balance, therefore, that, as with most of the sorts of issues we have to deal with in here, not all the strength of the argument is on one side in this procedural matter. It seems to me that that is the only point on which we really have substantial disagreement. Not all the power and argument is on one side, but the balance of the argument is clearly with proceeding. For that reason, I thank senators for their support for the second reading of this Bill. I also thank them for their thoughtful contributions. The issues which they have raised require careful consideration.

  I urge the Senate to pursue this opportunity to pass this legislation today so that it may go to the House of Representatives, become the law and provide benefit through the tax system. The changes to the corporations law will advance the interests of the taxpayers and citizens—the people the measures are designed to assist.