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Tuesday, 22 April 1980
Page: 1664


Senator WRIEDT (Tasmania) (Leader of the Opposition) - Mr Acting Deputy President,I presume that the Income Tax Laws Amendment Bill 1980 and the Income Tax (Rates) Amendment Bill 1980 are being debated cognately.

The ACTING DEPUTY PRESIDENT (Senator Townley)- Is it the wish to the Senate that the Bills be debated cognately? There being no objection, I will allow that course to be followed.


Senator WRIEDT -The Income Tax (Rates) Amendment Bill 1980 provides for the declaration of rates of tax payable by individuals and trustees on the income of dependent children. The other Bill, and probably the more important Bill, is the Income Tax Laws Amendment Bill. It does a number of things. It changes the basis of taxing the income of trusts of dependent children; it varies the provisions of the Income Tax Assessment Act dealing with the taxable value of accommodation provided to employees free of charge or at subsidised rates; it purports to close off further tax loopholes, in this case dealing with the deductibility of bad debts; and it grants deductible status for tax purposes to relief efforts in Kampuchea and East Timor.

We of the Opposition will not be opposing these Bills but we wish to make it clear, as we are talking about at least $30m of taxation revenue which the Government is forgoing by these rather watered down amendments relating to income splitting for children by the use of trusts, that we find it surprising that the Government was not prepared to be tougher and stick to what it had indicated earlier. I will come back to that. As this Government has expressed so much concern about reducing expenditure and increasing revenue and as the Treasurer (Mr Howard) has, in the eyes of many supporters in his party, mounted what they regard as an almost evangelical campaign against tax avoidance, it is extraordinary that this legislation is not stronger. We have been seriously concerned that following the abolition of gift duty it has become very much easier for wealthy parents to use trusts established for their children as a means of reducing their total tax liability.

I do not propose to go into the same detail as did my colleague the shadow Treasurer, Mr Willis, in the debate in the House of Representatives. During that debate he incorporated in Hansard a table which shows quite clearly the impact of income splitting by the use of trusts. For example, instead of paying $32,528 tax on a taxable income of $100,000, the tax payable before the announcement by the Treasurer of 26 July last year was $20,279. Under the current legislation the tax payable would have been $36,234 but the income splitting arrangements will reduce that to $16,573. Again it is clear that the wealthier sections of the community, those in a better position to take advantage of the taxation system, are able with the support of the Government to shift that tax burden to the lower income groups.

In spite of the Government's declared intentions last year to close off the child trust loophole, very strong pressure was brought to bear on the Treasurer and the announcement of 26 July last year subsequently has been watered down. That proposal was that all income other than employment income of unmarried persons who at the end of the income year are under 1 8 years of age or are full time students up to the age of 25 years would be taxed at the middle rate of income tax. In this tax year, that rate is 47.07c in the dollar. Had the Treasurer had the courage to stick to his original proposition, which I think would have found a great deal of sympathy in the community, the measure would have collected $ 125m in a full financial year. The mere fact that it has been estimated that that amount would be collected indicates the extent of income-splitting arrangements through family trusts. Between July and November last year obviously there were very strong pressures from the better off sections of the Liberal Party who exercised their influence on the Treasurer and on 14 November a new set of proposals was announced. What we are talking about is raising an additional $70m, but I suspect that with further use of trusts and other tax avoidance schemes, the amount collected will be more like half that figure- $30m or perhaps $35m. The proposals announced on 14 November were that the new arrangements would not apply to student children between the ages of 18 and 25 years but only to children under 18 years of age. However, the Treasurer now claims that that would have adversely affected the student who wished to obtain work.

The second modification to the Treasurer's statement in July was that the level of nonemployment income exempted from the new system would be increased from $416 to $1,040 per annum, or from $8 to $20 a week. But the full rate of tax does not start to apply until an income of $3,625 is reached, and there is still very real scope for distributing income to minors. The level of investments would have to be reasonably high, probably in excess of $14,000, for the higher rates to be paid. It would be pertinent for the Treasurer to indicate how many incomeearning students and other minors he believes to have investments in excess of such a figure. I suspect that there would be very few. These figures illustrate very clearly that instead of closing off a tax loophole, in fact the Government has formalised an area of abuse within the taxation system.

The third modification deals with income derived from the property left to a child as part of a deceased estate. It permits such income to be exempt, and while the Opposition supports the proposal, it sees that it could have some prospect of being used by surviving spouses for tax avoidance purposes. We presume that the Treasurer and the Government will maintain a careful observation of the workings of this provision. The fourth change deals with a child 's income from savings or from the child's business. It is very difficult to understand how many children under the age of 25 years would have a substantial business. Perhaps we can think in terms of newspaper boys, children doing odd jobs, such as lawn mowing and that type of thing, but I doubt whether many children would be in that substantial business income area. We argue that it will be almost impossible for the Taxation Office to detect when a child's income is being increased artificially by parents' income.

The fifth alteration involves income from compensation awards, court-ordered settlements, or public appeals for needy persons. We do not find any objection to that modification, but we do have some objection to the discretion which will be given to the Commissioner of Taxation under the new amendment. For example, a person who entered into an income-splitting arrangement before 26 July last year is protected from any increase in taxation. We contend that if a taxpayer entered into a tax-dodging arrangement before that date- that is, 26 July- he did so with known risks. The Treasurer has stated his intention to crack down on tax avoidance, although in this case actions are not matching words. There is no justifiable reason why this Parliament should be concerned with the problems and costs tax avoiders may have in disentangling themselves from their arrangements. The ludicrous position is that, in spite of the Treasurer's claims, there is ample scope for continued diversion of parents ' incomes to children and a consequent reduction in total tax collections. We make our position quite clear. We support the recommendations of the Asprey Committee, which recommended that the income of children under trusts be taxed by adding that income back into the parents' taxable income. If there is additional property income which is not obtained by an earning on the part of the child, this should also be added back and the total taxable income taxed at the proper rate.

I now turn to the proposed amendments affecting section 26 (e), which follow the review of that section of the Act dealing with the value of a house provided by an employer to an employee at either concessional rentals or free of charge. Early in 1979 we were aware that the Government proposed to add onto an employee's income the full estimated commercial value of concessional rental accommodation, and quite a number of questions were asked about it in this place. This would have increased quite considerably the tax burden for many pastoral and mining workers. There was no indication that the assessed rentals for many executives and professional people living in large city establishments, which had been paid for as a prerequisite or were owned by tax avoidance companies, would be similarly treated. We do not object to the changes the Government proposes. However, we cannot help but have the suspicion that if the Government finds itself in urgent need of revenue, it will quickly crack down on employees with concessional rental accommodation. We were surprised that it took so long for the Government to produce the set of criteria by which the assessment of concessional rental accommodation would be judged. Because the assessment is at the Commissioner's discretion, we are never absolutely sure that the position of those workers in remote or difficult areas is protected. Whilst the zone allowances are restricted, concessional rental housing has been a means of attracting people to work in isolated areas. The same cannot be said for concessional rental housing in the inner suburbs of, say, Sydney or Melbourne, whence I suggest comes much of the support for the Government. I have been very surprised that the National Country Party, which purports to represent people who live in rural areas, has not been more vocal about the treatment of concessional housing. There must be many farmers and graziers whose employees have found their taxable income increased by adding commercial rentals on property accommodation. It seems to us that the position of these people should have been made a great deal clearer.

We are not opposing any of the amendments to either of these Bills, but we do find some difficulty in understanding the basic attitudes of the Government towards this general area of taxation. The Fraser Government has been the largest tax collector in the history of this country. We have a Treasurer who has campaigned about tax avoidance in an almost missionary sense. Unfortunately, some of his followers in his party are not as zealous about the matter as he is. The present Government obviously is prepared for higher taxation, especially on the lower and middle income groups, higher petrol taxation, higher inflationary scales, and higher indirect charges and taxes. At the same time, it is prepared to leave open large areas of tax avoidance and, in our view, amendments in this legislation do little other than to institutionalise some of those schemes.







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