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Thursday, 26 May 1983
Page: 1077


Mr PORTER(9.16) —I think it is pretty well known by this House that I am a firm believer in the rule of law and natural justice. I believe that people ought to be able to plan their affairs on the basis of the laws which exist at the time. Retrospective legislation, except in very limited circumstances, is absolutely abhorrent. I have made my views known in previous debates on similar legislation. Therefore, I do not intend to repeat them now. I was one who fully supported the previous Government's exempting from the original recoupment legislation those who were termed 'innocent'. I made it clear at the time that I did not and I still do not seek in any way to protect those who fraudulently evaded their taxation responsibility. However, this legislation goes much further. Rather than repeat the arguments, I merely state that I support the statements which have been made by the Deputy Leader of the Opposition (Mr Howard), in particular, yesterday and this evening. I want to refer to one portion of the legislation, that is clause 8 and related clauses. The Minister for Finance (Mr Dawkins) has already admitted in this House in his contribution yesterday that:

. . . if these companies had been liquidated, rather than sent to the bottom of the harbour, the capital profits would not have been taxed.

I will put it in a very simple terms. A company's assets can be divided into three basic categories. I will define them very basically. A company's assets are made up firstly of its paid up capital and its share premium reserve. Let us call that the paid up capital. Second there is the capital revaluation account. The assets of the company which, over time, may have increased in value are reported in the company's accounts in the capital revaluation account. Thirdly over time, as companies make profits after paying company tax they pay some of them out in dividend and retain some. Those are the retained profits. In the past, if the shareholders wanted to liquidate their company, they were able to do so. What then is the taxable position regarding the three categories I have outlined? Firstly, on distribution the paid up capital is not taxed in the hands of the shareholders. Secondly is the capital revaluation-the amount in the capital revaluation account which if distributed by way of irredeemable bonus shares-is not taxable in the hands of the shareholders. But the third category of assets-the accumulated profits-will be taxable as dividends. There is no question about that and that, I think, is what the Minister for Finance was admitting in his statement yesterday; that if the companies had been liquidated, then the capital profits-that is, the portion in the capital revaluation account -would not be taxed.

Now that is all changed by this legislation, and it is changed retrospectively. If the shareholders of a company, instead of liquidating the company, sold the company and it was subsequently subject to this recoupment tax, then the shareholders are not only to become liable for the imputed distribution of the retained earnings with a penalty under this legislation but, also, now they will be made liable for the imputed distribution of the amount in the capital revaluation account, that being the revaluation of assets which the company held , maybe over some long period. When distributed, under this legislation-although it was never done; but when it is imputed to be done by this legislation-that capital profit which the company has made will also now be taxed in the hands of the shareholders.

As the Deputy Leader of the Opposition has said, this legislation imposes a penalty that is totally unrelated to the amount of tax which has been evaded. It could be that the amount of tax evaded to make this company the subject of this recoupment tax was, say, $1,000, but the capital revaluation amount may have assets of $1m in it. The Government is imposing taxation at the rate of probably 60c in the dollar on, in that case, $1m for $1,000-worth of evaded tax. If the Government wants to introduce legislation that imposes a penalty then it should do it, and let us debate the merits of the size of that penalty, but the Government in this legislation is imposing a penalty that is totally unrelated to the tax that has been evaded. It is doing so retrospectively on capital. I believe that is totally reprehensible, and I will not support the legislation.