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Thursday, 26 May 1983
Page: 1078

Mr ROCHER(9.23) —There are a couple of other areas to which I should like to talk briefly. Sections 15 and 18 will now require that fewer persons need to be served with copies of a company assessment. The logical outcome of this is that it will increase the possibility of some shareholders being unaware of their company's liability and, of course, being unaware of their ability and entitlement to object. Amended sections 15 and 18 will be retrograde and they will enhance the likelihood of even more being unable to exercise their rights and to know of their obligations. For that reason, and that reason alone, it is probably counter-productive.

The new sub-section 22 (5A) extends the provisions of section 22 to dividend recoupment tax. However, the provisions operate from 5 March, even though the subject legislation was not introduced into this place until 18 May. The provision, therefore, is not only retrospective but also appears to be retroactive. I guess that that is a double reason to treat it with contempt. In any event, the wording of new sub-section 22 (5A) is ambiguous. It provides that arrangements entered into or carried out after 5 March 1983 shall be void, in relation to:

income tax that could reasonably have been expected by the person at the time when the scheme was entered into or carried out to become payable by the person after that time by virtue of the operation of section 6C or 6D.

When a vendor-shareholder sold his shares during the period in relation to which the principal Act applies-that is, from 1 January 1972 until 4 December 1980-he could not reasonably have expected, at the time when the scheme was entered into or carried out, to become liable for tax arising by the operation of section 6C or 6D. There may be no hint of the possibility of the creation of such a new liability. Even when the principal Act was introduced there was no such provision and no such foreshadowing of it. The first mention of a possible liability under section 6C or 6D was when the legislation was introduced last week.

To emphasise a point made by my colleague the Deputy Leader of the Opposition ( Mr Howard), I turn briefly to the formula set out in new sub-section 5A (3). That sets out how the amount of undistributed profits is calculated. It shows an algebraic formula, A - (P + L + T). This certainly includes in undistributed profits the capital assets of the business, such as goodwill and profits on sale of properties. This is the provision which leads to the capital gains tax referred to by my colleague, the Deputy Leader of the Opposition. Some of these capital gains were not realised in the hands of the vendor-shareholders but they arose during transactions associated with the sale of the shares, the paper profits still being locked up in the business which the new company purchased. I dealt with that matter in my speech in the second reading.

I just want the Minister for Finance (Mr Dawkins) to be quite clear that as the formula stands these capital assets are included in A and they are not excluded by any one of P, L or T. Accordingly, the Bill taxes not only accumulated profits but also capital profits which, if the company shares had not been sold, would not have been subjected to income tax. I want to put to rest the claim by the Minister the other evening that capital tax is not involved and that it is not being applied retrospectively. It is, perhaps, an indication of something to come.