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Wednesday, 7 September 1983
Page: 498

Mr ROBERT BROWN(4.35) —I hope that the reintroduction of this legislation in its present modified form might be the final stage in this sorry saga of prevarication, delaying tactics, subterfuge, misrepresentation and blatant unashamed protection of tax dodgers by the Opposition. The Taxation ( Unpaid Company Tax) Assessment Amendment Bill 1983 and the Dividend Recoupment Tax Bill, which we are in the process of considering in this debate, were a follow-on from legislation which had been passed by the Parliament after it was introduced on behalf of the former Government by the honourable member for Bennelong (Mr Howard), then the Federal Treasurer, on 23 September 1982. That legislation was intended to deal with company stripping operations which had become known as bottom of the harbour schemes or wet Slutzkins.

The legislation was reintroduced in a modified form on 21 October 1982 after the notorious ten days of protracted negotiations with the back bench. We know exactly what type of protracted negotiations took place with the back bench on that occasion, where the pressures on the back bench came from and what the effect of those pressures was. That legislation, I said at the time, had been significantly watered down because of the effect it was going to have on members of the Liberal Party of Australia, on financial supporters of the Liberal Party and on people who had given their support to the Liberal Party in so many different ways. I congratulate my colleague the honourable member for Stirling ( Mr Ronald Edwards) for his contribution. He gave a dispassionate and objective assessment of the circumstances and the reality of this matter. It is a pity that the detail of the honourable member's contribution to this debate was either not listened to or not understood by members of the Opposition.

I think we should make it perfectly clear that on two occasions at least in the past the present Government made it perfectly clear to the Australian electorate that, given the opportunity, it would extend the legislation which was passed last year. We said that in addition to recouping taxes on current year profits which had been stripped, in government we would take advantage at the first opportunity to ensure that the dividends, the accumulated profits, which would have been taxed had they been distributed in the form of dividends were taxed so as to pick up the tax that had been lost to the Treasury from company after-tax profits.

It is all very well for the honourable member for Dawson (Mr Braithwaite) to refer in the first instance to company profits being taxed at 46c in the dollar and the other 54c in the dollar being taxed at a high rate of something in excess of 60c and the result being that something like 82c in the dollar-I think that is the figure he used-was picked out in the form of tax. There is nothing substantially different between that sort of arrangement and the arrangement which exists with a continuing company which legally and correctly pays company tax at 46c in the dollar. When the dividends are distributed the shareholders or the owners of that company pay at their marginal rate of tax the appropriate tax for the dividends they have received.

The Government, in the first instance, was quite happy to extract the company tax which had not been paid, but the rest of the accumulated profits-which were then distributed by way of the sale price of the shares of the owners or the vendor-shareholders of the company-would have been taxed had they been distributed to the shareholders. When the shareholders engaged in some smart- Alick practices, strip a company and take out accumulated profits, the honourable member for Dawson, his colleagues and their new-found allies in the Senate believed that in some way these people are being badly treated if they are to be taxed. The people who are being badly treated are those who are required to make up the difference for the $570m that we would have collected- and correctly collected-had we been able to get previous legislation through the Senate.

The essential purpose of this legislation is to ensure that the liability of former owners of a stripped company should not be limited only to the company tax which should have been paid. This legislation is designed to ensure that those former owners will also pay the tax which they avoided through the receipt , in a non-taxable capital form, of the after-tax profits. Of course, this is precisely the point which appears to have been lost to the honourable member for Dawson and other people who have supported the sort of proposition which he has been advancing.

As I have indicated before, I think it is also important for us to note that, had those companies continued to operate, those after-tax profits would have been taxable as dividends in the hands of those owners. But of course members of the Opposition want to make sure that some type of prize is awarded to these people who were involved, not only in the wet Slutzkin schemes but also in this type of arrangement which is probably best described as one of the dry Slutzkins . Had they done something in the legal way and received the dividends in the legal way, they would have paid tax. But no; people were involved in company stripping arrangements and all these smart-Alick schemes that we saw absolutely multiply under the previous Government-it has been referred to as the largest growth industry in Australia under the former Government-in its deliberate and sustained attempt to make sure that it protected all its patrons, its financial supporters and its members, particularly in Western Australia. The honourable member for Stirling drew attention to some of the other matters which caused great embarrassment to the former Attorney-General as a result of operations in an office in Perth for which he was responsible.

In effect, a former owner of a stripped company will be required to pay income tax on the basis that the company had paid a dividend to the former owner at the time of the sale of the shares. That is why we have used the expression 'imputed dividends'. Had the company continued to operate and had all those accumulated profits been distributed in the form of dividends then, of course, the people who became the vendor shareholders under those company stripping arrangements would have been paying their tax in the correct way. We are making sure that those people who avoided paying their tax at that time, through the use of all these smart-Alick schemes, will now make a more appropriate contribution. But I will get back to that very shortly.

I am concerned that, in terms of the actual money from which those people have benefited since 1973, the amount that we will finally pick up as a result of this legislation will be very significantly diminished. Why have these changes come about? We are sufficient political realists to appreciate that the form in which the legislation was previously introduced was the most effective and moral form. If we had attempted to get it through the Parliament again and we had sent it across to the Senate it would have been rejected again for exactly the same reasons. I need say no more about that because every member of this Parliament is aware of some of the reasons for the position adopted by some honourable senators. Had the legislation gone back to the Senate in the same form it would have met with the same fate.

What are we doing? What are the changes that have been made to this legislation since it was first introduced by the Minister for Finance (Mr Dawkins) about three months ago? First of all-I am not happy about this but these are the modifications that we made-we will no longer seek to recover personal tax on the total accumulated profits of the cashed-up and the stripped company. All those people for whom the honourable member for Dawson expresses such deep and profound concern will know that, despite the fact that we will claw back some of their ill-gotten gains they will still be able to retain all their accumulated profits from previous years. I am sure that that will bring a great deal of pleasure to the honourable member for Dawson and those people who identify with him in this connection. This legislation will now be confined to the tax avoided only in relation to the after tax revenue profits for the year in which the evasion of the primary company tax occurred. In other words, it will apply only to the current year profits. I repeat that I am not happy about that but I am a sufficient realist to endorse what the Government has done, what the Government quite clearly has a mandate to do. This is being sabotaged by people whose policies were rejected on 5 March.

Secondly, an implication of this limitation that has been provided in connection with the recovery of that personal tax is that a liability for avoided personal tax will not arise where the only tax evaded for that year was undistributed profits tax under Division 7 of the Income Tax Assessment Act. The second major modification in terms of the original legislation is that personal tax will now not be recouped in respect of any capital profits of the stripped company. Again, I am not particularly happy about that.

Let me deal with the first matter, the abandonment of the proposal to collect personal tax on accumulated profits for those years prior to the year in which the evasion of the primary company tax occurred. We should keep in mind that the vendor shareholders received all the accumulated profits of the stripped company when they sold their shares. Those accumulated profits, in effect, were distributed to shareholders in an untaxed capital form. All we are doing is collecting the tax. Instead of allowing those accumulated profits to be distributed to those shareholders in the form of a dividend on which tax is not paid by them we will pick up the tax. We do not resile from that position; we gave an undertaking to do it. We are attempting to honour the undertaking and we are being sabotaged by the very people whose policies brought about their rejection by the Australian people on 5 March.

I wish to emphasise another point. I tried to point this out to the former Treasurer when the original legislation was being considered. The Opposition does not seem to understand and apparently the former Treasurer did not and still does not understand, that his own Part IVA of the Income Tax Assessment Act would treat these accumulated profits and the personal income tax which should be paid on those imputed dividends in exactly the same way as we proposed -I use the past tense of the verb-to treat them under the former legislation. I think I should remind the House of a statement that was made by a former Acting Attorney-General in October last year when this Parliament was considering the original legislation of the former Government for the wet Slutzkins. On that occasion the acting Attorney-General said:

It is only fair that taxes that were not paid should be recovered from those who received the benefit.

That statement was made by a former acting Attorney-General-a person whose political alignment places him in the same school as the present Opposition. Of course that particular statement continued with words something like this: ' Those people who play with fire should expect to get their fingers burnt'. If they are now getting their fingers burnt my heart bleeds for them. My heart bleeds more for those ordinary wage and salary taxpayers who have been ripped off as a result of the benefits that have accrued to all these other people in the community.

In addition, I wish to mention the second major adjustment that was made to this legislation since it was first introduced. This concerns the abandonment of the proposed tax on capital reserves. Again, the existing income tax law requires that both revenue and capital profits distributed by an on-going company not in liquidation should be taxed in full. I repeat that the application of the provisions of Part IVA of the present Income Tax Assessment Act-that section which was introduced as a catch-all, anti-avoidance measure by the previous Government; I give it credit for that as well-in similar circumstances would bring about an almost identical result.

In the couple of minutes available to me I make reference to the fact that, had we indexed what these shysters had got away with from 1972 to make sure that we recovered the real value to them of those amounts under the original terms of our proposed legislation, we would have been picking up a total of $840m-almost $1 billion. With the earlier legislation, we abandoned our indexation proposal. We were going to pick up only in current dollar terms. That had the effect of reducing the $840m, which vendor shareholders had the use of over that period, to $570m. So in the legislation we introduced a short time ago we would have been picking up $570m.

Modifications have been built into this legislation as a result of the rejection of the previous legislation in the Senate-in particular, the abandonment of the recoupment of personal income tax which would have been payable on accumulated revenue profits prior to the year in which the evasion of the primary company tax occurred and the abandonment of the recoupment of any capital profits of the stripped company. As a result of introducing those modifications into this legislation we will recover $270m. That will depend on whether the Senate passes the legislation. The Government has the numbers in this House. We will use the numbers here to satisfy in conscience the mandate we were quite clearly and emphatically given as witnessed by the numbers we have here. The greatest numbers on the Opposition benches are those honourable members who try to squeeze themselves along the front bench. There is no one left on the benches behind them. That is how emphatic the endorsement was that we were given on 5 March.

Since 1972 vendor-shareholders have had the use of accumulated tax-which should have been paid but which stayed in their pockets-to the value of $840m. As a result of our gratuitousness, our attempt to be fair and to show some concern and compassion for those people about whom the honourable member for Dawson (Mr Braithwaite) and the former Treasurer, the honourable member for Bennelong expressed concern, the original $840m which we should have picked up-and which I strongly supported that we did pick up-has now been reduced to $270m. Who is to pick up the tab, not only for the difference between $840m and $270m but, if this legislation is rejected again, for the $270m that we ought to be picking up ? It will be the wage and salary earners, the pay-as-you-earn taxpayers in Australia-the people who have been carrying the burden for too long and who this Government, in all conscience and in its attempts to find a more moral, just and equitable structure of taxation in Australia, will ensure will no longer continue so exclusively to carry that burden.