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Thursday, 3 November 1983
Page: 2313

Mr KEATING (Treasurer)(4.16) —I move:

That the Bill be now read a second time.

On Budget night my colleague the Minister for Housing and Construction (Mr Hurford) introduced into this House a Bill by this title which itself was a revision of an earlier Bill by the same title. The major purpose of those earlier Bills was to give effect to this Government's election undertaking to recover personal tax avoided by former owners or companies that were the subject of bottom of the harbour schemes. In addition, the Bills were designed to strengthen and improve in several identified areas the legislation passed by the Parliament last year to recoup the company tax that was evaded by the use of these schemes. The Bill introduced on Budget night was estimated to yield $60m in 1983-84 and $270m in total. The rejection of this important part of the Government's Budget in another place must have the effect of transferring the burden of taxes avoided by bottom of the harbour scheme participants-which the Bill sought to recover-to the ordinary Australian taxpayer.

As foreshadowed in my statement of 26 October 1983 the Government is now submitting to the Parliament a Bill that deals only with measures to strengthen and improve the recovery of evaded company tax. The present Bill proposes to strengthen and improve the company tax recoupment measures in the same areas as were proposed in the Budget Bill passed by this House but rejected by the Senate . I shall outline them to this House once again. In addition, the Bill will provide new provisions for anomalies relief in cases where a public company was interposed in the chain of ownership between the stripped company and the person seeking relief. I turn now to the details of the Bill.

Post-sale Avoidance Schemes

The recoupment tax legislation contains a let-out provision that operates where the stripped company was the subject of an unsuccessful post-sale scheme to avoid tax. Under this escape clause there is no liability to recoupment tax on the people who benefited by non-payment of the company tax. This provision was inserted by the former Government for reasons which are best known to it. In our view it defies logic and nothing that has been said in recent months in any way dissuades us from that view. It is our announced policy to abolish it and this is to be done by the Bill.

Pre-sale Avoidance Schemes

Consistently with the removal of the post-sale avoidance scheme provision, this Bill will also ensure that, in ascertaining the potential tax liability of a company for the purposes of determining whether the recoupment tax legislation applies in relation to it, any pre-sale scheme which is ultimately established to be ineffective of its tax avoidance purpose is to be disregarded.

Anomalies Relief

An addition to this Bill is the provision of an additional avenue of relief from recoupment tax payable under the present legislation, in cases where a public company was involved in the chain of ownership. The existing law gives the Commissioner of Taxation a power, the non-exercise of which is subject to a full review by independent taxation boards of review, to eliminate, but not to reduce, a particular recoupment tax liability. This power to give complete relief may be exercised where the amount otherwise payable is less than $100 or in other circumstances of a special kind. In administering the existing relief provisions, the Commissioner views as a basic ground of relief that the person liable for recoupment tax and closely connected persons have not in any way benefited from the evasion of company tax giving rise to the recoupment liability.

The new provisions to be inserted by the Bill will enable full or partial relief to be granted in cases where relief is not available under the existing law. The provisions will assist people in cases where their recoupment tax liability was traced through an interest in a public company, that is, where they are well removed from the actions giving rise to the recoupment tax liability in question. In such cases, the proposed provisions will allow an appropriate level of relief from payment of recoupment liabilities. The situations to which the provisions could apply are varied and intended application of the provisions cannot be explained by arithmetical formulae or the like. However, they would, for example, mean that a public company shareholder unconnected with the scheme who received only a relatively small benefit from the evaded company tax could have his or her recoupment tax liability reduced so as to appropriately reflect the benefit received.

In the first instance, the Commissioner of Taxation will consider whether a person is entitled to this anomalies relief on the basis of the guidelines laid down in the Bill. It is to be expected that by far the majority of cases will be dealt with in this manner to the full satisfaction of the people concerned. If the Commissioner does not grant relief to the full extent that the person concerned desires, there are rights of objection, review and appeal that may be exercised. In particular, a claim refused by the Commissioner may be reviewed independently by a taxation board of review, which for this purpose is to sit as a recoupment tax anomalies tribunal. Where a person has already paid company tax or recoupment tax from which relief is granted by the Commissioner or an independent tribunal, an appropriate refund of the tax paid or part thereof will be made.

Other Changes

Moving to other aspects of the Bill, there are several further amendments designed to improve the administration of the legislation or to correct technical deficiencies. The Bill proposes to remove one of the pre-conditions to liability for recoupment tax-the requirement that the company was by a stripping scheme rendered unable to pay its tax-which was inserted by the previous Government, it seems for presentational purposes. The element that the requirement expresses is, in substance, present in all cases of pre-tax profit stripping to which the legislation applies. A specific reference to it is quite unnecessary.

The stripping scheme test and an associated provision requiring full disclosure by the Commissioner of known details of it is being exploited by some taxpayers as a means of delaying issue of recoupment tax assessments. It is also proposed by this Bill to re-insert in the recoupment tax legislation a provision removed by the previous Government which authorised the Commissioner of Taxation to report to this Parliament the names of persons who fail to meet their liability for vendors or promoters recoupment tax. The Commissioner is already required to provide in his annual report to Parliament details of breaches or evasions of the taxation laws and it is consistent with that duty that he be authorised, where he considers it appropriate, to report details of failure to pay recoupment tax by the people concerned. A still further change in this Bill, not contained in the earlier Bills, will enable a former owner to whom a refund of company tax is made as a result of a successful objection or appeal against the company assessment to receive interest under the Taxation (Interest on Overpayments) Act on the amount refunded.

Finally, I explain an amendment to an evidentiary provision of the recoupment tax legislation. The provision in question reflects the settled policy of the tax law in these matters and seeks to ensure that persons liable for recoupment tax can contest the correctness of the underlying company assessment only through the established objection and appeal procedures against the company assessment itself. For this purpose it provides that a certificate specifying the amount of a company's liability to company tax is to be conclusive evidence except in an appeal concerning the assessment of the company. Some technical deficiencies in the provision need to be corrected and the Government has, with an eye to a particular constitutional question, decided to press ahead with other amendments as well.

Honourable members will know that the recoupment tax legislation has been under constitutional challenge, on a number of grounds. One of them concerns the evidentiary provision and reflects a legal argument that the Commonwealth cannot validly levy a tax that is uncontestable. It is said that there are circumstances where a certificate that is conclusive evidence would render the tax uncontestable. Obviously it cannot be predicted what decision the High Court of Australia will reach on the particular point, but the Government has concluded that it should solve the difficulty by legislating so that the certificate represents only prima facie evidence, with the result that the matters that are the subject of it will therefore clearly not be uncontestable. In providing to that effect, the Bill also proposes that such a certificate would, in appropriate circumstances, represent conclusive evidence if a provision in the Bill that re-instates its conclusive nature were to be proclaimed. A decision on whether to make the proclamation, and thus have the provision revert to the conclusive evidence form that is reflective of settled policy, will be made in the light of any High Court decision on the underlying constitutional point.

The measures contained in the Bill are estimated to yield about $40m in respect of the strengthening provisions, while the anomalies relief would entail a revenue cost of about $5m. In the 1983-84 year, the net revenue collected would be about $20m, or about one-third of the amount which had been expected from the Budget Bill defeated in the Senate. As usual with amendments of the taxation laws, an explanatory memorandum giving details of the amendments contained in the Bill is being circulated to honourable members. I commend the Bill to the House.

Debate (on motion by Mr Howard) adjourned.