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Wednesday, 9 November 1983
Page: 2474


Mr SPENDER(11.54) —Yesterday, the Minister Assisting the Treasurer (Mr Hurford)-I am sorry to see that he is not here today because we would be very glad to have his attention in the very little contribution that he may be able to make to the debate-in seeking to justify the Government's position on the proposal to remove the stripping test from the legislation, said that he would demonstrate to us why what we said was totally wrong. He said:

The stripping arrangements test is entirely unnecessary because the other tests in the legislation ensure that only bottom of the harbour schemes are within the scope of the legislation.

The Minister, who had conduct of the matter, asserted that to the House and to the Australian people. What did he do? He said that he would select three tests of particular importance. He accused us of empty rhetoric. I will demonstrate, as I said I would, that the Minister did not understand what he was saying. That is the only charitable interpretation that can be put upon his remarks. What are the tests he selected? He said:

Firstly, there must be an amount of unpaid company tax.

I agree with that, for whatever reason that company tax may be unpaid. It could be simply commercial misadventure. He said:

Secondly, the excess consideration test means that the vendor-shareholders must have received a price for their shares which made no allowance-

the words are 'no allowance'-

for the company tax payable on pre-sale profits.

That is nonsense. If one looks at the excess consideration test which is to be found in section 5 (1) (d) of the Taxation (Unpaid Company Tax) Assessment Act of 1982 one sees that it operates in this manner. The relevant part of the section states:

the total consideration paid or given in respect of the sale or sales under the scheme of the shares . . . exceeds an amount ascertained in accordance with the formula A-(L+T)

A equals assets, L equals liabilities and T equals liabilities where the liabilities do not include tax. In effect, one adds one's liabilities outside plus one's tax liabilities and subtracts that from the amount of assets for the purpose of determining whether that provision applies. It operates if the amount of the consideration exceeds the result of the formula by any amount. I will give an example to the Minister in round figures so that he can understand it. Let us assume that a company has assets of $100,000. Let us assume that there are liabilities in a company, excluding tax, of $10,000. Let us assume that its taxable liability is determined to be $15,000. What one does is to subtract liabilities other than tax and the tax liability, from the asset figure and arrive at a figure of $75,000. But if the sale price of that company is $75,010 it attracts the operation of the formula. It is demonstrable nonsense for the Minister to say, as he did, that the sale makes no allowance for company tax payable.

I turn to the third test that he thinks to be so important to protect people and which renders unnecessary the stripping test. The Minister said:

Let me now come to the third test. Finally, the 'same business' test means that the legislation does not apply where a company carries on the same business after the sale as it did before the sale. That test by itself is enough to ensure that the legislation could not possibly apply to any normal commercial takeover.

That is also demonstrable nonsense. If the Minister has any understanding of how the same business test has been construed he should look at section 80E of the Income Tax Assessment Act and the decisions under that section. That section provides for the carry forward of losses in certain circumstances where there has been a change of beneficial ownership but the same business is continued to be carried on. The consequence of any change of any appreciable kind is that one does not satisfy the same business test. Therefore, if the person who acquires the company does so and then makes minor changes in the operations of the company's business, that test does not apply.

The Minister failed to address any argument of any kind to the Committee in answer to the attacks that had been made on the deletion of the stripping test. It is the intention to strip which is surely so important. I remind honourable members of what is to be deleted. Section 5 (1) (h) relates to an arrangement or transaction which was entered into that secured or achieved the result that the company was unable to pay, having regard to other debts, all the company tax due and payable at the relevant time. That is what is to be removed. In the case where such a stripping transaction was entered into, clearly those involved were saying: 'We do not care a damn about the consequences to the revenue; we are content to evade'. It is of critical importance to the operation of this legislation, as the honourable member for Hawker (Mr Jacobi) pointed out in a different context, that it should be directed, in effect, at stripping arrangements and at bottom of the harbour transactions. The Minister attempted in his answer to engage in a kind of McCarthyist tactic of which we have had so much in this chamber. Looking at him, I was very much reminded of the description of a non-entity-a hole in the air. This intellectual and moral non- entity said of me that I must have friends whom I am seeking to protect. He said :

I have to make the charge that friends of those opposite whom they are trying to save from paying tax must be involved.

Let me say right now that that is an outrageous assertion which degrades him and the Committee. Let me add that I have, on one occasion, advised in relation to a major bottom of the harbour transaction. I have indeed. The advice was given on 5 August 1980. The client was the Commonwealth Crown Solicitor, instructing me on behalf of the Commissioner of Taxation. Lengthy advice was given on sections 263 and 264, as those advising the Minister can inform him. That was my sole involvement in relation to bottom of the harbour transactions. It is outrageous for the Minister to seek so to divert the argument by making those kinds of allegations. But what does a weak and empty man do when he is cornered? He employs the classic technique-a smear. If one employs a smear perhaps people will not listen to what one is saying and will simply concentrate on the other man.


The DEPUTY CHAIRMAN (Mr Rocher) —Order! The honourable member's time has expired .