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Wednesday, 9 March 2005
Page: 3

Senator ELLISON (Minister for Justice and Customs) (9:41 AM) —I thank senators for their contributions of the House of Representatives message on the Bankruptcy and Family Law Legislation Amendment Bill 2005. To remind those who are new to the debate, this bill addresses problems relating to the interaction of bankruptcy law and family law, and implements key recommendations of the joint task force report on the use of bankruptcy and family law schemes to avoid the payment of tax. There have been longstanding concerns about the uncertainty facing both bankruptcy trustees and non-bankrupt spouses when these two areas of law operate concurrently. I think it was agreed when this was last before the Senate that there were very good measures in this bill.

Today we are dealing with the message from the other place in relation to an amendment which was moved and passed in the Senate and which the House of Representatives has subsequently disagreed with. The opposition amendment which we are dealing with would have created two rebuttable presumptions of insolvency for the purposes of the clawback provisions in the Bankruptcy Act 1966. These presumptions would arise where a bankrupt had an outstanding tax return or returns and where a bankrupt had failed to keep adequate books, accounts and records when required by law to do so. It is, however, unlikely that these presumptions would be wholly effective as they would be quite easy to rebut and would not operate in circumstances where the bankrupt had transferred property shortly after lodging a tax return but then lodged no further returns and became insolvent.

Further, since parliament removed the taxation commissioner’s priority in bankruptcy in relation to unpaid pay-as-you-earn instalments, it has been the clear intent of parliament, which the tax office has accepted, that generally the tax office should be seen as a creditor similar to other creditors. This status of the commissioner as a normal creditor is no more evident than in the case of bankruptcy where, following any secured creditors, employee entitlements protection and other priorities out of the administration, the distribution received would be the same as for any other unsecured creditor. By creating a rebuttable presumption of insolvency where a debtor transfers property at a time when he or she has an outstanding tax return, the amendment would distinguish the tax office from other creditors in relation to bankruptcy and go some way to restoring the special position of the tax office in that context.

The opposition proposal is included in the suggestions canvassed in a discussion paper which the Attorney-General released on 8 February 2005. That discussion paper will allow stakeholders to give their views on a comprehensive package of reforms needed to address the problem of high-income earners using bankruptcy to avoid paying debts that they can afford to pay. Senator Ludwig raised the question of when the response to the discussion paper could be implemented. I think the Attorney-General has stated that he would be looking to implement that this year. Senator Ludwig’s inquiry as to whether the end of the year is an achievable goal is therefore answered by the Attorney-General’s comments.

It would of course be preferable to allow this consultation to occur to ensure that the most effective package of amendments is developed. The opposition amendment had not been subject to any consultation, and the government believes that it was therefore premature. It is also important to note that, while the report by the House of Representatives Standing Committee on Legal and Constitutional Affairs on the withdrawn Bankruptcy Legislation Amendment (Anti-Avoidance and Other Measures) Amendment Bill 2004 acknowledged many suggestions from stakeholders, including those embodied in the opposition amendments, the committee did not recommend that those changes be implemented. The committee instead presented a bipartisan recommendation that there be fresh consultation on strengthening the existing clawback provisions of the Bankruptcy Act. Consultation in that regard has now commenced.

When debate was last conducted in the Senate on this bill, Senator Murray asked a question on 9 February 2005 about the effect of possible bankruptcy on maintaining constructive dialogue between the Australian Taxation Office and a taxpayer and whether bankruptcy would close down that dialogue and make bankruptcy inevitable. I am advised that the answer to Senator Murray’s question is that the tax office is prepared to continue dialogue and to attempt to negotiate repayment with taxpayers at any time prior to bankruptcy. However, once a person becomes bankrupt it is contrary to the Bankruptcy Act for the tax office—as with any other creditor—to make arrangements with the bankrupt for payment of that creditor’s debt. Accordingly, any dialogue between the tax office and the bankrupt will cease on bankruptcy. It should be noted that even if a creditor, such as the Australian tax office, receives payment shortly prior to bankruptcy the trustee may be able to recover that payment as a preference so that money can be available to creditors generally.

That deals with the outstanding question on notice that Senator Murray asked in the committee stage last time, although I think Senator Murray has raised another issue today. I understand from recent advice that the Attorney-General has spoken to all heads of federal jurisdictions—that is, chief justices and chief federal magistrates—in relation to the lodgment of tax returns by judges. Of course, senators would appreciate that the Attorney-General does not have jurisdiction in state and territory judiciaries and that it is a matter for the respective attorneys-general to raise with those states and territories. I might add that I think the debate that was conducted in the committee stage last time this bill was before the Senate and the questions asked by Senator Murray were indeed catalysts for some of the action that we have seen. By raising this issue, Senator Murray may be achieving his desired consequence.

These are important reforms and they need to come into effect as soon as possible, and I thank those senators who have indicated support for the bill. There is a discussion paper, and the government is intent that it be a full and comprehensive discussion and that it result in good law. For the reasons that I have outlined, the government argues that the committee agree to the amendment made by the House of Representatives, and I believe that during the ensuing consultation period these and other issues can be canvassed. Certainly people will be cognisant of the issues that have been raised during the debate on this bill and, indeed, in the debate concerning this message. I commend the bill to the committee.

Question agreed to.

Resolution reported; report adopted.