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Thursday, 31 May 1973
Page: 2967

Mr GILES (Angas) - I was glad to hear the honourable member for Darling (Mr

Fitzpatrick) point out that he also does not have proper time in the national forum to put forward views on behalf of his electorate about fuel and oil exploration which are vital to this nation. I commence my speech by protesting once again about the lack of time given to honourable members to speak in this place, which is turning this national forum into a farce. Honourable members cannot get up and properly debate the issues that are of concern to the nation as a whole. Like the honourable member for Darling I too have not been given the opportunity to debate these important matters. I have been gagged on 3 occasions so far this session when I have been speaking on the subject of oil. Even today I have not been given adequate time to debate the Labor Party's policy on these matters.

I feel for the honourable member for Darling and people who have employment problems brought about by the Government's policy in this matter. I would like to quote part of an article which relates to a speech made by Mr D. A. Wittwer in Adelaide yesterday. It states: . . there seemed to be a bland assumption in Canberra that the establishment of authorities such as the National Minerals and Petroleum Authority would automatically create a flow of oil.

I presume he means other than words -

It was one thing to set up a government authority, but it was another matter to attract other explorers who had the technical, managerial and financial expertise and resources to work with such a novice organisation.

The prospect of the Government's operating alone somewhat stretched the imagination, Mr Wittwer said.

To maintain a high degree of self sufficiency during the next 20 years Australia would have to find nine billion barrels of crude - 4 times known reserves.

I will let that statement speak for itself. I wish to move on to the reasons why I put my name down to talk on these associated Bills. Frankly, I rise today to put forward views which have been suggested to me by a prominent company lawyer and several taxpayers' associations, including the Taxpayers Association of South Australia. However, before saying more in relation to these matters I also want to emphasise, as did the honourable members for Fisher (Mr Adermann) and Curtin (Mr Garland) in 2 very competent speeches, that I support the general principles of the Bills insofar as they aim to eliminate schemes of tax avoidance where these cases are against the spirit of the legislation. I would differentiate - perhaps others might not - between, say, the purchase of tax loss companies or indeed the temporary provision of life insurance on the one hand and the genuine cases frequently of people applying themselves to the letter of the law on the other. But be that as it may, in my view the Government has not only the right but the responsibility to amend the law in both of these instances if it is not satisfied with the manner in which that law is operating. That, I presume, is precisely what the Government has as its intention this afternoon. I repeat that I do not object to the aims of the Government in this regard. But on the other hand I wish, without being mistaken I hope as regards my intention, to mention some of the anomalies that can and will occur even though notice is taken of the views put forward by competent people, and in this case through me, to the national Parliament.

I do not intend to touch on the amendment that will be moved by the honourable member for Curtin as I want to save the time of the House. But I would say that I support his views and his amendment most fully as they overcome some problems that I had in mind prior to getting to my feet today. I trust that the Government will be impressed by the amendment to be moved by the honourable member and indeed the other amendments and will during the afternoon find itself in the position of being able to accept at least the proposition of the honourable member for Curtin when he moves his amendment during the Committee stage. Nevertheless, as I said earlier, I consider several aspects of the Bill to be unsatisfactory. Broadly I suppose it can be said that the Bill proposes that bad debts and past losses incurred by companies should not be deductible and dividends paid should not be taken into account for sufficient and excess distribution purposes unless the company in question satisfies a 'more than 50 per cent continuity of beneficial ownership' test or alternatively a 'continuity of business test'. I might quote an example. The. 'more than 50 per cent continuity of ownership' test may work hardship in that, in its present form, it may seriously penalise some private companies in quite genuine cases. This is because, for example, the particular sections dealing with the 'more than 50 per cent' test will be mandatory - unless of course the continuing business test is satisfied - and are not alleviated by any saving provision, such as there is in relation to the tests of public company status, which would authorise the loss to be allowed, notwithstanding failure to satisfy the continuity test, if, say, the excessive changes in ownership are explicable by ordinary business or family dealing and had no substantial fiscal motive.

It is not difficult to imagine some situations in which the new test could work anomalously. Let us assume that two equal partners operated in company form, the business incurred losses, and on: partner bought the other out with a view to re-establishing profitability. If the business had been making losses he might wish to make considerable changes in its methods, transactions, product lines and so on. Section 80s may thus not apply and, as he originally held only SO per cent of the capital and not a majority share, the company could not satisfy the 'more than 50 per cent' test. Another anomaly could arise if we assume that there was a more than 50 per cent change, over the 7 year period in which a loss can be carried forward, in the beneficial ownership of a company's shares due to family circumstances such as sons and sons-in-law coming into the business, trusts for infant children being created and so on. This certainly would not be an impugned 'tax loss company sale' yet the loss would not be deductible unless section 80e was satisfied, lt has been submitted to me that these 2 instances should be put before the Parliament for consideration.

The third matter that I want to mention relates to the remarks of my friend the honourable member for Banks (Mr Martin) on the other side of the House who pointed out that no loopholes should ever be allowed to exist in this type of legislation. I would have thought that he would have knowledge at the grass roots level of this sort of legislation and would realise that probably no legislation has been brought forward which has been free from the possibility of doubtful transactions which work against the spirit of that legislation. I want to refute the remarks that were made earlier by the honourable member for Banks that any government, be it the last one or this one, will ever have a perfect law in relation to these matters. The example which I want to quote to the honourable member for Banks concerns the continuity of business test, which may still be capable of exploitation for tax avoidance purposes. It then goes on to say why this is so. This comes from the Australian Federal Tax Reporter'. So, I just say again that there is no complete purity in these matters and I think the honourable member for Banks, with his experience as a civil servant, could well remember that.

The next example on which I wish to touch concerns a provision on which in many ways I would entirely agree with the Government. However, I hope that in the example that I intend to put before the House, the Government will see the sort of anomaly and difficulty which I find in the provision. This example is a case where one family bought the shares of their relatives who held just over 50 per cent of the shareholding. The relatives bought shares in other companies. The price was fixed on the basis that substantial tax benefits would accrue under the existing law because of more than 40 per cent continuity of ownership under section 80A. Tax losses had been incurred in substantial development of a large pastoral property in a low rainfall area, including heavy expenditure of research in conjunction with State departments and on other experiments. These experiments were carried out in a new area where one could produce a pretty good case to suggest that this sort of experimentation was necessary. It was to encourage exactly that sort of research, presumably, that the current Act left this opening, and in this case the opening will be closed.

I repeat what I said: There are very many instances - this is the difficulty of drafting legislation - in which I would agree with the Government, but that is one in which I would not agree with the Government. In fact, if one wished to prolong the debate on this issue, one could say that, although family enterprises in Australia represent the most efficient sector of farming, in effect the operation of the Bill that the Treasurer has before the House today could hand this sector over to corporate farming and limit the value of this efficient sector of farming, that is, if we ignore the lower level which hardly pays taxation. Although this is not the type of debate in which I should raise this matter, I point to it in passing because a well known and reputable company lawyer sees this sort of problem arising.

The continuity of business test under section 80e no longer applies in this case as the same company now also conducts other enterprises and the continuity of business test has been construed too strictly for this section to apply. That completes the difficulty that, I gather, this legislation will bring about. Changes could be exempted, it has been suggested to me, by 'the explicable by ordinary business or family dealing clauses'. I refer to that just in passing in case the Government might wish to have a look at that in due course. That expression is taken from the judgment of the Privy Council in Peate's case on section 260 which dealt with the formation of companies by medical practitioners, in its original form in Newcastle.

In order to hasten the debate along, I will finish with one small comment on the retrospectivity problem that has been debated already by other speakers. I will quote the Taxpayers Association of South Australia. That Association says:

This Association is strongly opposed to the retrospective nature of these provisions.

I might add that many of these problems would be overcome if the Government accepted the amendment to be proposed by the honourable member for Curtin. The Association continues:

The effect of the Bill is to deny tax benefits to taxpayers who acted in good faith in accordance with the law in existence at the time ... A person acting in the terms of the law as it is written on the statute books is surely entitled to rest assured that he will not subsequently be penalised or be found to have acted outside the law under legislation passed years after his action.

I will now give up my space on the floor of the House. Although I admit that doubt exists on the retrospectivity angle in relation to various clauses of these Bills, I hasten to add that I personally and, I am sure, all other members on this side of the House will always try to make sure that retrospectivity is never implemented to the disadvantage of any people in Australia, where they be taxpayers or not.

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