Explanatory Memorandum
(Circulated by authority of the Minister for Housing and Assistant Treasurer the Hon Michael Sukkar MP)Chapter 8 - Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Schedule 1 - Tax treatment of concessional loans involving tax exempt entities
8.1 Schedule 1 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
8.2 This Schedule amends Schedule 2D to the ITAA 1936 (which applies to tax exempt entities that become taxable) to:
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- specify the basis for working out the market value of TOFA assets and liabilities entered into on concessional terms held at the transition time for the purposes of applying the TOFA provisions; and
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- modify the operation of the TOFA balancing adjustment that is made when the entity ceases to have such a TOFA asset or liability.
Human rights implications
8.3 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
8.4 This Schedule is compatible with human rights as it does not raise any human rights issues.
Schedule 2 - Enhancing the integrity of the small business CGT concessions in relation to partnerships
8.5 Schedule 2 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
8.6 This Schedule amends the tax law to prevent the small business CGT concessions in Division 152 of the ITAA 1997 from being available for assignments of the income of a partner and other rights or interests in the income or capital of a partnership that are not a membership interest in the partnership.
Human rights implications
8.7 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
8.8 This Schedule is compatible with human rights as it does not raise any human rights issues.
Schedule 3 - Limiting deductions for vacant land
8.9 Schedule 3 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
8.10 This Schedule amends the ITAA 1997 to deny deductions for losses or outgoings incurred that relate to holding vacant land.
8.11 However, the amendments do not apply to any losses or outgoings relating to holding vacant land to the extent to which:
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- the taxpayer carries on a business in order to earn assessable income on the vacant land; or
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- an affiliate, spouse or child of the taxpayer, or an entity that is connected with the taxpayer or of which the taxpayer is an affiliate carries on a business on the vacant land.
Human rights implications
8.12 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
8.13 This Schedule is compatible with human rights as it does not raise any human rights issues.
Schedule 4 - Extending anti-avoidance rules for circular trust distributions
8.14 Schedule 4 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
8.15 The amendments ensure that the trustee beneficiary non-disclosure tax applies at the top marginal tax rate plus Medicare levy to the untaxed part of a circular trust distribution to which a trustee of a family trust becomes presently entitled.
Human rights implications
8.16 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
8.17 This Schedule is compatible with human rights as it does not raise any human rights issues.
Schedule 5 - Disclosure of business tax debts
8.18 Schedule 5 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
8.19 This Schedule amends the TAA 1953 to allow taxation officers to disclose the business tax debt information of a taxpayer to credit reporting bureaus when certain conditions and safeguards are satisfied.
8.20 This will allow tax debts to be placed on a similar footing as other debts, strengthening the incentives for businesses to pay their debts in a timely manner and effectively engage with the ATO to avoid having their tax debt information disclosed.
8.21 The amendments will reduce unfair financial advantage obtained by businesses that do not pay their tax on time and contribute to more informed decision making within the business community by enabling credit providers to make a more complete assessment of the credit worthiness of a business.
Human rights implications
8.22 The amendments made by this Schedule engage the prohibition on arbitrary or unlawful interference with privacy contained in Article 17 of the International Covenant on Civil and Political Rights (ICCPR).
8.23 The amendments allow taxation officers to disclose the tax debt information of a taxpayer to credit reporting bureaus when certain conditions and safeguards are satisfied. The amendments also ensure that entities other than taxation officers and credit reporting bureaus are able to record and on-disclose the tax debt information originally disclosed by the ATO without becoming liable to a criminal offence. In addition, the amendments ensure the existing exception in section 355-175 operates appropriately in relation to credit reporting bureaus, allowing them to on-disclose tax debt information, provided the on-disclosure is for or in connection with the original purpose of the disclosure.
8.24 Taxation officers may only disclose the tax debt information of an entity if a legislative instrument made by the Treasurer declaring the class of entity whose tax debt information may be disclosed is in effect. This provides an appropriate level of Parliamentary scrutiny around the class criteria as the instrument will be disallowable. In addition, the legislative instrument must be made subject to consultation with the Australian Information Commissioner, whose role includes investigating privacy complaints covered by the Privacy Act 1988. This ensures that privacy considerations are taken into account during the process of making, remaking or amending the legislative instrument.
8.25 The amendments engage the prohibition on arbitrary or unlawful interference with privacy to the extent that the amendments authorise the disclosure of personal information relating to an individual. It is expected that the legislative instrument will specify that a taxpayer is within the class of entity whose tax debt information may be disclosed if, amongst meeting other criteria, the taxpayer holds an ABN. This may mean the disclosure of personal information relating to an identified individual is authorised, where the individual holds an ABN. For example, the tax debt information of a business operating as a sole trader structure will involve information relating to an individual.
8.26 The legislative framework may also authorise the disclosure of personal information, where the tax debt information of an entity is considered to be information about an individual who is reasonably identifiable (refer subsection 6(1) of the Privacy Act 1988).
8.27 This Schedule is compatible with Article 17 of the ICCPR, as its engagement with the prohibition on interference with privacy will neither be unlawful (including by virtue of the amendments to Australia's taxation legislation set out in the Schedule) nor arbitrary. The amendments are not arbitrary as the amendments are aimed at a legitimate objective and constitute an effective and proportionate means of achieving that objective.
8.28 The United Nations Human Rights Committee has stated, in their General Comment Number 16, that:
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- 'unlawful means that no interference can take place except in cases envisaged by the law. Interference authorized by States can only take place on the basis of law, which must itself comply with the provisions, aims and objectives of the Covenant [the ICCPR]'; and
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- 'the concept of arbitrariness is intended to guarantee that even interference provided for by law should be in accordance with the provisions, aims and objectives of the Covenant and should be, in any event, reasonable in the particular circumstances'.
8.29 The Schedule's engagement with the prohibition on interference with privacy is lawful as the amendments authorise the disclosure of a taxpayer's tax debt information where certain conditions and safeguards are satisfied. This is achieved by providing exceptions to the offences protecting the confidentiality of taxpayer information contained in Division 355 in Schedule 1 to the TAA 1953.
8.30 The objectives of these amendments are to:
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- support more informed decision making within the business community by making overdue tax debts more visible;
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- encourage taxpayers to engage with the ATO to manage their outstanding tax debts; and
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- reduce the unfair advantage obtained by businesses that do not pay their taxes on time.
8.31 The amendments authorise the disclosure of a taxpayer's tax debt information to a credit reporting bureau for the purpose of enabling a credit reporting bureau to prepare, issue, update, correct or confirm a credit worthiness report in relation to the taxpayer. This allows credit reporting bureaus to provide their customers with more complete information to improve their ability to make informed decisions about the risk of providing credit or terms of trade to a business with unpaid debts.
8.32 As the disclosure of a taxpayer's tax debt information may impact the taxpayer's credit worthiness and have flow on impacts for their business, the amendments should encourage taxpayers to engage with the ATO to manage their tax debts.
8.33 The amendments constitute an effective and proportionate means of achieving these objectives, as taxation officers will not be authorised to directly make a taxpayer's tax debt information publicly available. Instead, taxation officers will be authorised to disclose the taxpayer's tax debt information to credit reporting bureaus that may use the information to prepare a credit worthiness report in relation to the taxpayer and disseminate this to interested customers. This is considered a more effective means of supporting more informed decision making within the business community as credit reporting bureaus are well-placed to provide a more comprehensive picture of a taxpayer's credit worthiness. This is because they are able to present an entity's tax debt information in the context of a taxpayer's other debt information.
8.34 The amendments which ensure that people (other than taxation officers and credit reporting bureaus) are able to record and on-disclose the tax debt information originally disclosed by the ATO are also an effective and proportionate means of achieving these objectives. These amendments will ensure that the customers of a credit reporting bureau, such as banks and other businesses seeking to make a more complete assessment of the taxpayer's credit worthiness may record or otherwise deal with this information in the course of their businesses without being exposed to criminal sanctions. This ensures the amendments are effective in supporting more informed decision making within the business community.
8.35 The amendments ensure that the existing exception in section 355-175 applies appropriately in relation to credit reporting bureaus and entities appointed or employed by or otherwise performing services for a credit reporting bureaus. That is, the amendments ensure credit reporting bureaus are allowed to on-disclose tax debt information, provided the on-disclosure is for or in connection with the purpose of preparing, issuing, updating, correcting or confirming credit worthiness reports in relation to the relevant entity.
8.36 The amendments are a proportionate means of achieving the policy objectives because the legislative framework will include procedural conditions and safeguards that the Commissioner must satisfy before disclosing a taxpayer's tax debt information.
8.37 The legislative safeguards will include a requirement for the Commissioner to serve the taxpayer with a notice at least 21 days before the initial disclosure of the taxpayer's tax debt information, which must set out particular information. The notice will allow the taxpayer to assess whether they need to correct the information that may be disclosed or otherwise make a complaint in relation to the disclosure. It will also provide the taxpayer with the opportunity to prevent the disclosure of their tax debt information by effectively engaging with the ATO.
8.38 Before a taxation officer can disclose the tax debt information of a taxpayer (other than to confirm, correct or update information), the Commissioner must consult with the Inspector General of Taxation in relation to the disclosure of the information. This provides an independent safeguard to ensure the Commissioner does not disclose the tax debt information of a taxpayer inappropriately.
8.39 In addition, the amendments are a proportionate and effective means of achieving the policy objective because the amendments will only authorise disclosures of a taxpayer's tax debt information if the taxpayer is within the class of entity whose tax debt information may be disclosed, as declared in a legislative instrument made by the Treasurer.
8.40 The criteria for determining whether an entity falls within the class of entities will be designed to ensure that only the tax debt information of business entities carrying a significant overdue tax debt may have their tax debt information disclosed to credit reporting bureaus. The criteria will also ensure that a taxpayer who is considered to be effectively engaging in relation to their tax debt will not have their tax debt information disclosed. For example, it is expected that an entity will be considered to be effectively engaging if the entity has entered into a payment arrangement with the Commissioner to pay the relevant tax debt by instalments, and the entity is complying with that arrangement.
Conclusion
8.41 This Schedule is consistent with Article 17 of the ICCPR on the basis that its engagement of the prohibition on interference with privacy will neither be unlawful (including by virtue of the amendments to Australia's taxation legislation set out in the Bill) nor arbitrary. To this extent, the Schedule complies with the provisions, aims and objectives of the ICCPR.
Schedule 6 - Electronic invoicing implementation
8.42 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
8.43 Schedule 6 to the Bill amends the TAA to confer on the Commissioner:
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- functions to develop and/or administer a framework or system for electronic invoicing; and
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- powers to do all things necessary or convenient to be done for or in connection with the performance of those functions.
8.44 This is a Government machinery change that does not affect the rights of individuals.
Human rights implications
8.45 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
8.46 This Schedule is compatible with human rights as it does not raise any human rights issues.
Schedule 7 - Salary sacrifice integrity
8.47 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
8.48 Schedule 7 to this Bill amends the SGAA to improve the integrity of the superannuation system by ensuring that an individual's salary sacrifice contributions cannot be used to reduce an employer's minimum SG contributions.
Human rights implications
8.49 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
8.50 This Schedule is compatible with human rights as it does not raise any human rights issues.