House of Representatives

Taxation Laws Amendment (CPI Indexation) Bill 1999

Second Reading Speech

Senator ELLISON (Special Minister of State)

I table a revised explanatory memorandum relating to the Taxation Laws Amendment Bill (No. 6) 1999 and move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-


This bill amends the income tax law to give effect to the following measures:



The bill amends the income tax law to give effect to announcements about gifts and related matters.

The bill will amend the income tax law to allow deductions for gifts made to certain funds and organisations. Amendments are also being made to ensure grants paid from the Katherine District Business Re-establishment Fund to eligible businesses in the Katherine region are exempt from income tax. A number of minor amendments to the gift provisions will also be made.


Amendments to the capital gains tax provisions

The bill proposes amendments to the Income Tax Assessment Act 1997 by inserting a rewrite of the capital gains tax rules about:

Small business roll-over and retirement exemption (including an extension to those provisions for land and buildings);
Value shifts between companies under common ownership;
Assets register entries that eliminate the need for business taxpayers to keep source documents after 5 years; and
Exempting reimbursements or payments of expenses under the M4/M5 Cashback Scheme for tolls paid on the M4 and M5 toll roads.

The bill will also correct unintended consequences made by the rewrite of the provisions of the Income Tax Assessment Act 1936 resulting from the Tax Laws Improvement Act (No. 1) 1998. In addition some minor amendments will be made to the readability of those rewritten provisions.

The amendments will apply to assessments for the 1998-99 income year.

Further the bill will amend the capital gains tax provisions so that public entities (listed public companies, publicly traded unit trusts and mutual insurance organisations) with pre-capital gains tax assets, at 30 June 1999, and thereafter at 5 yearly intervals or if there is abnormal trading, must satisfy the Commissioner of Taxation that they have maintained continuity of majority underlying ownership. If continuity is lost, any pre-capital gains tax assets are treated as post-capital gains tax assets.


Extension of the Beneficiary Rebate to include CDEP participants

The bill extends the beneficiary rebate to participants in the Community Development Employment Projects (CDEP) Scheme in respect of the income support component of their CDEP wages. This will ensure that unemployed members of Indigenous communities who choose to forgo their entitlement to social security allowances to work on CDEP projects will not suffer any taxation disadvantage compared with recipients of unemployment allowances, such as the Newstart Allowance.

And lastly,

Providing taxation information to State law enforcement agencies

This bill also amends the Taxation Administration Act 1953 to enable the Commissioner of Taxation to provide information to the New South Wales Police Integrity Commission and the Queensland Crime Commission, where the Commissioner is satisfied that the information is relevant to establishing whether a serious offence has been or is being committed, or is relevant to the making, or proposed or possible making, of a proceeds of crime order.

Full details of the amendments in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.


The Treasurer announced in the 1998-99 Budget the Government's intention to introduce a generic taxation framework applying to demutualisations of mutual non-insurance organisations. This bill introduces that generic framework. The framework will apply to demutualisations completed on or after 12 May 1998.

The Government has consulted widely with interested parties on the implementation of the generic framework. The consultation period followed the release of an Issues Paper on 28 May 1997.

The framework applies to a demutualisation that occurs under one of three specified methods. All of the methods broadly require that the interests of members in the mutual organisation be extinguished in exchange for ordinary shares.

The framework will only apply to those demutualisations where broad continuity of beneficial interest is maintained. However, a small proportion of demutualisation shares can be issued to non-members.

The framework provides that capital gains tax will not apply to the surrender by a member of membership interests in the demutualising entity. Any capital gains tax liability will therefore be deferred until the disposal of the demutualisation shares.

The framework also establishes, for capital gains tax purposes, the date and cost of acquisition of shares acquired by former members as part of the demutualisation process. Broadly, the cost of acquisition for pre-CGT members will be determined by reference to the member's share of the market value of the demutualising entity immediately before demutualisation. For post-CGT members, the cost will be determined by reference to the costs incurred by the member in acquiring and maintaining membership to the extent that those costs are not deductible.

In addition, the framework will allow demutualising entities to retain any franking account surpluses accumulated before demutualisation.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.


This bill amends the Income Tax Assessment Act 1936, the Fringe Benefits Tax Assessment Act 1986 and the Sales Tax Assessment Act 1992 to give effect to an announcement made in the 1998-99 Budget.

The bill will provide that various thresholds and rebate amounts in the taxation law that are currently indexed annually in line with movements in the Consumer Price Index will not fall because of a decrease in the CPI.

The indexation measure in the bill will apply to the 1998-99 income tax, fringe benefits tax and sales tax years and later years.

The bill will prevent taxpayers being disadvantaged by a reduction in the level of the thresholds and rebate amounts arising from a fall in the CPI as occurred in the 12 month period ending 31 March 1998.

The bill also makes two minor technical corrections to the Fringe Benefits Tax Assessment Act 1986.

The cost to the revenue of the bill is estimated to be insignificant.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.


This bill makes miscellaneous amendments to superannuation legislation.

Amendment of the Small Superannuation Accounts Act 1995

Schedule 1 of the bill amends the Small Superannuation Accounts Act 1995 to tighten the arrangements relating to the early release of monies held in the Superannuation Holding Accounts Reserve (SHAR) in a manner consistent with arrangements already applying to superannuation funds and retirement savings accounts (RSAs).

SHAR was set up to accept superannuation contributions from employers in circumstances where the employer's superannuation fund will not accept a particular contribution because of rules which require that fees and charges not exceed the interest earned on small amounts. SHAR is administered by the Commissioner of Taxation.

The amendments contained in Schedule 1 tighten the arrangements on the early release of monies held in SHAR in a manner consistent with the arrangements that already apply to superannuation funds and RSAs by:

reducing from $500 to $200 the amount that can be withdrawn from SHAR on the ground that the person has ceased employment;
restricting access to monies in SHAR on the ground that the individual is not an Australian resident, to cases where the person has reached preservation age (currently age 55); and
replacing access to monies in SHAR on the ground of severe financial hardship with a new objective test based on whether the person has received specified Commonwealth payments for a certain period.

The amendments are expected to have a negligible financial impact and will take effect on Royal Assent of the bill.

Non-arm's length trust distributions to superannuation and similar funds

Schedule 2 of the bill gives effect to the Treasurer's announcement of 25 November 1997 to close a loophole in the current law allowing certain distributions of trust income to superannuation entities made under non-arm's length arrangements to be taxed at the concessional rate of 15 per cent.

The amendments will ensure that distributions of income from all trusts-other than where the superannuation entity has a fixed entitlement-are taxed at 47 per cent. The amendments will also ensure income distributions, where the superannuation entity has a fixed entitlement to income from the trust, are also taxed at 47 per cent where the distribution is made in connection with a non-arm's length arrangement.

The amendments are expected to result in a revenue saving of approximately $15 million per annum.

Subject to a transitional arrangement, the amendments apply to income derived after 2.00pm on 25 November 1997.

Exemption of senior foreign executives from the Superannuation Guarantee

Schedule 3 of the bill amends the Superannuation Guarantee (Administration) Regulations, to continue from 1 August 1996 an exemption from the Superannuation Guarantee for employers in respect of certain senior foreign executives who meet the criteria for the former class 413 overseas executive visa. The class 413 visa, along with many other business visa classes, was replaced with effect from 1 August 1996 by several new visa classes.

These amendments will help the internationalisation of the Australian economy by facilitating the movement of highly skilled business executives and specialists into Australia. Senior foreign executives are typically brought to Australia because of their specialist skills and experience and have equivalent or greater retirement income arrangements in place in their home countries.

The amendments are expected to have a negligible financial impact and will take effect from 1 August 1996.

Full details of the amendments in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.


Today I introduce a bill to modernise the regulation of business and our financial markets.

The recently enacted reforms to the Australian financial sector, together with the wide ranging reform of Australia's corporate laws proposed under the Corporate Law Economic Reform Program, are a launch pad for this Government's drive to make Australia a centre for global financial services. This bill builds the framework for Australia's business regulation to foster economic development and employment. It provides key reforms to our laws in the areas of fundraising, directors' duties, accounting standards and takeovers.

In March 1997, the Government announced it was taking a new approach to corporate regulation under its Corporate Law Economic Reform Program. The objective of this Program is to promote efficiency in the Australian economy while facilitating market integrity and protecting investors from fraud, negligence or abusive market conduct.

In developing this new regulatory regime, the Government, in consultation with the business community and interest groups, is seeking to adopt a more flexible and efficient regulatory framework that can respond to market changes. It will permit market participants to adapt to challenges of technological developments, innovation and integration of the world's financial markets.

Before I detail the reforms in the bill, I should express the Government's appreciation for the contribution of all groups that have participated so actively in the reform program. In particular, the Business Regulation Advisory Group, chaired by Mrs Catherine Walter with representatives from key business groups, which was established to help the Government in the consultation process. In addition, I would like to thank the members of the Parliamentary Joint Committee on Corporations and Securities for their consideration of the bill.

Corporate Fundraising

This bill will improve the fundraising provisions of the Corporations Law to facilitate more efficient capital raising by Australian business.

A range of measures will be implemented to facilitate the raising of investment capital and reduce the high fundraising costs faced by Australian companies.

Prospectuses are often too long and complicated and can obscure information of interest to investors. Issuers frequently complain that they are forced to burden prospectuses with unnecessary information and that prospectus costs are too high.

The fundraising rules will be improved and costs reduced by:

introducing short form prospectuses for retail investors with technical information contained in separate documents available on request;
permitting investors in certain industries to be provided with a short profile statement containing key information rather than the full prospectus; and
allowing companies to issue prospectuses in electronic form and distribute them through the Internet or other media.

It is also clear that uncertainty over liability for the content of prospectuses has added to the complexity and expense of fundraising and has detracted from the prime function of a prospectus to disclose relevant information to investors. The Government will clarify the potential liability of parties for prospectuses by providing that their liability is governed solely under the Corporations Law. Due diligence defences will be made available in all cases of fundraising where there is a positive duty to disclose information.

Facilitating Fundraising by Small and Medium Sized Enterprises

The cost of a prospectus can be excessive in light of the amount of capital small and medium sized enterprises (SMEs) seek to raise. This acts as a significant impediment to SMEs seeking public funds.

A new fundraising mechanism will allow an SME to raise a total of up to $5 million through the use of offer information statements (OIS). The OIS introduces simpler disclosure obligations. Bodies wishing to use an OIS will be required to state the purpose for which the funds are required, the risks involved and include a copy of its audited accounts. Investors will be warned of the risks of investing without a prospectus and the desirability of obtaining professional advice.

In addition, a prospectus will not be required if a person makes personal offers that result in securities being issued to 20 or fewer persons in a one year period, with no more than $2 million being raised. This will cut the costs faced by SMEs when making small scale offerings without exposing investors to unnecessary risks.

To facilitate SME fundraising, a company will be able to raise funds from sophisticated investors without preparing a prospectus in a wider range of circumstances.

Clarifying Directors' Duties

Effective corporate decision-making is hampered by legal uncertainties arising from the liability of directors for their actions. A business judgment rule will be introduced to provide directors with a safe harbour from personal liability in relation to honest, informed and rational business judgments. The rule will apply where an officer makes an informed decision in good faith, without a material personal interest in the subject matter of the decision and rationally believes that the decision is in the best interests of the company.

The objective of the rule is to protect the authority of directors in the exercise of their management duties. It is not designed to, and will not, insulate them from liability for negligent, ill informed or fraudulent decisions. The rule will not lead to any reduction in the level of director accountability, but will ensure that they are not liable for decisions made in good faith and with due care.

Directors will benefit from the certainty that the rule provides in terms of their liability as they will be encouraged to take advantage of business opportunities and not behave in an unnecessarily risk averse way.

To reflect modern business practices, directors will, where appropriate, be able to delegate functions to, and rely on advice and information provided by, other persons. The availability of an indemnity for legal actions and directors' liabilities in corporate groups will also be clarified.

Greater Accountability to Shareholders

A new `representative' action will be introduced to enhance shareholders' rights to pursue an action on behalf of shareholders where the company is unable or unwilling to do so.

This new right of action will provide an incentive for management to exercise powers appropriately and for the benefit of shareholders. Safeguards will be introduced to ensure that company management is not undermined by unjustified or vexatious litigation. The court will need to be satisfied that proceedings brought on behalf of a company are appropriate in that there must be a serious case to be tried, the applicant must be acting in good faith and the action must be in the best interests of the company.

Making Accounting Standards More Useful for Business

Financial reporting requirements play an important role in Australian companies' ability to compete effectively and efficiently.

Accounting standards that are responsive to the needs of the Australian business community and investors have to be developed, thus ensuring that Australia maintains an informed and efficient capital market.

To bring an investor and business focus to the standard setting process, an advisory body, the Financial Reporting Council (FRC), will be established with membership drawn from peak professional, business and government organisations. The FRC will have broad oversight of the Australian accounting standard setting process. It will report to the Minister and provide advice on the effectiveness of accounting standards. As a result, the accounting standard setting process will become more responsive to the needs of preparers and users of financial statements.

A key role of the FRC will be to ensure that the Australian Accounting Standards Board is committed to, and works towards, adopting international standards having regard to what is taking place in major capital raising economies.

The FRC will report to the Government on the acceptance of international accounting standards in overseas capital markets, on the progress made by the International Accounting Standards Committee on developing a core set of international standards and on the International Organisation of Securities Commission's acceptance of those standards.

Streamlining Takeover Rules

The current takeover rules are complex and impose excessive costs on bidders and target firms. The bill reforms the current takeover legislation to make requirements simpler and clearer.

To facilitate a more competitive market for corporate control, a bidder will be able to exceed the takeover threshold (more than 20 per cent of the total voting rights in a company) through a new mandatory bid procedure before being obliged to make a general takeover offer.

The mandatory bid rule will provide two big advantages. First, by giving potential bidders the choice of which takeover method to employ, they are more likely to proceed with their bids, resulting in an increased likelihood of assets being used in their most productive way. Secondly, the mandatory bid rule will ensure that all target company shareholders will have the opportunity to sell their interest at a fair price and to benefit from the premium a bidder for control places on the securities.

The conditions generally applying to takeover bids will usually apply to mandatory bids. However, certain other conditions will also apply to mandatory bids to protect minority shareholders. For example, the conditions are designed to ensure that the mandatory bid complies with the equal opportunity principle-that target shareholders be given a fair opportunity to exit the company completely at a fair price.

Takeovers Panel

To address concerns with the current dispute resolution mechanisms for takeovers, the existing Corporations and Securities Panel will be reconstituted to become the primary forum for resolving takeover matters. The Panel will retain its existing jurisdiction to enforce compliance with the spirit of the Law. It will also be given jurisdiction to review decisions of the Australian Securities and Investments Commission (ASIC) on exemptions from the takeover rules given to corporations. All interested parties will be able to bring matters before the Panel, not just ASIC. Court proceedings in relation to a takeover bid or proposed takeover bid will not be able to be started until after the end of the bid period except on the application of ASIC or another public authority of the Commonwealth or a State.

Listed Managed Investments

Investors will also have the benefit of the takeover rules applying to listed managed investment schemes.

This program of reforms will ensure that Australia's corporate laws meet the challenges of the present and future marketplace in a forward thinking, responsible and innovative way. The reforms are designed to encourage free enterprise for the benefit of all Australians.

Parliamentary Joint Committee on Corporations and Securities

On 10 December 1998, the Senate resolved that the provisions of the bill be referred to the Parliamentary Joint Committee on Corporations and Securities for inquiry and report. The Committee released its report into the bill on 12 May.

In response to the Committee's report, the Government has foreshadowed that it will be moving amendments to the bill to implement almost all of the recommendations of the majority report and a number of the recommendations of the minority reports. The Government will also be moving a number of other amendments necessary to ensure that the stated policy objectives of the bill are appropriately met.

I commend the bill to the Senate.


This bill makes amendments to the income tax law and other laws to give effect to the following measures:

Spectrum licences

The measures will implement the proposal announced on 11 March 1998 for a deduction to be allowed for expenditure incurred in acquiring a spectrum licence. The deduction will be allowed over the period of the licence.

The measures will also amend the law to ensure that Australia is able to assert its taxing rights over income from the use of spectrum where a spectrum licence is owned by a non-resident, including amending the International Tax Agreements Act 1953 and the definition of royalty to include payments for use of spectrum licences.

The amendments apply to licences obtained from 11 March 1998.

Technical amendments

Schedules 2, 3 and 4 contain a range of technical amendments to the rewritten income tax law to correct minor errors in translating the fine detail of the Income Tax Assessment Act 1936.

Schedule 5 includes in the Income Tax Assessment Act 1997, the rewritten education and training payments provisions of the Income Tax Assessment Act 1936 as amended by Taxation Laws Amendment Act (No.1) 1997 and the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Act 1998. It also closes off the Income Tax Assessment Act 1936 provisions.

Provisional tax uplift factor

This bill will also amend the way in which the provisional tax uplift factor is calculated. The amendments take account of a change in the presentation of the National accounts published by the Australian Bureau of Statistics which took effect for the September 1998 quarter.

Youth allowance and austudy payment

Schedule 7 contains amendments to correct a technical error which occurred in the Income Tax Assessment Act 1936 as a result of amendments contained in the Social Security Legislation Amendment (Youth Allowance Consequential and Related Measures) Act 1998. The amendments also ensure that the rewritten provision in the Income Tax Assessment Act 1997 is correct.

The amendments ensure that both youth allowance and austudy payments to full-time students are included in assessable income but subject to the beneficiary rebate, as intended.

Full details of the measures in this bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.


This Government is committed to ensuring a balance between the public and private health sectors. This balance will ensure Australians have a level of choice as well as universal access to excellent health care.

We have demonstrated this commitment through recent reforms to private health insurance including, the introduction of the 30 per cent rebate and loyalty bonuses, the promotion of simplified billing and reforms to make the private health insurance industry more market responsive and flexible.

These reforms are based on a 1997 inquiry into private health insurance conducted by the Industry Commission and extensive consultation with consumer and industry groups.

Lifetime Health Cover is another major and important reform arising from this process.

This bill amends the National Health Act 1953 to introduce Lifetime Health Cover into private health insurance.

Under Lifetime Health Cover, health funds will be required to set different premiums depending on the age at which a member first takes out hospital cover with a registered health fund.

Lifetime Health Cover encourages people to join a health fund early in life and to maintain their membership and discourages `hit and run' behaviour. All of which increases the stability of the industry and helps to contain the rising cost of health insurance premiums.

Under Lifetime Health Cover, people who take out hospital cover with a registered organisation before the age of 30 and maintain their membership will pay lower premiums throughout their lifetime relative to people who delay joining.

People who join after the age of 30 will pay a 2 per cent premium loading for each year that they delay joining.

The loading is capped at a maximum of 70 per cent above the premium payable by a person who joins at the age of 30.

To ensure a fair and equitable transition to Lifetime Health Cover, existing members of private health insurance who have hospital cover, no matter what their age, will be treated as if they had joined a fund by the age of 30.

People currently without private health insurance will be given the chance to join and pay the 30-year-old rate, irrespective of their age, in a twelve-month period of grace from 1 July 1999 to 30 June 2000.

Special provisions also apply to older Australians.

People born before 1 July 1934 can take out hospital cover at any time in the future without paying a loading for joining late in life.

If people in this age category choose to join a health fund, at any time, they will pay the same premium as a 30-year-old new member.

This Government recognises that people may need to discontinue their private health insurance membership for a period of time due to, for example, a change in income, or an overseas posting. Lifetime Health Cover, therefore, allows people a 24-month absence from private health insurance without a loading being applied to their premium when they return. An individual who is absent for more than 24-months and then returns to private health insurance will incur a loading of 2 per cent on top of their premium for every additional 12-months that they were absent from private health insurance.

This bill allows for regulations to be drafted to allow health funds to extend the allowed period of absence for individuals in special circumstances.

It also allows for the Minister for Health and Aged Care to determine that people in exceptional circumstances, who were unable to lock in the lower premium rate on 1 July 2000 due to proven hardship are to be given the base rate premium. Determinations of this kind will be made on an individual basis and regulations will specify the circumstances under which such a determination is able to made.

Lifetime Health Cover complements the major reforms to private health insurance already undertaken by the Government.

It delivers another important part of the Government's commitment to reform the private health insurance industry and to maintain the balance between the public and private health sectors.


Waterfront reform is an essential element of the Government's efforts to improve the competitiveness of the Australian economy for the benefit of all Australians.

In 1998 the Government introduced a series of administrative arrangements designed to facilitate waterfront reform. Those arrangements included the provision of funds to assist stevedores to meet the cost of redundancies that resulted from the implementation of reform and restructuring in the stevedoring industry.

I am pleased to say that the program announced in 1998 has been an overwhelming success. This Government has succeeded in encouraging real and effective reform on the waterfront.

Since April 1998 over 800 people have taken redundancy packages from the stevedoring industry and there are more to come. The take up rate of redundancies has been even greater than we could have predicted when the program was announced.

Stevedoring companies across the country both large and small are all reporting the benefits of the Government's reform initiatives. The reforms that have been introduced have assisted stevedoring employers to address many of the key industrial relations issues within their workplaces, which have long stifled productivity. The resultant gains in terms of productivity and operational effectiveness will be consolidated as the restructuring spreads throughout the industry and is bedded down.

Much still remains to be done however and the Government remains strongly committed to assisting stevedores to introduce further reform. The Government remains equally committed to ensuring that the industry bears any costs associated with the introduction of the changes required, not the Australian taxpayer.

Let me now turn to the bill. Today I introduce the Stevedoring Levy (Collection) Amendment Bill 1999, which delivers on both of these commitments. This bill underpins the Government's commitment that the waterfront reform program would be funded by industry not the Australian taxpayer.

The bill increases the appropriation within the existing legislation from $250 million to $350 million. The additional funds will be used to meet the greater than anticipated cost of redundancies.

The increased appropriation will also ensure that there are sufficient funds available for stevedoring companies seeking to implement worthwhile non redundancy related reforms aimed at improving their operations.

These reforms could include the introduction of new technology such as electronic commerce; or new wharf facilities; occupational health and safety training programs aimed at reducing the rate of injury; or training programs aimed improving the employee's ability to use new equipment.

The Government will be assessing each proposal carefully, and will only agree to fund those reform initiatives which have objectives or outcomes that are consistent with the Government's seven waterfront reform benchmarks as the basis for continuing improvement.

This bill will allow this work to continue, by ensuring that the Government has the funds available to assist stevedores to complete their redundancy programs and implement other worthwhile projects, aimed at improving productivity and efficiency.

The Government has set the rate for the stevedoring levy by regulation at $6.00 per vehicle and $12.00 per container and it is not intended that this be changed. The period for collection of the levy will therefore be extended to raise the necessary funds. The Government believes that this approach provides the best outcome for the industry.


The Australian stevedoring industry has entered a new era in which employers are restructuring their operations with the aim of achieving world's best practice in productivity and reliability and offering a service that is internationally competitive.

The Government identified the reforms that needed to be addressed and provided the legal framework to facilitate these changes. This legislation underpins the administrative arrangements already in place and ensures that the vital reforms and restructuring which have commenced will continue.


The bill makes amendments to the income tax law and sales tax law to give effect to the following measures:

Sales Tax (Exemptions and Classifications) Act 1992

The bill amends the sales tax law to correct a deficiency relating to the exemption for goods incorporated into property owned by, or leased to, always-exempt persons or the government of a foreign country.

Access to the exemption will now be available only where the property is occupied principally by an always exempt person or the government of a foreign country or where the property is used principally for the provision of services to an always exempt person or government of a foreign country. The amendment applies to dealings after 2 April 1998, unless the goods concerned were acquired on or before 2 April 1998.

Arrangements treated as a sale and loan and limited recourse debt

These amendments were originally introduced as part of Taxation Laws Amendment Bill (No. 4) of 1998. The bill was passed by the House of Representatives and was referred to the Senate Economics Legislation Committee. The bill lapsed when Parliament was prorogued. Since that time the Government has consulted with professional and industry bodies. Consequently, several technical changes have been made to the legislation as originally introduced.

The bill will implement a measure announced in the 1997-98 Budget to prevent taxpayers obtaining deductions for capital expenditures in excess of their actual outlays. The measure will apply where the expenditure has been financed by hire purchase or limited recourse finance and the debtor does not fully pay out the capital amounts owing.

In those circumstances, an amount will be included in the debtor's assessable income to compensate for excessive deductions that were allowed to the taxpayer based on the initial cost of the relevant capital asset or specified capital expenditure. The adjustment to taxable income will reflect amounts that remain unpaid when the hire purchase or limited recourse debt arrangement is terminated. The amendment applies to debts that are terminated after 27 February 1998.

Two major technical changes to the original bill are concerned with limited recourse debt. First, where a debt is terminated and refinanced on arm's length terms, payments of the terminated debt that are funded by a replacement limited recourse debt will be counted in calculating any adjustment to be made. This will allow investors to refinance assets without adverse tax consequences.

Secondly, debt will not be treated as limited recourse debt where the conditions of the debt and any associated security arrangements do not have a limiting effect, for example, where ordinary business debts are fully secured by a floating charge over the assets of a debtor (other than the financed asset).

Another amendment will treat taxpayers who finance assets by hire purchase as the owners of those assets for purposes of applying the various capital allowance deductions. Hire purchase and instalment sale transactions will be treated as the equivalent of sale, loan and debt transactions in assessing the taxation liability of the financier and the hire purchaser respectively. The amendment applies to arrangements entered into after 27 February 1998.

Full details of the measures in the bill are contained in the explanatory memorandum.

I commend the bill.

Debate (on motion by Senator Quirke) adjourned.

Ordered that these bills be listed on the Notice Paper as separate orders of the day.