House of Representatives

New Business Tax System (Miscellaneous) Bill 1999

Second Reading Speech

Costello, Peter, MP (Higgins, Treasurer, LP, Government)

I move:

That the bill be now read a second time.

The New Business Tax System (Miscellaneous) Bill 1999 contains a number of measures further implementing the government's wide ranging reforms that will give Australia a new business tax system. Those reforms are based on the recommendations of the Review of Business Taxation that the government established to consult and make recommendations on business tax reforms.

In addition, this bill will be implementing the continuing policy that the government was elected upon in 1998, as was laid out in its policy document A New Tax System. In particular, it implements the policy promise that the government made in its pre-election new tax system to provide for excess imputation credits to be refunded to Australian individuals, complying superannuation funds or similar entities who, until now, could not use those credits because their tax liability was insufficient.

Let me explain that. At the moment, where a company pays a franked dividend at 36c and the franked dividend is distributed to somebody, let us say a pensioner, who is on a tax rate lower than 36c-maybe 20 cents in the dollar-that person has a dividend on which there is a tax credit of 36 cents in the dollar but is only liable for tax at 20 cents in the dollar. Until now, they have never had the opportunity to get back that excess imputation credit, which, of course, represents an overpayment of tax in their hands. The government foreshadowed its intention to introduce this measure in A New Tax System and it will be of particular benefit to many self-funded retirees.

Those on this side of the House would be very proud to be able to say that this was the government that, for the first time, recognised this as a matter of fairness for pensioners, self-funded retirees and other people on low incomes. We promised in the election campaign that we would deal with the matter as part of our new tax system, and we are.

This bill also removes the intercorporate dividend rebate on unfranked dividends. Until now, that rebate has effectively meant that no tax was payable on dividends received by public companies. Removing the rebate will address a number of tax avoidance arrangements designed to exploit the rebate. This measure will also ensure a consistent treatment of all resident companies receiving unfranked dividends. The rebate will still apply to dividends paid within a corporate group.

However, simply removing the rebate might have discriminated against foreign companies that invest in Australia through an Australian subsidiary rather than directly. To prevent that outcome, this bill will give the subsidiary a deduction when it on-pays the unfranked dividend, except portfolio dividends, to its foreign parent.

Both houses have recently passed a bill which exempts some foreign pension funds on the gains they make in Australia on venture capital investments. This bill proposes to grant a similar exemption to dividends paid by pooled development funds to Australian superannuation funds and similar entities. This will be achieved by allowing pooled development funds to attach imputation credits to dividends they pay to Australian superannuation funds out of gains on their venture capital investments. This measure, taken with the exemption for foreign pension funds, will promote investment in innovative Australian firms and address the problems they often face in raising significant new capital.

Just as the government is allowing foreign pension funds which are tax free in their home jurisdiction to come into Australia to invest in venture capital projects capital gains tax free, so too the opportunity will be extended to Australian superannuation funds to invest through the pooled development funds in venture capital projects capital gains tax free. The objective of that is to make more money available for start-ups and venture capital projects to ensure that Australian industry and Australian inventiveness have the opportunity to get their projects up and running through investment and, in the long term, to promote the jobs that come with those projects.

A major compliance cost for many businesses is calculating and keeping records for depreciation of plant, especially when there are numerous items of plant with low values. The government has addressed this issue by creating a pooling scheme, which is contained in this bill. This scheme will allow taxpayers who are not small business taxpayers to put plant into a pool if it cost them less than $1,000 or if they have written it down to less than $1,000 under the diminishing value method. Taxpayers can treat the pool as a single item of plant and depreciate it under the diminishing value method with a four-year effective life. This will significantly reduce the administrative burden that the present law imposes by requiring taxpayers to track each low value item of plant.

The measure does not apply to small businesses, which will still be able to immediately write off assets costing $300 or less until 1 July 2001. From 1 July 2001, under the simplified tax system, small businesses will be able to immediately write off assets costing less than $1,000. Assets with effective lives of less than 25 years will be able to be pooled and written down over five years. That is the great benefit for small business under the simplified taxation system: you can write off up to $1,000 and you can pool the remainder where they have effective lives of 25 years. For those businesses that are not small businesses that are going to be outside the simplified tax system, they will have access to this $1,000 pooling arrangement, which will significantly reduce the administrative burden that the present law imposes.

Finally, this bill makes some changes to the amount of imputation credits, to companies' franking account balances and to the rate of the infrastructure borrowings rebate. These changes are a consequence of the company tax rate reduction passed by this parliament. I remind the House that, on the initiative of the government, legislation has now passed through both houses of parliament giving historic reductions in company taxes from 36 cents to 34 cents to, after the phase-down period, 30 cents in the dollar, making Australia one of the attractive places in the Asia-Pacific region in which to do business, giving Australian companies that opportunity to grow and create more jobs for our young people.

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

I commend the bill and present the explanatory memorandum.