House of Representatives

Taxation Laws Amendment Bill (No. 6) 2001

Second Reading Speech

Mr Slipper (Parliamentary Secretary to the Minister for Finance and Administration)

I move:

That the bill be now read a second time.

This bill implements a number of important announced government measures.

As announced in the recent budget, the government will provide capital gains tax relief for shareholders in listed investment companies. In particular, this bill will amend the income tax law to provide shareholders in listed investment companies with the benefit of the capital gains tax (CGT) discount on certain capital gains made by these companies.

The government is introducing this measure to remove a tax distortion in indirect investment choices for investors, and to allow these shareholders the benefits of the CGT discount. The amendments apply to eligible gains made by listed investment companies on or after 1 July 2001.

Following the recommendations of the Ralph Review of Business Taxation, in 2000 the government legislated provisions to deal with the alienation of personal services income. The legislation is directed at people who earn income as individuals but who claim to be businesses so as to avoid paying income tax at individual rates. It does not affect people who are genuinely in business. Obviously it is not fair to wage and salary earners if people who earn their income as individuals do not have to pay tax at individual rates just because they have entered some artificial device.

The bill contains important improvements to the measure which will reduce compliance costs for taxpayers. In particular, the bill will modify the way the law applies to certain agents and will provide that all taxpayers earning personal services income will be able to self-assess whether they are independent contractors against the results test. If the results test is passed, then they are not affected by the alienation measure. The results test is based on the traditional tests for independent contractors and is passed where someone is paid to produce a specific result, provides their own tools of trade if required and is liable for the repair of defective work.

Taxpayers will also be able to apply to the commissioner for a personal services business determination, regardless of how much of their personal services income comes from one source. This will help taxpayers who want greater certainty about their status.

The bill also includes provisions associated with the financial collapse of the HIH group of companies. As a consequence of the financial collapse of the HIH group of companies, the Commonwealth has established a scheme to assist certain qualifying individuals and small businesses who experience financial hardship as a direct result of the collapse. This bill contains measures to ensure that there are no unintended income tax or GST consequences arising from transactions occurring as a result of the HIH rescue package.

Other amendments to this bill include amendments to the Petroleum Resources Rent Tax Assessment Act 1987 to remove the uncertainty surrounding the determination of a price for gas produced in integrated gas to liquid projects.

A new methodology will be used to determine the price of gas. This methodology will only be used when there is no comparable price for the gas and when there is not a sale of gas at the petrol resources rent tax taxing point. This measure is the result of extensive consultation with industry.

The bill will also amend the five-year rule which applies to classify expenditures for the purpose of calculating PRRT liability.

Schedule 2 to this bill will amend the Income Tax Assessment Act 1936 to extend income tax exemption to businesses that are owned or controlled at the local government level. The amendment ensures that, where an income tax exempt municipal corporation or local governing body owns or controls a business, that business is also exempt from income tax.

The exemption supports the national competition policy, which is designed to improve the efficiency and service delivery of businesses at the local government level, and will apply to income derived after 30 June last year.

Finally, schedule 3 of the bill amends the residency rules for superannuation funds to allow funds, in particular self-managed superannuation funds, to retain their residency status while their trustees are temporarily overseas for up to two years. This adds necessary clarity to the law in this area and is a sensible reform which will benefit self-managed funds in particular.

Full details of the measures in the bill are contained in the explanatory memorandum. I commend the bill to the House and table the explanatory memorandum.

Debate (on motion by Mr Stephen Smith) adjourned.