Taxation Laws Amendment Act (No. 4) 2002

Second Reading Speech

Macdonald, Sen Ian (Minister for Forestry and Conservation)

I move:

That this bill be now read a second time.

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

Leave granted.

The speech read as follows-

This bill amends the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 to give effect to several measures that have been announced by the Government.

This bill includes amendments to the thin capitalisation regime to ensure the regime operates as intended. The amendments, while largely technical in nature and apply from 1 July 2001, will improve the integrity of the regime and clarify the operation of the law.

The key features of the amendments are the exclusion of assets that are used principally for private or domestic purposes; ensuring that the Australian assets threshold rule operates as intended. It will provide for consistent treatment of `interest-free' loans; and ensuring that a number of technical concepts in the legislation have their intended meanings.

Also contained in this bill is new capital gains tax roll-over, which will facilitate a trust converting into a company by disposing of all its assets to the company. The roll-over will not apply to discretionary trusts. It is intended to increase the commercial flexibility available in selecting an appropriate business structure for the changing needs of business. This roll-over is optional and will be available for disposals of assets by the trust on or after 11 November 1999. It will also be available for the exchange of interests in the trust for shares in the company on or after that date.

Schedule 3 to this bill will introduce changes, which come into effect from 1 July 2002, which are designed to assist Australian businesses seeking to attract key personnel to Australia. This will be achieved by reducing the tax burden on people who are considered to be temporary residents of Australia for taxation purposes.

There is also a provision for an exemption from Australian tax on all foreign source income and capital gains for a maximum period of 4 years to individuals who are considered to be temporary residents. This exemption applies only where that income or gain is not associated with Australian employment or with services performed while a resident of Australia. The bill will also exempt temporary residents from interest withholding tax obligations associated with overseas liabilities. This assists those Australian businesses seeking to employ key personnel from overseas, as it will reduce the cost of doing business in Australia.

Finally, under the current uniform capital allowances regime, the Commissioner of Taxation is progressively reviewing, and making updated determinations of, the `safe harbour' effective lives. The Commissioner cannot take into account economic policy considerations such as the impact on investment decisions in particular industries or the wider economy. Therefore, the Government has decided to introduce certain statutory `caps'. These `caps' will be the effective life used to calculate the deduction for those depreciating assets if the taxpayer chooses to use an effective life determined by the Commissioner of Taxation. The `cap', if any, that applies to that asset is shorter than the effective life determined by the Commissioner. This means the taxpayer will be able to deduct the cost of the asset over a shorter period of time than would otherwise be the case.

I commend the bill to the Chamber.

Debate (on motion by Senator Mackay) adjourned.