House of Representatives

Tax Laws Amendment (2004 Measures No. 7) Bill 2005

Second Reading Speech

Senator Hill (South Australia - Minister for Defence)

I table a revised explanatory memorandum relating to the Tax Laws Amendment (2004 Measures No. 7) Bill 2005 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 -

Tax Laws Amendment (2004 Measures No. 7) Bill 2005

This bill makes amendments to the taxation laws to implement a range of changes and improvements to Australia's taxation system.

This Government announced in its Promoting an Enterprise Culture election statement on 26 September, that it would provide further assistance and encouragement to small businesses, particularly those that set up and operate from home.

The first two measures in this bill are part of this initiative.

Firstly, the Government is introducing a tax offset for entrepreneurs, which is targeted at very small, micro and home-based businesses that are in the simplified tax system.

Broadly, the provisions introduce a 25 per cent entrepreneurs' tax offset. The full 25 per cent will apply on the income tax liability attributable to business income for small businesses in the simplified tax system that have an annual turnover of $50,000 or less. This tax offset will then phase out for annual turnover between $50,001 and $75,000.

Secondly, this bill removes the current requirement for small businesses to use the 'STS accounting method' in order to be eligible to enter the simplified tax system. The new provisions will enable businesses to utilise the most appropriate method of determining taxable income for them and still qualify for the Simplified Tax System. Removing the requirement to use the STS accounting method will extend the concession to a broader range of small businesses.

Schedule 3 allows tax concessions currently available to employee share scheme holders to extend beyond a corporate restructure in certain instances. This further supports the development of the employee share scheme and further aligns employer and employee interests. These amendments will allow taxpayers who have deferred their income tax liability on a discount received on shares or rights acquired under an employee share scheme, to roll-over a taxing point that would otherwise occur because of a corporate restructure.

Schedule 4 doubles the current fringe benefits tax exemption thresholds for long service award benefits. The exemption thresholds will be increased from $500 to $1,000 for 15 years of service and from $50 to $100 for each additional year of service.

The fifth measure introduces a taxation incentive designed to encourage petroleum exploration in Australia's remote offshore areas, announced by the Treasurer and Minister for Industry, Tourism and Resources on 11 May 2004. This measure is designed to increase the probability of a new petroleum province being discovered. An incentive is needed because Australia's frontier areas are under-explored due to the relatively high risk and cost associated with exploration in these areas.

After listening to the concerns of business, the Government, in Schedule 6, is implementing further refinements to the consolidation regime. The refinements provide greater flexibility and certainty to certain aspects of the consolidation regime. This bill clarifies the operation of the consolidation cost setting rules with respect to undistributed profits and liabilities on exit. The refinements also ensure that the consolidation rules apply appropriately with respect to bad debts, general insurance companies and life insurance companies. These amendments take effect from 1 July 2002, which is the commencement date of the consolidation regime.

Schedule 7 ensures that all roll-over relief available for partnerships under the uniform capital allowances regime, is also available in relation to depreciating assets allocated to simplified tax system pools.

Schedule 8 provides greater flexibility, reduced compliance costs and ongoing certainty surrounding family trust elections and interposed entity elections. This will be achieved by allowing entities to make either of these elections at any time in relation to an income year.

Schedule 9 contains amendments to ease compliance costs for small business in relation to non-commercial loans from private companies. The amendments will extend the time a shareholder has to repay a loan from a private company or to put such a loan on a commercial footing. Following these amendments, if a shareholder repays such a loan or puts it on a commercial footing before the 'lodgement day' the loan will not be a deemed dividend. This bill also corrects a technical deficiency in the tax law to ensure that the rules in relation to loans from trustees apply as intended.

Schedule 10 to this bill makes a number of technical corrections and amendments to several taxation laws. These corrections and amendments fix errors such as duplicated definitions, asterisks missing from defined terms, incorrect numbering and referencing and outdated guide material. While not implementing any new policy, these corrections and amendments are an important part of the Government's commitment to improving the taxation laws.

Schedule 11 amends the refundable film tax offset provisions to allow unused provisional "Division 10BA" certificates to be revoked.

This amendment will ensure that certain film projects can revoke their provisional 10BA certificates, as long as the certificate has not been used to already gain a tax deduction. The intent is to allow these projects to then apply for the refundable film tax offset.

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

I commend this bill.