House of Representatives

Tax Laws Amendment (2009 Measures No. 4) Bill 2009

Second Reading Speech

Dr Emerson (Minister for Small Business, Independent Contractors and the Service Economy, Minister Assisting the Finance Minister on Deregulation and Minister for Competition Policy and Consumer Affairs)

-I move:

That this bill be now read a second time.

This bill amends various taxation laws to implement a range of improvements to Australia's tax laws.

Schedule 1 implements a change to the research and development tax offset, that is, the R&D tax offset, which is part of the R&D tax concession. As announced in the budget, this is an interim measure ahead of the introduction of a new R&D tax incentive in 2010-11.

Currently, certain companies can choose to receive the tax concession in the form of a refundable tax offset, rather than a deduction. The R&D tax offset allows companies to 'cash out' the R&D tax concession, which means it is most attractive to companies that are in a tax loss position, who cannot immediately benefit from an additional tax deduction.

One of the requirements for the R&D tax offset is that the company has no more than $1 million of eligible R&D expenditure, subject to grouping rules. If the company's expenditure exceeds $1 million, they are not eligible to claim the offset. The $1 million cap means that some companies keep their expenditure below this level in order to claim the R&D tax offset-a perverse outcome, given that the purpose of the tax concession is to encourage R&D.

This measure lifts the expenditure cap from $1 million to $2 million. This will provide a further boost to small pre-profit companies in research intensive industries, ahead of the introduction of the new R&D tax incentive in 2010-11. It also mitigates the incentive for firms to keep their R&D spending below the current expenditure cap.

In regard to schedule 2, the Treasurer announced in the 2008 budget that the government would legislate guidelines to improve the integrity of prescribed private funds and to provide the trustees of such funds with greater certainty as to their philanthropic obligations.

Following a thorough public consultation process, this measure amends the 1997 Income Tax Assessment Act, the Taxation Administration Act 1953 and the A New Tax System (Australian Business Number) Act 1999 to improve the integrity of prescribed private funds.

Schedule 3 amends the income tax law to provide relief from capital gains tax to members and insured entities of friendly societies that have either a life insurance business or a private health insurance business, or both, and the society demutualises to a for-profit entity.

Depending on how the friendly society chooses to demutualise, these entities do not easily fit within the existing demutualisation regimes. These amendments will provide a broadly equivalent capital gains tax outcome for members and insured entities of these friendly societies relative to what members and policyholders of a stand-alone life insurer or private health insurer would receive if the insurer demutualised.

Schedule 4 amends the 1997 Income Tax Assessment Act to ensure that losses transferred to the head company of a consolidated group or a multiple entry consolidated group by a joining entity that is insolvent at the joining time, can be used by the head company in certain circumstances.

The amendments allow the transferred losses to be applied to reduce a net forgiven amount under the commercial debt forgiveness rules, reduce a capital allowance that is adjusted under the limited recourse debt rules, or reduce a capital gain that arises when the joining entity subsequently leaves the group.

As the amendments are beneficial to taxpayers, they apply from 1 July 2002-that is, from the commencement of the consolidation regime. In this regard, the amendments ensure that losses transferred to the head company of a consolidated group by a joining entity are not wasted.

Finally, the bill includes minor amendments to the tax laws.

The amendments ensure that the law operates as intended by correcting technical or drafting defects, removing anomalies, and addressing unintended outcomes. The minor amendments are part of the government's commitment to the care and maintenance of the tax law.

Minor amendment packages now include addressing minor legislative issues raised by the public through the recently introduced Tax Issues Entry System, or TIES for short.

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

Debate (on motion by Mr Randall) adjourned.