House of Representatives

Tax Laws Amendment (2009 Budget Measures No. 2) Bill 2009

Second Reading Speech

Mr McClelland (Attorney-General)

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 improves the fairness and integrity of the taxation rules that apply to shares or rights granted under an employee share scheme. This measure is one of two budget measures in this bill which enhance the integrity of our tax system.

This measure will better target the employee share scheme tax concessions to low- and middle-income earners and decrease taxpayers' ability to evade or avoid tax. The new measures will also protect Commonwealth revenues needed to support jobs and invest in vital nation building.

The changes will boost integrity through, amongst other changes, reporting. Employers will be required to report shares and rights acquired under an employee share scheme at issue, and at an employee's taxing point.

These amendments better target support to low- and middle-income earners by introducing an income test to the up-front concession. The $1,000 up-front tax exemption will be means tested and only be available to taxpayers with an adjusted taxable income of less than $180,000, in line with the top marginal tax bracket.

Corporate governance will be improved by requiring schemes to feature a real risk of forfeiture to gain access to the deferral tax concession. Eligibility for the deferral treatment will flow from the structure of the scheme rather than from a choice made by an employee. Removing the employee's election to defer will decrease their ability to avoid tax.

The government has undertaken a comprehensive consultation process to develop these reforms, and has worked with stakeholders to develop the most effective and workable reforms, while maintaining the current support for employee share ownership schemes. The government has listened to concerns raised in the many submissions it received, and made changes to the policy to address these concerns.

This measure will have effect from 1 July 2009. Employees who have already entered into employee share scheme arrangements under the existing law will be covered by the transitional arrangements.

Schedule 2 amends the Income Tax Assessment Act 1997 and the Income Tax (Transitional Provisions) Act 1997 to require taxpayers with an income over $250,000 that carry on an unprofitable business to quarantine excess deductions to that business activity.

The government announced in the 2009 budget that, to improve the fairness and integrity of the tax system, it would tighten the non-commercial losses rules for taxpayers with an adjusted taxable income over $250,000.

However, taxpayers that can demonstrate that their business activity is genuinely commercial, can apply to the commissioner to apply losses from their unprofitable business activity against their other income.

In implementing these changes to the non-commercial losses rules, the government undertook a thorough consultation process.

Schedule 3 requires superannuation providers to transfer the balance of a lost member's account to the Commissioner of Taxation where the account balance is less than $200, or where the account has been inactive for a period of five years and the provider is satisfied it will never be possible to pay an amount to the member.

The first transfer will occur from the 2010-11 income year.

Currently, amounts are paid to the commissioner as unclaimed moneys when a member reaches age 65 and cannot be found by their superannuation provider, or when a member dies and the provider cannot ensure the benefit is received by the person entitled to receive the benefit. Recent changes also allow the superannuation of a former temporary resident to be paid to the commissioner.

Requiring superannuation providers to pay small and unidentifiable lost superannuation accounts to unclaimed moneys is one of a number of steps the government is taking to address the growing problem of lost superannuation.

The measure will assist providers as they will no longer need to administer or apply member protection to small accounts that are transferred. This will improve equity for other members where costs are apportioned in applying the member protection rules. Individuals who have their accounts transferred to unclaimed moneys will be able to reclaim these amounts directly from the commissioner.

Former account holders reclaiming their moneys are unlikely to be disadvantaged. Earnings on small accounts would generally be offset by fees and charges. In comparison, amounts held in unclaimed moneys do not earn interest, and are not subject to fees and charges.

This measure will result in a gain to government revenues, estimated at $238 million over the forward estimates.

The mechanism proposed to achieve the payment of lost superannuation accounts to unclaimed money is similar to that currently used for the payment of unclaimed money from superannuation providers to the Commissioner of Taxation.

For example, the measure will involve periodic reporting in an approved form in relation to lost member accounts, calculation according to a formula of the amount payable to the commissioner, and penalties for false and misleading statements.

The measure excludes accounts that support or relate to a defined benefit interest. This will ensure that lost members with defined benefit interests do not lose entitlements to benefits higher than those that may be reclaimed if their account balance had been paid to unclaimed moneys.

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

Debate (on motion by Dr Southcott) adjourned.