House of Representatives

Tax Laws Amendment (2010 Measures No. 3) Bill 2010

Second Reading Speech

Mr Bowen (Minister for Financial Services, Superannuation and Corporate Law and Minister for Human Services)

I move: That this bill be now read a second time.

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

Schedule 1 implements the government's 2010-11 budget changes to the superannuation co-contribution.

The government co-contribution scheme matches personal contributions made by eligible low- to middle-income earners. Currently, eligible personal superannuation contributions are matched at a rate of 100 per cent up to a maximum co-contribution of $1,000.

We are keeping a generous co-contribution, worth up to $1,000 per year and matching eligible contributions dollar for dollar. For the 2010-11 and 2011-12 income years, the lower and higher income thresholds will remain at $31,920 and $61,920 respectively.

Current indexation arrangements will recommence for the 2012-13 and later income years.

The government also will permanently maintain the superannuation co-contribution matching rate at 100 per cent and the maximum co-contribution payable at $1,000.

These changes are not expected to have a significant impact on the level of superannuation contributions. The co-contribution scheme will continue to provide eligible individuals with a very generous dollar-for-dollar contribution incentive.

These amendments deliver a fiscal saving of $645 million over the forward estimates.

The government will be substantially boosting the superannuation savings of lower income Australian through its Stronger, Fairer, Simpler superannuation reforms announced on 2 May 2010.

From 1 July 2010 the government will provide a contribution of up to $500 for workers with incomes up to $37,000. This will directly assist 3.5 million Australians with incomes up to $37,000 who currently receive little or no concessions on their compulsory superannuation guarantee contributions.

In contrast, only 20 per cent of eligible low-income earners benefit from the existing co-contribution scheme; the government will still provide the co-contribution of up to $1,000 to assist them.

These changes form part of broader superannuation reforms. In addition to the superannuation contributions tax rebate, the government will increase the superannuation guarantee rate from nine to 12 per cent, which will directly address issues raised by our ageing population and boost private and national savings, bringing broader benefits to the community and the nation. It will also increase the annual concessional contributions cap to $50,000 for individuals aged 50 and over with superannuation balances below $500,000. This doubles the cap of $25,000 which is scheduled to apply from 1 July 2012 and will allow these individuals to 'catch up' on their superannuation contributions when most able.

The government's Stronger, Fairer, Simpler superannuation measures will cost around $2.4 billion over the next four years.

Schedule 2 amends the operation of the thin capitalisation rules for authorised deposit-taking institutions to take into account the January 2005 adoption of the Australian equivalent to International Financial Reporting Standards.

This measure formed part of the government's 2009-2010 budget announcement and clarifies the treatment of Treasury shares, the business insurance asset known as EMVONA, which is the excess market value over net assets, and the capitalised software costs.

Transitional provisions have applied to allow authorised deposit-taking institutions to elect to use the accounting standards that applied immediately before January 2005.

This schedule amends division 820 of the Income Tax Assessment Act 1997 to broadly retain this transitional treatment for those specified assets for the thin capitalisation calculations of authorised deposit-taking institutions.

The amendments apply to income years commencing on or after 1 January 2009.

Schedule 3 amends the Taxation Administration Act 1953 to remove the possibility of conflicts arising between Australia's national security interests and obligations imposed by Commonwealth tax laws.

It does that by empowering the Director-General of Security and the Director-General of the Australian Secret Intelligence Service to declare that Commonwealth tax laws do not apply to specified transactions in relation to specified entities.

When such a declaration is made, tax liabilities, obligations and benefits will not apply in relation to the specified transactions. As a result there will be no obligation to provide information about those transactions to the tax authorities and no power to seek that information. That will ensure that information that bears on the operational activities of Australia's security and intelligence agencies, which should remain secret in the interests of national security, will not be disclosed.

The power to make these declarations is potentially wide so it is important that the directors-general must be satisfied before making a declaration that is necessary for the proper performance of the functions of the relevant agency. Exercises of the power will also be overseen by the Inspector-General of Intelligence and Security and, more generally, by the Joint Parliamentary Committee on Intelligence and Security.

Schedule 4 amends division 6 of the Income Tax Assessment Act 1936 so that unexpended income of a special disability trust is taxed at the relevant principal beneficiary's personal income tax rate rather than automatically at the top personal tax rate plus the Medicare Levy.

This measure delivers on the government's commitment to help support people with severe disability, their families and carers. It will further assist immediate family members and carers to make private financial provision for the care and accommodation needs of people with severe disability by ensuring that taxation is not a disincentive for the establishment of a special disability trust.

Schedule 5 amends the definition of a managed investment trust, or MIT, to more closely align the definition for withholding tax, which is the definition for the MIT capital account treatment, which has recently passed both houses of parliament. These changes to the definition of a MIT were first announced on 10 February 2010.

This schedule amends the definition of a MIT in subdivision 12H of schedule 1 to the Taxation Administration Act 1953 and makes consequential amendments to division 275 of the Income Tax Assessment Act 1997 which deals with capital account treatment afforded to MITs.

This measure extends the MIT definition to cover certain wholesale managed investment schemes and government-owned managed investment schemes, commonly referred to as wholesale funds. The amendments ensure the rules apply appropriately to both retail funds and wholesale funds that are widely held collective investment vehicles undertaking passive investments, while ensuring that any changes to the definition for withholding tax purposes do not unfairly disadvantage existing investors and funds.

Consistent with the original policy objectives underpinning the MIT withholding tax rules-to support the Australian funds management industry-this measure will limit the operation of the MIT withholding tax rules to funds that carry out their investment management activities in Australia.

The changes made by this schedule are in line with the government's objective to secure Australia's position as a financial services centre. This will support the Australian funds management industry.

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

Debate (on motion by Mrs Gash) adjourned.