Second Reading SpeechMr Shorten (Assistant Treasurer and Minister for Financial Services and Superannuation)
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 amends the income tax law to allow trust beneficiaries to continue to use the primary production averaging and farm management deposits provisions in a year where the trust has a loss for trust law purposes.
After the High Court decision in Commissioner of Taxation v Bamford, the commissioner withdrew a public ruling under which he had accepted that in certain circumstances a beneficiary could be eligible for the primary production averaging and farm management deposits rules, despite the trust incurring a loss for trust law purposes.
Schedule 1 will restore the ability of beneficiaries to access both sets of rules in an income year where the trust has incurred a loss and certain conditions are met. The amendments will secure continuity for taxpayers because they apply from the 2010-11 income year and the commissioner's ruling applies up to and including the 2009-10 income year.
If the amendments in schedule 1 are not enacted by 30 June 2011, the beneficiaries of up to approximately 23,000 trusts will be uncertain as to their eligibility for the primary production averaging and farm management deposits rules in the 2010-11 income year by the time they start to lodge their income tax returns.
Schedule 2 amends subdivision 115-C and subdivision 207-B of the Income Tax Assessment Act 1997 to ensure that, where permitted by the trust deed, the capital gains and franked distributions (including any attached franking credits) of a trust can be effectively streamed to beneficiaries for tax purposes, by making them 'specifically entitled' to those amounts.
This schedule also amends division 6 of part III of the Income Tax Assessment Act 1936 to include specific anti-avoidance rules to address the inappropriate use of exempt entities to 'shelter' the taxable income of a trust.
The government announced on 16 December 2010, that it would update and re-write the trust income tax law to deal with the ongoing discrepancies between the treatment of trust income by trust laws, on the one hand, and the tax system on the other. These issues were highlighted by the High Court's decision in Commissioner of Taxation v Bamford.
In the interim, the Board of Taxation recommended (following consultation with industry) that changes were urgently needed to provide certainty about the streaming of capital gains and franked distributions (including any attached franking credits).
These amendments provide this certainty and ensure that the streaming of capital gains and franked distributions (including any attached franking credits) is effective for tax purposes.
The government is aware that due to the short timeframe involved in developing these amendments, there may be scope for unintended consequences. The operation of these amendments will therefore be closely monitored and if unintended consequences are identified, the government will act to remedy these consequences retrospectively where appropriate.
The broader review of the trust income tax provisions remains the primary focus for the government. This will simplify the system, rewrite the rules and give more certainty to the many thousands of small businesses and farmers who use trusts. If the amendments in schedule 2 are not enacted by 30 June 2011, trustees of approximately 660,000 trusts in Australia that are required to make their resolutions by 30 June 2011 will face significant uncertainty.
Schedule 3 relates to the National Rental Affordability Scheme tax offset provisions.
The National Rental Affordability Scheme, which commenced on 1 July 2008, is a government initiative to stimulate the supply of new affordable rental dwellings.
The NRAS incentive was $9,140 per dwelling in 2010-11, comprising $6,855 from the Australian government and $2,285 from the states. These amounts are indexed annually in line with the rents component of the consumer price index.
These amendments simplify the operation of the National Rental Affordability Scheme for participants and provide some additional flexibility to NRAS participants in how the incentive is shared between members of the NRAS consortium participating in this National Rental Affordability Scheme.
Importantly, these amendments introduce the concept of an NRAS consortium, which is less restrictive than the existing non-entity joint venture provisions.
The Australian Taxation Office interpretive decision in 2009 highlighted that certain head-lease and sublease arrangements used in NRAS might not allow the NRAS tax offset entitlement to flow through from the 'approved participant' to the ultimate investor.
These amendments address this situation by allowing NRAS approved participants deriving NRAS rent to make an election to relinquish their entitlement to an NRAS tax offset in favour of other members of their NRAS consortium.
These amendments also recognise that certificates issued by the Housing Secretary under National Rental Affordability Scheme are issued to the approved participants (rather than the consortium) and ensure that certain payments provided under NRAS indirectly, such as through an NRAS consortium, are treated as 'non-assessable non-exempt income'.
Although the amendments do provide additional flexibility for those participating in NRAS, it is prudent for taxpayers to seek advice from the Australian Taxation Office about the detailed structure of their particular NRAS models and their ability to access the NRAS tax offset before investing in the National Rental Affordability Scheme.
Schedule 4 implements the 2011-12 budget measure to phase out the dependent spouse tax offset.
The dependent spouse tax offset originated around three-quarters of a century ago-at a time when the single-income family was the norm and the welfare system was in its infancy. This was a time when a breadwinner was expected to 'maintain' a spouse even without children, and there were limited employment opportunities for women.
In today's modern economy, where unemployment is forecast to fall to 4.5 per cent, an expanding workforce is vital for the strength of our economy and the living standards of our community.
This is why the government is phasing out the tax offset for dependent spouses currently aged less than 40 to help encourage more Australians into paid employment.
From 1 July 2011, taxpayers with a dependent spouse born on or after 1 July 1971 will no longer be eligible for the dependent spouse tax offset.
Dependent spouses with children are not affected by this measure, nor are taxpayers whose dependent spouse is a carer, an invalid or permanently unable to work. Taxpayers eligible for the zone, overseas forces or overseas civilian tax offsets are also not affected by this measure.
If the amendments in schedule 4 are not enacted by 30 June 2011, some taxpayers may not be able to use the pay-as-you-go withholding system to claim their benefit during the 2011-12 income year.
The final schedule, schedule 5, implements the 2011-12 budget measure to introduce a single statutory rate of 20 per cent, regardless of distance travelled, for car fringe benefits valued under the statutory formula method.
Under the current statutory formula method, the calculated fringe benefit from a salary sacrificed or employer provided car decreases as the distance travelled by the vehicle increases. People can therefore increase their tax concession by driving their vehicle further. This schedule removes the current incentive for people to drive vehicles further than they otherwise would, just merely to increase their tax concession.
The log book method will still be available for cars with genuine work related use. This means that users will be able to ensure that actual work related kilometres of travel continue to be tax exempt.
This reform applies to commitments made after the budget announcement on 10 May 2011 and will be phased in over four years. Existing contracts will not be affected.
Both schedule 4 and schedule 5 implement further recommendations of the Australia's Future Tax System Review, and continue the process of tax reform started in May last year with the release of the government's Stronger, Fairer, Simpler package of reforms.
Full details of the measures in this bill are contained in the explanatory memorandum.