Second Reading SpeechMs O'Dwyer (Higgins-Minister for Revenue and Financial Services)
That this bill be now read a second time.
This bill reintroduces measures that were introduced by the government earlier this year but lapsed when the last parliament was prorogued. The bill, which contains four schedules, amends various taxation laws to improve their flexibility and effectiveness while reducing red tape on individuals, businesses and community organisations.
Schedule 1 to this bill establishes a remedial power for the Commissioner of Taxation, to allow for a more timely resolution of certain unforeseen or unintended outcomes in the taxation and superannuation laws.
Schedule 2 improves the flexibility of the income tax averaging rules for farmers, allowing income averaging to reapply 10 years after a farmer has chosen to opt out, rather than permanently excluding them from the benefits of averaging as is currently the case.
Schedule 3 will amend the luxury car tax to provide tax relief to certain public institutions that import or acquire cars for the sole purpose of public display.
Schedule 4 makes a number of minor amendments across the tax and superannuation laws to provide certainty for taxpayers.
Schedule 1 of this bill will establish a remedial power for the Commissioner of Taxation to allow for a more timely resolution of certain unforeseen or unintended outcomes in the laws under the commissioner's administration.
The government announced on 1 May 2015 that it would provide more certainty and better outcomes for taxpayers and reduce the regulatory burden on them by providing the commissioner with a remedial power.
Taxation laws are very complex. The nature and volume of taxation law can produce unforeseen and unintended outcomes in its application.
These outcomes can result in taxpayers generating tax liabilities where this was not intended, or taxpayers being subject to record keeping or other compliance requirements that were not intended or are no longer necessary. These outcomes can create significant uncertainty and compliance costs.
The commissioner endeavours to interpret the law to give effect to its purpose or object, but instances remain where this is not possible. For example, this can occur when dealing with new scenarios or scenarios which were not contemplated when the provisions were originally drafted.
Unintended outcomes may be addressed through changes to the primary law. However, law change is resource intensive and is undertaken to give effect to the full range of government priorities. It can therefore be ill suited to resolving smaller unintended outcomes.
The challenge of effecting primary law change is illustrated by the 92 announced changes to the tax and superannuation law that had not been enacted at the time the government was elected in September 2013. Had the remedial power existed, it may have been able to address some of the smaller unintended outcomes and could have allowed constrained legislative resources to deal with more significant primary law change.
The remedial power allows the commissioner to make a disallowable legislative instrument to modify the operation of a taxation law to ensure the law can be administered to achieve its intended purpose or object. This will help to create flexibility, allowing the commissioner to resolve smaller unintended outcomes.
The delegation of this power to the commissioner must be subject to the necessary checks and balances.
Importantly, parliament has oversight of all instruments made under this power. Instruments would not take effect until after the expiry of the parliamentary disallowance period.
Safeguards are built into the remedial power itself. The power can only be used where:
- the modification is not inconsistent with the purpose or object of the provision;
- the commissioner considers the modification to be reasonable, having regard to both the intended purpose or object of the relevant provision and whether the costs of complying with the provision are disproportionate to achieving the intended purpose or object; and
- any impact on the Commonwealth budget would be negligible.
Any modification to the law will not apply to a taxpayer if the taxpayer would be adversely affected.
The proposed power is to be used as a power of last resort, when unintended consequences cannot be ameliorated by the commissioner in any other way.
In the past, there have been instances where there has been a misalignment between the stated purpose of a particular provision and the technical language adopted in the legislation. In these instances the commissioner has not been able to address these issues or administer the legislation in a way that gives effect to its intended object or purpose.
This measure provides an avenue for efficient resolution of these issues, as and when they arise, and fits well with the existing commitment by the commissioner to administer taxation legislation in accordance with the stated policy intent.
The measure will allow a smooth administration of the taxation and superannuation laws, in particular, when dealing with smaller unintended or unforeseen outcomes. This measure will assist in cutting red tape and provide greater support for taxpayers across Australia.
Similarly, schedule 2 amends the law so that farmers can re-access the benefits of tax averaging 10 income years after they decided to opt out of the system for year-to-year smoothing of primary production income taxation. This change is necessary to ensure the rules do not continue to permanently and unnecessarily exclude eligible farmers from the benefits of income averaging.
Currently, a farmer who chooses to opt out of income averaging can never re-access the scheme.
Farmers' income is often volatile due to factors outside of their control, such as drought and fluctuating commodity prices. The averaging rules even out a farmer's income tax liability from year to year, so that they pay fairer amounts of tax in relation to taxpayers on comparable but steadier incomes.
The government heard from stakeholders in consultation that the current averaging rules are inflexible and do not make sufficient allowance for changing business circumstances. A farmer choosing to opt out of income averaging may later realise that this choice was no longer appropriate for their circumstances-for example, they may not have anticipated future income volatility, acted on the basis of poor advice, or assumed they would experience many years of declining income. Currently, these farmers can never re-access the concession, even where they remain in primary production and face volatilities from market conditions and natural disasters.
While it makes sense to have rules that prevent farmers from opting in and out of income averaging simply to gain tax benefits, a permanent exclusion is longer than necessary to prevent possible abuse of the concession.
Over the past four decades, the value of agricultural output has been 2½ times more volatile than the average for all the major sectors of the Australian economy. Australian farmers also experience greater volatility in yield and price than most other farmers in the world. The government recognises the need for Australia's tax system to account for the agriculture sector's operating environment.
This schedule will benefit farmers as averaging will only recommence when they are eligible for a tax offset. A farmer may always choose to opt out again if it does not suit their circumstances to remain in income averaging. Their choice will be effective for another 10 income years.
This change was announced in the Agricultural competitiveness white paper on 4 July 2015 and is the product of extensive stakeholder feedback and consultation.
Schedule 3 amends the luxury car tax to provide tax relief to certain public institutions that import or acquire cars for the sole purpose of public display.
Currently, if a public museum or art gallery imports a car for display and it is over the $64,132 threshold, the museum or gallery will have to pay the luxury car tax.
This bill implements the 2015-16 budget measure allowing public museums and public art galleries that have been endorsed by the Commissioner of Taxation as a deductible gift recipient to acquire cars free of the luxury car tax.
Relief from the luxury car tax will only be available for cars acquired solely for the purpose of public display. The cars must be exhibited or shown in an environment that is accessible to the general community-for example, display in a museum that is open to the general public.
Finally, schedule 4 makes a number of amendments to tax and superannuation laws to provide certainty for taxpayers. These amendments make sure that the law operates as intended by correcting technical or drafting defects, removing anomalies, and addressing unintended outcomes.
This furthers the government's commitment to restore simplicity and fairness to the Australian tax system, and to the care and maintenance of the law. By clarifying the law and repealing unnecessary provisions, these amendments also reduce the regulatory burden and make it easier for Australians to access current law.
These amendments include:
- updating the specific listings of deductible gift recipients to reflect name changes as advised by the listed organisations, which ensures these entities continue to attract public financial support for their activities; and
- repealing 45 inoperative amending acts relating to excise, reducing regulatory burdens for Australians.
This bill is aimed at better targeting and strengthening our tax system to ensure that it is fair and sustainable.
Further details of the measure are contained in the explanatory memorandum.