Second Reading Speechby the Minister assisting the Treasurer the Hon Peter Baldwin
I move that the Bill be now read a second time.
This Bill will amend the taxation laws in a number of respects.
It will implement several measures outlined by the Prime Minister in his "ONE NATION" statement of 26 February 1992. In this regard the Bill will give effect to the new accelerated plant depreciation rates measures.
It will also provide relief for small business by deferring the initial payment of company income tax in respect of the 1991-92 income year as announced by the Prime Minister.
Additionally, this Bill will amend the capital gains tax provisions by increasing the exemption available for gains realised on the disposal of the goodwill of small businesses.
The research and development provisions of the taxation law are also to be amended to provide for the exemption of eligible companies from the operation of the clawback provisions when grants or recoupments of relevant expenditure are made under the Co-operative Research Centres Program.
The Bill contains amendments to the provisions of the law that deal with the avoidance of Australian taxation through the use of offshore companies and trusts.
Mr Speaker, this Bill will also extend the circumstances in which deductions for contributions to superannuation funds are allowable.
The gift provisions of the income tax law will also be amended.
The Bill contains measures to exempt the pay and allowances of Australian Defence Force members serving with the U.N. in Cambodia.
Medicare Levy relief for health card holders will be confined to blind pensioners and sickness allowance beneficiaries.
Finally, the Bill contains a number of minor technical and procedural amendments of the taxation laws.
I turn now to a more detailed discussion of these measures.
The Bill will provide higher depreciation rates for plant and equipment with an effective life of five or more years. In some instances, this will represent a substantial reduction in the period over which items can be written-off. For example, the cost of items with an effective life of 20 years will now be able to be written-off over 8 years - half the time it took under the former system.
The Bill also simplifies the calculation of depreciation . Once effective life is determined, the rates of depreciation for most items of plant are set out without the need to amend the rate further to take account of broadbanding and loadings. For most taxpayers, the only calculation required will be to reduce the rates if the taxpayer has elected to use the prime cost method of depreciation.
Deferral of the initial payment of company tax
The Bill will provide the legislation necessary to give effect to the announcement, in the Prime Minister's "ONE NATION" statement, to provide relief for small business by deferring the initial payment of company income tax in respect of the 1991-92 income year.
The companies affected are those with a tax liability of $1000 or more, but less than $400,000, and which pay their tax in two instalments. The date for the initial payment will be deferred by 9 weeks from the 28th day of the month following the balance date to the 28th day of the third month following the balance date.
The amendments, which will defer revenue of $10 million, will ensure that franking deficit tax and franking credits and debits will be determined as if there had been no deferral of the initial tax payment.
Taxpayers disposing of a business, or an interest in a business, will be subject to the capital gains tax provisions on any gain or loss realised on the disposal if the asset was acquired after
19 September 1985. The goodwill of a business may be one such asset.
Under the existing provisions, 20% of any capital gain realised on the disposal of goodwill is exempt from tax, provided that the net business interests of the taxpayer have a value of less than $1 million.
In recognition of the unique circumstances facing the owners of small businesses, the Government has decided to increase the capital gains tax exemption for goodwill from 20% to 50% for disposals of goodwill that occur after 26 February 1992.
In addition, the new exemption level will apply to taxpayers whose net business interests are worth up to $2 million. The effect of inflation will be offset by the annual indexation of this exemption threshold in line with the consumer price index, commencing with the 1993-94 income year.
The Government also proposes a number of technical amendments to the capital gains tax provisions which are intended, in some cases to clarify the operation and effect of the existing law and in other cases to alleviate the possible inequitable application of these provisions to taxpayers.
The estimated cost to the revenue of the increased goodwill exemption is $5 million in 1992-93 and $10 million in subsequent years. The additional amendments to the capital gains tax provisions are not expected to have any significant impact on the revenue.
The Bill will prevent the application of the research and development clawback provisions to certain eligible companies where a grant or recoupment is made by the Commonwealth under the Co-operative Research Centres Program. The exclusion will also apply to a company that is a partner in a partnership designated as a Co-operative Research Centre.
However, this exclusion from the clawback provisions will not extend to an eligible company that is a partner in a partnership that is not designated as a Co-operative Research Centre.
These amendments will cost the revenue an estimated amount of $2 million in 1991-92, $4 million in 1992-93 and 1993-94, and $5 million in 1994-95.
Amendments in this area reflect the Government's willingness to act on proposals for the smoother implementation of the accruals tax measures introduced with general effect from the 1990-91 income year.
In this vein, the Bill will correct certain anomalies which arise in relation to:
- the tax exemption of branch profits of an Australian company when derived through a partnership or trust; and
- the incidence of double taxation that could arise in the case of certain transactions that are deemed to be dividends.
The Bill will also amend certain exemptions from tax that apply to off-shore life insurance businesses of resident companies to ensure that only the correct amount of relief is provided.
Also, in order to relieve taxpayers from an unintended liability to tax, the Bill will reduce the income of a controlled foreign company that is attributed to resident taxpayers by the amount of dividends paid to another company on certain transitional finance shares.
The Bill will provide a further benefit to taxpayers by extending the capital gains tax roll-over relief for asset disposals which is available when determining whether a controlled foreign company passes the active income test.
However, I must also emphasise the Government's determination to ensure that these measures have their intended effect in countering tax avoidance.
In this regard, some of the amendments will ensure that:
- an election for capital gains tax roll-over relief for an asset disposal when determining whether a controlled foreign company passes the active income test is binding when calculating the amount of a capital gain on a subsequent disposal of that asset; and
- income from related party transactions with a controlled foreign company will only escape attribution to resident taxpayers where the company itself is conducting an active trade or business in its country of residence.
Deductions for contributions to superannuation funds
Mr Speaker, this Bill will amend the income tax law to extend the circumstances in which deductions are allowable for contributions to superannuation funds to provide superannuation benefits to employees. In particular, the Bill will allow as deductions contributions to three superannuation funds if one of those funds has been established by a law of the Commonwealth, a State or Territory. Under the existing law, the deduction is limited to two funds only. This amendment will have effect from 1 July 1990.
The Bill will also amend the law to enable substantially self-employed people with minimal employer superannuation support to receive the same higher maximum level of tax deductions for personal superannuation contributions as self-employed people and employees without superannuation support. Under the existing law, they are limited to a maximum of $3000. The change proposed by this Bill will mean that the maximum deduction is the lesser of $3000 plus 75% of the contributions over $3000 and the amount required to fund their reasonable benefit level. The proposed amendment will apply to contributions made on or after 1 July 1991.
These amendments are not expected to have a substantial impact on the revenue.
The gift provisions of the income tax law are amended to reflect a change in name of the World Wildlife Fund Australia to the World Wide Fund for Nature Australia.
This change will have no impact on the revenue.
This amendment will exempt from income tax the pay and allowances of members of the Australian Defence Force allotted for duty with the United Nations Advance Mission in Cambodia and the United Nations Transitional Authority in Cambodia.
Relief from liability for half the Medicare Levy, at present available to all health card holders, will be restricted to blind pensioners and sickness allowance beneficiaries. This will ensure that the law operates as the Government originally intended it to do.
Mr Speaker, in addition to the amendments of a technical nature to which I have already referred, the Bill will make technical change to amend the expression "resident" or "resident of Australia" to include Commonwealth public servants who are members of the new Public Sector Superannuation Scheme.
I present the Explanatory Memorandum which contains more detailed explanations of the provisions of the Bill.
I commend the Bill to the House.