Second Reading SpeechMr Slipper (Parliamentary Secretary to the Minister for Finance and Administration)
That this bill be now read a second time.
The measures contained in this bill reflect the ongoing implementation of the initiatives of the government to reform the taxation of financial arrangements. The measures amend taxation legislation to remove tax barriers to the issue of traditional securities and to remove anomalies, distortions and gaps in existing laws governing the taxation of foreign currency gains and losses.
These reforms will also reduce ongoing compliance costs for business and serve to enhance the efficient operation and competitiveness of Australia's business sector.
Schedule 1 addresses a potential cash flow disadvantage that arises where the holder of traditional securities that convert or exchange into ordinary shares does not have the cash from the conversion or exchange to pay the tax on any resultant gains.
The amendments address this potential disadvantage by removing the taxing point at the time of conversion or exchange. This will mean that an investor who acquires an ordinary share on the conversion or exchange of a traditional security will not be subject to tax until the ordinary share is ultimately sold.
This will improve the ability of business to raise new capital using convertible and exchangeable traditional securities by making them more attractive to investors.
Schedules 2 and 3 contain technical corrections to the capital gains tax provisions to ensure that they operate as intended for convertible interests and rights respectively.
Amendments addressing foreign currency gains and losses are the second stage of the government's reforms to the taxation of financial arrangements recommended by the Ralph Review of Business Taxation. These measures have been developed with the benefit of a public consultation process and are broadly supported by business.
Schedule 4 addresses a number of uncertainties and anomalies arising under the current law's tax treatment of foreign currency gains and losses.
It introduces a general translation rule into the income tax law, which will translate foreign currency denominated amounts into Australian dollars. This ensures that Australian income tax liability is calculated by reference to a common unit of account.
It also introduces functional currency rules, under which the net income or loss of an entity (or specified part of an entity) that functions predominantly in a particular foreign currency can, under certain circumstances, be determined in that currency, with the net amount being converted into Australian dollars. This measure should reduce the compliance costs of businesses with large international operations.
Schedule 4 also introduces a core realisation principle into the income tax law which, together with the translation rule, ensures that foreign currency gains and losses are brought to account when realised, regardless of whether there is an actual conversion of foreign currency amounts into Australian dollars. It ensures that foreign currency gains and losses have a revenue character, subject to limited exceptions.
This schedule also introduces a simplified treatment for certain foreign currency denominated bank accounts, and optional rollover relief for the issuer of certain securities under finance arrangements. These two measures were developed in consultation with industry and professional bodies to reduce the costs of compliance for small and large business and to reflect commercial finance arrangements.
Full details of the measures in this bill are contained in the explanatory memorandum.
I commend the bill to the House and present the explanatory memorandum.
Debate (on motion by Mr Edwards) adjourned.
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