Second Reading Speech
Senator Patterson (Minister for Health and Ageing)I table revised explanatory memoranda relating to the bill and move:
That this bill be now read a second time.
I seek leave to have the second reading speeches incorporated in Hansard.
Leave granted.
This bill will amend the Income Tax Assessment Act 1997 to encourage the use of structured settlements for personal injury compensation, by providing an income tax exemption for annuities and deferred lump sums paid as compensation for seriously injured persons under structured settlements.
The income tax exemption will be available in relation to such payments if the necessary eligibility criteria are met. The eligibility criteria are designed to remove the disincentives in the tax system in relation to structured settlements and to ensure that the interests of the injured persons are protected; for instance, by providing for prudential regulation of the annuities and preventing the injured party from commuting an annuity.
Structured settlements involve periodic payments for life or over a substantial period. They give injured people greater security about their future income and their capacity to meet ongoing medical expenses.
Many people who receive large lump sums as damages for personal injury may be unable to properly manage the investment of the lump sums. This can result in the early dissipation of compensation payments, leaving an injured person unable to provide for his or her future needs. Regular periodic payments avoid these problems.
They can also more closely align the damages awarded with a person's actual needs.
There are cases of windfall payouts that are much larger than necessary, because of the uncertainty surrounding a claimant's future medical needs. There are also cases where the lump sum was spent too soon, or proved inadequate for the long term care of the injured person.
Structured settlements therefore provide better outcomes for both claimants and insurers who make large payouts on behalf of defendants.
At the Ministerial Meetings on Public Liability Insurance in March and May 2002, Commonwealth and State and Territory Ministers recognised the importance of introducing structured settlements into the Australian insurance market, as one of a range of measures to address difficulties associated with the availability and affordability of public liability insurance.
The Commonwealth agreed to introduce the legislation contained in this bill and State and Territory Ministers have agreed to sponsor legislation to remove the barriers to structured settlements as an alternative to lump sum payouts - and in some cases have already done so.
These amendments are the result of extensive consultation with the Structured Settlements Group, which represents a broad range of interested organisations.
The bill will also amend the Life Insurance Act 1995 to provide that any commutation or assignment of a tax-exempt annuity or lump sum will be ineffective. This will ensure the settlements continue to benefit the person they are intended to benefit.
A statutory review of the operation of the tax exemption is to be undertaken no later than five years after the date of commencement.
Full details of the measures in this bill are contained in the explanatory memorandum.
I commend this bill.
Debate (on motion by Senator Crossin) adjourned.