House of Representatives

Second Reading Speech

Mr Shorten (Maribyrnong-Assistant Treasurer and Minister for Financial Services and Superannuation)

I move:

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 reduces the quarterly income tax instalments for the 2011-12 income year for those taxpayers whose instalments are adjusted for previous years' gross domestic product growth. This is referred to as the GDP adjustment method of working out instalment amounts.

The great majority of taxpayers required to pay quarterly instalments use this method, including most small businesses and individual investors such as self-funded retirees.

These amendments reduce the GDP adjustment factor for the 2011-12 income year from the default, which would be eight per cent, to four per cent. This delivers small businesses and the other taxpayers using the GDP adjustment method a $700 million cash flow benefit in the 2011-12 income year.

This provides eligible taxpayers with a smoother transition from the two per cent GDP adjustment factor that the government applied for the 2009-10 and 2010-11 income years as the economy recovered from the global financial crisis.

This measure is part of the government's package of measures to improve the cash flow of small businesses and simplify their tax affairs. Those measures include the instant asset write-off for any asset costing less than $5,000, an immediate deduction of up to $5,000 for motor vehicles and reducing the small business company tax rate to 29 per cent. The government will have more to say on these measures when the legislation for them is introduced.

Schedule 2 removes the ability of children under 18 years of age to use the low income tax offset to offset tax due on their unearned income, such as dividends, interest, rent, royalties and other income from property.

The government has taken important steps to reduce taxes on low-income earners by doubling the low income tax offset from $750 to $1,500. This delivers a benefit to taxpayers earning up to $67,500.

But increases in the low-income tax offset have doubled the amount of non-work income that can be allocated to children tax-free. There is evidence that 200,000 distributions from trusts have increased in line with the increased low-income tax offset, to take advantage of the opportunity to minimise tax by allocating income to children.

The low-income tax offset was never meant to act as a tax minimisation vehicle.

This measure reduces the incentive for families to split income with their children-protecting the integrity and improving the fairness of the income tax system.

Children will still benefit from the full low-income tax offset for their income from working.

Double orphans and children with disabilities will also be fully protected under this change.

The government sees trusts as a legitimate business tool and remains committed to clarifying, updating and rewriting Australia's trust law. This will greatly assist the 660,000 trusts in Australia.

Meanwhile, the Liberal-National coalition remain bitterly divided over the opposition's tax policy in relation to trusts, one minute they want to tax family, small business and farm trusts as companies, the next minute they have changed their mind and are arguing whether it was opposition policy in the first place.

Mr Tony Smith: Mr Deputy Speaker Murphy, I reluctantly point out to you that the Assistant Treasurer is completely out of order. If he wants to use the parliament to attack his opposite number or the opposition, there are forums where he can do that, but this is the introduction of a bill. He should know-and I will give him the benefit of the doubt for not knowing-that his remarks are to be confined entirely to the substance of the bill. I can anticipate what he is going to say, because he has circulated it. If the Assistant Treasurer did not know that, I give him the opportunity to simply stick to the substance of the bill. That is well known-you know that very well yourself, given your experience. I raise that point of order.

The DEPUTY SPEAKER ( Mr Murphy ): The Assistant Treasurer has the call.

Mr SHORTEN: The government sees trusts as a legitimate business tool and remains committed to clarifying, updating and rewriting Australia's trust law. This will greatly assist the 660,000 trusts in Australia.

The Gillard government has a clear tax framework that makes sure that taxpayers pay their fair share, increases national savings and retirement income and simplifies the tax system for Australians. We present a tax framework which is very important, and it is important that the opposition too responds to it and has a tax framework.

Mr Pyne interjecting-

The DEPUTY SPEAKER: The member for Sturt will desist from interjecting.

Mr SHORTEN: At least we are certain about what to do on trusts.

Schedule 3 contains amendments to streamline the process for claiming tax deductions for the cost of total and permanent disability (TPD) insurance provided through superannuation. These amendments are designed to reduce costs for superannuation funds in complying with the law following the expiry of the current transitional relief which applies to these insurance policies.

Superannuation funds commonly take out death and disability insurance to cover liabilities they may incur to their members. Disability insurance taken out by superannuation funds includes TPD insurance.

The cost of TPD insurance provided through superannuation is deductible to the extent the policies provide cover which is consistent with the definition of 'disability superannuation benefit' in the Income Tax Assessment Act 1997. Where broader insurance cover is provided, superannuation funds are required to obtain an actuary's certificate to determine the deductible portion of the premium.

These amendments allow the percentage of certain TPD insurance premiums that is deductible to be specified in regulations. This will assist superannuation funds by avoiding the need to engage an actuary to determine the deductible portion of premiums in many cases. The regulations containing the prescribed percentages will be developed following consultation with industry.

The government introduced transitional provisions in 2010 which were designed to allow time for the industry practice of deducting the full cost of broader disability insurance policies to be brought into alignment with the operation of the law. These transitional provisions expire on 30 June 2011.

The amendments in this schedule extend this transitional relief to funds that self-insure their liability to provide disability benefits. This will provide equitable treatment between self-insured funds and premium-paying funds, and will avoid the need for self-insured funds to amend tax returns and obtain revised actuary's certificates where they have claimed deductions for broader disability insurance for the relevant income years.

Schedule 4 introduces amendments to ensure additional employer contributions imposed by an industrial agreement, or the rules of a superannuation fund, will not be reportable employer superannuation contributions.

Reportable employer superannuation contributions are contributions to superannuation above the minimum required by the superannuation guarantee that employees can influence, such as salary sacrifice and similar arrangements. Reportable employer superannuation contributions are counted as income when determining a person's eligibility for government financial assistance programs.

Contributions mandated by an industrial agreement, or a superannuation fund cannot be controlled by employees, and cannot be accepted by employees as income or other benefit. These contributions should not be considered income when assessing a person's eligibility for government financial assistance.

Full details of the measures in this bill are contained in the explanatory memorandum.

Debate adjourned.