House of Representatives

Second Reading Speech

By the Minister for Housing and Construction and Minister Assisting the Treasurer, the Hon. Chris Hurford, M.P.

This Bill implements measures announced by the Treasurer in his budget speech to strengthen existing mechanisms for the collection of tax, to increase the levels of penalty for breaches of the taxation laws, and to modernise provisions for the prosecution of such breaches.

The measures in the Bill demonstrate in a tangible way the Government's determination not to let up on those members of the community who could cheat on their fellows, whether by outright tax evasion, participation in artificial avoidance schemes or the use of delaying tactics to postpone tax collections.

The Bill arises from a comprehensive review of the penalty, offences and collection provisions of the various taxation laws, and it will be evident to honourable members that the reforms it contains have been painstakingly developed over a considerable period of time.

Three broad kinds of improvements to the taxation laws are being implemented.

The first relates to existing offence and prosecution provisions, the second to penalty taxes, and the third to the procedures for collection and recovery of taxes. 2.

Offence and Prosecution Provisions

It goes without saying that while there is a high degree of voluntary compliance with the taxation laws, successful enforcement of those laws depends on adequate sanctions being available for any breaches.

Most of the existing penalties are sadly out of date.

The maximum penalty, for example, for failure to lodge an income tax return has stood at $200 since 1936.

That deficiency is being rectified.

In most cases there is to be a ten-fold increase in the maximum monetary penalty for a taxation offence and, where offences carry a term of imprisonment, that term is also being increased.

To deal more appropriately with habitual taxation offenders, a tiered penalty structure will operate for second and subsequent offences and will include a liability to imprisonment.

The tiered penalty structure will apply to existing offences, such as failure to lodge a return or information or refusing to give evidence when attending before the Commissioner of Taxation, and also to a new group of offences to deal with tax evasion practices in a more complete and certain way than the existing law seeks to do.

Under the new rules, it will be an offence to make false or misleading statements or to keep accounting and other business records that do not correctly record and explain the matters contained in the record.

For such an offence, the maximum penalty for a first offence will be $2,000. 3.

Yet higher penalties will be imposed where a person recklessly or knowingly makes a false or misleading statement or keeps records incorrectly.

For those kinds of offences, first offenders will face maximum penalties of $3,000 and second and subsequent offenders penalties of $5,000 or 12 months imprisonment, or both.

It will be an express offence to keep records incorrectly or conceal them with the intention of deceiving or misleading the Commissioner of Taxation in the administration of the taxation laws.

Falsifying or concealing the identity, address, place of residence or business of a person with the intention of deceiving, hindering, obstructing or defeating the purposes of a taxation law is also to be proscribed.

These offences will be punishable by a fine of $5,000 or 12 months imprisonment or both for first offenders and a fine of $10,000 or 2 years for second and subsequent offenders.

An important complementary measure to the new offences and penalties will empower courts to order persons convicted of tax evasion offences to pay to the Commissioner an amount up to double or treble - according to the nature of the offence - the amount of tax sought to be avoided through the act that constitutes the offenc.n

Where a tax agent is convicted of an offence of knowingly making a false statement or failing to keep proper records or of falsifying or concealing the identity of a person with the intention of deceiving or misleading the Commissioner, the registration of the Tax Agent will be suspended for a minimum of three months. 4.

To give further impetus to the new penalties, and speed up the prosecution process, the Commissioner of Taxation will be able to institute prosecutions in courts of summary jurisdiction for taxation offences carrying terms of imprisonment not exceeding 12 months and for all offences carrying only a pecuniary penalty.

That will enable the majority of taxation offences to be instituted in courts of summary jurisdiction.

I now turn to measures that will directly affect companies in breach of taxation laws.

Existing provisions that specify a fine or term of imprisonment for breaches of a taxation law apply unevenly as between individuals and corporations.

To bring the deterrent effect of those penalties closer together, the maximum monetary penalty to be imposed on companies is to be five times that applicable to an individual for offences which also carry a term of imprisonment.

So that persons responsible for breaches of the taxation laws by companies are appropriately dealt with, a director, officer or other person who is concerned in, or takes part in, the management of a company will be dealt with as having committed any taxation offence committed by the company, and be punishable accordingly.

This measure is modelled closely on a similar provision in the Companies Code, but a person able to show that he or she did not aid or abet in the act or omission of the company that constituted the offence and was not, directly or indirectly, knowingly concerned in that act or omission will not face conviction.

Some may baulk at this measure but it is important to bear in mind that, before any conviction may be recorded againstat 5. person, it will be necessary to prove to the satisfaction of the court that the offence was committed by the company concerned.

The only way in which a company can commit an offence is through the actions of its officers or those who control it.

In tax matters up to now, such individuals have been able to escape responsibility for their actions or omissions by shielding behind the corporate veil, with the result that prosecutions against corporations have often proven fruitless - usually because there are little or no funds left in the company.

In many such cases, the persons who would suffer if a fine was imposed on the company are innocent creditors of the company.

The new measure is directed against those who are fully responsible for breaches of the taxation laws by a company.

Directors and company officers who act honestly and with reasonable competence in their management of a company's affairs have nothing to fear from this measure.

All taxation offences committed by companies will be capable of being instituted in a court of summary jurisdiction, but where the maximum penalty for an offence exceeds $25,000, the company being prosecuted may elect to have the matter tried in a Supreme Court.

A similar choice will be available to an individual who is prosecuted for an offence carrying a penalty or more than $5,000.

The new offence and prosecution provisions are being enacted in the Taxation Administration Act 1953 so as to provide a uniform code for offences against the various taxation laws. 6.

Penalty Tax Provisions

A major reform is implemented in the revised Penalty Tax Provisions.

Under the existing Income Tax Law, a taxpayer who fails to furnish a return or information when required to do so is liable to statutory additional tax equal to the tax assessable.

On the other hand, a penalty of double the tax sought to be avoided may be imposed where assessable income is omitted from a return, a deduction or rebate is falsely claimed, or where ta r is sought to be avoided by means of a tax avoidance scheme to which the general anti-tax avoidance provisions of the law apply.

Also at present additional tax of only 10 per cent per annum is imposed on tax avoided through International Transfer Pricing Arrangements.

The penalty in each of those instances will, under the new measures, be standardised at double the tax sought to be avoided, with a minimum penalty of $20.

To remedy an anomaly, an equivalent penalty will be extended to cover attempted avoidance of income tax through participation in blatant tax avoidance schemes in respect of which there is specific anti-avoidance legislation.

Where tax is avoided by means of International Profit Shifting, but it is clear that avoidance was not the sole or dominant purpose of the particular arrangement, the penalty will be 25 per cent per annum of the amount sought to be avoided.

Apart from the standardisation of maximum statutory penalties, the new provisions will enable penalties to be imposed in 7. relation to various acts or omissions that, while having an intended effect of avoiding tax, are not presently penalisable.

Such activities include the misdescription of expenditure so as to maximise a tax deduction, the claiming of a share of a partnership loss computed on the basis of misleading information in a partnership return and the use of objection procedures to claim a deduction under a tax avoidance scheme where the claim would have been subject to penalty if it had been made at the time of lodgment of the relevant tax return.

Several other measures will streamline the penalty tax provisions.

One will permit the Commissioner of Taxation to sue in a court of Competent Jurisdiction for the recovery of unpaid penalty taxes, including late payment penalty, imposed under the various taxation laws.

A second will ensure that penalty tax continues to accrue in respect of unpaid tax notwithstanding that judgment for paymen l of the unpaid tax has been given or entered in a court.

Collection and Recovery Procedure Improvements

The third major set of measures contained in the Bill is designed to bring about improvements to the procedures for collection and recovery of taxes.

Provisions by which the Commissioner of Taxation can recover Income Tax due from persons who owe money to a tax debtor are being extended to apply to amounts payable to the Commissioner in respect of P.A.Y.E. deductions or deductions made under the prescribed payments system. 8.

As well, a defect in those provisions, and equivalent provisions in the A.C.T. Pay-Roll Tax, Sales Tax, A.C.T. Stamp Duty or Tax, and Wool Tax Laws is being remedied so that money held in a form of deposit in a Building Society that in strict legal terms represents share capital of the society may be called on to meet taxation debts.

That will place such assets on the same footing as investments in financial institutions generally.

Measures are being enacted to counter a practice by which some companies have been able to prevent company tax instalment notices being sent to them by routinely and falsely estimating their incomes below $1,000.

Such actions will attract Statutory Penalty of 20 per cent per annum.

Under the existing provisions, statutory additional taxes are imposed for certain breaches of requirements under the prescribed payments system.

Equivalent penalties are to be enacted for breaches of the P.A.Y.E. system and they will apply where an employer fails to make appropriate deductions of tax from salary or wages, fails to forward deducted amounts or fails to affix tax stamps.

Further rationalisation of rates of penalty tax is being made in relation to provisional tax estimates and mining withholding tax deductions.

The rate of additional tax for a significant under-estimate of income for the purpose of reducing a provisional tax liability will increase from 10 per cent to 20 per cen.y 9.

A corresponding increase will be made to the penalty for failure to deduct mining withholding tax from a payment for the use of Aboriginal Land for Mining or Mineral prospecting purposes.

The Commissioner of Taxation is to be authorised to prevent persons fleeing Australia to escape payment of tax in limited circumstances.

The Commissioner will be able to serve a departure prohibition order on a person if he believes on reasonable grounds that there is a likelihood of that person departing Australia without discharging an outstanding tax liability or making satisfactory arrangements for it to be discharged.

It will be an offence punishable by a fine of up to $5,000 or 12 months imprisonment for a person on whom a notice has been served to ignore the notice unless departure is authorised by the Commissioner.

A departure authorization certificate will enable such a person to leave Australia temporarily, if the Commissioner is satisfied either that the person will return and the tax liability is likely to be discharged, or that temporary departure should be allowed on humanitarian or general policy grounds.

A departure prohibition order is revocable when the person's tax liabilities are discharged and the Commissioner is satisfied that any liabilities arising out of completed transactions will also be discharged or would be irrecoverable.

The aid of the Australian Customs Service and the Australian Federal Police and, in appropriate cases, the Department of Immigration and Ethnic Affairs, will be invoked in detecting and preventing the unauthorized departure from Australia by a person subject to an order. 10.

An appeal will lie against the making of a departure prohibition order, and against a decision by the Commissioner not to revoke an order or to refuse to issue a departure authorization.

Other Amendments

Some further measures are being implemented in tandem with the improvements to the penalties, offences and collection provisions.

The Taxation (interest on overpayments) Act 1983 is being amended so that the Commissioner of Taxation will pay interest on certain refunds of Sales Tax, A.C.T. Stamp Duty or Tax, Estate Duty, Gift Duty, A.C.T. Pay Roll Tax, Tobacco Charges and Wool Tax that are made following the resolution of a dispute in favour of the taxpayer.

Interest is to be payable in respect of those taxes which are, under other provisions of the Bill, exposed to penalty tax of 20 per cent per annum if they are not paid by the due date for payment.

The measures are consistent with those applicable in relation to income tax refunds.

The opportunity is also being taken to enunciate in the Income Tax Law the principle that any pecuniary penalty, additional tax or other amount imposed on a person for failure to comply with a law is not an allowable deduction.

Finally, the Bill will enable applications for tax clearance certificates required for the purposes of the revised tax screening arrangements announced on 19 June 1984 to be made under and considered in accordance with the established legislative basis contained in the Taxation Administration Act 1953. 11.

Explanations designed to give a broad guide to the provisions of the Bill are contained the memorandum being circulated to Honourable members.

A technical explanation of each provision of the Bill will be made available to Honourable members shortly.

I commend the Bill to the House.