House of Representatives

Second Reading Speech

by the Assistant Treasurer, the Hon George Gear, MP

I move that the Bill be now read a second time.

This Bill was originally introduced as the Taxation Laws Amendment Bill (No.7) 1992, but lapsed with the calling of the election. The major change to the bill as previously introduced is to include a transitional measure for one of the proposed amendments to the capital gains provisions.

The Bill will amend the taxation laws in a number of respects.

It includes an amendment to the existing law to provide specifically for the assessability and deductibility of payments made in respect of accrued leave entitlements by one employer to another at the time an employee transfers to a new employer. This measure will operate where payments made are to facilitate the transfer of the employee pursuant to, or to accommodate the implementation of, an industrial award. Such payments will be called accrued leave transfer payments.

The Bill proposes a number of amendments to the provisions relating to the taxation of capital gains and losses.

The Bill also contains measures to synchronise the capital gains tax and plant depreciation treatment of terminations of Crown leases. These measures were foreshadowed in the Explanatory Memorandum to the depreciation Crown lease amendments contained in Taxation Laws Amendment Bill (No. 3) 1992.

Several technical amendments are to be made to various capital allowance provisions and to anti-avoidance rules relating to those provisions.

The Bill will make two changes to depreciation cost price limit rules for luxury motor cars. One will exclude certain motor cars from the limit. The other will remove an anomaly under which some taxpayers gain earlier access to an indexed limit than others.

Other amendments to the Income Tax Assessment Act proposed by the Bill relate to dividend streaming arrangements, PAYE, and the gift provisions.

The Bill also includes minor amendments to fringe benefits tax provisions and the Taxation Administration Act.

I turn now to a more detailed discussion of these measures.

Assessability and deductibility of accrued leave transfer payments

In general, employees accrue leave entitlements based only on the period of employment with their current employer. However, in some industries, such as the waterfront industry, employees are likely to change employers so often that they could never take leave, but rather would be paid out the value of leave entitlements each time they transfer to a different employer.

In those industries, leave entitlements under the terms of an industrial agreement or award may be based on total service with a number of employers. Accordingly, employers may be required, or may as a matter of commercial reality decide, to pay one another on account of a transferring employee's accrued leave entitlements.

Under the existing law, an employer is not entitled to a deduction for a payment made in respect of leave entitlements that have accrued to an employee during the course of his or her employment with that employer unless it is made directly to the employee or, if the employee is dead, to a dependant or personal representative of the employee.

Consequently, if a payment in respect of an employee's accrued leave entitlements is made by one employer to another upon the transfer of the employee, no tax deduction is available to the employer who makes the payment.

This amendment will allow the employer who makes the payment to claim a deduction for the amount of that payment. The amendment also will ensure that the amount of the payment will be assessable income of the employer who receives the payment.

The amendment is intended to facilitate structural reforms such as flexible employment practices, specifically where there are industry practices for the transfer of employment pursuant to, or to accommodate the implementation of, an industrial award.

The amendment is not likely to have any effect on the revenue.

Capital Gains Tax

The Bill proposes a general anti-avoidance provision relating to the transfer of assets within company groups to which a CGT roll-over applies. The current CGT group roll-over anti-avoidance provisions will be repealed as a consequence.

The new anti-avoidance provision will deem the disposal and re-acquisition of an asset which has been rolled-over within a company group if the company holding the asset ceases to remain part of the group in respect of which the roll-over was available. This will occur where, for example, the company is sold outside the group.

A new transitional provision will have the effect that the current CGT group roll-over anti-avoidance provisions will not apply after 16 December 1992 in circumstances where the new general anti-avoidance provision would not apply.

Consequential amendments will be made to the capital gains record keeping requirements.

The Bill also proposes an amendment which will ensure that the capital gains provisions do not apply inappropriately to tax an amount, or part of an amount, which is concessionally taxed under another provision of the Act. This amendment will apply where the effect of that other provision is that all or part of the amount is not included in a person's assessable income.

A further amendment will ensure that a taxpayer holding a statutory licence which is cancelled by the issuing authority for no consideration will not be deemed to have received the amount that would have been the market value of the licence prior to its cancellation.

Technical amendments are also proposed to the provisions relating to the principal residence exemption and the transfer of capital losses.

The amendments to the CGT provisions are not expected to have any significant impact on revenue.

Capital Gains Tax - Depreciable Property Installed On Crown Leases

Further amendments to the capital gains tax provisions are to be made so that disposals of interests in plant installed on Crown leases of land are treated consistently with their treatment under the depreciation Crown lease provisions.

This amendment will prevent capital gains or losses from accruing in respect of plant installed on a Crown lease where a lease is terminated but the lessee retains an interest in the plant. It will also prevent capital losses from accruing in respect of plant installed on a Crown lease where the lease is terminated and an associate of the lessee obtains an interest in the plant.

These changes will apply to relevant disposals occurring after 26 February 1992.

The purpose of the amendments is to prevent anomalous results and there is no direct impact on the revenue.

Technical Amendments To Capital Allowances

Five technical amendments are to be made in relation to provisions dealing with deductions for the capital cost of income-producing property.

The first amendment relates to the broadbanding of depreciation rates for plant acquired before 27 February 1992. The amendment will make it clear that rates of depreciation determined on effective life that match a broadbanded rate cannot be increased to the next highest broadbanded rate. The amendment will apply from the same time as the broadbanding measures; that is, in relation to the 1991/92 and subsequent years of income.

The second will amend the plant depreciation Crown lease provisions in relation to disposals of pre-27 February 1992 plant, for which deductions have been allowed under the prime cost method, to prevent balancing loss deductions for that portion of the cost of plant notionally depreciated before 27 February 1992. It will also ensure that tax is imposed on the recoupment of previously allowed deductions. The amendment will apply to disposals occurring after 26 February 1992, the date from which the Crown lease provisions applied.

A third amendment will replace an existing option taxpayers have to adopt annually a lesser rate of depreciation for an asset with a once-only option to adopt a lesser rate of depreciation that is not less than that based on effective life. This new option rule will apply in relation to current and subsequent years of income.

Next, to correct an oversight, the petroleum mining rollover relief provisions are to be amended so that they apply, as appropriate, to pre-18 September 1974 expenditure.

The final amendment in this series relates to anti-avoidance rules applicable to arrangements involving the use of property by tax-exempt bodies and the like. The amendment will make it certain that those rules can apply to arrangements where a person is entitled to deductions under a capital allowance provision in relation to property which they do not own. The amendment will apply to relevant arrangements entered into after today.

These technical amendments are unlikely to have a significant effect on the revenue.

Depreciation Cost Price Limit Rules

Two changes are to be made to depreciation cost price limit rules for motor cars. One will exempt motor cars specially fitted out for the carriage of disabled persons seated in wheelchairs from the limit. The cost of this concession is estimated to peak in 7 years at about $1M per annum.

The other change is to remove a distortion arising from the annual indexation of the limit. At present, the limit is indexed in relation to each year of income. Taxpayers whose year of income commences earlier than others' can obtain an advantage from earlier access to a new limit. This second change is expected to be revenue neutral.

Both measures apply to motor cars acquired after today.

Dividend Streaming Arrangements

I announce, today, amendments to the dividend streaming provisions of the income tax law which will ensure their consistent application.

The amendments contained in the Bill will ensure that dividend streaming arrangements using an interposed entity between shareholders and companies carrying out the arrangement are subject to the provisions.

Arrangements using an interposed entity are otherwise the same as arrangements already subject to the provisions in that they seek to stream franked dividends to those shareholders able to benefit most from the imputation credits attached to those dividends.

The amendment will apply to dividends paid under these arrangements on or after the date of Royal Assent of the Bill and will prevent the loss of unquantifiable amounts of revenue.

Pay-as-you-earn or the PAYE provisions

The Bill will also amend the PAYE provisions in the income tax law.

First, the definition of salary or wages will be expanded to include training allowances paid to participants in the Landcare and Environment Action Program and remuneration and allowances paid to members of an eligible local governing body.

Second, the current arrangements for variations of PAYE tax instalment deductions will be modified so that an employee with more than one employer may obtain a single variation in the amount of deductions to be made from his or her salary or wages.

Gifts

This Bill will amend the gift provisions of the income tax laws to give effect to the Treasurer's announcement of 25 November 1992. The announcement allows gifts of the value of $2 or more made to the Shrine and Remembrance Restoration and Development Trust to qualify as an income tax deduction if made on or after 25 November 1992 and on or before 30 June 1995.

This measure is to assist with the restoration of the Shrine as it is in a serious state of disrepair and needs urgent attention to avoid further deterioration.

The impact of the amendment on revenue is not expected to be significant.

Fringe Benefits Tax

This Bill will amend the Fringe Benefits Tax Assessment Act 1986 to correct a technical error and to reflect a change in the name of the Commonwealth Savings Bank of Australia to the Commonwealth Bank of Australia.

Access to Taxation information by the Queensland Criminal Justice Commission

The Bill also proposes to amend the Taxation Administration Act 1953 to include the Queensland Criminal Justice Commission within the definition of law enforcement agency for the purpose of gaining access to taxation information.

I present the Explanatory Memorandum which contains more detailed explanations of the provisions of the Bill.

I commend the Bill to the House.