Treasury Laws Amendment Tax Integrity and Other Measures Bill 2018
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Treasury Laws Amendment Tax Integrity and Other Measures Bill 2018


Mr Deputy Speaker, I rise today to speak on
the Treasury Laws Amendment Tax Integrity and other Measures Bill 2018. As the Chair of the House Tax and Revenue
Committee, this bill is close to my heart. Yes, Mr Deputy Speaker, there is a beating
heart at the core of all good tax legislation. This bill fulfils the Turnbull Government’s
commitment to ensuring that Australian’s can have confidence in a fair and equitable
tax system whereby everyone plays by the same set of rules and pays their share of tax. This Government, more than any Government
in the past, has legislated tough laws to crack down on tax avoidance across the entire
tax system and across all sectors of the economy. This bill makes a number of key changes across
four schedules that all work to make our tax system fairer, more cost effective and efficient
and ensures everyone plays by the same rules. Firstly, schedule 1, better known as MAAL
makes technical amendments to ensure that the Government’s multinational anti-avoidance
law operates as intended. As a result of this amendment, multinationals
will no longer be able to use corporate structures with foreign trusts and partnerships to avoid
the application of the MAAL. These changes were announced in last year’s
budget as part of the Governments commitment to ensuring that multinational entities pay
their fair share of tax. The OECD has estimated that globally, between
100 and 240 billion US dollars of corporate tax revenues is lost annually due to base
erosion and profit shifting strategies developed by tax lawyers in new tax jurisdictions like
Lichtenstein and The Bahamas. As part of the global effort to combat multinational
tax avoidance, the OECD/G20 Base Erosion and Profit Shifting Project has delivered a number
of recommendations to strengthen countries’ tax integrity rules and ensure that the international
tax system works as intended. Since 2015, Australia has implemented a range
of such actions. The Government has also taken additional action
on multinational tax avoidance beyond the OECD recommendations, including implementing
the Multinational Anti-Avoidance Law and the Diverted Profits Tax, both of which discourage large multinationals from artificially diverting profits offshore The MAAL, which took effect from 1 January
2016, prevents multinationals from escaping Australian tax by using artificial or contrived arrangements to avoid having a taxable presence in Australia. The ATO has observed a significant change
in how multinational companies are approaching their Australian tax obligations as a result
of the tough new anti-avoidance laws put in place by this Government. The ATO estimates more than $7 billion in
sales revenue annually is already being added to the Australian tax base as a result of
the Government’s MAAL. Already we have seen 38 multinational entities,
change, or are in the processing of changing their tax affairs, to bring their Australian
sourced sales back onshore in compliance with the MAAL, including Google and Facebook. This is also competitively neutral putting
foreign multinationals on the same level as Australian owned and run businesses. Secondly, schedule 2 of the Bill improves
the integrity of the small business capital gains tax (CGT) concessions, in line with
measures announced in the 2017 -2018 budget to improve integrity and ensure that the small business CGT concessions are appropriately targeted. Currently, some taxpayers are able to access
the small business CGT concessions for assets that are unrelated to their small business. The proposed amendments apply to CGT events
that occur on or after 1 July 2017. This application is consistent with the 2017-18
Budget announcements to ensure that the small business CGT concessions can only be accessed
in relation to assets used in a small business or ownership interests in a small business. For instance, by arranging their affairs so
that their ownership interests in larger businesses do not count towards the tests for determining
eligibility for the concessions. The proposed amendments are needed to improve
the integrity of the concessions and ensure that they are appropriately targeted for the
benefit of genuine small businesses. The small business CGT concessions provide
taxpayers with full or partial relief from taxation on capital gains on the disposal
of assets related to their business. There are four existing small business CGT
concessions: Retirement exemption – lifetime limit exempting $500,000 of capital gains from disposing of active assets on retirement. If the taxpayer is under 55 years, money from
the disposal of the asset must be paid into a complying superannuation fund or a retirement
savings account. 50 per cent active asset reduction – a 50
per cent reduction in the capital gains made from the disposal of an asset used in a business. 15-year exemption – 100 per cent exemption
for active assets owned at least 15 years and where the taxpayer is over the age of
55 and retiring or is permanently incapacitated. Rollover- deferral of all or part of a capital
gain for 2 years or longer if the taxpayer acquires a replacement asset or incurs expenditure on making capital improvements to an existing asset. These concessions help small businesses grow
and re-invest their profits, as well as contribute to their retirement savings through the sale
of their business. This is about ensuring that these concessions
continue to benefit those who need them most – hard-working small business owners. The proposed amendments will mean the small
business CGT concessions can only be accessed in relation to assets used in a small business
or ownership interests in a small business. As a result of the consultation process, amendments
to the exposure draft were made to streamline the operation of the integrity rules surrounding
the use of cash and financial instruments as part of the business. The requirements for cash and financial instruments to be ‘inherently connected with the business will continue to apply. An additional integrity rule is also being
introduced to ensure that there is no incentive for taxpayers to enter into artificial arrangements
for the purpose of meeting this test. For the purpose of testing the size of the
company or trust being disposed of, an entity is treated as controlling another entity if
its interest in that entity is 20 per cent or more. This means that more entities will be considered
to be ‘connected with’ each other and will need to include their assets or turnover for
the purpose of this test. The lowering of this threshold to 20 per cent
is a necessary tightening to ensure that the concessions can only be accessed in relation
to genuine small businesses. Importantly, these tests apply on an entity-by-entity
basis. A taxpayer at the top of a chain of companies
or trusts may not qualify for the concessions in respect of shares or interests it holds
– for example, because that chain includes an indirect interest in a large business. However, another taxpayer in the same chain
of companies or trusts may qualify for the concessions in respect of shares or interests
it holds in a small business. Let’s take a tradesman in my electorate
as an example. Say John the plumber, who has started his
plumbing business at the age of 25, after receiving all of his qualifications, building
this business, over 30 years, to be a modestly successful entity employing apprentices and
becoming a local household name. John, now in his mid-50s can no longer do
the arduous work he has previously done over the last 30 years. John decides to sell his business and retire. The Liberal Party has given John, a person
that has risked going out on his own to start a business, put his home on the line, his
hand in his own pocket, employed apprentices and contributed to our community and the wider economy. He can now retire without having to pay Capital Gains Tax, rebalancing the work for reward equation The Turnbull Government is committed to supporting
small businesses through tax relief and initiatives such as the $20,000 instant asset write-off,
which was extended for a further 12 months in Tuesday night’s budget, as outlined by
the Treasurer. These small business CGT concessions assist
owners of small businesses by providing relief from CGT on the disposal of assets related
to their business, helping them to re-invest and grow, as well as contribute to their retirement
savings through the sale of the business. But above all encouraging entrepreneurship. The concessions themselves are not changing
and will continue to be available to genuine small business taxpayers with an aggregated turnover of less than $2 million or business assets less than $6 million. Key features of the new law include: A limitation on the size of the company or
trust being disposed of to ensure that it is a genuine small business. Clarifying that a taxpayer is required to
be a small business entity at the time they dispose of their interest in the company or trust. This ensures that taxpayers do not benefit
from the concession where the relevant business activities are too remote. Modifying the ‘active asset test’ so that
it looks through shares in companies or interests in trusts to the activities and assets of
the underlying entities. This prevents the concessions from being available
where most of the value of the company or trust is unrelated to small business activities. Additional integrity rules also apply to ensure that the new tests cannot be manipulated or avoided. Schedule 3 to this Bill delivers on a key
commitment in the Government’s FinTech statement, removing ambiguity from the tax law and clarifying
that Early Stage Venture Capital Limited Partnerships and Venture Capital Limited Partnerships can
invest in innovative Australian FinTech businesses. This Bill builds on the Government’s $1.1
billion National Innovation and Science Agenda (NISA) and highlights our commitment to support
innovative businesses in Australia and build a culture of entrepreneurship and risk taking. The member for Chifley should take advantage of these great new programs that we are introducing. This will improve access to venture capital
for FinTech start-ups and assist these businesses to start, innovate, grow and succeed. I have many Fintech companies within my community. Unifii for example, is a company based in
my area that has developed a digital transformation platform which enables large corporate and
government enterprises to create and deploy powerful business applications in hours or
days that completely eliminate paper processes. Unifii has developed all the intellectual
property here in Australia, and every line of code has been written by Australian software
developers based in Warriewood. With over 2 million users already on the platform,
the company is delivering enormous economic benefit to Australian businesses and government agencies, and is expanding internationally to major markets. Unifii is a great example of local talent
delivering enormous value to the Australian economy with very significant export potential. Schedule 4 to this Bill amends the Income
Tax Assessment Act 1997 to continue to exempt from income tax payments made as reparation to victims of abuse in the Australian Defence Force. Unlike compensation, a reparation payment
represents an acknowledgement by Defence that the abuse suffered by the complainant was
wrong, that it can have a lasting and serious impact and also that, in the past, Defence
was not positioned appropriately to respond to abuse in many cases. The recipient of a reparation payment should
receive the full benefit of that payment and as such the payment, should be exempt from
income tax. Previous reparation payments made under the former Defence Abuse Response Taskforce (Taskforce) were exempt. The Taskforce concluded on 31 August 2016
and in the 2017-18 Budget the Government announced it was expanding the Defence Force Ombudsman’s
role to make recommendations on reparation payments in relation to complaints of abuse in Defence. The Defence Force Ombudsman may make recommendations in respect of historical cases of abuse occurring on or before 30 June 2014. Tax systems at their best should be broad,
even and fair to everyone. It should encourage entrepreneurship and allow
it to be rewarding. To recognise the great risk that people undertake, and understand that their great risk should come with equivalent reward. This bill does that and so I commend this
Bill to the House.

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