Bills Digest no. 123 2006–07
Tax Laws Amendment (2007 Measures No. 1) Bill
2007
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Financial implications
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Tax Laws Amendment (2007 Measures No. 1)
Bill 2007
Date introduced:
7 December 2006
House: House of Representatives
Portfolio: Treasury
Commencement:
On Royal Assent. The three
respective Schedules of the Tax Laws Amendment (2007 Measures No.
1) Bill 2007 have different application dates.
The Tax Laws
Amendment (2007 Measures No. 1) Bill 2007 (the Bill) proposes
changes to tax legislation to implement:
- disclosure provisions for Project Wickenby and other future
prescribed taskforces
- disclosure provisions which permit tax authorities to provide
information about employers to employees who complained about the
employer s non-compliance with superannuation obligations, and
- provision which extend certain employee share scheme (ESS)
concessions and related capital gains tax (CGT) treatment to
certain stapled securities.
The background to each
Measure is set out as part of the discussion of the Main Provisions
for each Schedule.
The financial implications of each measure are
provided as part of the discussion of the Main Provisions for each
Schedule.
The Bill introduces provisions into the
Australian taxation legislation which will allow data-sharing
between agencies. The primary rationale of this proposed measure is
to facilitate data-sharing between those agencies that are part of
Project Wickenby. However, the measure is also geared towards
allowing data-sharing between other agencies in the future. There
is no apparent limitation to the purposes for which such data may
be shared. It is theoretically possible to set up a multi-agency
taskforce which is able to access and share tax data on the basis
of these proposed amendments. Areas that could be covered include
organised crime, terrorism or corporate fraud.(1)
Project Wickenby (Project) is a multi-agency
taskforce that was set up in 2004 to investigate the
internationally promoted tax arrangements that allegedly involve
tax avoidance or evasion, and in some cases large-scale
money-laundering. (2) At the heart of this Project lies
the activities of Strachans SA of Geneva, a company providing
specialist company and trust administration services together with
international tax and financial consultancy , and one of its
directors, Philip J Egglishaw.(3) Egglishaw allegedly
arranged schemes for a number of well-known Australian taxpayers to
allegedly minimise or avoid their tax liability.(4)
In his press release Project Wickenby
arrests, the Treasurer, the Hon P Costello, explains the
particular characteristics of the Project as follows:
Project Wickenby is being managed at the
cross-agency level, with the ATO being the lead agency. The five
agencies involved are the ATO, the Australian Crime Commission
(ACC), the Australian Federal Police (AFP), the Australian
Securities and Investments Commission (ASIC) and the Commonwealth
Director of Public Prosecutions (CDPP). This is the first time that
these five agencies, supported by AUSTRAC, the Attorney-General s
Department and the Australian Government Solicitor, have brought
their expertise and considerable powers together, to deal with tax
avoidance and evasion.(5)
The Project is funded by $305.1 million over
seven years and is said to be further evidence of the Government s
determination to protect the integrity of the Australian tax
system. (6) It is expected that the Project, in
conjunction with Operation Wickenby (see comments below), will
recover approximately the same amount of revenue. However, the
Project has a further purpose as the Tax Commissioner Michael D
Asecenzo recently explained:
The key to a project like Project Wickenby has
been to try to send a signal to the community and to elements of
the community that want to flout the law that the Commonwealth is
prepared to work together across a number of agencies to get an
outcome in accordance with the law that safeguards Australia s
interests.(7)
The reader may note that parallel to Project
Wickenby, conducted by the ATO, the Australian Crimes Commission
(ACC) is engaged in Operation Wickenby. J Garnaut and N McKenzie
note that:
Confusingly, the [ACC s] investigation has been
called Operation Wickenby and the Tax Office probe, which
involves mainly civil tax avoidance, is known as Project
Wickenby. Both focus on avoidance schemes arranged by
Strachans. [emphasis added](8)
This confusion has been evident during the
Senate Estimates hearings where the Commissioner explained that
Project Wickenby covers a:
wider scope [including] many more than just [the
ACC s] level of activity. One relates to a particular scope of the
project for ACC purposes and the other one covers the wider work of
all of those agencies in relation to a much wider brief. There is
some distinction [between the Project and the Operation]. The
distinction is mainly, under that referral for the ACC, a smaller
subset of the wider analysis that we are doing as part of a
whole-of-government approach.(9)
The wide scope is reflected in item
4, new subsection 3G(5) of the Bill which
legislates the purposes of Project Wickenby (see discussion
below).
The proposed amendments must be viewed in
light of the recently completed consultation process in relation to
the Treasury s
Review of Taxation Secrecy and Disclosure Provisions
(Review).(10) The Discussion Paper, released by the
Treasury on 17 August 2006, stated that the Review:
examines the application of the various secrecy
and disclosure provisions in Australia s tax laws. The objective of
the Review is to develop proposals to improve the application of
these provisions, thereby increasing certainty for taxpayers and
for users of tax information.(11)
The Review was also announced as another
initiative by the Government to reduce the complexity and volume of
Australia s tax laws .(12)
A number of the submissions that were received
in response to the Discussion Paper supported the
announcement,(13) accepting, for example, that they may
bring about a streamlining of the provisions, thus potentially
enhancing the applicability of the provision and, as a consequence,
improve the taxpayers confidence in the regime.(14)
However, the announcement to make changes to
the disclosure regime has also been met with some reservation.
Michael Dirkis, Senior Tax Counsel at the Tax Institute of
Australia, raised:
concerns about whether there would be enough
safeguards if the secrecy provisions were
relaxed.(15)
And the Office of the Privacy Commissioner
warns that:
the Office is concerned that any proposal to
reduce privacy safeguards currently offered by the secrecy
provisions could risk a lessening in that community confidence,
therefore any proposal to amend the protections should be
approached with great care.(16)
The Australian Financial Review noted that
overall:
Tax professionals and lawyers fear that a
combination of government initiatives will erode rules that prevent
tax office information being used as evidence in prosecutions for
non-tax offences.(17)
Despite supporting data-sharing arrangements
in exceptional cases such as Operation Wickenby, Jeff Dunlevy,
President of the Law Society of New South Wales (NSW Law Society),
has expressed concern that a general carte blanche between
government agencies allowing the sharing of information would not
be welcomed by the NSW Law Society.(18) Further, Mr
Dunlevy noted that that the current legal regime, in place since
1936, is designed to encourage taxpayers to disclose their tax
affairs fully by ensuring that this information can only be used by
the ATO. The NSW Law Society fears that widening the tax laws could
discourage some taxpayers from disclosing their tax affairs
.(19) Similar observations were advanced by the Tax
Institute of Australia as part of its
submission(20) to the Treasury s
Review.(21)
Schedule 1, item 4 proposes to introduce new
sections 3G and 3 H into Part IA
of the Tax Administration Act 1953 (TAA).
New section 3G will stipulate
the information sharing regime in relation to Project Wickenby.
Under new subsection 3G(1), the Commissioner will
be enabled to disclose certain information to certain person under
certain circumstances. In particular, the Commissioner may
disclose:
- information relevant to the purpose of Project
Wickenby (the purpose of Project Wickenby is encapsulated
in new subsection 3G(5); see discussion
below)
- to a Project Wickenby officer (for a definition of the
term Project Wikenby officer, see the discussion in
relation to new subsection 3G(2) below)
- before 1 July 2012 or a later date as prescribed by regulation
(the sunset clause, new paragraph 3G(1)(b)).
In addition, the provision provides that the
information must have been acquired by the Commissioner
under a taxation law as defined in subsection 2(1) of the
TAA. The term acquired is intended to have a broad meaning
to include a large range of information, including information that
comes to the Commissioner without his taking any action.
(22)
New subsection 3G(2) provides
the definition of a Project Wickenby officer. A person is
a Project Wickenby officer if the person is employed by,
or provides services to, one of the:
- Project Wickenby taskforce agencies (as defined in new
subsection 3G(3)), or
- agencies supporting the Project Wickenby taskforces (as defined
in new subsection 3G(4))
and whose duties relate to the
purpose of Project Wickenby (the purpose of
Project Wickenby is encapsulated in new subsection
3G(5); see discussion below).
New subsection 3G(3)
specifies the agencies that make up the Project Wickenby taskforce,
including, for example, the ATO, the ACC, the Director of Public
Prosecutions and the Australian Securities and Investments
Commission. The list set forth in this provision, however, is not
limited; under new paragraph 3G(3)(f), further
agencies can be added as a prescribed agency through
regulations.
New subsection 3G(4) sets
forth those agencies that support the Project Wickenby taskforce
agencies, including the Attorney-General s Department, the
Australian Government Solicitors and the Australian Transaction
Reports and Analysis Centre (AUSTRAC). Again, under new
paragraph 3G(4)(d), further prescribed agencies
may be added.
New subsection 3G(5)
legislates the broad purposes of Project Wickenby. In brief, these
are to detect, deter, investigate and enforce the law relating to
arrangements of an international character or purported
international character relating to things such as tax avoidance or
evasion, breaches of laws regulating financial markets and
corporations, certain types of criminal activities, concealing
income or assets and money laundering.
New subsection 3G(6) will
make it an offence for current or former Project Wickenby officers
to:
- record information about the affairs of a second person,
or
- disclose information to a third powers person about the affairs
of a second person
where the information was disclosed to the
officer was disclosed under new section 3G.
New subsections 3G(7) and
(8) stipulate exemptions to this offence
provision. New subsection 3G(7) provides that a
Project Wickenby officer will not commit an offence where:
- the record of information was made for a purpose of the Project
Wickenby taskforce (se above, new subsection
3G(5)), or
- the officer discloses information to another Project Wickenby
officer for the purpose of the Project Wickenby taskforce.
New paragraph 3G(8)(a) will
exempt from the application of the offence provision Project
Wickenby officers who record or disclose information for the
purposes of:
- actual, proposed all possible criminal, civil or administrative
proceedings, or
- the exercise of an administrative power or the performance of
an administrative function.
Again, the record must be made, or the
information is to be disclosed, for the purposes of the Project
Wickenby taskforce. The
Explanatory Memorandum notes that this provision will allow the
disclosure of information:
- as briefings to legal counsel
- to banks in order to obtain information in relation to
proceedings as set forth in this proposed new provision, or
- to a delegate, empowered to make decisions such as:
- disqualifying a person from managing corporations, or
- banning a person from providing financial
services.(23)
New subsection 3G(9) makes it
an offence for a person, to whom information was disclosed under
new paragraph 3G(8)(a), to make a record of such
information or on-disclose the information so obtain to a third
person. To allow, for example, legal teams to consult internally in
relation to a particular proceeding relating to a purpose of the
Project Wickenby taskforce , new subsection 3G(10)
will allow a limited on-disclosure of such
information.(24)
Project Wickenby officers may voluntarily
disclose information to courts or tribunals in the course of
actual, proposed or possible criminal, civil or administrative
proceedings, but they can not be compelled to do so unless the
information is to be disclosed for the purposes of a tax law (new
paragraph 3G(8)(b) and subsection
3G(11)).
New section 3H sets out the
information sharing rules for so-called future prescribed
taskforces.
New section 3H(1) will allow
the Commissioner to disclose certain information to taskforce
officers of a prescribed taskforce. The Commissioner
must have acquired the information under a taxation law.
In addition, the Commissioner must be satisfied that the
information to be disclosed is relevant to a purpose of the
prescribed taskforce.
New subsection 3H(2) defines
the term taskforce officer for the purposes of this
section.
Under new subsection 3H(3),
regulations can prescribe taskforces for the purposes of this
section. Importantly, it will be mandatory that a major
purpose of such prescribed taskforces is the protection of
Australia s public finances.
New subsection 3H(4) a
prescribes certain matters with which the regulations made under
this section may deal.
New subsection 3H(5) is an
offence provision which will make it illegal for a taskforce
officer to make records, or disclose information, about the affairs
of another person. The offence is punishable by imprisonment of up
to two years, but can be commuted to a financial penalty.
This offence provision is subject to two
exceptions, which are, in substance, similar to the exceptions that
apply in relation to Project Wickenby (new subsections
3H(6) and (7)). These exemptions have
been discussed above. Further, new subsections
3H(8) to (11) are, in substance, similar
to new sections 3G(9) to (12);
these provisions have been discussed above.
According to the
Explanatory Memorandum, the financial impact and the compliance
costs generated by this measure are expected to be nil.
The measure will apply from the day the
proposed legislation receives Royal Assent.
In relation to new section
3H, Parliament may notice that this provision:
- stipulates that information disclosed to other agencies must be
merely relevant to a purpose, not to the purpose
of the prescribed taskforce. In addition, there is no quantitative
qualification such as, for example, that information must be
relevant to the major purpose of the prescribed taskforce.
Thus, a literal reading of this provision suggests that a broad
range of information can be disclosed under this provision.
- requires the protection of Australia s public finances to be
a major purpose of the taskforce. Thus, it will be
possible to disclose information to taskforces that primarily
pursue quite different purposes such a combating terrorism or
investigating social security fraud as long as it is possible to
argue that public finance protection is also a major
purpose. As it is likely that views as to whether the protection of
public finances is indeed a major purpose of a taskforce may differ
considerably, this potential ambiguity may cause a lot of
uncertainty amongst taxpayers as to whether their data was lawfully
passed on to other agencies.
As noted above, commentators and legal experts
fear that the erosion of secrecy provisions in the tax law may
cause some taxpayers to be less inclined to disclose fully their
tax affairs.(25)
This measure has not been the subject of
commentary in the media.
Item 1 of Schedule
2 will add new section 45A to Part 5 of
the Superannuation Guarantee (Administration) Act 1992.
Under new subsection 45A(3), the Commissioner may
divulge or communicate certain information to an employee if the
employee has made a complaint to the Commissioner that the employee
s employer did not comply in with certain obligations under the
Superannuation Guarantee (Administration) Act 1992. New
subsection 45A(4) sets out the kind of information
that is covered under this provision. New subsection
45A(5) stipulates that information relating to the general
financial affairs of the employer can not be disclosed in by the
Commissioner.
According to the
Explanatory Memorandum, the financial impact of this measure
will be $19.2 million over four years, with compliance costs
estimated as nil.(26)
The amendments will apply to records made, or
information divulged or communicated, from 1 July 2007 onwards.
Stapled securities
can be created contractually, binding together two or more
different things so that they cannot be sold separately. As the ATO
explains: [m]any different types of securities can be stapled
together. For example, many property trusts have their units
stapled to the shares of companies with which they are closely
associated. (27)
The respective terms of the stapling contract
will govern the effect the stapling will have; however, in general
the effect of stapling is that each individual security retains its
legal character and there is no variation to the rights or
obligations attaching to the individual securities.
(28)
A problem arises in relation to stapled
securities that were created under employee share schemes, because
the individual securities that are stapled are separate assets
.(29) Thus, the
Explanatory Memorandum notes:
When a company does not have any unstapled
ordinary shares on issue [...] it is difficult to provide employees
with access to the [employee share scheme] concessions because the
components of the stapled security will need to be treated
separately the ordinary share under Division 13A of the ITAA 1936,
and the other securities subject to fringe benefits tax
(FBT).(30)
This measure aims at extending the employee
share scheme (ESS) concessions and related capital gains tax (CGT)
treatment to stapled securities that include an ordinary share, and
that are listed for quotation on the official list of the
Australian securities exchange. (31)
Part 1 of Schedule
3 contains the main amendments in relation to stapled
securities in the context of ESS, introducing new
Subdivision DB into Division 13A
of Part III of the ITAA 1936. This new subdivision
will provide the legislative underpinnings that ensure that certain
securities receive essentially the same tax treatment as other
qualifying shares and rights.
Item 6, new section
139GCD provides definitions for the terms stapled
security and stapled entity. In order to be subject
to this subdivision, stapled securities must meet certain basic
requirements; these requirements, together with an example, are set
out comprehensively in the
Explanatory Memorandum.(32) New subsection
139DSD(2) and section 139DSC stipulate
the consequences for failing to meet these requirements.
Further, the new subdivision will set forth
certain qualifying conditions or modifications, including:
- item 2, new section 139DSE
modifications relating to the proportion of permanent employees of
an employer
- item 2, new section 139DSF
modifications relating to legal and beneficial interests in a
company or trust, and
- item 2, new section 139DSG
modifications relating to the taxpayer s voting rights.
New section 139DSH stipulates
cessation times for stapled securities or rights to acquire such
securities. The available deductions, to be worked out under
section 139DC(2) of the ITAA 1936, are to be apportioned according
to item 2, new subsection
139DSI(2).
Part 2 of Schedule
3 sets forth a number of necessary consequential
amendments, including to the A New Tax System (Goods and
Services Tax) Act 1999, the Fringe Benefits Tax Assessment
Act 1986, the ITAA 1936 and 1997, and the Tax
Administration Act 1953.
According to the
Explanatory Memorandum, the measure will cost a total of $70
million over the next four financial years ($10 million for the
income year 2006-07; and $20 million for the following next three
income years). The measure is expected to reduce complexity and
thus compliance costs for taxpayers.
The measure will operate retrospectively,
taking effect on 1 July 2006.
Concluding comments
Where necessary, concluding comments have been
provided in relation to the individual measures above.
- The Hon P Dutton, Assistant Treasurer and
Minister for Revenue, referred to these areas as potentially
relevant. Mr Dutton was cited in J Kerr, Tax office to share
records with law, The Australia, 15 January 2007, p. 2. See also,
for example, N Khadem, Privacy fears over bid to share taxpayers
details, The Age, 16 January 2007, p. 3.
- The Hon P Costello, Treasurer, Project
Wickenby Arrests, media release, No. 72, Canberra,
2006.
- This information is taken from LexisNexis,
Martindale-Hubbel, Experts & Services, Entry for
Strachans SA, Geneva. This entry is available at:
http://resources.martindale.com/mhes/listing.jsp?R=884461500010012.
- J Garnaut and N McKenzie, Tax man closes in
on safe schemes, The Age, 12 February 2007, p. 1. S Moran,
Hogan linked to tax cases in court, The Australian, 13 February
2007, p. 3. See also L Dubecki, The national sport that is not very
sporting, The Age, 9 February 2007, p. 17.
- The Hon P Costello, Treasurer, Project
Wickenby Arrests,
media release, No. 72, Canberra, 2006
- The Hon P Costello, Treasurer, Project
Wickenby Arrests, media release, No. 72, Canberra,
2006
- Senate Standing Committee on Economics,
Estimates, 14 February 2007, p.E50.
- J Garnaut and N McKenzie, Tax man closes in
on safe schemes, The Age, 12 February 2007, p. 1.
- Senate Standing Committee on Economics,
Estimates,
14 February 2007, p.E55.
- The Treasury,
Review of Taxation Secrecy and Disclosure Provisions,
Review, 17 August 2006.
- ibid., p. v.
- The Hon P Costello, Treasurer, Project
Wickenby arrests, media release, No. 91, Canberra, 17
August 2006.
- See, for example, Department of Immigration
and Multicultural Affairs, Submission to the Discussion Paper,
Canberra, 5 October 2006, p. 1. Department of Families, Community
Services and Indigenous Affairs, Canberra, 4 October 2006, p. 1.
Law Society of New South Wales, Submission to the Discussion Paper,
Sydney, 29 September 2006, p. 1. CPA Australia, Submission to the
Discussion Paper, Melbourne, 2 October 2006, p. 2.
- Office of the Privacy Commissioner,
Review of Taxation Secrecy and Disclosure Provisions,
Discussion Paper, Submission by the Office of the Privacy
Commissioner, September 2006, p. 2.
- D Crowe, Pleas for safeguards in tax data
sharing, Australian Financial Review, 10 January 2007, p.
3.
- Office of the Privacy Commissioner,
Review of Taxation Secrecy and Disclosure Provisions,
Discussion Paper, Submission by the Office of the Privacy
Commissioner, September 2006, p. 2.
- D Crowe, Pleas for safeguards in tax data
sharing, Australian Financial Review, 10 January 2007, p.
3.
- D Crowe, Pleas for safeguards in tax data
sharing, Australian Financial Review, 10 January 2007, p.
3.
- J Kerr, Tax office to share records with law,
The Australian, 15 January 2007, p. 2.
- Tax Institute of Australia, Submission to the
Review of Taxation Secrecy and Disclosure Provisions,
Sydney, 29 September 2006.
- The Treasury,
Review of Taxation Secrecy and Disclosure Provisions, The
Submissions.
-
Explanatory Memorandum to the Tax Laws Amendment (2007 Measures
No. 1) Bill 2007, p. 8.
-
Explanatory Memorandum, p. 13.
-
Explanatory Memorandum, p. 13.
- J Kerr, Tax office to share records with law,
The Australian, 15 January 2007, p. 2.
-
Explanatory Memorandum, p. 4.
- ATO, Capital Gains Tax Essentials: Stapled
securities and capital gains tax, available at:
http://www.ato.gov.au/individuals/content.asp?doc=/content/48455.htm,
accessed 27 February 2007.
- ibid.
- P Robertson et al., Australian Master Tax
Guide, 38th ed., CCH Australia Limited, Sydney, 2006, page
657.
-
Explanatory Memorandum, p. 23.
- ibid.
-
Explanatory Memorandum, pp. 25-6.
Thomas John
26 March 2007
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