The Tax Laws Amendment (2011 Measures No. 8) Bill 2011 and
the Pay As You Go Withholding Non-Compliance Tax Bill 2011 propose
four sets of changes to the tax laws. Two of these changes generated
stakeholder interest and were pursued by the committee in the inquiry.
The first item of interest was changes to the Petroleum
Resource Rent Tax (PRRT), which has been the subject of dispute between
ExxonMobil and the Australian Taxation Office (ATO). The dispute revolves
around the definition of a marketable petroleum commodity, which affects where
the taxing point occurs. The later the taxing point, the more valuable the
commodity being taxed. Since the PRRT is a tax on profits, a later taxing point
involves more tax.
The issue about these amendments was that they apply back to
1990-91, which raises the question about whether this retrospectivity is
warranted. Parliaments do legislate retrospectively from time to time. The
important point is that retrospective legislation should be fair and provide certainty.
In this case, the committee is confident that this applies. The Bills are
implementing the original policy intent that applied 20 years ago and also
reflect how the PRRT has operated since that time, including how ExxonMobil has
been lodging its tax returns and paying tax. Further, Treasury provided the
committee with a timeline of the dispute that demonstrates that successive
Governments have consistently interpreted the legislation in this way.
The second aspect to the Bills was the changes to tax
penalties for company directors for the superannuation guarantee charge, which
have been motivated by phoenix operators. These companies build up debt, become
insolvent, liquidate their debts, and then continue the business through a new
company that will eventually go through the same process. The problem addressed
in this Bill is that the companies are insolvent partly because they are
carrying debts for their staff entitlements, including superannuation. Millions
of dollars of employees’ superannuation is lost every year through this
The ATO is on the record as stating that it has insufficient
legal powers to enforce the superannuation guarantee charge. Recovering the
amounts is also difficult in practice because of the long time delay in the ATO
becoming aware of the non-payment. Phoenix operators enjoy an unfair
competitive advantage against their competitors who do the right thing. The
crude nature of this business model is reminiscent of the bottom of the harbour
schemes in the early 1980s.
Broadly, the Bills make company directors liable for their
companies superannuation guarantee debt. The Bills also remove the requirement
for the ATO to issue a 21 day director penalty notice before commencing legal
action on a company director. The 21 day period is problematic because phoenix
operators promptly cause their company to go into voluntary administration
shortly after receiving their notice, which prevents the ATO taking further
action against them.
In general, the committee supports these provisions because
they are taking penalties that already successfully apply to the PAYG system
and extending them to superannuation. Employers’ obligations in relation to
super remain the same; what will change is that these obligations will now be
more rigorously enforced.
However, at the hearing business groups expressed concerns
about the provisions because they wanted to ensure that honest company
directors would not be caught up in them by accident. The committee accepts
that directors who act in good faith should have some comfort that they will
not be subject to the provisions. The committee recommended that the Government
investigate whether the Bills should specifically target phoenix operators and
whether the defences in the Bill should be expanded.
Because of the work involved in this, the committee has
recommended that Schedule 3 of the Tax Laws Amendment (2011 Measures No. 8)
Bill 2011, which contains the phoenixing provisions, should be deleted so that
the remainder of the Bill may pass. The Pay As You Go Withholding
Non-Compliance Tax Bill 2011 should remain pending while the Government
completes its investigations.
I would like to thank the organisations that assisted the
committee during the inquiry through submissions or participating in the
hearing in Canberra. I also thank my colleagues on the committee for their
contribution to the report.
Julie Owens MP
Terms of reference
On 13 October 2011, the Selection Committee asked the
Committee to inquire into and report on the Tax Laws Amendment (2011 Measures
No. 8) Bill 2011, and the Pay As You Go Withholding Non-Compliance Tax Bill
Under Standing Order 222(e), the House is taken to have
adopted the Selection Committee’s reports when they are presented.
The Government investigate whether it is possible to amend the
Bills to better target phoenix activity.
The Government explore whether to expand and strengthen the
defences for company directors available in the Bills.
The House of Representatives pass the Tax Laws Amendment (2011
Measures No. 8) Bill 2011 after deleting its Schedule 3 and associated
provisions. The Pay As You Go Non-compliance Tax Bill 2011 should remain
pending the Government’s investigations detailed in recommendations 1 and 2.