The Tax Laws Amendment (2012 Measures No. 2) Bill 2012 and
the Pay As You Go Withholding Non-compliance Tax Bill 2012 (the “PAYG Bill”),
amend the Taxation Administration Act 1953 and four other Acts to extend
director penalties so that directors are personally liable for a wide range of
company guarantees in relation to superannuation and pay as you go (PAYG) tax
withholding: even if a company is placed into administration or liquidation.
The Liberal members of the Committee are concerned that the Government has not
adequately addressed bi-partisan concerns previously raised during the last
inquiry into the measures.
Importantly, the Bill has failed to appropriately target
‘phoenix’ activity, and concerns liability would apply indiscriminately to all
directors, including those of charities and not-for-profits that are limited by
guarantee – as many are. Some 11,700 companies in Australia
are limited by guarantee, and it is typical of this Labor Government to saddle
directors of those companies, even those where there is no illegitimate
activity, with undue liability.
Questions were also raised about whether directors of a
company may be liable to pay these measures if they join a board after the
fact. They were not adequately answered. It is repugnant to not only the rule
of law and processes of natural justice, but also (in assigning all directors
indiscriminate liability) the history of company law and the legal principle of
persona ficta. Finally, the Australian Institute of Company Directors,
and many other stakeholders contend (and the Liberal members of the Committee
concur) that phoenix activity is not appropriately defined in the Bill.
The Consolidation Tax Cost Setting Arrangements and Related
Taxation of Financial Arrangements (the “Consolidation and Arrangement
changes”) are retrospective tax changes. The Liberal Members of this committee
are fundamentally opposed to postfactum law, especially taxation
legislation. This Government has failed, both to the public, and to the Liberal
Members of this Committee, to justify the retrospective aspect of this legislation.
Similar issues arise in The Income Tax (Managed Investment
Trust Withholding Tax) Amendment Bill 2012 (the “MIT Bill”) which amends the
Income Tax (Managed Investment Trust Withholding Tax) Act 2008 to increase the
managed investment trust (MIT) final withholding tax from 7.5 per cent to 15
per cent. Both the investments made, especially in infrastructure, and the
reputation of Australia as a safe and stable place to will now be placed at
risk because of the vacillation of the Government.
Taxpayers who made sound effort to comply with the
prevailing law as it was when they entered into financial agreements are
particularly affected. In submissions made to the Committee, there were
instances of entities that, with these changes in place, may not have entered
into the financial agreements outlined. Fundamentally, it is a function of the
mismanagement and incompetence of the Government, and only serves to encourage
the lack of certainty that already plagues public confidence.
The Passenger Movement Charge Amendment Bill 2012 increases
the passenger movement charge (PMC) from $47 to $55 from 1 July this year; and
indexes the charge to the Consumer Price Index (CPI) from 1 July next year. The
rise is simply a revenue raising measure by the government, and presents an
enormous cost to the tourism sector, not only directly, but also in the
competitive disadvantage it presents.
The Liberal members of the committee have taken the
opportunity to highlight in this dissenting report a number of serious concerns
with the bills and, based on the reasons outlined, recommend they not be passed
in their current form.
The Liberal members of the Committee hold the view adding
indiscriminate liability to all of Australia’s directors presents a
considerable burden to business. These measures include: making directors
personally liable for unpaid superannuation; extending director penalties that cannot
be discharged by placing a company into administration; and making directors
and associates liable for PAYG withholding non-compliance tax where a company
has failed to pay.
The government has not adequately addressed the bi-partisan
concerns of the House Economics Committee inquiry into the Government’s
previous attempt at legislating this measure. Particularly Mr John Colvin of
the Australian Institute of Company Directors noted that:
We are disappointed that since the last time the Australian
Institute of Company Directors appeared before the committee on the same issue,
the government has not made significant changes to the original bill, nor has
it picked up all of the recommendations of this committee, particularly the
It is telling that the Government ignored stakeholder
concerns, in pursuit of its own political agenda, and now refuses to change the
Because the measures intended to address phoenix activity
have not appropriately targeted that activity, the liability would
indiscriminately apply to all directors across the board. It is, unfortunately,
typical of this Government to both burden all directors with liability
regardless of their guilt, by improperly defining the activity that would
…as we have said on numerous occasions, the problem with this
bill is it is not confined to fraudulent phoenix operators. By failing to
define fraudulent phoenix activity, it instead targets all of Australia's 2.2
million directors including those who volunteer their time to work for
charities and community organisations. Following submissions to this committee
last year, it recommended the government investigate whether it was possible to
amend the bills to better target phoenix activity. Yet the government has made
virtually no attempt to target phoenix activity in revising the bill.
This indiscriminate proportioning of liability, and indeed
the possibility of holding new directors liable, after the fact, is repugnant.
This automatic liability is a perturbing move by the government if intentional,
and if accidental, a glaring error.
…[It] is particularly disappointing that this bill fails to
uphold the principles of the rule of law by making new directors liable for a
company's breach which occurred before they were a director. I find it strange
that on the way to this committee we walked past the Magna Carta, which is
regarded as one of the great documents of a democratic society and which was
founded on the basis that the rule of law is fundamental to any civilised
society. No person in Australia in any occupation should commence a new job or
a new position only to find that within 30 days they become personally liable
for a breach that occurred before they commenced work in the role, which
involve acts which they, by definition, cannot have taken part in and cannot be
held culpable for. We are of the view that applying automatic liability on new
directors for acts of the company which occurred before they were a director is
particularly offensive to the rule of law.
Inherent in this proposition of automatic liability on new
directors, is the dissuasion it presents when being appointed to a board under
this regime. Recruiting highly skilled directors is internationally
competitive, and with these arduous provisions, Australia will come-off second
Liberal Members of the Committee are concerned about phoenixing
activity and recognise the need for legislative safeguards. The key issue is
the manner in which protective action can be undertaken which is specifically
directed and focused on phoenix activity, rather than broad-based and
non-targeted. The Government’s current Bill continues to be flawed in this
Significant regulatory compliance cost
In saddling corporate Australia with red and green tape,
this Government is strangling productivity, at a time when other nations are
encouraging it. The imposition of such onerous directors’ liability, in the
opinion of the Liberal members, would see directors focused more on compliance
For Australia to remain competitive locally, and
internationally, the regulations that businesses face must be efficient and
effective. The Liberal members of the Committee are not convinced that the
Government has done ‘due diligence’ with regard to productivity costs
associated with the additional indiscriminate duties imposed on directors.
We ask this committee: where is the regulatory impact
statement which looks at the bill outside the context of fraudulent phoenix
activity? Where is the analysis of the costs of these measures in how they may
impact on companies and directors who are not involved in phoenix activity for
those companies and also for the economy as a whole? 
The Government has failed to present the Committee, nor the
public, with evidence to this effect; most likely because that analysis would
Finally, the wider impact on the general public has not been
adequately considered by the Government. Committee members are concerned the
liability assigned to board members of charities will act as a disincentive,
and have wider societal impacts.
…it is critical for the committee to be aware that the bill
applies to all directors of not-for-profits, charities, sporting clubs and
small businesses in their own electorates. I received a text today indicating
that there are some 11,700 companies limited by guarantee. Those include many
charitable organisations. I have experience as a lawyer at one stage and also
as director of a charity—a company limited by guarantee like many of them. 
Retrospective Taxation Legislation
The consolidation tax costs setting arrangements and changes
to the taxation of financial arrangements contain retrospective measures. The
Liberal members of the committee are fundamentally opposed to retrospective
legislation, especially taxation laws.
…legislation should not apply retrospectively except in very
specific and exceptional circumstances. The application of this principle
should not be dependent on the number of or the type of business or investment
or tax profile of the taxpayers who may be affected by the amending
legislation. So to reiterate: we do not recommend or support retrospective tax
law amendments that may be disadvantageous to taxpayers for a number of
I will go briefly into some of those. Certainty in the law:
taxpayers clearly enter into transactions on the basis of the law as it is on
the day they enter into them, not the law as it may be rewritten at some time
in the future after the transactions have occurred. As a result, retrospective
changes that alter a taxpayer's tax liability are likely to disturb the
substance of a bargain that had been struck between taxpayers who have made
every effort in good faith to comply with the prevailing law at the time of the
agreement. In addition, typically taxpayers undertake transactions based on
what they consider to be known exposures to tax liabilities. Retrospective
changes could give rise to unexpected joint and several liabilities for
Financial statements: many entities have prepared and issued
financial statements which in this particular case before us, in schedule 3,
may include the impact of rights to future income deductions that would change
tax liabilities. Subsequent changes to these statements, as a result of
retrospective legislative change, would have adverse implications for investors
and capital markets that have relied on those financial statements.
Investment decisions: taxpayers have committed to investment
decisions on the basis of a particular tax profile for a particular entity.
Retrospective amendments to change such a tax profile, as these measures before
us do, can materially impact on the financial viability of investment decisions
and the pricing of those decisions.
Dividend policies: taxpayers have framed dividend policies
based on profit levels, which in some cases have assumed rights to future
income deductions. If the deductions are now disallowed retrospectively, there
is the potential for adverse impacts on dividend policies, including available
Advisory costs: taxpayers have incurred significant valuation
and advisory fees in relation to the identification and quantification of the
law as it is and as it will no longer be if this legislation passes. So those
advisory costs would be rendered redundant.
Liberal Members of the Committee are opposed to
retrospective tax changes as a general matter of principle: they can change the
substance of bargains struck between taxpayers who have made every effort (and
sometimes at considerable expense) to comply with the original law.
Furthermore, retrospective measures can expose taxpayers to
penalties when taxpayers could not possibly have taken steps at the earlier
time to mitigate the potential for penalties to be imposed.
Finally, these measures they may change a taxpayer’s tax
profile (and it is noted submissions were received to this effect) which in
turn can materially impact the financial viability of investment decisions and
the pricing of those decisions.
No justification for retrospectivity
The Government has not made a compelling enough case
publicly, to justify the retrospective application of this legislation. Notably
the Legislation Handbook states that:
Provisions that have a retrospective operation adversely
affecting rights or imposing liabilities are to be included only in exceptional
circumstances and on explicit policy authority
This is simply a belated attempt by the Labor Government to
amend the consequences of mistakes, made back in 2010 (the Consolodation and
Arrangement changes) and 2008 (the MIT Bill). Taxpayers should not be expected
to pay for these consequences of Labor's incompetence and mismanagement through
retrospective tax changes.
Increase in the Managed Investment Trust Withholding Tax
It is proposed that the Coalition confirm its (previously
announced) decision to oppose the increase in Managed Investment Trust (MIT)
These Bills would double the MIT withholding tax for foreign
investment from 7.5 per cent to 15 per cent and would be retrospective in
that they apply to all income distributions made after 1 July 2012 irrespective
of when the original investment decision was made.
Risk to Existing Investments and Government Revenue
Industry expectations are that this measure would put
billions of dollars of infrastructure investments already made, and future
investments, at risk.
The government asserts that this measure would raise $260 million
over the next four years. But analysis conducted by the Allen Consulting Group
for the Property Council, and provided to the Committee as a confidential
submission, casts serious doubt over those revenue forecasts.
The analysis conducted showed that the proposed increase in
the final withholding tax revenue from MITs would have a ‘profound adverse
impact’ on the economy without raising the expected revenue.
It was also found that if there was a $1 billion drop in
investment as a result of the increased tax, the net tax revenue in 2015-16
would be $35 million, due to decreased receipts – less than half the $75
million predicted by Treasury. It also found that by 2015-16 the increased tax
would reduce GDP by $580 million and cost more than 4,600 jobs a year.
Mr Verwer of the Property Council also raised questions
about Treasury modelling, and the potential for the increased rate to actually
…on any one of our reckonings, the decline in the rate caused
a huge surge in foreign investment which resulted in tax revenue. The analysis
that Treasury did last time was wrong because they used the wrong assumptions.
Given the serious doubts the report raises over Treasury
forecasts and that time and time again billions have been added to public debt
because of incorrect forecasts, the Coalition’s is of the view that this is
reason enough to abandon this bill.
Perceptions of sovereign risk
But the uncertainty that this government has shown in
dealing with the rate of the MIT withholding tax and the other retrospective
measures raises the issue of perceived sovereign risk. Certainly to investors
looking at Australia, the equivocation by the Government, and the unjustified
retrospective changes, do not inspire confidence.
In a speech to the Canada‐United
Kingdom Chamber of Commerce David Denison, President and CEO of the Canada
Pension Plan Investment Board (managers of $150 billion in investment assets on
behalf of 17 million Canadians) stated that:
“In this era of fiscal restraint and additional direct and
indirect taxes, we are becoming increasingly concerned that some risks
associated with ownership of infrastructure are expanding. For instance, it is easy
to envision the regulatory rate setting process becoming politicized instead of
objective and fair. The same could occur with taxes - in fact, Australia’s
budget that was tabled last week effectively doubled the tax burden on our real
estate and infrastructure holdings in that country. If we conclude that these
kinds of risks within any country become significant enough to call into
question the predictability and stability of cash flows that are at the heart
of the investment rationale for infrastructure, our response will be very quick
and rational – we will simply stop investing there.”
The government's constant chopping and changing in relation
to the MIT withholding tax has yet again reduced our predictability in the eyes
of international investors.
International competitiveness & forecasts
The doubling of the withholding tax rate would also reduce Australia’s
international competitiveness and reputation as an attractive and certain
destination to invest in. Such a move would put Australia out of step with
comparable rates in the Asia Pacific region. It would no longer ‘lead the pack’
when it comes to the headline rate of the tax. If passed this Bill would
undermine Australia's objective of becoming a regional financial services hub
in the Asia-Pacific.
Attracting more foreign investment is important to achieve
stronger economic growth leading to increased government revenue without the
need for the Government’s tax hikes or new taxes.
Passenger Movement Charge
It is evident to the Liberal
members of the committee that the Government’s increase of the Passenger
Movement Charge (PMC) is patent revenue raising and will effectively be a ‘tax
on tourism’. However, for the industry, it could not have been introduced at a
The PMC represents a $55 cost
to every overseas visitor holidaying in Australia. This to an industry already
facing a carbon tax and its impact on domestic airfares and travel costs, this
$1 billion tax slug will make holidaying in Australia even more expensive for
every overseas visitor.
The claims by the Prime
Minister and other Ministers that the cost increases will be “good for tourism”
are manifestly imprudent. The increase charge is universally opposed by
industry. The Ministers ought to open a newspapers and read about the sector’s concerns
are about the government’s tax hike will have, especially the deleterious
effect on jobs and investment.
The Liberal members of the
committee are convinced that foreign tourists considering a trip to Australia,
facing the higher costs in airfares that this increase represents, will seek out
other destinations without excessive fees and charges, or spend less on food
and entertainment if they do travel to Australia.
It also seems illogical that
while increasing a tax originally introduced to cover costs associated with
boarder protection and customs, that the funding for customs officers at
Australian airports will be cut. It seems that the only effect of this will be
to increase delays and harm Australia’s international reputation as a holiday
Overall position of the industry
It is no secret that Tourism,
as a sector, is suffering at present. In the draft of the chair’s report into
this inquiry, the Government members of the committee noted:
It is acknowledged by the
committee that the tourism sector is experiencing difficult economic times
This admission was borne out
in testimony during the inquiry, given by Tourism and Transport Forum:
Mr BUCHHOLZ: Mr Lee, have you done some modelling with
reference to the overall surplus or deficit position of the tourism sector
Mrs Labine-Romain: Are you talking about the balance
Mr BUCHHOLZ: Yes.
Mrs Labine-Romain: That is work that we have a look at
that whenever the satellite accounts come out, or whenever the forecasts come
out, so we can see that over the last decade it has come from a net positive of
$3.5 billion to a $5 billion deficit this year. So that is the difference
between Australian visitors going outside—
Mr BUCHHOLZ: Sorry, from $3.5 billion to—
Mrs Labine-Romain: A $3.5 billion surplus in, I think,
2003-04 to a deficit this year of around $5 billion in 2011-12 and projecting
beyond that $6 billion, $7 billion and $8 billion in the coming years.
While the Government openly accepts the difficulties that
the industry faces, the Government has now imposed one of the highest departure
taxes in the world. The only apparent rationale for the imposition of this tax
is the Government’s erosion of Australia’s
Lack of proper scrutiny
disingenuousness is particularly evident, when examining the introduction of
this measure. In the evidence heard by the committee about the lack of
consultation on the measure; Mr John Lee of the Tourism and Transport Forum was
We were very disappointed about a lack of consultation for
this measure. We met with the Prime Minister on 2 February and outlined very
clearly that this was one of the five most worrying potential impacts for our
industry. TTF also met with representatives of the Treasurer's office and the
chief of staff to the Treasurer, Jim Chalmers, before the budget to suggest
that if there was any suggestion that this might change then we would like to
be consulted, because industry had some views about how it could be dealt with.
The phone never rang. The email was never sent. We were not consulted, and
industry is very angry.
As the bulk of the PMC is directed into consolidated revenue
- as many submissions noted - and not to passenger facilitation, this increase
is, for all intent and purposes, a ‘tax on tourism’. Perversely, at the time
the PMC is being increased, funding of Border Protection Agencies and Customs
is decreasing. Mr John King, Chairman of the
Australian Tourism Export Council pointed out:
…the tax already provides
significant over-collection for the purpose for which it was hypothecated, and
both the NTA and the TTF have clearly outlined that case. But we see further
increases and over-collection going straight into consolidated revenue at a
time when our international tourism competitiveness is at an all-time low and
profit margins are very tight—and , in some cases, non-existent. It is a
further erosion of our international competitiveness.>
This was also reinforced by Mr John Lee of the Tourism and
What we cannot reconcile is the government's repeated public
acknowledgement that tourism is doing it tough because of both the high dollar
and the global economic uncertainty, especially in some of the regional areas
of Australia. And then do they really think it would be some form of assistance
to increase the PMC and at the same time cut funding to Customs, so expecting
them to do more with less or, in other words, for an international visitor:
'You will pay more and wait longer'?
It is striking that the PMC does not provide meaningful
price signals related to the costs or risks associated with border protection,
and is on a relatively narrow base. Yet the government plans to increase the
tax, without an increase in either the base, or the cost of provisioning border
The Government’s approach with respect to the tourism sector
is at odds with its approach to other sectors:
…you need to do something with the hypothecation. Ten cents
out of every dollar going back into our sector is daylight robbery—nothing
more, nothing less. We deserve at least 50 per cent hypothecation. If you are
not going to vote against the tax, vote for tourism and vote to give us a
chance to survive like the car industry, with $6 billion allocated to it this
year alone in terms of commitments from federal ministers.
Ms Caroline Wilkie of the Australian Airports Association
gave similar testimony:
Ms Wilkie: The AAA represents over 285 members
nationally. Of those, we represent all of the international airports as well as
over 200 regional airports around Australia. The main reason we are very
concerned about the increase to the passenger movement charge is what this will
mean about numbers of passengers going through our airport infrastructure. We
believe that any increase in the passenger movement charge is unfounded. The
government already overcollects on this tax, and as it is we do not have enough
resources within our airports to process the passengers that we already have
coming through. To now be charged even more money for the passengers to
overcollect and still not have a good enough service is, quite frankly,
unacceptable. To then have it indexed, despite the fact that the global economy
is slowing, that tourism numbers are slowing and that we are facing potential
downfalls from major source markets—I find it incredible that we are looking at
an increase of this magnitude at this time, with the global economy the way it
The indexation of the Charge is patently ill-thought-out and
it is further evidence of this being a ‘cash grab’ by the Government. To have
the charge increase automatically, serves no other purpose than to generate
As a minimum, MPs should stop the indexation. There is no
other indexation on a tax. In terms of pure philosophical, hard Keynesian
economics, you should reject it on that basis alone.
Considering that this change will be levied on all international
visitors, it is concerning that the Australian CPI may not be comparable to
those visitors’ home countries, or in the current economic climate, anywhere
else in the world. It will only serve to make other destinations more
competitive to visitors considering Australia, or for those who do come, to
spend less on discretionary items or services.
Liberal Members of the Committee are particularly concerned
about the manifest unfairness of the Government’s indexation of the PMC.
Disproportionate impact on short-haul routes
Furthermore to the general effects of raising the PMC, there
would be a disproportionate impact on short-haul markets, given the lower cost
nature of services offered on these routes. The Liberal Members of the
Committee are particular concerned about the potential effect on these routes,
given these markets represent both the largest inbound tourist market (New
Zealand), and an important emerging market (Asia). In fact, in the QANTAS
submission presented to the committee, it was noted:
… [That] the increase in the PMC will have a disproportionate
impact on shorter haul international travel, especially those focussed on price
sensitive leisure destinations. To this end, the tax will have a
disproportionate impact on Jetstar services especially those to and from Asia
and New Zealand. Although New Zealand is our single biggest inbound tourism
market, the PMC is now up to one third of the cost of a Jetstar flight from
Sydney to Auckland. Similarly, the impact is most likely to be felt in demand
for Australian leisure based destinations like Cairns, Darwin and the Gold
Tourists looking to Australia already face increasing ticket
prices, coupled with the vast distance between Australia and other regional hubs,
increasing fuel prices, and the domestic the effects of the Carbon Tax. The
increase in the PMC represents an unnecessary impost, and will be one of the
highest in the world:
Mr BUCHHOLZ: What countries have a lesser passenger
movement charge than we do?
Mrs Labine-Romain: Most.
Ms Wilkie: Most. We have one of the highest ones.
Mr BUCHHOLZ: Most of them—really?
Mrs Labine-Romain: Yes. We are the highest in the
Furthermore, Mr King of the Tourism and Transport Forum
pointed out the additional disadvantages Australian tourism operators face in
the form of excessive regulation:
As well as battling a high
Australian dollar, our tourism exporters have been hit with an almost endless
tsunami of government regulation, red tape, the carbon tax, inflexible and
inappropriate labour laws and imposed costs, all of which are increasingly
destroying our competitiveness. Australia unfortunately is now one of the most
expensive and difficult countries to get to and to travel in.
The Tourist market is
increasingly competing with more international destinations. To make Australia
less competitive harms the industry; Ms Wilkie of the Australian Airports
By way of explanation as well, there is a lot of debate along
the lines of: 'Look, it's $8 a ticket. Does that make a difference?' Our
international airports are travelling globally so that they can get
international airlines to come to this country. When you are talking to
someone, it is not about whether or not they are going to go to Sydney or
Melbourne; it is about whether or not we get the aircraft or Rio gets the
aircraft. When you start looking at a passenger movement charge on top of that,
it does have an impact.
The Coalition members of the Committee oppose the Bills on the
basis that they unduly increase taxation, propose retrospective measures
without proper justification, give rise to automatic and indiscriminate
liability to directors, and put investment and tourism under pressure.
The indiscriminate and potentially automatic increase in the
liability of directors under the PAYG Bill represents a perversion of natural
justice. This is compounded by the fact that ‘phoenix’ activity is not
adequately defined in the Bill. The liability would serve to dissuade to
potential directors, and pose onerous requirements businesses especially on
Liberal Members of the Committee are concerned about phoenix
activity and support targeted legislative initiatives that are efficient and
effective in dealing with the problem. The Government’s Bill, however, is
neither efficient or effective.
We are concerned about measures altering the Consolidation
and Arrangement rules and that the MIT Amendment Bill will have retrospective
activity. Not only does this punish taxpayers who in good faith complied with
the prevailing law, and made investment decisions based on it. It also,
however, contributes to perception of sovereign risk for international
investors. This is especially evident in the case of the MIT Withholding Tax
and the lack of consultation surrounding it.
The increase in the PMC is nothing more than a tax grab, in
an attempt to remedy Labor’s erosion of Australia’s fiscal position.
Concerningly, this tax increase is forced on an industry already struggling
under the weight of Government regulation, and at the hands of a slowing
market. This is compounded by the fact that proportionally less of the revenue
raised from the measure will be spent on passenger amenities and border
Especially in the case of the MIT Bill and the PMC Bill, it
seems concerning that in an attempt to raise revenue; the Government has
overlooked the wider impact that reduced volume of investment may have on
The House does not pass the
Tax Laws Amendment (2012 Measures No. 2) Bill 2012, the Pay As You Go
Withholding Non-compliance Tax Bill 2012, the Income Tax (Managed Investment
Trust Withholding Tax) Amendment Bill 2012, and the Passenger Movement Charge
Amendment Bill 2012 in their current form.
Mr Steven Ciobo MP, Deputy Chair
Ms Kelly O’Dwyer MP
Scott Buchholz MP