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Membership of the Committee
| Senate Economics Legislation Committee |
| Core Members |
|
| Senator B Gibson (Chair) |
(Tasmania, LP) |
| Senator S Murphy (Deputy Chair) |
(Tasmania, ALP) |
| Senator G Chapman |
(South Australia, LP) |
| Senator G Campbell |
(New South Wales, ALP) |
| Senator A Murray |
(Western Australia, AD) |
| Senator J Watson |
(Tasmania, LP) |
| |
|
| Participating Members |
|
| Senator E Abetz |
(Tasmania, LP) |
| Senator R Boswell |
(Queensland, NPA) |
| Senator B Brown |
(Tasmania, AG) |
| Senator D Brownhill |
(New South Wales, NPA) |
| Senator P Calvert |
(Tasmania, LP) |
| Senator S Conroy |
(Victoria, ALP) |
| Senator H Coonan |
(New South Wales, LP) |
| Senator W Crane |
(Western Australia, LP) |
| Senator A Eggleston |
(Western Australia, LP) |
| Senator J Faulkner |
(New South Wales, ALP) |
| Senator A Ferguson |
(South Australia, LP) |
| Senator J Ferris |
(South Australia, LP) |
| Senator B Harradine |
(Tasmania, Ind) |
| Senator S Knowles |
(Western Australia, LP) |
| Senator R Lightfoot |
(Western Australia, LP) |
| Senator K Lundy |
(Australian Capital Territory, ALP) |
| Senator B Mason |
(Queensland, LP) |
| Senator J McGauran |
(Victoria, NPA) |
| Senator W Parer |
(Queensland, LP) |
| Senator M Payne |
(New South Wales, LP) |
| Senator J Quirke |
(South Australia, ALP) |
| Senator A Ridgeway |
(New South Wales, AD) |
| Senator C Schacht |
(South Australia, ALP) |
| Senator N Sherry |
(Tasmania, ALP) |
| Senator T Tchen |
(Victoria, LP) |
| Senator J Tierney |
(New South Wales, LP) |
| |
|
| Secretariat |
|
Peter Hallahan, Secretary
Graeme Fawns, Principal Research Officer
Jacquie Hawkins, Senior Research Officer |
|
SG.64
Parliament House
Canberra ACT 2600 |
|
Tel: 02 6277 3540
Fax: 02 6277 5719 |
|
Report
Background to the inquiry
1.1
Taxation Laws Amendment Bill (No.5) 1999 was
introduced into the House of Representatives on 11 March 1999. The Bill was referred to this Committee following a report by the Selection
of Bills Committee on 25 August 1999 for examination and report by 20 September 1999.[1] The Senate
extended the report date until 29 September 1999 and then to 12 October 1999.
1.2
In its report the Selection of Bills Committee
requested that the Committee consider the following:
- Sales Tax provisions are claimed to have retrospective effect;
and
- provisions dealing with non-recourse finance have the potential
to significantly affect major infrastructure projects.
1.3
The committee secretariat contacted a number of
interested parties and received seven submissions to the inquiry (Appendix 1
refers). A public hearing on the Bill was conducted in Canberra on 23 September
1999. A list of witnesses who gave evidence at the hearing appears in Appendix
2, and the full transcript of the hearing is available at the internet address
of https://www.aph.gov.au/hansard.
Background to the Bill
1.4
The Second Reading speech and Explanatory
Memorandum provides the following outline and description of the regulatory
objective of the Bills.
Schedule 1 - Amendment of Sales Tax (Exemptions and Classifications) Act
1992
1.5
The bill amends the sales tax law to correct a
deficiency relating to the exemption for goods incorporated into property owned
by, or leased to, always exempt persons or the government of a foreign country.
1.6
It specially amends Item 192 of Schedule 1 to
the Sales Tax (Exemptions and Classifications) Act 1992 which provides a
sales tax exemption for certain goods incorporated into any property owned or
leased by an always exempt person (AEP) or foreign government.
1.7
Access to the exemption will now be available
only where the property is occupied principally by an always exempt person or
the government of a foreign country or where the property is used principally
for the provision of services to an always exempt person or government of a
foreign country.
1.8
The broad scope of Item 192 of the Sales Tax
(Exemptions and Classifications) Act 1992 is being used for commercial
development on land owned by, or leased to, an AEP or foreign government. This
is inconsistent with original intention of the exemption. In particular it is
being used to ensure that at least part of the exemption is going to private
sector commercial developments at the expense of the Commonwealth revenue. This
provides unfair competitive advantage to these developments.
1.9
The proposed legislation will make the following
types of property ineligible for sales tax exemption:
- shops and shopping centres;
- hotels;
- casinos;
- apartment blocks;
- any properties mainly consisting of a kind which are similar to
the above type of properties; and
- any properties of a type prescribed by regulation as ineligible
Item 192 properties.
Date of effect
1.10
The amendment applies to dealings after 2 April
1998, unless the goods concerned were acquired on or before 2 April 1998. This
ensures that goods acquired on or before 2 April 1992 will continue to be
exempt from sales tax.
1.11
The amendment was originally contained in
Taxation Laws Amendment Bill (No. 4) 1998 which was introduced into the House
of Representatives on 2 April 1998. That Bill lapsed when Parliament was
prorogued.
Financial impact
1.12
The government has estimated a gain in revenue
of $10 million in 1997-98 and $50 million in 1998-99 and subsequent years.
Schedule 2 - Arrangements treated as a sale and loan and limited recourse
debt
1.13
These amendments were also part of Taxation Laws
Amendment Bill (No. 4) of 1998. In the period after the bill lapsed, the
government consulted with professional and industry bodies. Consequently,
several technical changes have been made to the legislation as originally
introduced.
1.14
The bill will implement a measure announced in
the 1997-98 budget to prevent taxpayers obtaining deductions for capital
expenditures in excess of their actual outlays. The measure will apply where
hire purchase or limited recourse finance has financed the expenditure and the
debtor does not fully pay out the capital amounts owing.
1.15
In those circumstances, an amount will be
included in the debtor's assessable income to compensate for excessive
deductions that were allowed to the taxpayer based on the initial cost of the
relevant capital asset or specified capital expenditure. The adjustment to
taxable income will reflect amounts that remain unpaid when the hire purchase
or limited recourse debt arrangement is terminated. The amendment applies to
debts that are terminated after 27 February 1998.
1.16
Two major technical changes to the original bill
are concerned with limited recourse debt. First, where a debt is terminated and
refinanced on arms-length terms, payments of the terminated debt that are
funded by a replacement limited recourse debt will be counted in calculating
any adjustment to be made. This will allow investors to refinance assets without
adverse tax consequences.
1.17
Second, debt will not be treated as limited
recourse debt where the conditions of the debt and any associated security
arrangements do not have a limiting effect. For example, where ordinary
business debts are fully secured by a floating charge over the assets of a
debtor (other than the financed asset).
1.18
Another amendment will treat taxpayers that
finance assets by hire purchase as the owners of those assets for purposes of
applying the various capital allowance deductions. Hire purchase and instalment
sale transactions will be treated as the equivalent of sale, loan and debt
transactions in assessing the taxation liability of the financier and the hire
purchaser respectively.
Date of effect
1.19
Adjustments to taxable income relating to unpaid
amounts under hire purchase and limited recourse debt arrangements apply to
such arrangements which terminate after 27 February 1998. The rules which
treat hire purchasers as the owners of assets under hire purchase, and a hire
purchase arrangement as a sale, loan and debt transaction, apply to relevant
transactions entered into after 27 February 1998.
1.20
The proposal was announced in the 1997-98 Budget
on 13 May 1997 and by Press Release No. 60 of 1997 and No. 21 of 1998.
Financial impact
1.21
The gain to revenue from this measure will be
approximately $40 million in 1998-1999, $50 million in 1999-2000, $50 million
in 2000-2001, $50 million in 2001-2002, $50 million in 2002‑2003 and $50
million in 2003-2004.
Issues raised in evidence
Amendments to Item 192 of the Sales Tax (Exemption and Classification)
Act 1992
1.22
The Economics Legislation Committee considered
the sales tax amendments in August 1998 just prior to the announcement of the
federal election. Numerous submissions were received from the building/construction
industry concerned with the retrospectivity of the proposed amendments to item
192 of the Sales Tax (Exemptions and Classifications) Act 1992.
1.23
The Committee has again received submissions
from organisations representing the building/construction industry. Their major
concerns are still with retrospective application of the proposed amendments
and how they treat subcontractors in the building industry.
Prospective versus Retrospective
1.24
The Government believes the amendments are
prospective in that they apply to dealing after the 2 April 1998. The
construction industry however believe the amendments are retrospective in that
they affect long term contracts entered into on or before 2 April 1998 and in
accordance with the law at that time.
1.25
According to the evidence presented by the
construction industry to the Committee, the provisions of the Bill applying to
dealing after 2 April 1998 have the practical effect of imposing a substantial
retrospective sales tax liability on builders and subcontractors who signed
contracts before that date. The Committee was informed that the situation in
the building industry is that most building head contracts and related
subcontracts are fixed price and are very difficult to vary due to commercial
and legal reasons. The commercial reasons put forward were:
- the difficulty in breaking commercial confidences to identify the
sales tax content of contracts between suppliers to subcontractors;
- the complexity of the arrangements;
- the multitude of contracts with subcontracts;
- the fact the always-exempt person (AEP) has a fixed budget for
the construction of the project that is not easily increased.[2]
1.26
Representatives from the construction industry
stated that many building or major infrastructure projects are generally established
with an always-exempt person, mainly a government body, and these take many
years to complete. They advised the Committee that there is generally a large
number of subcontracts for the various building services and the subcontractors
are informed by the developers that the goods they are contracted to supply are
sales tax exempt in accordance with the terms of the fixed price head contract.[3]
1.27
Accor and Lead Lease Development Pty Ltd both
have long term fixed price contracts with the Olympic Co-ordination Authority
(OCA) to construct the Homebush Hotel and the Olympic Village and other
ancillary facilities in Homebush. The OCA is an “always exempt person” for the
purposes of the Sales Tax Assessment Act 1992. Both Accor and Lend Lease were
advised by their legal representatives that they were eligible to receive sale
tax exemption as a result of their contract with OCA.
1.28
Accor and Lend Lease have estimated the sales
tax will be between $5 million and $10 million and will place a huge financial
burden on them by levying sales tax on the projects retrospectively. They
advised the Committee that the fixed price head contract will not permit them
to pass on the added cost to the OCA or for the subcontractors to seek
compensation from them.
1.29
The Fallon Group who represent Walter
Construction Limited are currently involved in 19 long term projects worth $780
million with Federal, State and Local governments that are potentially affected
by the provisions of the Bill.
Application of section 128 of the Sales Tax Assessment Act
1.30
Since the announcement by the Government on 2
April 1998, correspondence has been exchanged between Accor and the Treasurer
(see Appendix 3). The Treasurer noted their concerns and advised they should
seek relief under section 128 of the Sales Tax Assessment Act 1992. The
intention of section 128 is to provide relief to contractors who are affected
by a change in sales tax law resulting in an increase to the cost of supplying
goods. The Treasurer indicated that if section 128 did not resolve their
problem, he would be willing to propose an amendment to section 128 to ensure
that it did.
1.31
Accor and Lend Lease obtained an legal opinion
from A H Slater, QC on section 128. He advised that it would not assist either
party for the following reasons:
There is no “contract price”, to which under section 128 the
“increase” in cost attributable to the sales tax change can be added, payable
by the Olympic Construction Authority, or for that matter by anybody else, to
HB Hotels or the consortium. The construction costs are borne by HB Hotels and
the consortium for their own account, not to be paid or recouped by the
Authority.[4]
1.32
The opinion also advised that it would be
difficult to draft an amendment to section 128 to overcome the consequence of
the retrospective operation of the amendment to Item 192 without giving the
section unwarranted scope and uncertainty:
In short, sec 128 is too blunt an instrument to deal with the
consequences of retrospective amendment such as is proposed to Item 192.[5]
1.33
Ms Nesbitt of the Fallon Group advised the
Committee that it would be both commercially and legally unrealistic to
implement a claim under section 128.
It is very hard, if at all possible, to break a fixed price
contract and commercially it is unrealistic because you have got to go back
through this chain of supply to when the sales tax was paid.[6]
1.34
Ms Nesbitt informed the Committee that to ask a
subcontractor to identify how much sales tax he owed the government and then
ask them to try to recover this from a builder 18 months to 2 years later is
commercially unrealistic. She added that subcontractors would be very reluctant
to approach a builder with whom they may have tender and ask for a refund for a
job done 2 years ago if it meant that this put future tenders in jeopardy.
It is also commercially unrealistic to expect a subcontractor to
face up to a builder who they may be tendering to at the moment to say, 'Look,
12 or 18 months ago I did this job and there should have been sales tax on it.
I am out of pocket now. You have got to give it to me'. I am sure the builder
is not going to.[7]
1.35
The other problem raised by the Fallon Group is
how administratively difficult it will be for a subcontractor to produce
receipts and other records when at the time he was not required to as it was
not the law.
It is impossible for these people to keep track of the time at
which various goods were purchased and when they were installed into buildings.[8]
A tradesman, whether a builder or subcontractor merely needs to
tender a certificate or exemption form to a supplier. This document is fairly
informal, is not an accountable document and can be completely handwritten if
necessary.[9]
Lack of action by those affected
1.36
The question of whether subcontractors should
have been setting aside money to pay the sales tax from 2 April 1998 arose
during the inquiry. The Fallon group advised the Committee that due to the
uncertainty of the advice it received from the ATO in October 1998 it
considered it inappropriate for the subcontractors to disregard the existing
law and start paying the sales tax.[10]
Who will ultimately pay the sales tax
1.37
Representatives of the Fallon Group claim that
it will be the subcontractors at the bottom of the chain who will have to bear
the cost of these changes. Fallon Group representatives told the Committee that
these subcontractors will be required to pay the tax but will have little power
or recourse to go back to the builder or the government department and obtain
relief due to the nature of the contracts. The representatives argued that many
of the subcontractors were not aware of the announcement on 2 April 1998 and
again on 11 March 1999. The Committee notes ATO advice, however, that it
took out advertising about the changes in the major newspapers of every state.
In-built penalty
1.38
The representatives from the Fallon Group also
raised the issue of an in-built penalty if subcontractors were required to pay
the sales tax, as they would pay more than if they paid the tax at the time of
purchase.
Sales Tax is payable on the wholesale value so it is payable at
the wholesale level of the chain. But a lot of the people who sell these types
of goods are selling them to users, the subcontractors. So they are selling
them at a discounted retail price and tax is only payable on the wholesale
value of that price.[11]
If we substituted the purchase price for $10, the tax at 22
percent would be another $2.20. However, if they had said it was taxable
before, it would have been on the notional wholesale value and, assuming a 50
percent mark-up, that would have been $5 and 22 percent of that would be $1.10,
so it almost 50 percent in that instance. So there is that in-built penalty.[12]
Suggested amendment
1.39
Mr Anderson of Lend Lease suggested an amendment
to the proposed legislation to cover long term contracts signed on or before 2
April 1998. His amendment is as follows:
... inserting in item 2 of the Schedule after the words “were
acquired on or before 2 April 1998”, the further words “, or for the
purpose of performing a contract entered into on or before 2 April 1998.".[13]
1.40
Ms Nesbitt of the Fallon Group when asked for
her view on contracts entered after 2 April 1998, said they would like to
see the proposed legislation take affect from the date the Bill is enacted:
I think that, again, the retrospective law is going to mean that
those subcontracts or contracts are unaware of their tax liability and it is
unfair to go back to them now and ask them for that tax that they did not know
they had to pay.[14]
Government Response
1.41
Representatives of the ATO acknowledged that
when the Bill was before Parliament in August 1998 they took note of the
concerns raised at that time. As a result they varied the application clause to
make the amendment apply to dealings after 2 April 1998.
1.42
They also informed the Committee that the
rationale behind the government’s decision was that it had become aware that
exemption was being allowed in circumstances that were contrary to the
legislation. It was therefore decided to amend the legislation from the date of
announcement so as to avoid any further abuses of the intention of the law.
1.43
In relation to section 128, the ATO
representatives advised the Committee that they were not aware of the
Treasurer's advice to Accor and his commitment to amend section 128 if it was
found to be ineffective. They were not in a position to add any further
comments on the matter.
1.44
The representatives did however agree to provide
the Committee with a written response to the amendment suggested by Lend Lease.
At the time of preparing this report, the Committee has not received any
response.
Conclusions
1.45
The basic issue in respect of this proposed
amendment is the date on which the amendment is to come into effect.
1.46
Some witnesses have argued that the amendment
should only apply from the date of assent. They claim that there was a lack of
certainty about whether the amendment would proceed, and a lack of
understanding among some subcontractors about the change.
1.47
In respect of this group, the Committee notes
that it is standard practice for changes to tax law to have effect from the
date of announcement. This is particularly the case where the Government wishes
to introduce anti-avoidance measures.
1.48
Other witnesses have agreed that the amendment
should apply from 2 April 1998, but claim that if passed in its current form,
it will unfairly affect existing older contracts. This is because it will
impose tax on previously exempt goods supplied after that date under
non-variable fixed price contracts entered into prior to that date.
1.49
The Committee notes that the Treasurer has
indicated a willingness to address this problem through possible amendment to
section 128.
1.50
However, the evidence tendered to the Committee
challenged the practicality of addressing the potential problem through section
128, for legal and practical commercial reasons.
1.51
The Committee is not in a position to assess the
practicality of the Treasurer's proposed solution sight unseen and is of the
view that his indicated willingness to address the problem should be accepted.
1.52
Consequently, the Committee does not propose any
amendment to Schedule 1 of the Bill but nonetheless draws to the attention of
the Treasurer and the Senate the possible amendment proposed by Lend Lease.
1.53
The Committee urges the Government to give due
consideration to developing a workable method of dealing with the issue, given
the practical concerns raised above.
Proposed Division 243
1.54
The Economics Legislation Committee considered
Division 243 in August 1998 just prior to the announcement of the federal
election. It had received a number of submissions concerned with the proposed
amendments in the Taxation Laws Amendment Bill (No. 4) 1998.
1.55
The Committee has again received several
submissions on proposed Division 243. While each submittor has acknowledged
that changes made to the original proposed division have addressed some of
their concerns, there are still matters causing concern in the proposed
division 243 in Taxation Laws Amendment Bill (No. 5) 1999. These include:
- reasons for the amendments;
- relationship between this legislation and the Review of Business
Taxation;
- complexity of the proposed legislation;
- impact on major projects; and
- retrospectivity.
Reasons for the amendments
1.56
In response to Committee questioning, Mr O'
Neill, Chief Executive Officer of AusCID, stated that "the whole rationale
for division 243 was represented as an integrity measure".[15] However, he stated that to
this day, at least at the level of large projects, the resource sector
projects, the infrastructure projects and increasingly tourism/hotel projects,
evidence has not been presented of mischief in relation to this issue of
structured non-repayment of limited recourse debt.[16]
1.57
In its submission, the Queensland Government
welcomed changes to the original proposal which limit the unacceptably broad
definition of limited recourse debt and reduce the scope of the concept of debt
termination. However, the Queensland Government is still of the view that Draft
Div. 243:
... reflects an underlying and misplaced assumption that limited
recourse debt is primarily a vehicle for tax avoidance. This is not the case.[17]
1.58
The Queensland Government considers that there
are sufficient anti-avoidance provisions in the current law with which to
challenge abusive practices either at their commencement, during their term, or
after they terminate. If specific abuses require special measures, then they
should be enacted in a way that offers a safe harbour to legitimate limited
recourse borrowings.[18]
1.59
However, Mr Nolan, Assistant Commissioner with
the Australian Taxation Office, advised the Committee that:
... there have been cases that we have come across where taxpayers
have utilised the non-payment of limited recourse debt to achieve greater tax
benefits than they ought to have. [19]
Relationship between this legislation and the Review of Business Taxation
(RBT)
1.60
In its submission, AusCID concludes that,
although there have been gains made in the redrafting of division 243, in its
view the matter should be placed on hold until Government considers the full
range of RBT recommendations and legislates appropriately. In its opinion:
Addressing integrity measures in this awkward fashion merely
introduces unnecessarily complex legislation that contains risks in drafting,
implementation and, ultimately, interpretation. There is the further risk that
D.243, in its current form, will be short lived as it is like to be overtaken
by the Government's legislated response to the RBT.[20]
1.61
Mr O'Neill told the Committee that in view of
the parallel analysis of many aspects of the review of business taxation, his
organisation was of the view that it was inappropriate and indeed a clumsy way
to deal with the issues of concern that the government has raised about certain
aspects of the structured non-repayment of this form of debt.[21]
1.62
Mr O'Neill was concerned that the proposed legislation
is difficult to interpret and suspected that because of the recommendations
being made by the Ralph review, it will have a limited life if the government
does proceed to implement the Ralph Review recommendations within the next 18
months or thereabouts.[22]
1.63
In response to Mr O'Neill's suggestion that the
legislation be placed on hold until the Government considers the full range of
RBT recommendations, Mr Nolan stated that:
It really is not for me at this stage to comment on policy
issues about which the government has not made decisions, but to defer the
measure, which was the implication of Mr O'Neill's submission in connection
with Ralph, would certainly be at a cost to the revenue. This measure was first
announced in the 1997-98 budget and under current estimates it is going to
represent a saving to the revenue of approximately $50 million per annum out to
the year 2003-2004. It would open up the prospect of this particular weakness
in law remaining there for some time in relation to ongoing debts. The other
point I would make— and I do not want to be seen as commenting on Ralph—is that
this is an amendment to the existing law. That is the way I think it ought to
be viewed.[23]
Complexity of amendments
1.64
AusCID notes its concerns about the proposed division
in its submission:
To the extent that the Government is seeking to rectify a defect
in the existing debt forgiveness regime, AusCID considers that it should
address this objective in the appropriate part of the tax legislation. ... The
right to capital allowances should be independent of the nature of the finance
used to acquire assets. D.243 undermines the neutrality currently existing
between different forms of capital - equity, corporate debt and limited or
non-recourse debt. It should not be the realm of government to prescribe
acceptable forms of project financing. Such an approach is destabilising and
sends inappropriate signals to investors.[24]
1.65
Mr O'Neill was also concerned that the
legislation "is difficult to interpret" and that
... there will be compliance costs associated with seeking legal
or accounting advice in terms of either refinancing existing limited recourse
debt or indeed in structuring the use of the new application of limited
recourse debt.[25]
1.66
Mr O'Neill provided the Committee with a copy of
correspondence from the Assistant Treasurer providing responses to issues
raised by AusCID. (See Appendix 5). He also sought confirmation on whether the
explanations provided in this correspondence would be incorporated in a revised
explanatory memorandum to assist in the interpretation of the new bill.
1.67
When asked by the Committee whether points
raised in the Assistant Treasurer's response could be incorporated in the
explanatory memorandum, Mr Nolan indicated that he would consult with the
Assistant Treasurer's office about this .[26]
1.68
The Committee asked Mr O'Neill whether he
considered the new legislation too accommodating of tax planning and whether
the proposed legislation had been "watered down". Mr O'Neill
responded:
On the contrary, I think the government widened the ambit of
what is defined as limited recourse debt. I have been advised that there are
now definitional issues within this proposed bill which would result in what
previously had been termed corporate debt now being considered as limited
recourse debt—and that is a matter of concern for a number of companies who
have put this view to me. ... I suspect resolving that concern will only happen
when practical examples are put forward.[27]
Impact on major projects
1.69
The Committee asked Mr O'Neill if he was aware
of any new projects which might be affected by this new legislation. He
indicated that he was not. He also indicated that he was not aware of any
existing projects because "one would need to look at the specifics of the
financing packages for each of those projects, indeed, if they are to be rolled
over and refinanced, to see that the refinancing arrangements comply with the
terms of the proposed legislation".[28]
1.70
The Queensland Government noted that its
position was that the tax law should not impede normal uncontrived commercial
behaviour. It the Queensland Government's view, "Draft Div. 243, as
currently drafted, is such an impediment and as such is unwarranted".[29]
Retrospectivity
1.71
Both the Queensland Government and the Minerals
Council of Australia expressed their concern about the retrospectivity of
division 243.
1.72
The Queensland Government considered "the
retrospective effect of the provision is inequitable".[30] The Minerals Council is
concerned that the provisions "apply retrospectively, in that finance
arrangements entered into prior to 27 February 1998 are subject to the limited
recourse debt provisions".[31]
1.73
While not specifically addressing the question
of retrospectivity, Mr Nolan, ATO, stated that:
... by and large I think people who are financing on limited
recourse debt basis, are very well aware and are very well advised taxpayers. I
think their response is likely to be a legitimate response. In other words,
they will take note of the potential effect of a bill announced, or in the
parliament, from a particular date and to that extent there are likely to be
revenue effects particularly in respect of transactions or events that do not
occur that might otherwise have occurred.[32]
Conclusions
1.74
The Committee notes that each of the submittors
has acknowledged that some of their concerns about proposed Division 243 have
been addressed by changes incorporated in proposed division 243.
1.75
The Committee notes that the Government has made
substantial changes to the proposed division in order to address previous concerns.
The Committee is not persuaded that there is any need for further changes to
the proposed division.
Recommendation
1.76
The Committee recommends that the Bill be
passed.
Senator the Hon. Brian Gibson
Chairman
Labor Senators' Minority Report
The bill covers 2 matters:
- sales tax; and
- non-recourse finance.
Sales Tax
Labor does not oppose, in principle, the limitation of the
exemption granted by item 192 of the Sales Tax (Exemptions and
Classifications) Act 1992.
However, as pointed out by evidence from indirect tax
experts, the Fallon Group, and other witnesses, the proposed amendments will
impose a significant retrospective taxation liability on contractors and/or
subcontractors involved in construction projects.
In many cases the contractors and/or subcontractors who
would be caught by the provisions of the bill may have actually finished
working on the relevant project. Many, or all, of them will be completely
unaware of this proposal by the Government which, if enacted, would impose a
retrospective liability on these small businesses.
The expert evidence is well documented in the Government
committee members’ report and Labor considers that this evidence provides ample
reason for the Senate to amend the bill so as to not impose an unfair retrospective
sales tax liability on many taxpayers in the construction industry. For
example, the proposal put forward by Lend Lease, which appears at paragraph
1.39, is one mechanism for addressing this issue.
Accordingly, Labor members recommend that the bill be
amended to ensure that it does not apply retrospectively to contracts entered
into before 2 April 1998.
Non-recourse financing
The original proposals of the Government were totally
unacceptable to the Opposition. Although the stated aim of the proposals were
to stamp out tax avoidance practices, which is supported by Labor, the original
proposals went way beyond tax avoidance arrangements.
Because of scrutiny through the Senate committee process,
the Government has been forced to significantly amend the original proposals
whilst still achieving the desirable anti‑avoidance outcome the
Opposition supports.
Accordingly, Labor members support the amended proposals
concerning proposed Division 243.
Senator Shayne Murphy
Deputy Chair |
Senator George Campbell
|
Australian Democrats Minority Report
Taxation Laws Amendment Bill (No. 5) 1999
Unless the Government itself addresses the mischiefs
generated by retrospectivity, as exposed in this Inquiry, the Australian
Democrats will move amendments to deal with this issue.
Senator
Andrew Murray
Australian Democrats
Appendix 1: List of Submissions
- Fallon
Group
- AusCID
- Walter
Construction Group Pty Ltd
- Arthur
Andersen
- Lend Lease
Corporation Ltd
- Mineral
Council of Australia
- Queensland
Treasury
Appendix 2: List of Witnesses
AusCID
Mr Dennis O’Neill, Chief
Executive Officer
Fallon Group and Walter Construction Group
Ms Pamela Nesbitt
Mr Phil Lawrence
Arthur Andersen/ Lend Lease Corporation
Mr Mark Tafft
Mr Phil Anderson
Government Officials
Mr Darrel Nolan
Mr Brendan Flattery
Mr Michael Smith
Mr Nigel Goodwin
Mr John McCarthy
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