Chapter 2Views on the bill
2.1This chapter examines inquiry participants’ views on the provisions of the Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024 (the bill). It is informed by the bill’s explanatory memorandum and submissions received by the inquiry.
2.2Given the bill contains three schedules covering a number of tax laws, the following discussion is separated into three parts covering each schedule in consecutive order.
Schedule 1—Luxury car tax amendments
2.3Submitters provided mixed responses to the luxury car tax (LCT) amendments contained within schedule 1 to the bill. Participants also provided additional commentary on the broader LCT legislative framework, including a critique of a particular exemption impacting the take up of fuel-efficient vehicles. This evidence is further discussed below.
2.4In its submission to the inquiry, the Australian Electric Vehicle Association (AEVA) expressed its support for the amendments, but also suggested that the bill could be improved by making only zero-emissions vehicles eligible for the higher LCT threshold. The AEVA argued this based on the following rationale:
it would make the legislation consistent with other tax legislation, such as the fringe benefits tax exemption only being available to zero-emissions vehicles after 1 April 2025;
numerous plug-in hybrid vehicles currently on the market meet the 3.5 litres per 100-kilometre criterion; however, as shown by various studies in Europe, they are unlikely to achieve this benchmark in real-world operations; and
the Climate Change Authority’s Sector Pathways Review found that Australia would likely need to fully decarbonise the passenger vehicle fleet by 2050 in order to meet the 2050 net zero target.
2.5The Federal Chamber of Automotive Industries (FCAI) took a broader perspective, submitting that the LCT should be repealed in its entirety because it has become a 'redundant and inefficient tax which distorts the Australian market[.]'.
2.6Summarising earlier feedback provided to the Department of the Treasury during consultation on the exposure draft of the bill in 2024, the FCAI submitted that:
the LCT penalises consumers for choosing vehicles with improved fuel efficiency and safety technologies;
the fuel-efficient vehicle definition change is 'sudden and dramatic' and would exclude a number of hybrid and plug-in hybrid vehicles;
utilising the motor vehicle purchase sub-group of the CPI risks penalising consumers for favouring innovation and would subject additional mainstream family vehicles to the LCT; and
the imposition of the changes, without transitional arrangements, could negatively impact consumers who have ordered vehicles but are yet to take delivery.
2.7The FCAI suggested that, if the LCT is to remain, the bill should be amended to introduce the lower fuel consumption requirement in a staged manner; utilise All Groups CPI; and implement transitional arrangements to accommodate consumers who purchase, or order, a vehicle before 1 July 2025, but have not yet taken delivery by that date.
2.8Although not expressing its support, or otherwise, for the provisions of the bill, the Australia Institute highlighted its concerns regarding an existing LCT exemption for big utility vehicles—colloquially known as 'utes'—and the impact this has on incentivising the sale of these vehicles over more fuel‑efficient alternatives. In its submission, it stated the following:
We estimate that the utility vehicle exemption from Luxury Car Tax cost over $250 million in foregone revenue in 2023. This revenue could be used to further subsidise or encourage fuel efficient vehicles and incentivise the uptake of electric vehicles.
2.9Tax Justice Network Australia (TJNA) expressed its support for the amendments, stating the following:
The Luxury Car Tax in Schedule 1 is a progressive tax that collects more revenue from people on higher incomes who purchase higher-value cars, and the amendment will encourage people to buy fuel-efficient vehicles.
2.10Notwithstanding this, TJNA encouraged the Australian Government (the government) to require testing of vehicles in real-world conditions, as it noted that the findings of research it had funded found that emissions in actual use can vary 'significantly' from laboratory testing.
Schedule 2—Denying deductions for interest charges
2.11Inquiry participants provided mixed views on the government’s proposal to deny tax deductions for the general interest charge (GIC) and the shortfall interest charge (SIC), with many raising their concerns and suggesting amendments be made.
2.12CPA Australia urged the committee to not support passage of the bill without amendments. It also expressed its disappointment that the key concerns raised during the bill’s consultation process were not addressed in the final bill which was introduced into the Parliament.
2.13Summarising its position, CPA Australia submitted:
CPA Australia has previously expressed significant concerns regarding this measure’s disproportionate impact on small businesses, a lack of fairness in the treatment of taxpayers with cash flow difficulties, and the indiscriminate and punitive approach to introducing a blanket policy instead of a targeted measure to address accounts with high levels of tax debt.
The proposal … will create undue financial hardship for small businesses and individuals, exacerbating existing challenges in the current economic environment. A more balanced approach is needed - one that focusses on targeted recovery efforts and promotes voluntary compliance.
2.14To address its concerns with the bill, CPA Australia provided several recommendations for the government to, amongst other things, introduce targeted measures focusing on high-debt accounts, retain the deductibility of the SIC, introduce transitional rules, and address the disparities in the treatment of interest for overpayments and underpayments of tax.
2.15Although acknowledging the overarching policy objective to enhance incentives for all entities to correctly self-assess their tax liabilities and to pay on time—as well as to level the playing field for those individuals and entities which already do—the Corporate Tax Association expressed its concerns with the bill regarding potential unintended consequences:
… the proposed amendments may result in unintended behavioural consequences around how taxpayers and the ATO constructively engage to resolve long-running disputes.
2.16Given this, the Corporate Tax Association recommended that disputed debts subject to 50:50 arrangements entered into before the announcement of the measure in the 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO) be excluded; the denying of the GIC and SIC be limited to amounts accrued after 1July 2025; and, to maintain symmetry in the taxation system, interest on overpayments of tax be treated as non‑assessable non-exempt income.
2.17In a joint submission to the inquiry, Chartered Accountants Australia and New Zealand, the Institute of Public Accountants, the National Tax and Accountants' Association, and the SMSF Association (the Joint Submitters) argued that schedule 2 should be removed from the bill. They submitted the following:
… it is unlikely that increasing the cost of SIC will impact an entity’s ability to correctly self-assess their tax liability and the current cost of GIC means that many taxpayers already have a strong incentive to pay tax on time. Making SIC and GIC non-deductible will inappropriately increase compliance costs of honest taxpayers. It will also disproportionally impact small businesses who owe $35.2B (or 67%) of collectable tax debt.
2.18The Joint Submitters also highlighted that their members have been finding it difficult to successfully apply for remissions of the GIC and the SIC, and that disputing decisions to deny a remission is 'difficult and costly'—especially with the GIC, as remission decisions are not subject to internal ATO review.
2.19Given these concerns, the Joint Submitters recommended that, if schedule 2 is retained, then remission decisions in relation to both the GIC and the SIC be unconditionally reviewable.
2.20The Tax Institute expressed its support for the bill’s objective to improve self‑assessment accuracy and to encourage the timely payment of tax liabilities. Notwithstanding this support, it submitted that:
… given that the availability of a deduction for the GIC and SIC has been integral to the tax system for an extended period, we recognise that this is a significant change for taxpayers to navigate.We are of the view that unintended consequences may be minimised by implementing legislative amendments to ensure equity and transparency. Doing so will assist taxpayers to adapt to this change and enhance the administration of our tax system.
2.21Given this, the Tax Institute provided five key recommendations aimed at supporting taxpayers with the transition:
clarify whether the proposal applies to amended assessments issued on, or after, 1 July 2025 that are referrable to income years beginning prior to 1July2025;
reduce the fixed percentage point uplift or, alternatively, restrict the denial of the deduction to the relevant uplift component so that the base interest component remains deductible;
make both the GIC and SIC unconditionally reviewable; and
create a more level playing field for over and underpayment of tax, and encourage the accuracy and accountability of the ATO.
2.22TJNA expressed its support for the reforms contained within schedule 2, and stated the following:
Penalties imposed through the law have been passed by Parliaments to act as specific and general deterrence to those who would intentionally or recklessly breach their legal obligations. Allowing such financial penalties to be claimed as tax deductions reduces their intended deterrent impact.
We are reassured that the Commissioner will retain the discretion to remit the interest charges where it is fair and reasonable to do so, considering the circumstances that led to the delayed payment of tax liabilities or the tax shortfall. Such discretion, properly used, acts to prevent unintended unjust outcomes.
Schedule 3—Expanding ATO notification period for retaining funds
2.23The committee received limited evidence regarding schedule 3 to the bill, with only one inquiry participant, TJNA, providing its views. In its submission to the inquiry, TJNA stated the following:
We support the additional time the ATO would have to investigate BAS refund claims that the ATO suspects may be fraudulent to prevent loss of government revenue in having to make such payments due to the current limited period to conduct such an investigation.
Committee view
Luxury car tax amendments
2.24The committee recognises that the fuel efficiency of internal combustion engine vehicles has improved since the introduction of the fuel-efficient car definition in 2008, and that the current definition of 7 litres of fuel consumption, or less, per 100 kilometres, is too high and does not reflect contemporary notions of a fuel-efficient car.
2.25The committee agrees that a tightening of the definition would help ensure that only electric vehicles and those that are at least partially electrified, such as plug‑in hybrid electric vehicles (PHEVs), will receive the concessional fuel‑efficient threshold for the LCT. Further, the committee also supports the change to how the LCT threshold is updated to reflect inflation and to maintain the gap between the standard and fuel-efficient vehicle thresholds.
2.26The committee also recognises that the reform aligns with the government’s announced commitment to support the uptake of cars that are cleaner and cheaper to run, the National Electric Vehicle Strategy and broader transport sector emission-reduction goals, and Australia’s legislated commitment to achieve net zero emissions by 2050.
Denying deductions for interest charges
2.27The committee considers that upholding the integrity and fairness of Australia’s tax system is vital to maintaining the trust of Australian taxpayers. Individuals and businesses who do the right thing—and discharge their tax liabilities when they fall due—should not be disadvantaged compared to those who delay payment and incur interest charges. Addressing this imbalance is critical to ensuring equity and compliance within the tax system.
2.28The committee considers that the current arrangements, where taxpayers can deduct the GIC and the SIC, are too generous and undermine the deterrent purpose of these charges. Removing the ability to deduct these charges would ensure that interest on overdue tax liabilities remains an effective deterrent and will promote accurate self-assessment and timely payment of tax liabilities. Although the committee acknowledges the concerns raised by inquiry participants, on balance it considers that denying these deductions would encourage taxpayers to accurately self-assess and to make prompt payments of their tax liabilities when they fall due.
2.29The committee notes that the ATO’s debt book has grown substantially in recent years, with collectable debt increasing by 99 per cent between 2018-19 and 2023-24 to reach $52.8 billion. A large portion of this debt reflects amounts businesses are required to collect and remit to the ATO. Stakeholders have generally agreed the need to address this growth.
2.30However, alternative proposals from stakeholders—such as reducing GIC and SIC rates or removing deductibility on only GIC—would dilute the measure’s effectiveness. The committee supports the proposed approach as the most effective means of incentivising timely compliance and reducing tax debts.
2.31The committee also acknowledges concerns raised by participants about the potential impact on small businesses and individuals facing cash flow challenges. The committee however notes that the Commissioner of Taxation will retain a discretion to remit, or partially remit, GIC and SIC where, for example, taxpayers are affected by a natural disaster, sudden illness, or financial hardship. The committee considers this discretion to be an appropriate safeguard that complements the measure, especially in the current uncertain economic environment, and trusts this discretion will be effectively utilised by the Commissioner where appropriate.
Expanding ATO notification period for retaining funds
2.32The committee strongly supports measures which empower the ATO to combat tax fraud and reduce the prospect of fraudulent refunds being issued—which, if left unaddressed, could potentially cost Australian taxpayers millions of dollars.
2.33The committee recognises that, with the advent of social media, fraudulent tax schemes have become more unpredictable and can proliferate throughout the community much faster than may have been anticipated when legislation was initially drafted and enacted. This was vividly demonstrated by the ATO-led Operation Protego—an investigation into high‑volume and large-scale GST fraud—which highlighted the material limitations of the existing 14-day mandatory notification period.
2.34The committee agrees that, during periods of increased fraudulent activity, 14days is inadequate for the ATO to assess each BAS, or other notification under the BAS provisions, and, hence, supports the reforms contained in schedule 3 to the bill to extend to 30 days the period within which the Commissioner of Taxation must notify a taxpayer.
2.35Further, the committee is reassured by the Assistant Treasurer and Minister for Financial Services’ statement in his second reading speech that, for the vast majority of businesses, this change will have no impact and that refunds will continue to be processed by the ATO within 14 days.
2.36The committee recommends that the bill be passed.
Senator Jess Walsh
Chair
Labor Senator for Victoria