The Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 (the bill) is an omnibus bill containing various disparate and largely unrelated provisions, not all of which are non-controversial. Hence, Coalition Senators provide their additional comments on each schedule of the bill individually.
Schedule 1—Digital Games Tax Offset
Coalition Senators note that this policy was announced by the former Coalition Government in May 2021, and that draft legislation was released prior to the last federal election with a consultation period occurring during March and April 2022.
Coalition Senators note the extensive engagement the former Coalition Government had with the digital games sector in advancing and proposing this policy.
We also note that there are concerns by some that the inclusion of a “gambling-like” definition may bring about uncertainty for industry. There are also concerns that this would impact the effectiveness of the tax off-set. It may be that legitimate games will not be eligible for the offset.
However, we recommend that Schedule 1 passed, subject to close and ongoing scrutiny.
Schedule 2—Taxation treatment of digital currency
Coalition Senators note the intent behind Schedule 2, however consider that the proposal is a half-baked measure. The Hon Stephen Jones MP announced this isolated measure in his first media release as Financial Services Minister on 22 June 2022. Minister Jones said then that this measure ‘gives certainty and clarity at a time of volatility for crypto currencies’. There is virtually no evidence to substantiate this claim. In fact, it will likely increase uncertainty about Australia’s crypto regulatory direction.
Schedule 2 of the bill is an example of how the Albanese Government has put Australia in the slow lane on crucial and urgent reform needed to regulate digital assets, to provide certainty for investors and protection for consumers in a comprehensive way.
The Tech Council of Australia emphasised the need for urgent comprehensive regulation of digital assets:
Absolutely, we think it's essential. We don't believe that we can have an industry in Australia that doesn't have that regulatory certainty, and we think that is the expectation also of Australian consumers of these products.
The impetus behind this reform is to provide ‘certainty’ regarding the tax treatment of digital currency in Australia after El Salvador adopted Bitcoin as legal tender in September 2021. However, the change proposed is premature and cherrypicked. The measure raises more issues than it solves, and it is questionable whether it solves any tangible problem at all.
On this attempt to clarify that digital assets are not foreign currencies under Australian law, Gadens submitted that this is a reactionary measure which assumes digital assets are ‘property’ when this is not immediately apparent in Australian law. Gadens further stated:
Australia does not have an agreed regulatory approach and appears to be tackling issues incrementally without first having settled that approach. Although various interim steps may be required whilst these issues are being considered, it remains evident that more holistic decisions are required for system integrity (level of regulation of participants), which affects business certainty, and consumer protection.
The fact that it has not been determined whether digital assets have property rights, demonstrates how the Government has clearly failed to think carefully about the implications of this schedule. It is a cherry-picked, useless measure isolated from much needed urgent regulation that seems years away. Stakeholders have made this point clear to the BoT during their consultation.
Blockchain Australia was disappointed and confused that this taxation measure has been put forward without a view to the broader regulatory picture. In its evidence to the committee during the public hearing, Blockchain Australia stated:
It's been cherrypicked, absolutely. The issue is: do we have the statistics to show us the threat to revenue? I think that that's one of the major calls in taxation. Part IVA is the ATO diagnostic tool that says that this is a threat to revenue. I've not seen it, in the practical sense at the coalface.
When asked about the expected revenue change the retrospective application of this measure will bring about, Treasury said that it ‘is estimated to have no impact on receipts over the four years from 2022—23’. It is therefore baffling that this measure has been brought forward as the first regulatory measure of the Albanese Government with respect to digital assets, ahead of all other priorities.
The industry association Blockchain Australia has said that there wasn’t broad consultation before the exposure draft for Schedule 2 was released, and that it is ‘in advance of the token mapping exercise and the Board of Taxation reviews’.
It is disappointing that the Board of Taxation’s (BoT) review has been delayed by nine months, which the Chair confirmed to this Committee during evidence to the committee during the public hearing. The government needs to urgently prioritise this work if there is going to be any hope of Australia seizing any competitive advantage.
The peak body, Blockchain Australia, was fearful that Australia is at risk of getting stuck in the slow lane:
Senator BRAGG: Do you think we’re heading in the right direction? Are we still keeping up a good pace?
Mr Valles: I think we're vacillating and we're in a holding pattern at the moment. There is uncertainty. I've had exchanges contact me that are concerned about where Australian regulations are going.
This cherrypicked measure, as Blockchain Australia have said, sends the wrong message to the market and will only increase uncertainty about Australia’s direction in crypto regulation.
Minister Jones scrapped the Coalition’s ambitious plan to regulate crypto asset secondary service providers (the gatekeepers) in 2022. He proceeded instead with the ‘token mapping exercise’, which he announced on 22 August 2022, saying “a public consultation paper on ‘token mapping’ will be released soon”. Almost six months later, a consultation paper was finally released which proposes no comprehensive regulatory regime.
The government is starting from scratch. Treasury could not confirm what the legislative outcome of the BoT review would be, if and when it occurs.
At Budget Estimates, Treasury could not explain why they needed to undertake further consultation on regulating exchanges and custody providers and admitted that they were essentially going to repeat an already completed consultation on markets licensing at some point this year:
Senator BRAGG: To summarise that: instead of moving quickly on the gatekeeper regulation, you put out the token mapping thing, and then you're going to come back later this year and have another consultation paper on the markets licensing system.
Ms Luu: Correct.
Furthermore, they said that ‘no decision has been made’ about whether there would even be any substantial improvements to the law in Australia this year in this space.
Blockchain Australia has raised numerous issues and recommendations in relation to the taxation of digital currencies, in addition to foreign currency designation issues, that this schedule does not address. They have hence recommended that ‘Schedule 2 of the Bill be removed pending the BoT review being received’.
Blockchain & Digital Assets—Services + Law submitted that Schedule 2 ‘does not capture the genuine and considered feedback from the tax profession and industry that has been provided to the Board of Taxation’, and further work needs to be undertaken before it proceeds.
Furthermore, Dr Elizabeth Morton of RMIT Blockchain Innovation Hub and Ms Lisa Greig have said it would be ‘inappropriate’ for the Schedule to proceed before the review is completed, and that ‘the current provision has not substantially changed after the request for feedback and recommendations on this amendment was sought’.
This measure should be revisited once the broader tax issues with respect to digital assets have been canvassed by the BoT.
Schedule 3—Reducing the compliance burden of record keeping for fringe benefits tax
Coalition Senators note that this schedule implements a 2020—21 Budget measure to allow the Australian Taxation Office (ATO) to rely on alternative evidence and records for employers’ fringe benefits tax (FBT) returns instead of information recollection and statutory declarations. This measure reduces record keeping associated with FBT compliance.
Schedule 4—Skills and training boost
Coalition Senators note that the skills and training boost was announced by the former Coalition Government on 29 March 2022 after the budget. The schedule allows business to claim 20 percent deduction for the cost of expenses, up to $100,000 of expenditure per year.
Some submitters were concerned that the scheme may not be properly utilised by businesses if it does not include non-accredited training. Go1 noted that if Schedule 4 was extended to non-accredited training providers, employers could take full advantage of the versatility of online learning to upskill their employees.
Any changes to the schedule to include non-accredited providers would have to be carefully devised to ensure that the potential to defraud the program is limited.
The Tech Council of Australia has proposed some amendments to the bill which would expand the eligibility for the boost to expenditure on training from non-registered training providers. In its evidence to the committee, the Tech Council of Australia did not see any significant risks to expanding the boost and proposed an expenditure cap as a possible way to mitigate any risks:
I don't think there are particularly strong risks. As we said, under current tax law you can claim 100 per cent of the expenditure that you procure for your staff to do training. It's just for the extra 20 per cent. There are already the existing integrity measures that the ATO apply to any expenditure.
Given the potential benefit that extending this scheme could give small and medium size businesses, and to align the boost with existing tax law, Coalition Senators believe that these amendments should be considered.
Schedule 5—Technology Investment Boost
Coalition Senators note that the former Coalition Government introduced the Technology Investment Boost on 29 March 2022, as part of the 2022–23 Budget. The estimated cost of the tax relief scheme was estimated to be $1 billion over the forward estimates, and this is consistent with the financial impact detailed in the explanatory memorandum for the proposed schedule before this committee.
Coalition Senators note that the applications for the proposed boost conclude in June 2023, and that some submitters such as the Tech Council of Australia and MYOB have recommended that consideration be given to extending the scheme beyond this date to allow more time for SMEs to participate.
Coalition Senators note this concern, however, also believe that consideration must be given to reducing inflationary pressures on the budget.
Schedule 6—Financial reporting and auditing requirements for superannuation entities
Coalition Senators note this reform was announced by the former Coalition Government in August 2021, in response to a recommendation by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
A draft bill was released for a Treasury consultation for August and September 2021. The current schedule proposed in this legislation was introduced subject to changes that came out of that consultation.
The former Coalition Government introduced landmark legislation, the Your Future, Your Super reforms, to enshrine the best financial interests duty, so that funds work for their members. This was accompanied by stringent transparency requirements for funds regarding disclosure of third-party transactions to ensure that members were able to see where their savings were going.
We note that one of the first acts of the Albanese Government was to reduce transparency in superannuation by introducing a regulation in September 2022 to remove the requirements for funds to include itemised disclosure of third-party payments as part of annual meetings notices provided to fund members.
Labor’s Annual Members Meeting (AMM) notices regulation hid payments from super funds to unions, which amounted to $12.9 million in the 2020-21 financial year as revealed by the Australian Electoral Commission (AEC). As a result of Labor’s regulations, the first rounds of disclosures under the Coalition’s rules, intended to occur in the 2021-22 financial year, did not happen.
Thankfully, the Senate disallowed Labor’s wicked regulation on 9 February 2023, restoring the Coalition’s super transparency arrangements.
Coalition Senators support further enshrining transparency for superannuation through extending and adapting financial reporting and auditing requirements for RSEs in the Corporations Act 2001 as this bill proposes.
During the debate over Labor’s AMM Notices Regulations, Financial Services Minister Stephen Jones announced a new annual ‘Super Transparency Report’ on 23 November 2022 as a bargaining chip in order to placate crossbench opposition to the regulations.
The Association of Superannuation Funds of Australia (ASFA) confirmed they have yet to see any details regarding this proposed transparency report.
The Treasury was unclear about whether the reporting requirements proposed in this bill would include disclosures of related party transactions, saying that such reporting would be aligned with accounting standards. Saying they would be ‘complementary’ to the reinstated Coalition disclosure regulations for AMM notices, the Treasury admitted that Schedule 6 would not require itemised disclosure of individual payments:
This is additional information that will be required to be provided to members, and it will have some information about related parties. As you'd be aware, Australian accounting standards do not require any sort of itemised disclosure of individual payments. In that regard, it's not like for like or anything like that.
Treasury could not provide any details nor the timeline of the announced ‘Super Transparency Report’, which should in theory provide public itemised disclosure of third-party transactions in a centralised place for all to see. They said that was:
…a process that the Australian Prudential Regulation Authority (APRA) is getting the data for at the moment; it's going through quite a process on that [in reference to APRA’s Superannuation Data Transformation project].
Since coming into office, Minister Jones has handled policy around super transparency very poorly. None of the witnesses to the inquiry, including Treasury, really knew about what the proposed ‘super transparency report’ amounts to.
As Schedule 6 does not mandate itemised disclosure of third-party transactions, and the ‘Super Transparency Report’ has yet to be seen, it is crucial that the Coalition’s AMM Notices Regulations remain unchanged.
The Treasury could not confirm whether the government had any plans for any further attempts to undermine these regulations, instead deferring to Finance Minister Katy Gallagher, who said at Supplementary Budget Estimates that the matter had been settled as a result of the disallowance.
Coalition Senators will remain vigilant against any further attempts by the Albanese Government to undermine super transparency.
Schedule 7—Deductible gift recipients
Coalition Senators note that this schedule has already been passed by the Senate in the form of Treasury Laws Amendment (2022 Measure No. 5) Bill 2022 (TLAB No. 5 bill) on 7 February 2023, with the support of the Coalition. Most of the proposed deductible gift recipients (DGR) listings were originally proposed by the Coalition.
The TLAB No. 5 bill was introduced to the Senate on 1 December 2022, the same day as the bill currently before the committee was introduced.
Coalition Senators note that this chaos is an indictment of the Government’s ability to manage its own legislative agenda.
Schedule 8—Amendments to the Clean Energy Finance Corporation Act 2012
Coalition Senators note that it is curious that a bill to amend the Clean Energy Finance Corporation Act 2012 (CEFC Act) has been buried into this bill, which includes various other non-controversial items. It seems the Government is attempting to rush through this change by hiding it among schedules which nominally have bi-partisan support.
The schedule allocates considerable additional funding to the Clean Energy Finance Corporation (CEFC), amounting to $11 billion as part of Labor’s ‘Rewiring the Nation’ proposal. The remaining $8 billion of the $19 billion to be paid to the CEFC, as part of the ‘Rewiring the Nation’ policy, seems to be contained in the Contingency Reserve. The Department of Climate Change, Energy, the Environment and Water (DCCEEW) confirmed this in its answers to questions on notice from the public hearing.
An additional $500 million will also be given to the CEFC to support the ‘Powering Australia Technology Fund’, the details and operations of which have not been specified. However, it is essentially a rebadged version of the Coalition’s Low Emissions Commercialisation Fund which was announced in 2021 and included the 2021—22 MYEFO. Coalition Senators note that Labor previously opposed this proposal when in Opposition.
There is also an additional $1 billion intended to be allocated to DCCEEW to fund projects that would not be CEFC investment criteria. This funding will be allocated independent of the CEFC process. The details regarding how this is to be invested is unclear and ambiguous. DCCEEW confirmed in its answers to questions on notice from the public hearing that an investment committee will be established to recommend projects to the CEFC, of which the CEFC will be a member.
DCCEEW responded to questions on notice saying that ‘$209 million has been allocated from the Department’s Rewiring the Nation Special Account, in relation to projects already announced by the government. The $33.3 million allocated to the Department in the Budget for implementing the Rewiring the Nation policy is in addition to the $1 billion allocated to the Rewiring the Nation Special Account as part of this Schedule. The Department said that this $1 billion will be ‘for investments in eligible projects, where required, to support their timely delivery,” and in cases where it would be ‘inappropriate for the CEFC to supply both equity and debt to the same project’.
This extra $1 billion is then essentially for the purpose of providing financing for projects that the CEFC otherwise wouldn’t. DCCEEW seemed to confirm that the Rewiring the Nation Advisory Committee (on which DCCEEW and the CEFC will have representatives) will not be a decision-making body with respect to this body.
Coalition Senators have considerable concerns about Schedule 8’s removal of the requirement for the government to legislate additional funding for the CEFC, instead allowing them to create additional accounts within the CEFC via general appropriation acts. This would remove the oversight and Parliamentary scrutiny of new CEFC funding. The amendment removes safeguards around allocating additional spending through the CEFC. DCCEEW did not provide an answer when asked whether they had received legal advice on the issue of general appropriations. The justification that this Schedule ‘simplifies’ the appropriation process is not sufficient, from a scrutiny perspective.
Given the scale of this legislative change compared to other schedules included in the bill, Coalition Senators believe that it should be put forward as a separate piece of legislation. Furthermore, there is a considerable amount of expenditure included in this schedule, which is being proposed in a time where the Government must prioritise reducing inflationary pressures.
Coalition Senators note warnings by the International Monetary Fund (IMF) that the increase in off-budget funding adds to the risk of increasing inflation.
Schedule 9—Taxation of military superannuation benefits: Reversing the Douglas decision
Coalition Senators note the necessity of schedule 9 in order to confirm the tax treatment of certain defined benefit pensions following the Full Federal Court decision in Commissioner of Taxation v Douglas (the Douglas decision).
Coalition Senators note that the former Coalition Government committed to introducing legislation in the new parliament to ensure no veterans were adversely affected by the decision.
In lieu of legislation, the former Coalition government committed $60 billion to ensure there would be no negative impacts on veterans as a result of the decision.
Coalition Senators note that several witnesses raised inequity issues that could arise from this narrow legislative change. Furthermore, the need for a wider review of the legislation regarding the tax treatment of military super benefits was flagged by some submitters.
Coalition Senators support the proposed Schedule 9 of the bill, in order to reverse the Douglas decision and provide certainty for recipients for defined benefit pensions in terms of tax treatment. We also note that there may be opportunities for further policy reform in this space.
Recommendation
That Schedule 1 be passed.
Recommendation
That schedule 2 be removed from the bill and reconsidered pending the outcome of Board of Taxation’s Review of the Tax Treatment of Digital Assets and Transactions in Australia.
Recommendation
That Schedule 3 be passed.
Recommendation
That consideration be given to extending the proposed Skills and Training Boost in Schedule 4 of the bill to include non-accredited training providers.
Recommendation
That Schedule 5 of the bill be passed.
Recommendation
That Schedule 6 of the bill be passed.
Recommendation
That Schedule 7 be removed from the bill given that it has already been passed by both Houses of Parliament in the form of the Treasury Laws Amendment (2022 Measures No. 5) Bill 2022.
Recommendation
That Schedule 8 be removed from the bill and considered as a separate bill to be considered by the Parliament.
Recommendation
That Schedule 9 of the bill be passed.
Senator Andrew Bragg
Deputy Chair
Senator for New South Wales
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Senator Dean Smith
Member
Senator for Western Australia
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