Introduction
2.1
This chapter examines stakeholder views on the provisions of the Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 (the bill). It is informed by the bill’s explanatory materials, submissions received by this inquiry, evidence provided at a public hearing in Canberra on 21 February 2023, and additional material submitted to the committee.
2.2
This chapter provides an indicative account of the key issues relating to the bill and concludes with the committee’s views and recommendations on the bill.
2.3
The discussion is separated into the key, high level reforms in relation to the nine schedules contained within the bill. As no comments were received on Schedules 3 and 7, they do not form part of the discussion in this chapter.
Key issues raised in evidence
2.4
Submitters to the inquiry raised concerns with the following aspects of the bill:
Schedule 1: Digital Games Tax Offset (DGTO);
Schedule 2: Taxation treatment of digital currency;
Schedule 4: Skills and training boost;
Schedule 5: Technology boost;
Schedule 6: Financial reporting and auditing requirements for superannuation entities;
Schedule 8: Amendment of the Clean Energy Finance Corporation Act 2012 (CEFC Act); and
Schedule 9: Taxation of military superannuation benefits: Reversing the Douglas decision.
Schedule 1: Digital Games Tax Offset
Overall support for the measure
2.5
All submissions to the inquiry relevant to Schedule 1 of the bill supported its intent to establish a DGTO to strengthen the digital games industry, expand employment opportunities for digital and creative talent, enhance the industry’s international competitiveness and make Australia more attractive for foreign investment.
2.6
Many of the submitters commented that the measure has the potential to promote the growth of Australia’s digital games development industry, support creative output. Stakeholders also noted the likely positive economic benefits that would stem from the proposed DGTO.
2.7
Acknowledging the assessment of all policy considerations in the development of the draft legislation and their participation in the consultation processes undertaken, the Interactive Games & Entertainment Association (IGEA) expressed strong support for the schedule, recommending its swift passage, as it would amplify Australia’s creative output, and lead to further industry expansion by attracting foreign investment and capital injections. Summarising the view of industry stakeholders on the measure, Mr Ben Au from the IGEA stated:
The games industry and the games development community has been eagerly awaiting the DGTO for a long time… It is not only the most revolutionary reform that has affected our sector but we believe it is also the most exciting arts policy reform that we have seen in a long time, and one of the most transformational for any emerging industry that we have seen. While you can make the case for the DGTO on cultural reasons alone—given the impact it will have on expanding Australian stories, settings, expressions and voices online—it is economic policy, and its economic benefits are the most compelling.
2.8
The International Social Games Association (ISGA) also expressed support for the introduction of the DGTO because of the significant jobs and investment benefits that it would deliver in Australia, among other things.
2.9
Screen Producers Australia (SPA) articulated that the DGTO would make Australia more competitive on the international stage, incentivise economic activity, job creation, and give business confidence. Growth of jobs in regional areas and building a highly skilled workforce in Australia were also benefits of the DGTO outlined by the organisation. SPA submitted:
The DGTO legislation has been keenly anticipated by SPA members in Australia’s gaming industry… SPA welcomed the opportunity in 2022 to consult with officials from the Office of the Arts and to receive detailed briefings for members which has provided the opportunity to discuss the legislation in detail… SPA members welcome the Australian Government’s recognition of the need for development and production support for this important and growing sector and urges the swift passage of these measures in the bill through the Parliament.
2.10
Noting the extensive consultation process with the games development sector to inform the policy design of the DGTO and that the sector can nurture the next generation of skilled and knowledge-based workers (with applications across a range of sectors), the Department of Infrastructure, Transport, Regional Development, Communication and the Arts submitted:
The digital games development sector is an area of economic growth for Australia. With the right government settings to drive investment and generate employment and training opportunities, by 2030 Australia’s digital games sector could generate $1 billion annually and create 10,000 new highly skilled full-time jobs. The DGTO is a key policy and government intervention to support Australia’s digital games industry to achieve this growth and success.
Specific matters raised by stakeholders
2.11
Despite supporting the intent of the bill, a couple of submitters noted that the design of the DGTO could be amended to broaden the remit of the bill. The key recommendation received by submitters in relation to the qualifying Australian development component of the DGTO is discussed below.
Qualifying Australian development expenditure
2.12
As outlined in Chapter 1, the proposed Schedule 1 of the bill outlines the eligibility criteria for the DGTO. The bill stipulates that, provided that the new game is an eligible game, a company may apply for a completion certificate stating the total qualifying Australian development expenditure in relation to the activity. The explanatory memorandum (EM) stipulates that the total of the company’s qualifying Australian development expenditure incurred in completing the game (possibility over multiple income years) is at least $500,000. Some stakeholders suggested that the qualifying expenditure cap be lowered to allow greater participation.
2.13
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) submitted that the requirements to complete a digital game should be adjusted, allowing for milestone payments at specific intervals. Further, the ASBFEO suggested that the qualifying expenditure of $500,000 should be reduced to $300,000 to capture smaller developers.
2.14
Similarly, the Australian Writers’ Guild (AWG) felt that the minimum development expenditure requirement ‘is a significant hurdle for a small Australian studio to meet, without taking on unnecessary risk or pressuring them to scale up even when it is not appropriate to do so’. The AWG stated that this view was based on the premise that recent critical and commercial success had been made by studios in Australia, and worldwide, with game expenditure between $250,000 and $500,000.
2.15
The Department of Infrastructure, Transport, Regional Development, Communications and the Arts indicated that Schedule 1 of the bill forms part of broader measures announced by the Hon Tony Burke MP, Minister for the Arts, on 30 January 2023, that would assist small and medium studios with project budgets up to $500,000. The department stated:
As part of this plan, the Australian Government is supporting the digital games industry by providing $12 million over four years to support digital games developers and small and medium independent games studios with project budgets up to $500,000. This initiative is complementary to the Offset which supports games with budgets over $500,000. This represents an integrated plan to support the whole of Australia’s digital games sector.
Treatment of gambling and loot boxes
2.16
As outlined in Chapter 1, eligibility criteria for the DGTO in Schedule 1 of the bill excludes games that include gambling or gambling like practices. As described in the explanatory materials, the policy for excluding a digital game that substantially comprises of gambling or gambling-like practices is intended to also exclude digital games that substantially comprise, have reliance on, or give prominence to, features known as ‘loot boxes’ imbedded in games. Loot boxes allow a player to directly or indirectly purchase with real currency (or assets) unknown virtual items determined by randomisation or chance, and allow, within the game, for those items to be transferred for real currency (or assets) or cashed out for real currency (or assets).
2.17
On this point, industry stakeholders raised broader concerns in relation to the exclusion and innovation within the sector. However, outlining the consultation the government has undertaken with the industry on this topic, industry representatives echoed that ‘excluding gambling products is certainly what … the industry would consider to be the right approach’. Summarising industry engagement and views on this matter, the IGEA stated:
This is an area in which I'd say we've worked closely throughout the design of the DGTO with the government. We've been consulted and we've been able to provide our views. I think the bill provides significant signalling on the types of games that should and should not be eligible for the DGTO. It's clear in terms of how it's worded, and additional commentary is provided in the EM, which is very helpful. Most importantly, we know that it provides a way for, I believe, the minister to set rules around this topic so that, if, in the future, there are issues relating to video games as the bill uses the words 'gambling' or 'gambling-like elements', flexibility is provided to ensure that they can be addressed. We are happy with the wording in the bill. We think that it is an approach that is useful and signals the government's policy intent…
2.18
Addressing the issues associated with gambling, industry stakeholders outlined practices in place to mitigate the harms that may be associated with gambling related mechanisms attached to loot boxes. Investment in parental, family and carer controls, at both the game and device level, were described as avenues of allowing individuals and guardians agency and control to make informed choices as to whether or not in-game purchases are allowed.
2.19
Other strategies to mitigate harms put in place by the industry include transparent information on whether a game includes loot boxes (and the probability of receiving items in a loot box) and in-game purchases, so that prior to the purchase of a game this information is readily available to consumers. Providing evidence to the committee to address the abovementioned concerns, Mr Ben Au from the IGEA, stated:
These are measures that are really multifaceted but are also in recognition that we are always monitoring community concerns and feedback from players, as well as the research as it is being made, so that industry can continue to improve and make sure that these games are offered with the safety and care and trust of the players who enjoy them.
Schedule 2: Taxation treatment of digital currency
2.20
Schedule 2 of the bill amends the Income Tax Assessment Act 1997 (ITAA) to clarify that digital currencies (such as Bitcoin) would continue to be excluded from being treated as foreign currency for Australian income tax purposes, addressing specifically policy changes in El Salvador which recognised bitcoin as an unrestricted legal tender. While some stakeholders supported broader changes regarding digital currencies in Australia, other stakeholders submitted that the proposed changes would result in better outcomes and eliminate uncertainty for taxpayers.
Comments on specific aspects of the measure
2.21
In addition to a more general discussion on the taxation treatment of digital currency, stakeholders made comments on specific aspects of Schedule 2 of the bill. Various stakeholders, including bodies from the digital currency industry, raised broader issues about the Board of Taxation’s review on digital assets and feedback during consultation processes captured within the bill, and Treasury’s Token Mapping consultation.
Effectiveness of the amendments in providing clarity about digital currencies
2.22
While noting that the bill clarifies the narrow issue of whether digital currencies are a foreign currency, Gadens articulated that Australia needs an agreed regulatory approach and that a holistic (as opposed to incremental) approach, is required for systematic integrity, business certainty and consumer protection.
Clarity on the legal status of digital currencies in Australia in different operational settings is long-overdue and needed as a matter of priority, particularly as digital assets and currencies increasingly become part of everyday life. It is simply not enough for the current legal status to be left open to provide the government with “flexibility to provide…clarify and certainty”. Doing so does the opposite and leaves stakeholders looking to common law to resolve disputes.
2.23
The committee received evidence articulating support for the passage of amendments with some stakeholders arguing that the tax treatment of digital currencies in Australia will provide taxpayers with confidence regarding their obligations and would remove any uncertainties, also in regard to taxpayers’ completion of tax returns. In this regard, Ms Susan Bultitude from Treasury emphasised the importance of consistency in definitions to provide certainty for stakeholders and taxpayers:
One message that we have heard consistently from stakeholders is to make sure, wherever possible, that the regulatory framework and the taxation framework are consistent and that if we are to use definitions, for instance, that the definitions are consistent so that we can have as much clarity and simplicity for stakeholders and taxpayers as possible and also to minimise compliance burdens and administrative costs.
2.24
Alongside recommendations to the committee to support the passage of amendments to clarify in law that digital currencies continue to be excluded from the income tax treatment of foreign currencies, both the Tech Council of Australia and Block submitted:
Australia has the potential to be a leader in responsible and trusted digital assets innovation, including digital currencies… Digital assets can offer real benefits to Australian businesses and consumers by making transactions easier, better and safer. Ensuring tax rules are clear and fit for purpose is important to support the growth of a responsible digital assets sector in Australia, which our research with Accenture shows has the potential to contribute up to $60 billion to the Australian economy.
2.25
Moreover, the Tech Council of Australia argued that the clarification of the tax treatment of digital currency would have significant economic benefits for the country. It submitted that fit for purpose tax rules are an important element to support the growth of a responsible digital assets sector in Australia which has the potential to contribute up to $60 billion to the Australian economy.
Stakeholder engagement
2.26
The committee received evidence articulating the rationale for the proposed measure and its inclusion within the bill, and the need for the imminent clarification of the tax treatment of digital currencies for taxpayers. The evidence supported the proposal to pass the amendments in Schedule 2 prior to the finalisation of the Board of Taxation’s review and other work conducted by Treasury on token mapping was expressed by witnesses.
2.27
For example, Mr Liam Hennessy from Gadens argued that the measure is resolving a very narrow and specific issue in relation to the tax treatment of digital assets. Speaking in relation to concerns raised by some stakeholder that the schedule should be removed until the Board of Taxation’s review is complete, Mr Hennessy conversely argued that it would be appropriate and prudent to push forward these amendments in tandem with work conducted by the Board of Taxation on this area to provide taxpayers with certainty.
2.28
In its evidence to the committee, the Board of Taxation highlighted to the committee the importance that the amendments have in providing clarity, certainty and consistency to taxpayers and the Australian Taxation Office (ATO) in the treatment of digital currency in Australia. In providing details of the consultation process undertaken and feedback received in relation to the review of digital currency currently underway, Mr Anthony Klein from the Board of Taxation articulated the view that clarity in the regulatory environment for the treatment of digital assets as soon as possible is important for stakeholders:
… it’s been pretty much resounding, the importance of certainty and, wherever possible, simplicity in terms of what the law looks like. That message has come to us from a broad range of stakeholders, not only the end taxpayers. Whether they be trading or transacting with crypto assets, or whether they be the advisers who are supporting them through the compliance process, we have heard loudly and clearly that having certainty is one of the paramount needs of the community at the moment.
2.29
Addressing concerns raised by stakeholders regarding the impending Board of Taxation review, Mr Klein stated that the passage of this legislation, would not impede the board’s work.
2.30
Several submitters raised concerns regarding consultation on the measure, highlighting the importance of capturing feedback from stakeholders. Submitters also emphasised the view that the impending report on Board of Taxation’s review on digital assets be considered, prior to the introduction of the proposed amendments within Schedule 2 of the bill.
2.31
Blockchain Australia argued that it would be premature for Schedule 2 to be included within the bill in advance of the Board of Taxations report and the token mapping consultation currently underway, stating both should lead to a more consistent definition of a digital currency that can be applied across all regulatory environments including tax. Blockchain Australia also felt that genuine consultation on the exposure draft legislation had not taken place, and sought more clarity on both the policy position and modelling data underlying the bill. Blockchain Australia argued that such information should be produced before the legislation is considered further.
2.32
Similarly, Blockchain & Digital Assets—Services + Law (BADASL) felt feedback from the tax profession and industry provided to the Board of Taxation had not been captured within Schedule 2. Accordingly, BADASL suggested that the proposed amendments be put on hold until the Board of Taxation’s review is complete.
2.33
While welcoming clarity and certainty with respect to cryptocurrencies being excluded from the foreign currency regime, Dr Elizabeth Morton and Ms Lisa Greig also stated that the outcome of the Board of Taxation review ‘is fundamental to the issues underpinning the proposed amendment’ and that Schedule 2 should be removed from the bill until this process is complete. Dr Morton and Ms Greig submitted:
Whilst we applaud the government for seeking swift clarification on this issue, we argue that it is inappropriate for the amendment to proceed until the relevant consultation process has been thoroughly carried out and concluded. Although we recognise that consultation occurred simultaneously for both the [Board of Taxation] BoT’s review and Treasury’s proposal, the complexities of this area of the law and their interrelatedness is significant and should not be ignored.
2.34
In summarising the consultation process undertaken for the schedule, the Treasury highlighted that the processes were extensive and provided an opportunity for all stakeholders to convey their views on the proposed amendments. Further, Treasury officials informed the committee of the rationale for the introduction of these amendments now, before other work in this area is complete:
… having this law passed now means there’s certainty for taxpayers and for the ATO about how the law applies… because the uncertainty has existed from the 2021-22 financial year, that means—for all these financial years in the interim until the token mapping exercise and the board of tax review have been completed and the government has considered its response—we can have that certainty in the interim. Passing this law now does not in any way impede the terms of reference of those reviews or the government's ability and parliament's ability to make further changes down the track as appropriate and as, of course, this rapidly evolving area continues to develop.
Schedules 4 and 5: Skills and Training Boost and Technology Boost
Overall support for the schedule
2.35
Many submissions received in relation to Schedules 4 and 5 of the bill expressed support for the establishment of a skills and training boost and technology boost. Submitters commented that Schedule 4 will provide support for small businesses to upskill and train their employees and help build a more productive workforce. Support for Schedule 5 was on the basis that the technology boost will help small businesses to improve their digital capacity, and to enhance productivity and business growth.
2.36
Articulating the views held by the business community that the measures are strongly supported, the Australian Chamber of Commerce and Industry (ACCI) highlighted the positive economic impacts associated with the boost. Noting the substantial contributions made by Small and Medium enterprises (SMEs) to the economy, the ACCI argued that the technology boost is essential to assist the sector in their digital transformation, particularly post COVID—19 pandemic, with many still falling behind in the digitisation of their operations. In its support for both schedules, ACCI submitted:
The measures announced in the 2022–23 Federal Budget and included within this bill are strongly supported by the business community… Approximately 2.4 million small businesses will be supported to increase their digital presence and upskill their eight million workers… As such, this level of government support implemented through this bill will be essential to improve the uptake of digital tools and skills in small businesses and allow them to complete against larger organisations. With SMEs contributing more than $700 billion of the economy’s output as of June 2020, it is vital they keep up with the digitisation of the market.
2.37
The Business and Events Council of Australia (BECA) expressed positive views on the skills and training boost and the broader benefits it would have, stating:
BECA welcomes the introduction of a skills and training boost to support small businesses… any incentive-driven encouragement of training… will boost demand across the business events industry supply chain…
2.38
Succinctly articulating its support for the technology boost, Block submitted that it would among other things, strengthen small businesses digital preparedness:
The technology boost will support small businesses to take advantage of digital technologies, which are essential to adapting to the evolving demands of consumers and the digital economy.
2.39
MYOB outlined how investment in digital technologies in this sector will generate benefits that extend beyond the SME community. MYOB submitted:
… we believe the skilfull, confident, and decisive use of digital business tools is at the crux of boosting productivity and establishing a future-ready workforce. We thank the government for its ongoing commitment to improving digital skills and creating meaningful future growth opportunities for all Australians.
2.40
Outlining the rationale for its support for the measures, the Tech Council of Australia stated in its evidence to the committee:
… we support the introduction of the technology investment boost and believe it can be impactful in driving the adoption of productivity and security enhancing technologies by small businesses. This is critical during a time when small businesses are facing rising costs due to inflation and energy prices whilst simultaneously being the target of increasing cybersecurity attacks.
Scope of the skills and training boost
2.41
As outlined in Chapter 1, Schedule 4 of the bill proposes amendments to the Income Tax (Transitional Provisions) Act 1997 (IT(TP) Act) to provide small businesses, with an aggregated annual turnover of less than $50 million, with access to the skills and training boost. Stakeholders recommended the scope of the boost could be broadened in a number of ways and be extended beyond the proposed conclusion date to maximise the opportunity for businesses to benefit from the boosts.
2.42
For example, the ACCI suggested that the boost could be extended to sole traders to undertake training in certain areas to upgrade their skills and enhance their productivity. The expansion of the boost to include ‘bona fide registered training associations…responsible for delivering legitimate training and certified continuing professional development to their members was another recommendation put forward by the organisation.
2.43
This view was also shared by the Australasian Society of Association Executives (AuSAE), who recommended that the scope of the registration requirements for training providers be expanded to include training delivered by registered associations. Outlining the rationale for their position and the potential benefits for expanding the scope, AuSAE submitted:
… extending the scope of registration to include associations that are companies limited by guarantee who are registered and regulated by ASIC… would provide small business with the option to access specific skills and training by sector specialists to build a better trained and more productive workforce.
2.44
The Tech Council of Australia recommended that the scope of the boost be expanded beyond registered training providers, contending that it would reflect the training that small and medium-sized businesses commonly use, stating:
This would reflect current arrangements in the tax system, which don’t discriminate between training by registered and non-registered providers. It would also ensure the boost aligns with the training that most small and medium businesses use to upskill and reskill their staff.
Conclusion date for the temporary boosts
2.45
As outlined in Chapter 1, Schedules 4 and 5 are temporary measures. The proposed amendments in Schedule 4 of the bill would apply to eligible expenditure incurred on 29 March 2022 until 30 June 2024. The proposed amendments in Schedule 5, would apply to eligible expenditure incurred on 29 March 2022 until 30 June 2023.
2.46
The Tech Council of Australia recommended the committee consider extending the timeframe beyond June 2023 for the technology boost, noting ‘there will only be a short window once the legislation is passed for small businesses to take advantage of the incentive’.
Schedule 6: Financial reporting and auditing requirements for superannuation entities
Views on the proposed amendments
2.47
Overall, submitters expressed support for the establishment of financial reporting and auditing requirements for superannuation entities to increase transparency in this sector so that members can access clearer and more consistent information about their fund. Stakeholder feedback highlighted the benefits of introducing legislation aligning superannuation entities reporting obligations with those that currently apply to public companies and registered schemes.
2.48
At the same time as making suggestions for future consideration on data reporting standards, the Association of Superannuation Funds of Australia (ASFA) articulated its support for the transparency of financial information with respect to superannuation funds, including compliance with financial reporting requirements.
2.49
Acknowledging the importance of the proposed reforms for members, CPA Australia supported the objective of improving the transparency of members and provide the Australian Securities and Investments Commission (ASIC) the powers they need for monitoring and enforcement of compliance with the related accounting standards.
2.50
In evidence to the committee, Mr Tony Negline from the Chartered Accountants Australia and New Zealand (CA ANZ) outlined the organisation’s support for, and views on the schedule, and argued that the new requirements would enhance both transparency for members but also broader industry analysis and scrutiny:
One of the good things about Schedule 6 is that it will require funds to actually publish this information on their website. That in itself will create a greater level of transparency so that individuals and their advisers will be able to go in and check the financial statements themselves in exactly the same way as occurs for public entities listed on the exchange. It allows for that analysis to take place. At the moment, if you want any information about these funds, in some cases you actually have to become a member of that fund to have it exposed to you. That's not really fair. Making it a requirement to put it on websites and available…is a good thing.
2.51
Agreeing with this perspective, Mr Subramanian from CPA Australia added that the reforms would formalise the procedure of making annual reports available on a superannuation fund website, which would in turn, ensure consistency of these transparency requirements across the entire sector.
Compliance obligations
2.52
There was some discussion by stakeholders as to the cost of any potential compliance obligations that the proposed reforms would have on industry stakeholders.
2.53
The CA ANZ, CPA Australia and the Institute of Public Accountants (IPA) noted that the proposed reporting and auditing requirements for superannuation entities may potentially incur additional compliance costs for entities, stating that these would be passed onto members. Nevertheless, the joint accounting bodies expressed satisfaction with the consultation for the exposure draft for the schedule and the changes made to the bill around delaying commencement to allow for implementation and reducing reporting loads to ease requirements and compliance costs.
2.54
Also reflecting on the exposure draft consultation process for the measure and compliance cost concerns previously raised, ASFA advised the committee that they were content with the changes made as a result of feedback provided to Treasury. In particular, ASFA voiced their strong support for the removal of the proposed requirements to prepare financial reports for sub-fund, and to lodge financial reports (including directors’ reports and financial statements) for the fund for each half year (as well as for each financial year). ASFA informed the committee that these changes ‘will significantly reduce the costs involved and serve to keep members’ fees as low as possible’ and were very supportive of the reduced obligations reflected in the bill due to the ‘material uplift’ in compliance costs.
2.55
Treasury advised the committee that the financial reporting and auditing requirements for superannuation entities are consistent with existing reporting requirements undertaken by these entities, and that feedback from industry stakeholders through the detailed consultation process, have reduced compliance costs for funds substantially.
Schedule 8: Amendment of the Clean Energy Finance Corporation Act 2012
Overall support for the amendments
2.56
Submissions to the inquiry expressed support for Schedule 8 of the bill and its objective to help move away from fossil fuels and accelerate Australia’s transition to net zero emissions by 2050 through the proposed amendments to the CEFC Act. Submitters and witnesses at the public hearing also noted the importance of the governments Rewiring the Nation (RTN) plan within the context of the country’s transition to renewable energy.
2.57
The Environment Defenders Office (EDO), summarised the views held by many stakeholders on Schedule 8, succinctly stating that the Clean Energy Finance Corporation (CEFC):
… plays an important role in the essential transition away from fossil fuels. EDO supports the increase of funds for the CEFC contained in the TLAB bill.
2.58
Similarly, Beyond Zero Emissions commented:
We commend the government for Schedule 8 – to supply the CEFC with additional funding to implement the Rewiring the Nation plan, establish the Powering Australia Technology Fund and streamline provision of additional funds to the CEFC in future. This step is important to delivering funding efficiently, will enable growth of the Australian clean energy sector and drive a much needed and rapid transition of Australia’s energy system to ensure we reduce emissions.
2.59
The Smart Energy Council strongly urged the government to pass the legislation and submitted that targeted government finance is essential for delivering a secure path to market for smart energy technologies and systems required to decarbonise Australia’s economy. In evidence to the committee, Mr Wayne Smith from the Smart Energy Council commended the government on the RTN initiative, stating that it is a ‘fundamental’, ‘nation-building project’ that will drive the energy transformation that the country needs to undertake.
2.60
The Department of Climate Change, Energy, Environment and Water (DCCEEW) outlined the numerous long-term benefits that the schedule would deliver the goal of reducing emissions and transitioning to a cleaner future. Importantly, DCCEEW noted that the proposed amendments to the CEFC Act in the bill will allow the CEFC to invest in vital infrastructure without removing the safeguards around their independence or investment mandate. DCCEEW submitted:
The CEFC will play a crucial role in delivering Rewiring the Nation (RTN) in partnership with the Department of Climate Change, Energy, the Environment and Water… This measure is a significant step in the Government’s plan to reduce Australia’s emissions by 43% on 2005 levels by 2030 and keeping Australia on track for net zero by 2050.
…
The Government’s $20 billion RTN election commitment will modernise Australia’s electricity grids, lower the cost of electricity bills for consumers, help manage the transition of the electricity system, and increase renewables in the grid.
2.61
In its submission, the Energy Networks Association emphasised the critical role that the connection of new renewable energy generation and the facilitation of the efficient and reliable distribution of electricity has in the transition to clean energy. The association articulated its support for the proposed measure as follows:
The CEFC, with its expertise and focus on clean energy, in combination with the Rewiring the Nation commitments, can play a significant role in helping to finance and facilitate the transition… We are confident that the flexibility and additional CEFC funding in this bill can better achieve the goal of a cleaner, more secure and more affordable energy future for Australia. In conclusion, we strongly support the flexible enabling of CEFC funding for transition that this bill allows for. We think it will bring about significant benefits to the community, the electricity sector and the whole economy. We look forward to working with the CEFC and all Australian governments to achieve this goal.
2.62
Representatives from the CEFC advised that the schedule will help boost the work on the RTN undertaken through the independence of CEFC to help ensure that Australia meets its Paris Agreement climate targets. Further, the CEFC explained the RTN plan will have impacts on jobs and skills:
… it’s fair to say that this enormous investment in transmission infrastructure and accompanying storage and grid security will create a very significant number of jobs and develop the skills of a workforce that is critical to the clean energy transition. So, it certainly will be a major contributor to employment across the country.
Schedule 9: Taxation of military superannuation benefits—reversing the Douglas decision
2.63
As outlined in Chapter 1, Schedule 9 of the bill seeks to counterbalance the impact of the Commission of Taxation v Douglas (the Douglas decision) in relation to all schemes other than the invalidity benefits and death benefits for beneficiaries of invalidity pensions paid from the Defence Force Retirement and Death Benefits Scheme (DFRDBS) and Military Superannuation Benefit Schemes (MSBS) that commence on or after 20 September 2007.
2.64
The measure also introduces a non-refundable tax offset to prevent any adverse income tax outcomes for affected veterans in the schemes outlined above. These changes will also apply to spouse and children’s pensions following the death of a member of a DFRDBS or MSBS scheme affected by the Douglas decision.
Views on the proposed amendments
2.65
The Douglas decision identified a discrepancy in the statutory definition of a superannuation income stream that meant, contrary to the policy intent, that these types of pensions do not meet the definition of a superannuation income stream. As a result, payments from these pensions defaulted to being taxed as superannuation lump sums. As outlined above and in Chapter 1, the purpose of amendments in Schedule 9 is to ensure that veterans affected by the Douglas decision will not face worse income tax outcomes by preserving the preferable tax outcomes for affected veterans.
2.66
Evidence to the committee, representatives from DFWA Qld and DFWA National Office outlined that Schedule 9 would have a positive impact on veterans and would extend the tax benefit to spouses and children deceased veterans receiving invalidity benefits, who would otherwise be excluded without the amendments included within the Schedule. Ms Kate Bowden, National Treasurer of the DFWA advised the committee:
There are three areas of schedule 9 which are supported by DFWA. Firstly, schedule 9 removes any uncertainty and delayed action as a result of the Commissioner of Taxation v Douglas decision of 2020. The Douglas decision has had a significant impact across the veteran community and was heavily supported by DFWA Queensland. The effect of this decision is that veterans' invalidity payments are recognised as lump sums with beneficial tax treatment instead of as superannuation income stream. This has had a positive impact for the majority of affected veterans. Secondly, schedule 9 also extends the Douglas decision to revisionary beneficiaries, being the spouses and children of deceased veterans who were receiving invalidity benefits. Thirdly, schedule 9 removes any potential disadvantage to a minority of veterans as a result of the Douglas decision through the implementation of a veterans' superannuation invalidity pension tax offset. This offset ensures that affected veterans are not worse off as a result of this change in legislation.
2.67
Some submitters were unsupportive of the measure and suggested amendments to the bill, including that the committee reconsider the inclusion of the schedule within the bill. Other stakeholders supported the amendments—in the context of broader, longer-term suggestions—to ensure that affected veterans will not face worse income tax outcomes as a result of the decision.
2.68
Summarising the views held by a number of submitters, the Defence Force Welfare Association (Qld) (DFWA Qld) suggested that the provisions of Schedule 9 should be changed to allow all DFRDBS and MSBS invalidity benefit recipients to receive the benefits of the Douglas decision, regardless of the date the payment commenced, citing concerns about potential inequities.
2.69
In addressing some of the concerns raised by Defence Force advocacy bodies on whether the intent of the schedule is appropriate, Ms Julia Stannard, Senior Policy Advisor from ASFA, expressed support for Schedule 9 stating that the amendments will achieve its intended aim:
… it is our understanding that the measures do achieve the stated intent in the explanatory memorandum. It's simply an awareness issue.
2.70
At the same time as raising matters regarding policy questions posed by the Douglas decision and Schedule 9, CA ANZ, CPA Australia and IPA expressed support for the proposed amendments as it would resolve the uncertainty created by the Douglas decision in relation to existing defined benefit pensions paid due to invalidity. Representatives from the joint accounting bodies expressed their support for Schedule 9 as the measures seek to achieve their intended purposes in relation to the particular cohort of veterans affected by the Douglas decision—trying to maintain the favourable tax treatment for veterans that did have it prior to the case.
Committee view
2.71
The committee would like to thank all the stakeholders who took the time to submit to the inquiry and appear at the public hearing.
Schedule 1: Digital Games Tax Offset
2.72
With respect to Schedule 1, the committee considers that the introduction of a dedicated DGTO will provide revolutionary support for the digital games industry in Australia to help the sector grow and enhance their global competitiveness.
2.73
The committee welcomes the strong support for the intent of the offset to expand employment opportunities for digital and creative talent, enhance the industry’s international competitiveness, and make Australia an attractive destination for foreign investment.
2.74
The committee acknowledges suggestions in relation to the minimum qualifying expenditure of $500,000 for a completed game within the Schedule. However, the committee considers that broader measures announced by the government will support smaller and medium studios with project budgets of up to $500,000 will complement the DGTO and allow them to compete and grow within the sector.
2.75
The committee acknowledges support from the digital games industry to limit the harms of gambling and gambling-like games including those which feature loot boxes, by excluding them from the offset.
2.76
Given the parliamentary inquiries in recent years that support the introduction of a dedicated tax offset, the committee is firmly of the view that economic stimulus for the digital games sector will have broad-reaching impacts on the sector and the Australian economy at large.
Schedule 2: Taxation treatment of digital currency
2.77
Following the decision of the El Salvador Government to recognise bitcoin as a legal tender, legislation to clarify that digital currencies continue to be excluded from being treated as a foreign currency for Australian income tax purposes will play a crucial role in providing clarity for taxpayers.
2.78
While there was overall support for Schedule 2, as a minor clarifying measure, the committee notes the broad interest raised by inquiry participants in relation to consultation with industry and the Board of Taxations review into digital assets, which is due to report in September 2023 and Treasury token mapping consultation. While the committee recognises these concerns, it is persuaded that Treasury has engaged in an extensive consultation process and that this process has produced a rational framework that addresses those concerns. The committee is persuaded by the evidence from the Board of Taxation and other submitters who articulated that the passage of these amendments in tandem with the review would be appropriate and prudent to provide certainty to taxpayers and the ATO on the treatment of digital currencies, particularly in relation to the completion of tax returns.
2.79
The committee believes that it is important to not delay clarifying reform in this area and notes that Token Mapping consultation has commenced as part of the government’s long-term work to improve the regulation of digital currency as it evolves.
Schedule’s 4 and 5: Skills and training boost and Technology boost
2.80
The committee welcomes the broad support for the skills and training boost and technology boost in Schedules 4 and 5 expressed by submitters to the inquiry. Productivity benefits from investing in people and small business and the committee is of the view that these measures will help in bridging the productivity divide currently facing Australia’s SMEs.
2.81
The committee appreciates the position of industry stakeholders on the scope of the skills and training boost and acknowledges the suggestions to expand both the timeframe for the boost and extend eligible training under the scheme to courses provided non-registered training providers.
2.82
The committee considers that the design of the boost will provide appropriate support for small businesses to build a better trained and more productive workforce in a fiscally constrained environment.
2.83
The committee considers that ensuring people who are employed by SMEs have access to training and digital tools is essential to building a sustainable economy as well as developing transferable skills across the workforce.
Schedule 6: Financial reporting and auditing requirements for superannuation entities
2.84
The committee welcomes the strong support for the intent of Schedule 6 to continue the process of making superannuation fund reporting more accessible to consumers and aligning superannuation funds’ accounting and reporting obligations with those of public companies.
2.85
Given the size and compulsory nature of superannuation entities in Australia, transparency for members is crucial. The committee considers that the proposed amendments that require entities to lodge financial reports with ASIC and improve public access to reports will significantly improve analysis and scrutiny and is important for accountability for members.
2.86
The committee notes submissions by industry stakeholders regarding implementation and compliance costs for the proposed reporting requirements. However, the committee is persuaded by evidence from Treasury and evidence from industry stakeholders that feedback adopted during the exposure draft consultation process has resulted in a significant reduction of compliance costs arising from the current bill. The committee believes that that the proposed reporting and auditing requirements correctly balance the requirements for industry with the need for transparency and accountability for fund members.
Schedule 8: Amendment of the CEFC Act
2.87
The committee notes the broad support for the amendments in Schedule 8 of the bill to provide for additional funding to the CEFC to implement the governments RTN election commitment. The implementation of the RTN plan into tangible legislation has been warmly welcomed by stakeholders. The committee agrees that this schedule is vital in help modernise electricity grids and manage the transition to renewable energy.
2.88
The committee considers that the CEFC, as an independent statutory authority is an appropriate body to facilitate increased flows of finance into the clean energy sector and meet greenhouse gas emissions reduction targets. The committee acknowledges the support expressed by submitters and its overriding objective to minimise the use of fossil fuels and accelerate Australia’s transition to net zero emissions by 2050.
Schedule 9: Taxation of military superannuation benefits
2.89
The committee is reassured by evidence from witnesses and submitters to the inquiry who have highlighted that the reforms will have positive impacts for veterans and their families, including the expansion of benefits to spouses and children under the legislation who would otherwise not be captured by the Douglas decision. The committee strongly welcomes this perspective.
2.90
The committee considers that it is appropriate for other superannuation income streams to retain income stream tax treatment, consistent with longstanding policy settings around common law pensions and the intent of those defined benefit schemes.
2.91
The committee acknowledges the concerns raised by various defence and veterans groups in relation to the military pensions more broadly, and notes calls for there to be further consideration of military pensions and benefits.
2.92
On balance, the committee believes that the amendments in Schedule 9 reflects the government’s commitment to ensure that veterans are not left worse off due to the Douglas decision and that veterans who benefited from the decision retain these outcomes.
2.93
The committee recommends the bill be passed.
Senator Jess Walsh
Chair
Senator for Victoria