BILLS DIGEST NO. 78, 2016–17              27 March 2017

Treasury Laws Amendment (2017 Measures No. 1) Bill 2017

Dr Nitin Gupta
Economics Section 

Date introduced: 16 February 2017

House: House of Representatives

Portfolio: Treasury

Commencement: Schedule 1 commences on the first 1 January, 1 April, 1 July or 1 October after Royal Assent. Schedule 2 commences the day after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at March 2017.

Purpose of the Bill

The Treasury Laws Amendment (2017 Measures No. 1) Bill 2017 (the Bill) seeks to:

•       amend the Income Tax Assessment Act 1997 (ITAA 1997) to ensure that investors who invest through an interposed trust are able to access the capital gains concessions provided by the tax incentives for early stage investors and venture capital investment measures

•       amend the Australian Securities and Investments Commission Act 2001 (ASIC Act) to specify that the sharing of confidential information by the Australian Securities and Investments Commission (ASIC) with the Commissioner of Taxation is authorised use and disclosure of that information.

Structure of the Bill

The Bill has two Schedules. Schedule 1 to the Bill seeks to make minor technical changes to the ITAA 1997 to ensure that the measures relating to the National Innovation and Science Agenda (NISA) in the Tax Laws Amendment (Tax Incentives for Innovation) Act 2016 operate in accordance with their original policy intent.

Schedule 2 seeks to amend the ASIC Act 2001 to allow ASIC to more readily share confidential information with the Commissioner of Taxation.

Background

Schedule 1

The measures contained in the Tax Laws Amendment (Tax Incentives for Innovation) Act 2016 (2016 Act) formed part of the NISA, announced by the Turnbull Government on 7 December 2015.[1] According to the Minister’s Second Reading Speech at the time of the introduction of the Bill for the 2016 Act, the aim was to ‘to encourage innovation, risk taking and an entrepreneurial culture in Australia.’[2] To this end, the 2016 Act articulated tax incentives for investments in early stage innovative companies, including concessional capital gains tax (CGT) treatment that would exempt investors from a capital gain arising from shares in eligible companies, provided these shares were held for between 12 months and 10 years.[3]

According to the Explanatory Memorandum to the current Bill, this concessional treatment was intended to be available to all types of investors, regardless of their preferred method of investment (whether directly by an individual or corporation or indirectly through a trust or partnership).[4] However, the provisions of the 2016 Act prevent investors from accessing the CGT exemption if the gains are distributed through a trust. The proposed amendments are intended to ensure a level playing field with regards to the mechanism for the investments.

Schedule 2

Currently ASIC has a range of powers to gather information and documents as part of its mandate to regulate Australian companies, financial markets, and financial service organisations.[5] The ASIC Act requires ASIC to take all reasonable measures to protect confidential information that it receives as part of its statutory functions from unauthorised use or disclosure.[6] It does, however, authorise ASIC to share that information with specified individuals and organisations, including the relevant Minister, the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA).[7] The Commissioner of Taxation is not currently one of the specified individuals.

The current law prohibits ASIC from sharing confidential information with the Commissioner of Taxation, unless the Chairperson of ASIC, or their delegate, is satisfied that the information will enable or assist the Commissioner of Taxation to perform or exercise their functions or powers.[8] This means that each potential release of information to the ATO must be considered and authorised, in comparison with release to (for example) APRA, which is authorised under the Act and does not require the ASIC Chairperson to be satisfied that the disclosure will enable or assist APRA to perform any of its functions or powers. According to the Explanatory Memorandum, this creates inefficiencies and hinders effective collaboration.[9]

Schedule 2 of the Bill seeks to include the Commissioner of Taxation in the list of those to whom ASIC is authorised to provide information.

Committee consideration

The Senate Standing Committee for Selection of Bills did not refer the Bill to committee for inquiry and report.[10]

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills considers that the amendments proposed by Schedule 2 of the Bill raise privacy concerns:

The Committee notes that the current law merely requires consideration be given before confidential information is shared that the information will enable or assist the Commissioner of Taxation to perform or exercise their functions or powers. The current approach would appear to allow for the sharing of confidential information in fairly broad terms. It is unclear, based on the explanatory material, how the current law is inefficient and not sufficiently simple.[11]

The Committee has sought advice from the Minister on the steps that are currently undertaken before ASIC shares advice with the Commissioner of Taxation.[12]

Policy position of non-government parties/independents

The Bill is supported by the Australian Labor Party (ALP). In his second reading speech, Andrew Leigh of the ALP stated:

… the amendments in this Bill are uncontroversial. They should assist start-ups and assist ASIC and the ATO to work together to investigate corporate and tax fraud. Labor is pleased to support the speedy passage of this Bill through the House.[13]

At the time of writing this Digest, no statements on the Bill from other parties or independents were identified.

Position of major interest groups

At the time of writing this Bills Digest, no statements relating to the Bill’s provisions from major interest groups were identified.

Financial implications

The proposed amendments in Schedule 1 are not estimated to have any revenue impact over the forward estimate period. The proposed amendment in Schedule 2 does not have a financial impact.[14]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[15]

Schedule 1 of the Bill does not raise any human rights issues. Schedule 2 raises a human rights issue. It engages the right to protection from unlawful or arbitrary interference with privacy under Article 17 of the International Covenant on Civil and Political Rights (ICCPR) because it provides a more streamlined process for ASIC to share information with the Commissioner of Taxation.

Parliamentary Joint Committee on Human Rights

At the time of the drafting of this Bills Digest, the Bill had not been considered by the Parliamentary Joint Committee on Human Rights.

Key issues and provisions

Schedule 1: amendments to innovation measures

Schedule 1 seeks to amend the ITAA 1997 to provide investments made through interposed trusts with the same concessional CGT treatment that is available to investments made by individuals and companies.

Division 104 of the ITAA 1997 sets out all the CGT ‘events’ for which a person can make a capital gain or loss. It explains how to work out if a person has made a capital gain or loss from each event and contains exceptions for gains and losses for certain events.[16] Subdivision 104-E deals with CGT events that are specific to trusts.[17] As set out in the Explanatory Memorandum to the Bill:

[Currently] if an investor invests in an early stage innovation company indirectly through a trust, [Subdivision 104-E] would apply to claw back any disregarded capital gains that are later distributed through the trust. In particular,[the current provisions of Subdivision 104-E] would result in the CGT cost base of the unit or interest in the trust held by the investor being reduced by the amount of the distribution. If this would reduce the cost base of the unit or interest below zero, the cost base is reduced to zero and the investor has a capital gain equal to the balance of the amount (section 104-70).[18]

The amendments [in Schedule 1 to the Bill] ensure that investors that invest through an interposed trust are able to access the capital gain concessions provided by the tax incentives for early stage investors measure, as intended.[19]

Item 1 amends paragraph 104-71(3)(aa) to clarify the language to ensure that there is no ambiguity about whom the venture capital gains tax concessions would apply to. More specifically, the amendment ensures that CGT consequences do not arise for a beneficiary in respect to that beneficiary’s share of income derived from a partnership that is exempt because of the venture capital tax concessions.

Items 2 and 3 amend paragraphs 104-71(3)(b), (c) and (d) to change references from ‘proceeds’ to ‘capital proceeds’ to ensure consistency throughout the CGT rules in the ITAA 1997.

Item 4 adds proposed paragraph 104-71(3)(e) to clarify that where concessional CGT treatment is available to early stage investors then the CGT concession will apply irrespective of any interposed investment vehicle used by the investor, such as a trust.

Item 5 provides that the amendments relating to the tax incentives for early stage investors measure (item 4) apply to capital gains tax events occurring on or after 1 July 2017. The amendments relating to the venture capital investment measure (item 1) apply in relation to payments made on or after 1 July 2016.

Schedule 2: amendment of the ASIC Act 2001

Section 127 of the ASIC Act provides for the confidentiality of protected information held by ASIC.[20] It also sets out the circumstances where ASIC may disclose information. Subsection 127(2A) authorises the use and disclosure of information by ASIC to:

•       the Treasurer

•       the Secretary of the Treasury

•       APRA

•       the RBA

•       the Clean Energy Regulator and

•       the Climate Change Authority.

Item 1 of Schedule 2 to the Bill will amend subsection 127(2A) to add the Commissioner of Taxation to the list of entities to which disclosure of confidential information is authorised.

Item 2 provides that the amendment made by item 1 applies in relation to disclosures of information made on or after Schedule 2 commences, regardless of whether ASIC obtained the disclosed information before, on or after that time.

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[1].              M Turnbull (Prime Minister) and C Pyne (Minister for Industry, Innovation and Science), National Innovation and Science Agenda, media release, 7 December 2015.

[2].              S Morrison, ‘Second reading speech: Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016’, House of Representatives, Debates, 16 March 2016, p. 3251.

[3].              N Gupta, Tax Laws Amendment (Tax Incentives for Innovation) Bill 2016, Bills digest, 117, 2015–16, Parliamentary Library, Canberra, 4 May 2016.

[4].              Explanatory Memorandum, Treasury Laws Amendment (2017 Measures No. 1) Bill 2017, p. 10.

[5].              Part 3 of the Australian Securities and Investments Commission Act 2001 provides information gathering powers. See also: Australian Securities and Investments Commission (ASIC), ‘ASIC’s compulsory information gathering powers’, ASIC website.

[6].              Subsection 127(1) of the ASIC Act.

[7].              Subsection 127(2A) of the ASIC Act.

[8].              Subsection 127(4) of the ASIC Act.

[9].              Explanatory Memorandum, op. cit., p. 16.

[10].              Senate Standing Committee for Selection of Bills, Report, 3, 2017, The Senate, Canberra, 23 March 2017.

[11].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 3, 2017, The Senate, Canberra, 22 March 2017, p. 37.

[12].              Ibid.

[13].              A Leigh, ‘Second reading speech: Treasury Laws Amendment (2017 Measures No. 1) Bill 2017’, House of Representatives, Debates, 2 March 2017, p. 11.

[14].              Explanatory Memorandum, op. cit., pp. 7 and 8.

[15].              The Statement of Compatibility with Human Rights can be found at pages 13 and 17 of the Explanatory Memorandum to the Bill.

[16].              Section 104-1 of the ITAA 1997.

[17].              Very basically a trust exists when one person (‘the trustee’) has legal ownership of property and another person (‘the beneficiary’) has the beneficial, or equitable, interest in that property: Thomson Reuters, Australian Income Tax 1997 Commentary.

[18].              Explanatory Memorandum, Treasury Laws Amendment (2017 Measures No. 1) Bill 2017, p. 10.

[19].              Ibid.

[20].              ‘Protected information’ is defined at subsection 127(9) of the ASIC Act.