Chapter 3 - Issues
Introduction
3.1
The Committee received four submissions on the Tax Laws Amendment (2007
Measures No. 4) Bill 2007, and its two complementary Bills; the Taxation
(Trustee Beneficiary Non-Disclosure Tax) Bill (No. 1) 2007, and the Taxation
(Trustee Beneficiary Non- Disclosure Tax) Bill (No. 2) 2007. Each commented on
a different Schedule.
Responses to the Bill
Schedule 1—Foreign loss and foreign
tax credit amendments
3.2
The Australian Bankers Association (ABA) provided a submission
concentrating on Schedule 1. The Association expressed in principle support
with the proposed amendments, but expressed concern that they were unintentionally
undermining the desired intent of strengthening Australia's attractiveness as a
financial centre, and that the proposed amendments create inconsistencies
between the way double taxation is relieved with respect to offshore banking
and non-offshore banking income. The ABA summarised its concerns in the
following manner:
The calculation of the foreign tax offset limit has been drafted
to allow greater averaging capacity to taxpayers, minimising the foreign income
tax that goes unrelieved. As a result, the carry forward of excess foreign tax
credits will no longer be available. This averaging capacity should also be
extended to offshore banking income, but in such a way that the offshore
banking unit is not able to use additional foreign tax to shelter no offshore
banking foreign source income;
The transitional provisions in relation to the utilisation of
carried forward offshore banking foreign tax credits needs to be amended on a
similar basis, to provide consistency between offshore
banking and non-offshore banking income, but in such a way that the offshore
banking unit is not able to use carried forward off shore banking foreign tax
credits to shelter non-offshore banking foreign source income;
Clarification is required in the drafting of the foreign tax
offset limit to ensure that the legislation is consistency with the policy
intent...; and
Amendment is required to the anti-avoidance provisions which are
drafted very widely, potentially applying to normal financing arrangements that
include a standard gross-up clause. As drafted these provisions put Australian
lenders at a commercial disadvantage when participating in genuine overseas
financing arrangements. [1]
3.3
The Australian Financial Markets Association (AFMA) lodged a
supplementary submission in support of ABA's arguments.[2]
Schedule 3— Superannuation
investment amendments
3.4
AFMA also provided a submission on Schedule 3. AFMA supports the
introduction of Schedule 3's provisions as they offer clarity and certainty for
the market, while still maintaining a high level of regulatory protection for
superannuation fund investors.[3]
AFMA also supports the amendment to the in-house asset rules, it did suggest a
further amendment:
The proposed legislation, by adding clauses 8 and 9 to section
71, creates an exception to the in-house assets rule for instalment warrants
that incorporate a borrowing and previously gave the regulators cause for
concern under section 67. This creates an exception for instalment warrants
that involve investments of any type that the superannuation fund would
otherwise be permitted to invest in. As such, these investments may include
equity assets that are unlisted as well as other asset classes, such as
property, that are also unlisted.
Instalment-style investments that are structured so they do not
feature a borrowing (and, hence, are already compliant with section 67) cannot
access this exception under the current wording. Instead, they must rely on
the Excluded Instalment Trust exception which is limited under the subsection
10(1) definition to listed securities.
It seems strange that instalment arrangements that feature a
borrowing enjoy a broader exception than those which do not. Accordingly we
recommend the subsection 10(1) definition be expanded.[4]
Schedule 8—Family trust loss regime
amendments
3.5
Pitcher Partners Advisory Propriety Limited (PPAP) lodged a submission
regarding Schedule 8. Although PPAP supported the provisions, the submission
stated that this is on a 'something is better than nothing' basis.[5]
3.6
Through its submission, PPAP expressed its disappointment in the lack of
scope in the provisions. PPAP believe that many more substantial amendments
are required to lesson the practical difficulties encountered by taxpayers in
their attempts to comply with the law in this area, and it provided a list of
submissions PPAP previously provided to Treasury on an exposure draft of the Bill.[6]
PPAP argued that very few of its proposals were adopted.[7]
3.7
PPAP argued strongly that "the amendments proposed in the Bill
represent only a small part of the changes that are necessary".[8]
Treasury responses
3.8
Treasury responded to the ABA's comments on Schedule 1, but limited
their comments to the anti-avoidance rule. Treasury's view is that the new
anti avoidance provisions are essentially a re-write of the current rules, and
that their scope has not been materially affected by the proposed changes.[9]
3.9
With regard to AFMA's comments on Schedule 3, Treasury explained that these
amendments had their genesis in the government's decision to allow what is
already a long-standing industry practice to continue. Both the Commissioner
of Taxation and APRA had previously concluded that instalment warrants
constituted borrowing. Officers explained that Treasury had not formulated a
position on the issues raised by AFMA about instalments with no borrowing
because
- these issues are essentially outside the scope of the bill; and
- that particular part of the market appears to be small.[10]
3.10
On Schedule 8, Treasury responded to the Pitcher Partners Advisory
Propriety Limited (PPAP) submission by saying that while many of PPAP's
proposed changes had not been implemented, they had been considered through the
consultation process. With regard to one of PPAP's key submissions – the
revocation of a family trust election if a trust no longer has tax losses –
Treasury argued that a family trust election is a choice that trusts and their
members have to make.
3.11
A family trust election allows a trust to access losses it would not
normally be able to access because it does not meet the normal rules for
deducting tax losses. By opting into it, it allows the trust to utilise the
losses and keep them within the family group. However there is also a penalty
if the trust distributes the losses outside the family group. These are tax losses
and benefits a trust wouldn't normally be able to utilise but for being able to
elect into the regime. A trust and its members need to consider the advantages
and disadvantages of these rules before making the decision to opt into the
family trust election regime.[11]
Committee conclusions
3.12
Having examined the limited number of submissions raising concerns over
the bill and heard Treasury's responses to those issues, the Committee is
satisfied that the bills' provisions are appropriate.
Recommendation 1
3.13
The committee recommends that the bill be passed.
Senator the Hon.
Michael Ronaldson
Chair
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