Chapter 1

Introduction and certain aspects of the Bills

1.1        The Tax Laws Amendment (2011 Measures No. 8) Bill 2011 (TLAB 8) and the Pay As You Go Withholding Non-compliance Tax Bill 2011 (PAYG(W) Bill) (collectively, 'the Bills') were introduced by the Government into the House of Representatives on 13 October 2011. On 3 November 2011, the Senate referred the provisions of the Bills to the Senate Economics Legislation Committee for inquiry and report by 8 February 2012.[1]

1.2        TLAB 8 is an omnibus bill containing four schedules. The PAYG(W) Bill accompanies schedule 3 to TLAB 8.

1.3        The Bills amend various taxation laws to:

• provide the Commissioner of Taxation with discretion to disregard certain events that would otherwise trigger the assessment of certain income for a primary production trust (schedule 1 to TLAB 8);
• clarify that the taxing point for the Petroleum Resource Rent Tax (PRRT) is when a product reaches its final form, rather than when its chemical composition first meets the definition of a marketable petroleum commodity (schedule 2 to TLAB 8);
• extend the director penalty regime to make directors personally liable for their company's unpaid superannuation guarantee amounts (schedule 3 to TLAB 8 and the PAYG(W) Bill); and
• make minor consequential amendments to the taxation arrangements for gaseous fuels (schedule 4 to TLAB 8).

Conduct of the inquiry

1.4        The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting submissions. The committee received 11 submissions, which are listed in Appendix 1.

1.5        The prospective referral of the Bills prior to their third reading by the House of Representatives and introduction in the Senate had an impact on the conduct of this inquiry.

1.6        The House of Representatives Standing Committee on Economics was referred the Bills on 19 October 2011. The House Economics Committee received 17 submissions, conducted a hearing on 27 October 2011 and reported on 3 November 2011; the same day that the Bills were referred by the Senate to this committee.

1.7        The House Economics Committee made three recommendations regarding the Bills, including that schedule 3 of TLAB 8 be deleted and that the PAYG(W) Bill remain pending until the Government completes the actions related to schedule 3 called for by the other recommendations in the report.[2]

1.8        The committee understands that in response to the recommendations of the House Economics Committee's report, the Government will amend TLAB 8 to remove schedule 3 (see Attachment 2). Accordingly, the committee has not examined either that schedule or the PAYG(W) Bill.

1.9        The committee is also aware of timing considerations associated with some aspects of TLAB 8—in particular schedule 4, as it seeks to make minor amendments to the taxation regime for gaseous fuels due to commence on 1 December 2011. This issue will be discussed further at the end of this chapter; however, the committee is of the view that the amendments proposed by schedule 4 should be passed prior to 1 December 2011 to avoid any unnecessary and undesirable outcomes for those affected.

1.10      Given that the Government has indicated that one of the key elements of the Bills will be removed and subsequently reviewed, and the time-sensitive nature of some remaining aspects of TLAB 8, the committee resolved to present its report to the Senate during the remaining sittings days of 2011 instead of in February 2012.

1.11      The committee intended to conduct a public hearing to provide a further opportunity to engage with stakeholders on these issues. However, the likelihood of quorum issues for the committee precluded a hearing from occurring within the short period of time available. Nonetheless, the committee was able to utilise the written submissions received both by this committee and the House Economics Committee, as well as the transcripts of evidence taken by the House Economics Committee at its public hearing on 27 October 2011.

Structure of the report

1.12      This report has two chapters. The remainder of this chapter discusses the amendments contained in schedules 1 and 4 to TLAB 8. Chapter 2 focuses on the amendments outlined in schedule 2, which seek to clarify the location of the taxing point for the purposes of the PRRT.

1.13      As the committee understands that schedule 3 will be removed prior to TLAB 8 being introduced in the Senate, and that the PAYG(W) Bill (which is associated with this schedule) is unlikely to be considered by the House in the near future, this report does not examine those provisions.

Schedule 1—Commissioner of Taxation's discretion for primary production concessions

1.14      Schedule 1 to TLAB 8 amends the Income Tax Assessment Act 1997 (ITAA 1997) to provide the Commissioner of Taxation with the discretion to disregard certain events that would otherwise trigger the assessment of certain income for a primary production trust in the year of the event.

Current law

1.15      Under Division 385 of the ITAA 1997, taxpayers involved in certain primary production activities can receive concessional tax treatment for liabilities that are due to certain circumstances arising from certain diseases and natural disasters. Examples of eligible tax liabilities include profits made on the death or forced disposal of livestock and insurance proceeds for the loss of livestock or trees. The Division allows taxpayers to elect either to spread the liability (generally over five income years) or, in certain circumstances, to defer the liability.

1.16      Events which cause the concession to end (known as a 'disentitlement event') are outlined in section 385-163 of the ITAA 1997, with separate provisions for individuals, partnerships and trusts. In the case of a trust, a disentitling event happens when:

(a) a beneficiary dies;

(b) an order for the administration of the trust estate is made under a law relating to bankruptcy;

(c) a beneficiary becomes bankrupt, insolvent, commences to be wound up, applies to take the benefit of a law for the relief of bankrupt or insolvent debtors, compounds with creditors, or makes an assignment of any property for the benefit of creditors;

(d) the trustee or a beneficiary leaves Australia permanently, or it appears to the Commissioner of Taxation that the trustee or a beneficiary is about to do so; or

(e) the trustee ceases to carry on the primary production business to which the election relates.

The proposed amendments

1.17      Schedule 1 to TLAB 8 provides that when a disentitlement event occurs, instead of the concessional tax treatment immediately ending and any unassessed portion of the profit or insurance recovery being included in the assessable income of the trust the income year of the event, the Commissioner of Taxation will be able to exercise a discretion to ignore certain disentitling events that occur at the beneficiary level if it is fair and reasonable to do so.

1.18      The Explanatory Memorandum notes that a similar discretion existed prior to the enactment of the ITAA 1997. It indicates that the removal at the time was part of a 'broader approach ... of removing discretions pertaining to liability'. However:

... the removal of the discretion can potentially result in harsh outcomes where a trust carries on the primary production business and the disentitling event happens to a beneficiary.[3]

1.19      Additionally, the death of a beneficiary will no longer be a disentitling event. The Explanatory Memorandum gives the following reasons for this approach:

The death of a beneficiary as a disentitling event has been repealed as it is difficult to contemplate circumstances where it would not be appropriate for the Commissioner to exercise a favourable discretion.[4]

1.20      The amendments will apply from the 2005–06 income year onwards. As this appears to be a favourable change for affected taxpayers, this application date should not be a concern.

Schedule 4—amendments to the taxation of gaseous fuels arrangements

1.21      Schedule 4 to TLAB 8 contains minor consequential amendments related to the Taxation of Alternative Fuels legislation package of four Acts which received the Royal Assent on 29 June 2011.[5] The package brings the transport use of gaseous fuels into the excise and excise-equivalent customs duty regime (otherwise known as the fuel tax regime) from 1 December 2011. That is, from 1 December 2011, duty will apply to the gaseous fuels used in transport in most instances.

1.22      The amendments contained in schedule 4 will:

(a) confirm that excise duty does not apply when compressed natural gas (CNG) fuel is manufactured in home refuelling units that do not have commercial scale capacity;

(b) confirm that fuel tax credits are available to unlicensed distributors of liquefied petroleum gas (LPG) for non-transport applications; and

(c) provide for the content of the notices accompanying the supply of LPG for non‑transport use to be set out only in regulations, rather than the content being outlined in primary legislation with further details also prescribed in regulations.

1.23      On the amendment outlined in subparagraph (c) above, once the provisions of the Taxation of Alternative Fuels Legislation Amendment Act 2011 commence (on 1 December 2011), section 77L of the Excise Act 1901 will impose an obligation on sellers of LPG to give notices to buyers when LPG subject to a remission of duty is supplied for non-transport use. Such a notice will be required to state that excise has not been paid on the LPG supplied; explain the penalties that apply for unlawful sale or use of the LPG for transport purposes; and be in the manner and form prescribed in regulations.

1.24      If TLAB 8 is passed, the requirement for a notice to be supplied will remain, but the contents of the notice will be determined only by the regulations. The Explanatory Memorandum states that the change will allow:

... maximum flexibility to develop, in consultation with industry, the text of notices that inform purchasers of LPG for non-transport use of their obligations. This approach minimises the compliance cost impact for entities that supply these notices.[6]

1.25      In his Second Reading Speech, the Minister argued that the amendments will ensure that the Taxation of Alternative Fuels legislation package 'applies as intended and does not impose excessive compliance costs on the gaseous fuels industry'.[7]

Committee comment

1.26      The committee did not receive any evidence from stakeholders commenting on schedules 1 and 4 to TLAB 8. The committee also notes that the House of Representatives Standing Committee on Economics similarly did not receive evidence which focused on these provisions and accordingly chose not to examine these aspects of TLAB 8 in its report.

1.27      As outlined earlier in this chapter, in order to minimise the compliance costs and other undesirable outcomes for those affected by the new taxation arrangements for gaseous fuels commencing on 1 December 2011, the committee considers it desirable for schedule 4 to TLAB 8 to be passed by the Senate before this date.

1.28      As the amendments contained in schedule 1 to TLAB 8 reinstate past provisions and advantage those who may be impacted by them, the committee considers it appropriate for that schedule to also be passed in a timely fashion.

Recommendation 1

1.29      The committee recommends that the amendments contained in schedules 1 and 4 to the Tax Laws Amendment (2011 Measures No. 8) Bill 2011 be passed.

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