Inquiry into the Tax Laws Amendment (2012 Measures No. 3) Bill 2012 and related bills

Referral and conduct of the inquiry

1.1        On 9 May 2012, the Senate passed the following resolution:

To ensure appropriate consideration of time critical bills by Senate committees, the provisions of all bills introduced into the House of Representatives after 10 May 2012 and up to and including 31 May 2012 that contain substantive provisions commencing on or before 1 July 2012 (together with the provisions of any related bill), are referred to committees for inquiry and report by 18 June 2012.[1]

1.2        Accordingly, following their introduction in the House of Representatives on 24 May 2012, the provisions of the following bills were referred to the Senate Economics Legislation Committee for inquiry and report:

• Tax Laws Amendment (2012 Measures No. 3) Bill 2012 ("TLAB 3");
• Income Tax (Seasonal Labour Mobility Program Withholding Tax) Bill 2012; and
• Tax Laws Amendment (Income Tax Rates) Bill 2012.

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

1.4        The committee thanks the organisations that provided a submission to this inquiry.

Overview of the bills

1.5        The bills propose to amend a number of taxation laws to:

• apply a new final withholding tax to income derived by non-resident workers participating in the Seasonal Labour Mobility Program (SLMP);
• specify the circumstances where blending the same types of gaseous fuels or the same types of aviation fuels, which have been taxed at different rates due to phase-in arrangements related to other legislation, are not treated as excise manufacture (and are therefore not subject to additional duty);
• remove the eligibility of trust beneficiaries who are minors to receive the low income tax offset for unearned income earned through trust distributions;
• provide income tax exemptions for clean energy payments made to recipients of various income support payments;
• make access to the employment termination payment tax offset dependent on an individual's total taxable income; and
• align non-resident income tax rates with resident tax rates to account for future changes to the resident tax rates.

Provisions of the bills

Seasonal Labour Mobility Program—final withholding tax

1.6        In December 2011, the government announced the establishment of the SLMP.[2] Under the program, over four years up to 12,000 workers from Pacific Island countries and East Timor will be able to work in selected industries that have significant unmet demand for labour.[3] The SLMP replaces the Pacific Seasonal Worker Pilot Scheme.[4]

1.7        Schedule 1 to TLAB 3 and the Seasonal Labour Mobility Program Withholding Tax Bill propose changes to the taxation system to support the establishment of the SLMP. The marginal tax rate that will be applied to participants in the SLMP will be reduced (compared to the rates paid by other non-residents) to 15 per cent for income up to $37,000, and administered as a final withholding tax.[5] Eligible workers who have no other Australian income will not need to lodge a tax return, simplifying arrangements for the workers and the Australian Taxation Office.[6]

Taxation of gaseous and aviation fuels

1.8        Schedule 2 to TLAB 3 makes amendments to the Excise Act 1901 to avoid potential situations where the same types of gaseous or aviation fuels have been blended, but because each amount of the fuel has been taxed at a different rate due to phase-in arrangements relating to the alternative fuels legislation or the clean energy legislation, the blending would constitute excise manufacture and therefore be subject to additional duty. For example, the Explanatory Memorandum notes that in the case of gaseous fuels for transport, during the phase-in arrangements of the alternative fuels legislation it is likely that fuel taxed at the new rate will be delivered into tanks containing fuel that was taxed at the old rate, thus constituting excise manufacture and being subject to duty.[7] The amendments act to ensure the law operates as intended.[8]

1.9        LPG Australia supports the intent of these amendments and considers that the form the amendments have taken in TLAB 3 would enable them to achieve their objective.[9]

Amendments to the low income tax offset related to the unearned income of minors

1.10      Schedule 3 to TLAB 3 amends the Income Tax Assessment Act 1936 to support measures initially announced in the 2011–12 Budget and legislated through the Tax Laws Amendment (2011 Measures No. 4) Act 2011 which sought to remove the ability of children under 18 years of age to use the low income tax offset for tax due on their unearned income, such as dividends, interest, rent, royalties and other income from property.

1.11      The amendments proposed by TLAB 3 are intended to ensure the government's initial policy applies to another form of unearned income—that earned through trust distributions.[10]

1.12      The amendments will apply from the 2011–12 income years. The Explanatory Memorandum argues that the retrospective nature of the amendments:

... is appropriate because the Government's announcement of the measure in the 2011-12 Budget made it clear that the new arrangements would apply to all unearned income derived by minors, including through trusts.[11]

Treatment of certain clean energy payments

1.13      Schedule 4 to TLAB 3 will amend the Income Tax Assessment Act 1997 (ITAA 1997) to exempt clean energy payments made to recipients of payments under various income support programs from income tax.[12] This amendment follows the already legislated exemptions for clean energy payments made to other income support recipients, such as pensioners and recipients of the Newstart Allowance.[13]

Amendments to the employment termination payment tax offset

1.14      Schedule 5 to TLAB 3 proposes to amend the eligibility criteria for the employment termination payment (ETP) tax offset to limit the benefits that the offset can provide to high income earners. An ETP is a payment or similar benefit that is given as a consequence of the termination of the individual's employment. ETPs are divided into life benefit termination payments and death benefit termination payments—life benefit termination payments can be received by an employee after the termination of their employment, whereas death benefit termination payments can be received by an individual after another person's death in consequence of the termination of the other person's employment.[14]

1.15      The report of the Australia's Future Tax System Review chaired by Dr Ken Henry AC observed that the current design of the employment termination payment tax offset provides a concession 'for generous 'golden handshakes' as well as for unpaid salary'. The Review recommended that elements of ETP payments should be treated as income and taxed at marginal rates.[15]

1.16      The proposed amendments to the ITAA 1997 will provide that, if the ETP is not related to genuine redundancy, early retirement, invalidity or certain compensation related to an employment related dispute, eligibility to the ETP tax offset and the amount of offset received will take into account the individual's total taxable income (including the amount of the taxable ETP). The effect of this would be that any taxable component of an ETP which lifts an individual's total taxable income in a year above $180,000 will be taxed at the marginal tax rate. The amendments will apply only to life benefit termination payments and from the 2012–13 income year onwards.

Aligning the non-resident tax rates

1.17      The Tax Laws Amendment (Income Tax Rates) Bill 2012 proposes to amend the Income Tax Rates Act 1986 to more closely align the personal tax rates of non‑residents with Australian resident taxpayers. From 1 July 2012, the first two marginal tax rate thresholds will be merged into a single threshold, which will be aligned with the second marginal tax rate for residents.

Table 1: Proposed personal tax rates for non-resident taxpayers

For the part of the ordinary taxable income of the taxpayer that:	Marginal tax rate (%)
	2011–12	2012–13	2015–16
does not exceed $37,000	29.0	32.5*	33*
exceeds $37,000 but does not exceed $80,000	30.0
exceeds $80,000 but does not exceed $180,000	37.0	37.0	37.0
exceeds $180,000	45.0	45.0	45.0

* The bill does not specify these rates, but instead refers to 'the second resident personal tax rate' contained in item 2 of the table in clause 1 of Part I of Schedule 7 to the Income Tax Rates Act.

Source: Tax Laws Amendment (Income Tax Rates) Bill 2012, schedule 1, item 6.

1.18      The measure is estimated to increase revenue by $88.9 million over the forward estimates.[16]

1.19      The bill also proposes amendments to align income tax rates for taxpayers who are non-resident minors. Consequential amendments to this aspect of the bill were introduced by the government during the debate on the bill in the House of Representatives, and agreed to.[17]

Committee view

1.20      The proposed amendments contained in the bills will support the implementation of the Seasonal Labour Mobility Program, which builds on the successful Pacific Seasonal Worker Pilot Scheme, and make various improvements to the integrity and operation of Australia's tax laws. The committee supports the bills.

Recommendation 1

1.21      The committee recommends that the Senate pass the bills.

 

Senator Mark Bishop
Chair

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