STATUTES AMENDMENT (LAND HOLDING ENTITIES AND TAX AVOIDANCE SCHEMES) BILL

Second Reading

Adjourned debate on second reading.

(Continued from 4 May 2011.)

The Hon. I.F. EVANS (Davenport) (11:03): I rise to speak as the opposition's lead speaker on the Statutes Amendment (Land Holding Entities and Tax Avoidance Schemes) Bill 2011. This was a budget measure announced in September last year, and the government has taken until May to bring in this particular measure. The measure is not a tax reform; it is a tax grab.

It is regrettable that the government has taken the opportunity to increase the tax take without really seeking to address the issues raised by various industry groups about the cumbersome application of some provisions in the act and, indeed, in the bill. In the industry association's view we are still left with a bill that is going to have very high compliance and structural costs, and as a result inhibit or restrict investment in South Australia.

It is regrettable that the government has brought the bill on this week. The government, of course, has had six or seven months in preparing the bill. It tabled it in the last week of sitting. The opposition has had a bare week to consult on the bill. It is a highly technical bill, as the house will soon find out when I get to some of the more detailed elements of the bill. It is just regrettable that the government chose to bring it on this week and not give the opposition more time to consult, but that is the government's right. The opposition is in a position where we are speaking to the bill, having received only one response to our consultation process prior to going to the party room, and we have received two responses since going to the party room. My second reading speech will be quite detailed, based on those three submissions we have received.

The Treasurer asserts in the second reading speech that the provisions in this bill, the landholder model, which will replace what is known as the land rich model, are intended to protect the duty revenue base from leakage caused by taxpayers purchasing land indirectly through companies and unit trusts rather than directly. It targets contrived schemes entered into to avoid paying tax. The provisions are based on anti-avoidance provisions in the New South Wales duty legislation.

These landholder provisions are intended to ensure that conveyance duty is paid on the transfer of significant South Australian land assets, although I think some of the industry associations would contest the word 'significant'. They seek to ensure that the conveyance duties are paid on the transfer of significant South Australian land assets when control of a company or unit trust changes. The introduction of a landholder model does not change the conveyance duty arrangements for individuals buying land assets directly.

This bill replaces land rich provisions primarily in part 4 of the current Stamp Duties Act 1923 with what is known as landholder provisions. These amendments will operate from 1 July this year and transitional provisions provide that agreements entered into prior to 1 July 2011, but completed on or after that date, will be dealt with under the existing land rich provisions.

During the government briefing, it was indicated to the opposition that these changes are to tidy up legislation as court cases were fought in other states over interpretation of land rich legislation that is similar to our current legislation. We understand there has been no court case in South Australia as such on this issue, but the government insists this is to clear up the argument about what is a chattel or what is a good to be included in the price of the land for dutiable purposes.

However, this is not a revenue neutral bill. The government seeks to put its hand in the pocket of business and claw another $20 million a year out of the stamp duty regime proposed under this particular measure and, like all good Treasury estimates, my guess is that it is an underestimate and the Treasurer can write down that, for future estimate committees, we will be asking how much extra we have been collecting, because my guess is that it will be more than the $20 million that Treasury has estimated.

All jurisdictions in Australia have either a land rich or landholder provision. It is fair to say that virtually all of them are now going to the landholder provision. They currently operate in New South Wales, Western Australia, Northern Territory and the Australian Capital Territory. Queensland and Victoria in their most recent budgets have announced that they are also going to a landholder model. The South Australian bill before us today is based heavily on the New South Wales' model.

Under the current land rich provisions outlined in the current act, part 4, a personal group of associates are liable for stamp duty if they acquire 50 per cent or more of the shares or units in a private company or unit trust, and the private company or unit trust owns South Australian land valued at $1 million or more, and 60 per cent or more of the value of the total assets of the entity are land. That is deemed land rich.

There is an assets test currently at 80 per cent or more for primary production entities, and the minister will be pleased to know that some of my colleagues who represent rural constituencies wish to go into committee to ask questions about the impact of the bill on interfamilial transfers and other primary production matters, so I am sure we all look forward to the committee stage, Treasurer.

The 60 per cent figure of the land assets is what court cases in other jurisdictions was about, that is, the issue of avoiding paying stamp duty. Some businesses or individuals would argue that their land, or what was deemed to be land, was not worth 60 per cent of the value of the assets, while the tax department would argue that it is.

The amendments proposed by the government remove the 60 per cent and 80 per cent tests so that the provision that will apply will be when a person or group of associates acquires 50 per cent or more of the shares or units in a private company or unit trust and the private company or unit trust owns land valued at $1 million or more in South Australia and there is no CPI indexation of the $1 million land asset.

I think that is a missed opportunity in this bill for two reasons. One reason is that most other jurisdictions have a $2 million valuation where the duty kicks in, and South Australia is keeping it at $1 million. That, clearly, is going to have a broader impact in South Australia than in other states. So, exactly the same corporation reconstructed in South Australia will suffer duty, whereas in other states it would not if the land value was $2 million, as distinct from $1 million in South Australia.

Secondly, the $1 million value has been in place since the 1990s (I think 1990 itself). We are now in 2011 so, obviously, the number of transactions being caught is far broader now than ever really originally intended back in the 1990s. The government has missed an opportunity to increase that valuation, and this is the point of the industry groups, that this is not a tax reform, this is a tax grab by the government. It was announced in last year's budget as a method of propping up last year's revenue streams.

In relation to listed companies, if 90 per cent or more of the shares or units of a listed landholder company or trust are acquired, landholder duty will be charged at a concessional rate of 10 per cent of the amount of duty otherwise payable, and that is where a listed entity means one listed on the Australian Stock Exchange.

Another vehicle, known as widely held unit trusts, would also receive the same concessions. Unit trusts which have 300 or more unit holders, where none of the unit holders individually or together with an associated person is entitled to 20 per cent of the units in the trust, will be treated under the new part 4 as a listed trust in recognition of the large number of unit holders. For example, that would mean that one must acquire 90 per cent or more of the units to be liable for duty at 10 per cent of the amount of duty otherwise payable. Standard transfers of land by 'mums and dads', as we might call it, will not be affected, as this does not involve purchasing shares in companies or unit trusts.

My understanding from our briefing is that there are also exemptions for the family farming related transfers which remain under section 71CC of the Stamp Duties Act. In relation to the interfamilial transfer of farming property, my understanding is that clause remains unchanged, but some of my colleagues will ask questions regarding that. If the land is mainly used for the business of primary production and is being transferred to a relative or a trustee of the relative, the transaction is exempt from stamp duty, as I understand the provision.

In relation to life insurance companies, a concession is also being introduced in relation to the statutory funds of life insurance companies to provide that the funds are not considered to be associated persons for the purposes of the new part 4. Given the unique regulatory circumstances of statutory funds which must be accounted for separately from the business and assets of the life insurance company, the government is treating such funds as separate and independent for the purposes of landholder provisions.

In relation to duties on goods, under the proposed landholder provisions in this particular bill, stamp duty will apply to the underlying local land asset acquired by an entity as well as particular goods of the landholder entity which are used solely or predominantly in South Australia. The application of duty to goods is subject to a number of exemptions, including stock-in-trade, livestock and material used for manufacturing. This approach will provide, the government argues, consistency with the general conveyance base where chattels that are transferred with the land are subject to duty. The approach is broadly consistent with the landholder provisions in other jurisdictions, so the government tells us.

The definition of land has been extended to include interests that have a close connection to the land, and it is considered that they should be dutiable because, the government argues, they are in substance closely comparable to ownership interests considered to be land in the Real Property Act 1886. The government argues that it is trying to simplify the bill by abolishing the 60-80 asset test and redefining land assets to include anything:

(b) fixed to the land but notionally severed or considered to be legally separate to the land by operation of another Act or law (so that a separation by another Act for the purposes of that Act will not affect the operation of this paragraph for the purposes of the imposition and calculation of duty under this Part).

I am sure that is clear to the house. These provisions, if you believe the government, are meant to promote the equitable treatment of all property considered to be fixtures to the land under the landholder arrangements.

There is a special treatment for leases for mining, aquaculture and forestry property agreements. These interests are covered by the bill and they include mining and petroleum-related leases and licences, aquaculture leases and forestry property agreements reflecting the interests intended to remain in the stamp duty base when duty is removed on nonreal, nonresidential conveyances on 1 July 2012 as part of the federal government's intergovernmental agreement. I think there is some dispute about whether the state government has met the terms of the intergovernmental agreement in relation to keeping stamp duty or requesting that stamp duty be charged on those particular leases or at least some of the leases and licences.

There are new powers to the tax commissioner. The bill also makes amendments relating to the Commissioner of State Taxation's ability to recover stamp duty under the proposed new part 4 of the act to have the same powers with landholder entities as it does with land tax, the emergency services levy and the first homeowners' grant. The bill provides the commissioner with the power to register a charge against any land of an entity, and that charge will rank as a first charge over the relevant land.

The government undertook a consultation process in relation to this bill. We understand that the government submitted a bill to AMP, Business SA, The Tax Institute, the Law Society, the Law Council of Australia, the Property Council of Australia, the South Australian Farmers Federation, the National Institute of Accountants, the Australian Institute of Conveyancers, the Real Estate Institute, CPA Australia and the Institute of Chartered Accountants.

The government advises us that it only received responses from the Law Council of Australia, the Property Council of Australia and the South Australian Farmers Federation, and it had a discussion, I understand, with AMP. It did not consult the forestry industry about the impact of stamp duty on its forestry leases. It did not consult the mining industry about the impact on its mining leases and licences. It has not consulted the aquaculture or fishing industry about the impact of charging stamp duty on things like aquaculture leases. None of that consultation was done in the six months from the announcement until the introduction of the bill.

As I mentioned earlier in my contribution, this bill was introduced a week ago. The opposition sent out the bill to the Australian Lawyers Alliance, the Law Society, The Tax Institute, the Real Estate Institute, Property Council, Farmers Federation and Business SA as a first step and, as at the time we had to go to our party room, we had only received a response from the South Australian Farmers Federation.

This is the point I make to the minister: I think it is a poor procedure to bring in a bill when it is so technical in its nature with only a week's notice. I know that that is a relatively standard procedure that generally the government has the right to bring it on in a week, but it is pretty clear from the consultation process that the government hardly got a response in its process. The opposition has had only a week to try to understand the bill and get a response from the various industry groups. We asked the Treasurer's staff to delay it by one week to give us more time to consult, but that was declined; so, here we are, having the debate.

The government argues that the landholder model has broader application than the land rich provisions. It argues that it treats all South Australian land transfers over a million dollars equitably and purports to protect the tax base from being eroded through the manipulation of the land rich test. Ultimately, it is a tax grab not a tax reform, and my understanding is that it came out of the Sustainable Budget Commission—one of the commission's recommendations picked up by the government.

As I said earlier, this policy change is expected to have an annual increase in revenue of at least $20 million per annum. It is interesting that the Sustainable Budget Commission report notes that, while there is some uncertainty around the costings of the proposal, it suspects that the revenue measure is closer to $25 million. That is why the cynics on the opposition suggest there might be more than the $20 million collected. Every time there have been amendments to anti-avoidance legislation, the government has tended to underestimate the amount of revenue collected, so the opposition thinks there might be more than a $20 million per annum hit to South Australian businesses in relation to this bill.

I now want to go through some of the submissions that we received because this is a pretty technical matter. As we received two of these submissions after going to the party room, the opposition has not really had a chance to consider some of these questions in the party room sense. I intend to put these submissions on the record and the minister, in his response, can address the issues raised by the various submissions, and that will give us some information as to how the government sees the operation of this particular bill. One submission received prior to going to the party room was from the South Australian Farmers Federation, and our submission is dated 18 March. It is a copy of a submission it sent to Mr Jackson of the government, and that is the submission referred to.

Essentially, the South Australian Farmers Federation argued that this particular bill will have the effect of broadening the tax base in relation to primary production entities so that if control of an entity changes and the entity holds South Australian land assets—being farming land above the value of $1 million—conveyance rates or duty will apply to land assets being transferred, and SAFF objects to the broadening of the tax base in this way. That is the point: it is a tax grab not a tax reform.

The South Australian Farmers Federation argues that there will be many farming operations in which more than 20 per cent of the value of the entity's assets consist of assets other than land. It argues that often a change in the underlying ownership of farming land held by a private company or a trust entity will take place between generations. By removing the 80 per cent threshold to farming entities, many more transactions in which there is a change in the underlying ownership between generations will be subject to duty. I want the Treasurer to confirm or deny that claim, because I understood that if it was being transferred between generations there was an exemption for interfamilial transfers or intergenerational transfers.

The Farmers Federation also raised the issue that new section 100 of the bill provides for a general liability to duty. A transaction would be liable to duty if it acquires a prescribed interest or increases its prescribed interest in a landholding entity. In this case, the person or group notionally acquires an interest in the underlying local land assets and is liable to duty in respect of the notional acquisition. Under section 100(2), the following transactions are dutiable:

(a) a transaction as a result of which a person or group acquires or has a prescribed interest in a landholding entity; or

(b) a transaction as a result of which a person or group that has a prescribed interest in a landholding entity increases its prescribed interest in the entity.

Section 100(3) provides that a transaction will be dutiable even though the person or group that has a prescribed interest, or increases a prescribed interest, is not a party to the transaction. 'A group' means a group of associates, and under new section 91(8) various people will be associated with each other if certain conditions are met, for example, one is the trustee of a trust and the other is a beneficiary of a trust.

There are other situations in which people will be associated with each other. The circumstances in which a person might be associated with another and therefore be part of a group is very wide indeed. For example, typically, in the context of a family trust, the potential beneficiaries of the trust will be a large group of individuals. For the purpose of the definition of 'associated' a person may be part of a group by merely being the beneficiary of a trust, and even though that person is not a party to a dutiable transaction they may now be liable for duty simply because they are part of a group of associates.

Subsection (8), in the Farmers Federation's view, should be reformed so as to provide more clarity as to how the associations are formed. The Farmers Federation want to know: is that intended, or is that, indeed, a drafting error?

Section 102 of the bill provides that where a group has, as a result of a dutiable transaction, a prescribed interest—being, in relation to a private company, a proportion interest in the entity of 50 per cent or more—in a landholding entity, the value of the interest acquired in the entity's underlying local land assets is, the total unencumbered value of the entity's underlying local land assets multiplied by the fraction representing the proportionate interest of the person or group in the entity.

This means that if a person or group acquires an interest of, say, 60 per cent in an entity the person or group will pay duty as if it acquired 60 per cent interest in the entity's underlying local land assets. However, if a person or group already has a minority interest in the entity, say 49 per cent, with stamp duty having been paid when the entity acquired that interest, and then the group increases its 40 per cent interest to, say, 100 per cent, then the group or person will be assessed as if it had acquired the 100 per cent interest. There is no credit being given for the stamp duty paid when the initial 49 per cent interest was acquired.

The Farmers Federation argues that the bill should be amended so that stamp duty paid in relation to the earlier acquisition is counted in determining duty in respect of a transaction in which a majority interest is acquired. The Farmers Federation would be likely to get the answer from the minister: is that the intention, that they not be credited for the stamp duty paid in acquiring the previous interest?

Section 102A provides that duty payable by a person or a group which acquires a prescribed interest in a landholding entity in which the entity's underlying land asset is a million or more is, in the case of an entity that is a private company, duty payable on a conveyance of land with an unencumbered value equivalent to the value of the acquirer's notional interest in the entity's underlying local land assets, plus the value of the entity's South Australian goods.

The Farmers Federation notes that section 91(12) provides that a reference to goods does not include the following: goods that are stock-in-trade, materials held for use in manufacture, goods under manufacture, goods held or used in connection with primary production, or livestock. They are exempted, in essence.

Given that the new provisions seek to assess for duty a transaction in which a person or group acquires a majority interest in a landholding entity on the same basis that would have been the case had the person or group acquired the land directly, then the Farmers Federation argue that there is no basis for including the value of the entity's South Australian goods. By including the value of the entity's South Australian goods, the amount of duty payable on what was, essentially, a land acquisition may be greater than had the person or group acquired the land directly and not acquired the majority interest in the underlying entity. In any event, the value of goods to be taken into account, the Farmers Federation argues, should be limited to a proportion of the goods which corresponds to the proportion of the land the subject of the transaction.

Section 92(3) provides that a relevant entity's interest in land will be taken to include an interest in anything fixed to the land, including anything separately owned from the land or physically fixed to the land but notionally severed or considered to be legally separate to the land by operation of another act or law.

With a significant rollout of wind farms taking place on farming land, a circumstance may arise in which wind turbines are fixed to the land but are not owned by the farmer. This will usually be the case, in fact. Generally speaking, a wind farm operator will take a long-term lease of the farming land.

The value of the wind farm infrastructure may well be several millions of dollars, depending on the size of the wind farm. In theory the relevant entity's interest in the land would be taken to include any interest in the wind farm infrastructure, even though this is not owned by the farmer. I would like the Treasurer to confirm or rebut that particular point raised by the farming federation about the treatment of wind farms owned by others that are on farmers' property: when they are being sold under this provision, will they be included in the value for duty purposes or not?

In addition, there may be a plantation of trees on the land or growing crops yet to be felled or harvested. The trees or growing of crops may have been sold under a forward sale contract—that is common these days—so that although they are physically fixed to the land, that is, they are still growing on the land, they have actually been sold, in essence.

They may be considered legally separate from the land by the operation of the law. Where there is a change in the underlying interests in the private entity which owns the land upon which the trees or crops are growing, the transaction will exclude the value of the trees or crops on the basis the entity has already disposed of them by way of the forward sale contract. However, for the purpose of determining what is to be included in assessing the relevant entity's interest in the land, the trees and crops may well be included.

Again, I ask the Treasurer to clarify to the house, in relation to the forward sale of trees or crops, what is the treatment of them as far as being included in or excluded from the value for the purposes of a duty. The Farmers Federation also comments on the Taxation Administration Act, and section 13A(1) provides that, if the commissioner is satisfied that a person has used a tax avoidance scheme as defined, the commissioner may determine the tax which the person, and indeed other people, would have been liable for apart from the use of the scheme, and take action that the commissioner considers necessary to allow assessments so determined.

The drafting of section 13A(1) is very vague, according to the Farmers Federation. It is not clear how the commissioner will determine what other people would have been liable for duty apart from the use of the scheme. Section 13A(2) goes on to say that the commissioner makes a determination under subsection (1) and each person who has gained a benefit from the scheme is liable for a duty. Again, it may be difficult to say who is going to benefit from a scheme, and the drafting of this provision is indeed very vague.

Section 13A(3) provides that the section applies in relation to a scheme whenever and wherever entered into. This effectively means the commissioner can assess people who he thinks should have been liable for duty had the scheme not occurred when the scheme took place, some time ago, because it uses the words 'whenever the scheme was entered into'. This means this section has a retrospective effect. What this means is the government seeks to give the Commissioner of Taxation the power to go back years and look at transactions and try to unwind them if he thinks now they were somehow designed to avoid tax. SAFF objects to any anti-avoidance provisions with a retrospective effect, and I think in principle SAFF is correct.

The opposition received a briefing note from the Property Council dated 17 May, after we had gone to the party room, and the Property Council of Australia, South Australian Division sees this particular bill as an absolute missed opportunity to try and harmonise the stamp duty legislation with some provisions that exist in other states. It argues that a harmonisation of the stamp duty legislation would help property investment in Australia—and, indeed, in South Australia—and it has developed what it believes to be a best practice model in relation to stamp duties, which it argues would be revenue neutral while also improving efficiency. There would be no major changes to the current practice, and it would therefore make it easier and more attractive for local and international investors to do business in South Australia.

When we were being briefed by the government, we raised the issue of the $1 million threshold. After the briefing, my office sent through some questions to the minister's office to the effect of: if we increased the threshold to $2 million as in other states, what would be the hit to the budget estimated by Treasury under the existing provisions as well as under the new provisions? The advice received back was that the government had not calculated that. If that is true, it means that the government had no intention of even looking at harmonising the legislation between states because, if it were looking at harmonising the legislation and making the threshold the same as other states, someone in Treasury would have modelled what would be the impact of lifting the threshold from $1 million to $2 million.

We asked: what is the calculation to lift the threshold from $1 million to $2 million? The answer from the Treasurer's office was, 'No-one has done the calculation; we can't tell you.' So I ask the Treasurer, on the record, if he cannot give us an answer to that question as part of this debate, will he give a commitment, between the houses, to ask Treasury to calculate those figures so that we can make a judgement about the $1 million or $2 million threshold question and what hit that might be to the budget?

The Property Council of Australia (South Australian Division) argues that under the current provisions stamp duty is, of course, collected in all states but that the definitions and applications of stamp duty are quite different in each jurisdiction. It argues that these differences mean that the same business transaction can result in stamp duty being levied at different amounts, and sometimes at multiple times, across Australia. It believes that South Australian stamp duty laws currently penalise investment entities that want to restructure to become more efficient and that this reduces the number of business transactions that could be made in South Australia. It argues that the proposed laws significantly increase the land tax base without adopting some proposals for efficiency that other states have implemented in their regimes.

The Property Council sees this as a missed opportunity. It believes that the current provisions unnecessarily hold back transactions, and impose high compliance and restructuring costs that substantially reduce the money that could be invested directly in South Australia, and therefore inhibit investment, as investors will not proceed where compliance costs are high or, indeed, where there is double duty to be paid.

In fairness to the Property Council of Australia, it has put forward a solution that I understand was sent to the government some time ago as part of its consultation on the bill. The Property Council argues that adopting its particular model would attract investment to South Australia by providing a simple, practical platform for common business transactions. It argues that these recommendations would not cost the government; indeed, they have been designed to be revenue neutral.

There are two aspects to the proposed model put forward by the Property Council: to ensure that landholder stamp duty operates fairly and optimally and to ensure that entities can restructure to operate efficiently without additional stamp duty. The Property Council says that by adopting its particular amendments it will help South Australia's landholder stamp duty provisions operate as effectively as possible. It argues that, currently, the regime discourages investment in trusts, which are the main vehicle for investing in property. It argues for the following changes:

Increase of the threshold to $2 million—this will align South Australia with other states and exclude "nuisance transactions";

Its point here is this: the $1 million level was established in 1990, we are now in 2011. If you CPI'd up the $1 million, it would be obviously closer to $2 million than $1 million. The reason the $1 million figure was picked in 1990 was to try and not deal with the smaller transactions—the 'nuisance' transactions, as the Property Council put it—and it is arguing that, by leaving the $1 million threshold there, the government is going to capture a whole range of transactions that it was never intended to under the original act. Of course, the reason the government is doing that is that this is a tax grab and not a tax reform.

New South Wales and Western Australia have a land value threshold of $2 million, and New South Wales generally calculates the threshold using the unimproved value of the land from land tax purposes. This provides as an even higher threshold and removes uncertainty and valuation complexity around determining the threshold. We will ask the Treasurer what the hit to the budget would be if South Australia adopted the unimproved value of land measure, as per New South Wales.

The second point it raises is maintaining the 60 per cent or more threshold. It argues that to avoid unfairly targeting hospitals etc., that owned land incidentally as a capital item, the 60 per cent threshold focuses the duty liability on investments predominantly only. This reflects the intention of the duty: to tax entity transactions that are substitute for a transfer of land. Unfortunately, removing the threshold means that investments in entities where land is a minor asset will not be taxed. If the intention is to tax investments in a return from land, then a 60 per cent threshold is needed.

For example, investors in hospitals want a return based on hospital services and the growth in the health sector. Land merely facilitates the provision of services. The investment return is not based on land, it is the return on services. There should be no stamp duty difference for investments in health care, depending on whether the business leases or owns the land (hospital buildings).

Further, it says, 'remove taxation on listed entities'. It argues that to comply with the intergovernmental agreement (the national agreement) that that particular agreement provided there would be no state taxes on dealings in securities traded on a recognised stock exchange. The imposition of landholder duty arguably contravenes this. I would ask the Treasurer to confirm whether the intergovernmental agreement actually prevents the charging of stamp duty on the transactions (the listed entities) as proposed under the bill. Landholder duty is also a disincentive to efficient capital markets as it makes merges or takeovers of particular classes of corporations/entities (such as mining and property companies) more expensive than those corporations/entities which do not hold land.

It argues for a streamlining of the associated persons test so that the companies and trusts are treated on a similar basis. The current treatment discourages an investment in trusts which is the main vehicle for investing in property. The test discriminates against trusts. A (company) shareholder in a company will not be an associate of the company unless the companies are related bodies corporate; however, if a company is a beneficiary of a trust—for example, an infrastructure trust—regardless of the interest in the trust, it will be an associate of the trustee.

The Treasurer might want to clarify that for the house in his response. It argues for excluding interest acquired before becoming a landholder. It argues that this is unfair because it is a double duty that discriminates against property investment: shareholder A holds 10 per cent of X company; shareholder B holds 90 per cent. The company buys land and pays full duty. If shareholder A then buys 40 per cent of B's interest in the trust, shareholder A will pay duty on this 40 per cent interest. However, a third party investor acquiring 40 per cent in X company would pay no duty. Ignoring the pre-land interest puts an existing investor in the same position as a new investor. I ask the Treasurer to explain why the government has decided to put an existing investor in a different position from a new investor.

The Property Council argues for removal of the double duty on the sale of land and selldown of units by unit holders. This, it believes, is inequitable as duty has already been paid and a property investment trust has been established. Land is bought and full duty paid using debt. Units in the fund are then sold to investors. Duty is paid again if the investors buy the units under an associated transaction, which is a very broad test, or the associates. This results, ultimately, in a double duty.

It also argues to provide a general rule that excludes custodians from the provisions. Only the underlying owners, rather than the bare trustees, should be taxed. There are very few professional custodians. It is common for the same custodian to hold investments on behalf of a number of separate and independent unrelated investment funds. Unless the custodians and bare trustees are ignored, the interests of those separate and independent unrelated funds can be aggregated and duty imposed, whereas if a custodian was not used no duty would be payable at all. I will ask the Treasurer to explain why he has designed the bill in this fashion.

The argument from the Property Council is that this was an opportunity for the government to encourage corporate restructures and to increase business efficiency in South Australia. South Australia has a corporate restructure exemption that does not operate as effectively as it could. Adopting the amendments as proposed by the Property Council could help ensure that the current exemption becomes best practice.

The major changes that it argues for are as follows: to provide 100 per cent relief for restructures in the law and to provide certainty and give true relief for restructures in circumstances where the government already accepts relief should be given. Currently, I understand that Treasurer approval is required, rather than an automatic right, under the legislation.

The example the Property Council gives is that company A has assets in Victoria, South Australia and Western Australia. It wants to transfer the assets to its parent, company B. The legislation in Victoria and Western Australia enables company A to confirm it will be eligible for relief and to undertake the transaction. That is in the law; no Treasurer decision required. However, company A in South Australia must apply for the relief in South Australia and may wait six or more months before relief can be confirmed or denied. So, it is a hindrance to corporate restructure, and one wonders why the government did not take the opportunity to work through that particular inefficiency.

The second point the Property Council makes is to remove the requirement to transfer all assets in a business, because this prevents the efficient restructuring where only certain assets of a company need to be moved, for example, one business division. The example given is a corporate group that has subsidiaries in Australia and the United States. One of the United States subsidiaries takes over a rival group, X, that also has subsidiaries in Australia, including a company registered in South Australia. There is no relief to the transfer for the South Australian company to be with the other Australian subsidiaries unless all of the US subsidiaries of X are also transferred. One has to wonder why they have to transfer all their subsidiaries and not do it just for one of them—again, a missed opportunity by the government.

The third element that is argued is to ensure that subsidiaries that have 50 per cent or more control can access the exemption to be consistent with the land rich provisions, that is, to take charge of control and ensure that subsidiaries are treated as part of the group. The example given is that company A owns 51 per cent of the shares in each of B and C; B owns 100 per cent of X, which owns land in South Australia; B can transfer 49 per cent of the shares in X to C without any duty under the land rich provisions. However, under the current South Australian provisions, X cannot transfer 49 per cent of the land to C without a duty because the legislation says that X and C are not members of a corporate group. Again, a missed opportunity.

The fourth element it argues for is to remove the pre-association requirements. It argues that pre-association unnecessarily prevents group restructuring, particularly where a new entity is acquired, whose assets would be more efficient somewhere else in the group. So, the example is that group A merge with group B; the groups cannot restructure their South Australian assets with a duty exemption unless at least three years after the merger occurs.

It also argues for making relief available for all dutiable transactions. There is no policy justification, it argues, for limiting relief to only particular kinds of dutiable transactions. So, the example is: the transfer of 50 per cent of the shares in the land rich company L from subsidiary S to its parent company P can be exempt. The issue of 50 per cent of the shares in L to P cannot be exempted. Also, the transfer of land and goods from S to P can be exempted, but the change in registration of a motor vehicle from S to P cannot be exempted.

The last one is to limit the post-association requirements. Post association unnecessarily hinders efficient group restructure as groups simply avoid those transactions during the post-association period. Trust A transfers land to B and obtains an exemption as both are wholly owned by trust C. A purchaser of trust B will pay the duty and then, if the purchase occurs within three years after the transfer from trust A, there will be another further imposition of stamp duty under the clawback outlined in circular 227, which I know is one of the Treasurer's personal favourites.

These reforms, the Property Council argues, would deliver substantial cost savings to the industry without unfairly eroding the government's revenues. It believes it would attract business investment to South Australia. The Property Council sees this particular bill as an opportunity to reform the stamp duty provisions not only to protect the government's revenue, which is obviously in the government's interest, but also to make business a lot more efficient and easy to operate within South Australia, and the government has missed the opportunity to undertake those reforms.

I have dealt with the two simple submissions. I will now get to the more technical submission for the house, and this is a submission we received overnight from the Law Council of Australia's National Taxation Committee. The committee advises that the Law Council of Australia was consulted. They met with the commissioner and several of his officers. They have provided them with an amended draft to make comments on it; I assume the amended draft is what is before us.

Some of the council's concerns were met by amendments but many were not, either as a result of their being outside the scope of the consultation with the commissioner because they were matters of policy or because the commissioner or parliamentary counsel were not willing, for one reason or other, to alter the bill to accommodate them. I am not sure that it was parliamentary counsel's role; it may be an misinterpretation on behalf of the group making the submission, but I think the point is that the commissioner had his instructions from the Treasurer and anything outside of those policy instructions was not going to be entertained. As a result, the council has several continuing concerns about the content of the bill, and it enclosed a submission.

The point I make is that I think the house can tell by the nature of the submissions that this is a highly complex and technical bill, and for members of parliament to have to get their head around it when they have had the submission for less than 12 hours or even 48 hours is, I think, a poor process.

For the enjoyment of the Treasurer and his officers, I will now deal with the issues raised by the Law Council of Australia Business Law Section in relation to this bill. It argues that this bill has a double standard:

On the one hand the government proposes the adoption of a broad general anti-avoidance provision for taxpayers whilst at the same time, in an apparent contravention of the Intergovernmental Agreement on Federal Relations, Schedule B, Item B2(g) (IGA) expands its tax base in relation to landholding companies to not only include items that have not generally been regarded as interests in land but also to include items that are not fixtures and to include most goods (with a few exceptions) of the entity.

Again, I would ask the Treasurer to confirm: did it consult the federal government to ensure that this bill was not in breach of the intergovernmental agreement, or did it seek crown law advice that this bill was not in contravention of the intergovernmental agreement? The Law Council of Australia Business Law Section is an expert in this field, and it argues that it is a contravention of the intergovernmental agreement.

The Real Institute of New South Wales has also observed the trend in some states of departing from these intergovernmental obligations. It has recorded it in the following terms:

Since the original IGA, some states and territories have broadened their existing stamp duties on real property such as by imposing transfer duty on certain leases and by expanding the base for land rich or landholder duty and in NSW, mortgage duty.

NSW has also gone even further, with the introduction of new ad valorem taxes since the IGA, in the form of vendor duty, from 1 June 2004, subsequently abolished on 2 August 2005, and more recently, a 'Torrens Assurance Levy' for land purchases over $500K.

I guess the point this group makes is that the government is breaching its intergovernmental agreement by broadening its stamp duty base by including things such as leases and licences, mining, forestry, agriculture—those issues I have raised previously in my address.

The opposition's understanding is that the state government has given a commitment to abide by the intergovernmental agreement and abolish stamp duties in certain elements come 1 July next year. The Law Council of Australia argues that this bill, in part at least, is a way to claw back some of that lost revenue contrary to the intergovernmental agreement. It argues:

...the treatment of certain interests that are not legally interests in land as land in the landholder provisions with a number of consequential flow-on tax consequences is artificial—

so, you are artificially defining what is going to be land—

and will impose a significant cost on dealing with entities with significant holdings of such rights. This is a direct and unique strike by this state against the spirit of the IGA.

They are strong words. They are not mine; they are from the Law Council of Australia. It continues:

This is a direct and unique strike by this state against the spirit of the IGA. These rights are unusual creatures of statute; they are most likely simply statute licences, it is very hard to perceive them to be interest in land. They are not interests in land at common law. The imposition of landholder duty in such circumstances is unwarranted and conceptually unsupportable. It imposes potentially significant additional costs on activities that are to be encouraged not burdened with additional taxes.

Again, it raises the wind farm concern.

An example is the wind farm industry. For a State that claims to be leading the way in this alternative energy source and an international leader in aspects of it, according to its own publicity, providing innovative policy initiatives such as payroll tax rebates to [then] apparently not understand the impact of the proposed landholder provisions on those responding to those initiatives is disappointing.

The current land rich model has been taken as a base and only a few changes have been made to its broader impact and some significant inconsistencies with other provisions of the Act are not to be addressed.

Some comments and examples in respect of the Landholder Provisions and the General Anti Avoidance Provision follow. The Schedule contains a number of further comments, usually of a more technical nature.

We will work through those now.

On the interests in land, we have already gone through the issue about whether they are part of the intergovernmental agreement, but, in this particular bill, the interests in land specifically include leases and licences granted under the Mining Act 1971, the Offshore Minerals Act 2000 and the Petroleum Act 2000, together with leases granted under the Aquaculture Act 2001 and the Forest Property Act 2000. As already highlighted, most of these interests are indeed not interests in land, according to law, and their inclusion appears to be contrary to the IGA.

The expansion to include the Aquaculture Act and the Forestry Act are unannounced; that is, something that was not announced as part of the budget announcement.

Both involve primary production activities where the value is rarely in the land. In the case of the aquaculture leases, in many situations there will be little value in the lease itself (it is of the seabed), the value will be in the items about the lease commonly neither affixed nor a fixture. In the case of some leases for raising molluscs, the situation may be different, depending on the culture method.

In the case of the tuna farms it is possible, depending on how they are affixed to the seabed, that they therefore may well be defined as part of the land. I would ask the Treasurer to confirm that this does not capture tuna farms.

This may result in the value of the aquaculture lease being significant. It could mean that the value exceeds the $1 million threshold for the landholder provisions to apply. If such items were not attached to the land they would be regarded as goods used in the business of primary production and completely outside the landholder provisions. The policy application between the two situations...[appears] markedly inconsistent. Also for an industry already struggling with significant reduced quotas and high exchange rates to find further taxes being imposed by the guise of turning personalty into an interest in land is to place yet further pressure on this important primary production industry.

Here is the point: the government never consulted the aquaculture industry or, indeed, the tuna industry. So, that was the advice to us in the briefing. How do they know the impact on those businesses? The answer is they don't because they never asked. In relation to goods, as already described in this submission:

...the inclusion of goods in the taxing base was not mentioned at the time and their inclusion appears to be contrary to the IGA.

This submission deals with partnership interests under section 91(4) to 91(7).

The extension of these provisions to partnership holdings is likely to create...[considerably more] difficulties in practice that are not warranted. In practice they are unlikely to be understood. The following example highlights the difficulties. A Pty Ltd and B Pty Ltd start a land agents business and engage in some development activities. Each contributes $10,000 to the capital of the firm. The individuals behind the companies work hard and take minimal drawings through the companies and build up loan accounts from undrawn profits of around $150,000...[over] say, five years.

Sometime later, it is decided to admit a new partner—C Pty Ltd—who is required to contribute $210,000 by way of capital contribution and $50,000 by way of loan to the partnership. C pays the money into the partnership bank account. A bank overdraft facility to $150,000 is also established for the partnership. The original partners withdraw $100,000 each from the bank account in reduction of their loan accounts.

Shortly after the admission of C, they purchase premises for more than $1.5 million with wholly borrowed funds. After that, any dealings with the shares and the partners have the potential to attract the landholder provisions, depending on how you apply section 91(5). In reality, A Pty Ltd, B Pty Ltd and C Pty Ltd are entitled to 33.3 per cent each. Yet, under paragraph (b) of these provisions, their relative capital contributions will be 4.35 per cent, 4.35 per cent and 91.3 per cent respectively; so, C Pty Ltd will be land rich. Is that really what the government intended when drafting this legislation? The Law Council suggests this is simply unrealistic.

The submission also deals with land assets (section 92), fixture and fixed. Section 92(3) and 92(4) create considerable difficulties in both their meaning and application in providing whether items fixed to the land can constitute fixtures at law or not. The concept of a fixture is one that causes difficulties at law. These provisions do not assist by adding to its complexity.

The model used appears to be derived from similar provisions in Western Australia but not carried through to the landholder provisions. It was suggested in Western Australia, but, indeed, it was not carried through to the landholder provisions in the Western Australian Duties Act. The Duties Act now defines land as including fixtures.

Another simple example highlights the problem. A farm has a company that owns a portion of the farming land used by the farmer. The company leases land to a wind farmer. The wind farmer is also a company. The farmer derives rent, but it is not overly significant in terms of the overall income of the farmer and his controlled entities from farming in a good year. The value of the wind farm equipment erected on the land is many millions of dollars. At the end of the lease, the wind farmer has the right to remove the wind farm improvements. Section 36A of the Electricity Act provides:

Subject to any agreement in writing to the contrary, the ownership of electricity infrastructure constructed or installed for operation by an electricity entity is not affected by its affixation or annexation to the land.

The wind farmer, indeed, is an electricity entity. In this situation, under this provision, the value of wind farm improvements could be included in the land assets of the fee simple company as a fixture or fixed, in addition to their being an asset of the wind farmer company.

In both situations, the item is used in connection with the land, though in substance it is used by the wind farmer in connection with the farm business of generating electricity. The parties should know with certainty what their position is. They should not have to ask the commissioner to exercise a discretion and possibly resort to the courts if he is for some reason not satisfied sufficiently to exercise the discretion.

Here is the point: this bill has introduced more complexities and more confusions into the market. So, in that case, the wind farmer, and the crop farmer in the example, would not know their legal position in relation to stamp duty on transfer of assets. They would have to toddle off to the tax commissioner in South Australia and get some ruling. Why would you introduce a system that introduces that complexity? Surely, the law can be written in such a way that gives them some certainty.

The Law Council of Australia's submission also raises the issue of the $1 million threshold. Section 98 defines a landholding entity as one of an unencumbered underlying land value of not less than $1 million. In New South Wales and Western Australia, on the adoption of landholder provisions, the threshold was increased to $2 million. This is apparently not to occur in South Australia, notwithstanding that the landholder model proposed includes not only land but South Australian goods. So, we are getting a double whack, effectively, in South Australia and that is the point from the submissions. This is not a tax reform; this is nothing more than a tax grab, ultimately.

It also raises the market value. Section 99(8) also introduces a further degree of artificiality. It directs that when determining the value of an asset or interest no account is to be taken of any amount that a hypothetical purchaser would have to expend to reproduce or otherwise acquire a permanent right of access to and use of existing information relating to the asset or interest. This overturns long-established principles, and the principles are set out in a court case of Pancontinental Mining v CSD in Queensland in 1988—something I am sure the Treasurer is familiar with. It is likely, therefore, to impact on fledging mining and oil exploration entities. In effect, it appears intended to treat the money spent in undertaking exploration work leading to the knowledge about a tenement as a valuable attributed to the tenement.

I think that is saying in plain English that money spent on undertaking exploration work by the mining company will be added to the value that will be dutiable if the tenement is transferred. Is that really what the government is proposing in a state that is trying to grow the mining industry? It will now charge stamp duty on the value of the exploration work done on transfer of the lease? Is that really what the government is proposing? I again ask the Treasurer to respond to that when he comes either to the second reading contribution response or the committee stage.

The Law Council of Australia also raises the issue of partnership interests, and it gives some other examples. It argues that how section 100(4)(d) will work in practice is unclear. For example, a partnership of three accountants is the owner of units in a unit trust holding the lease of the premises from which the business is conducted. The partnership subscribes $1 for the unit in the unit trust. The fit-out of the leased premises costs $1.5 million. The lessee is entitled to remove the fit-out at the end of the lease. A borrowing of $1.2 million financed the fit-out.

One partner retires after two years and the other partner acquires interest in the partnership. In this situation the landholding provisions would now apparently apply; the remaining partners each acquire a majority interest. Duty will apparently be assessed on the gross value of the assets of the unit trust. If the partners had the lease in their names it is unlikely that, under the Commissioner's Circular 191 (another favourite of the department), the interest in the lease would be regarded as real property. Again, the policy application is markedly inconsistent. The new provisions do not work consistently with the underlying purpose and intent of the landholder provisions.

Another example is this: a wife retires from a partnership and transfers her interest in the partnership. The partnership assets include shares in a landowning company. Her interest in the partnership is transferred to her husband and son, who are the other partners. The unencumbered value of the land owned is in excess of $1 million (say $1.1 million) but the net value really is only $150,000. In this situation, both father and son acquire a significant interest in the company through the partnership as each acquires 50 per cent of the partnership.

The net value of the partnership business and assets, including the shares, is around $250,000. The duty consequence on a deemed acquisition of a 50 per cent interest by each father and son could be in the order of $55,000. That is in excess of 20 per cent of the net value of the partnership. Clearly, the Law Council argues that this is disproportionately high. Is that really what the government intended in drafting this bill?

It also criticises the scope of landowner provisions. It argues that the scope and purpose of landowner provisions is to ensure that control of the companies and unit trusts, which own significant land, cannot pass without the payment of the appropriate ad valorem duty, as if the underlying land passed. The intent is not to tax other transactions in which company shareholders or unit holders are involved.

Section 102A(4) appears to suggest the contrary in the guise of affording relief in one simple situation whilst failing to provide relief for many other situations. It is highlighted by the following example. A company X with two longstanding shareholders A and B (each has 50 per cent each) owns land currently worth $900,000 and it acquires a company Y, whose assets include land currently worth $1.2 million. Company X proposes to pay the stamp duty on the acquisition of company Y, including the landowner duty.

The problem for the shareholders is that section 102A(4) implies that any transaction by which company X acquires an interest in land which exceeds $1 million triggers the operation of the landholder provisions. Section 102A(4) would suggest that A and B have now each acquired a significant interest in a landholding entity, company X (it owns land of the value of $2 million), and are required to pay duty on $2 million. This will be the case notwithstanding company X owned the land for 20 years and A and B their shares for the same period. Section 102A(4) does not provide relief in this situation because there is not a direct acquisition of land. Section 102G may mean two amounts of duty are not payable but because the commissioner is to collect the highest that is ad valorem duty on $2 million.

The Law Council then talks about recovery from an entity under section 102C, and argues that there should be an express restriction on the enforcement of any charge whilst any objection or appeal is pending. There should also be mechanisms to deal with the practical day-to-day difficulties that arise where such a charge is lodged.

It argues that section 102C(4) includes a provision providing that the charge is to be first ranking. This is a departure from the existing provision. Over the last 30 years or so the Crown has given up its rights of priority to be paid in most situations and for various statutory charges. This is a reversal of that trend. There appears to be little proper justification for doing so. It is inconsistent with the Western Australian and New South Wales and approach. There appears to be no justification for it.

I would be interested to know from the Treasurer what consultation they had with the banking industry about how this provision will now operate if banks have a first right of mortgage over a particular property. I assume from the way this legislation is drafted they become second in line, not first in line, and I wonder whether that creates any issues between the bank and the lender if they go from a first claim to a second claim status.

I turn to the anti-avoidance provisions—everyone's favourite, I am sure. The adoption of a general anti-avoidance provision has never been announced by the government, so this is a new element to the bill. The Law Council argues that the fundamental problem with general anti-avoidance provisions and, in particular, the type of provision proposed in the draft legislation, is that they seek to introduce a very vague and subjective view of what constitutes tax avoidance. This provision assumes a one-size-fits-all approach to most transactions and structures, usually to be measured by regarding as the norm common practices currently adopted as perceived, initially by the commissioner. A departure from any such norm is then to be regarded as tax avoidance.

Certainty in taxation is a fundamental tenet of good tax policy. By their very nature, general anti-avoidance provisions undermine that certainty because they mean that, whilst the person has conformed with the text of the relevant taxing legislation, it is then objectively determined that the consequences prescribed by the specific provisions of the law are to be overturned against a measure of some vague general objective standard of limited articulation within the legislation.

The Law Council also raises the retrospective elements of some provisions and argues that the proposed section 10 provides for the GAAP to have effect if a scheme carried out prior to it coming into force continues to have effect. The subsequent provisions prevent the commissioner from recovering duty and penalties insofar as the taxes involved arise prior to the commencement of the provision.

The effect is that the legislation will have a retrospective effect in relation to some transactions. It is most likely to have this effect in the land tax and payroll tax areas, and I want the Treasurer to explain the retrospective elements for both land tax and payroll tax. In the land tax area, there has long been a general anti-avoidance provision that has been before the courts on at least one occasion. In the case of payroll tax, there is intended to be a uniform arrangement across a number of states, so there is no justification for any retrospective effect, no matter how limited it is.

In regard to the landholder provisions themselves, there is an issue with the definition of 'executive officer' within the bill. The definition of executive officer previously relied upon the Corporations Act 2001 definition of executive officer. However, no such definition currently exists in the Corporations Act 2001. This amendment merely reproduces the previous Corporations Act 2001 definition into this act. It should be noted that the CLERP commentary, in removing the definition of executive officer in the Corporations Act, stated that:

...the concept of being 'concerned in management...' as described by the definition of 'executive officer' is not easily definable, and subsequent reliance on judicial interpretation is unwelcome.

So, whilst in one area of the law it has been recognised that the concept is not easily definable, the state persists in one of its taxing statutes with a concept recognised as not easily definable without any clarification or, indeed, redefinition.

It also appears that, in practice, the concept is blatantly too broad and unrealistic. It, in effect, regards every executive and anybody else in any aspect of the management of the relevant entity as an associate, no matter who they are. It makes no difference whether the executive is the chief executive officer, the chief financial officer, the chief information officer, the human resource manager, the finance executive or indeed the secretary, depending on the level of responsibility afforded to them.

The Law Council submission also raises concerns about the definitions of interest in land:

Previously, section 91A provided that an interest in land included a right to explore for minerals, petroleum or other substances on land or to recover minerals, petroleum or any other substance from land.

This new definition clearly broadens this base beyond the existing base, and specifically includes leases/licences granted under the Mining Act 1971, the Offshore Minerals Act 2000 and the Petroleum Act 2000, together with leases granted under the Aquaculture Act and the Forestry Property Act 2000. As already highlighted, most of these interests are not interests in land. Their inclusion appears to be totally contrary to the IGA.

The definition of an interest in land is also inclusive and not exhaustive, and additionally not only does it cover a lease/licence or specific items, but also an interest in such lease/licences etc. The same comments apply to the further leases/licences embraced by the extended definition.

So, not only does it apply to the licence, but it applies to those who have an interest in the licence. The submission continues:

This expanded class of interests did not appear to be part of the original announcement by the Treasurer. It appears to be broader than...New South Wales—

although it is understood to be similar to Western Australia. In regard to the definition of South Australian goods, the submission states:

...it is assumed that South Australian goods are goods that are used solely or predominantly in South Australia at the time of the dutiable transaction, despite the section not stating this.

At what point they are South Australian goods is not defined within the legislation. The submission further states:

There is no definition of livestock for the exclusion. It is also likely that livestock does not extend to fish, molluscs and crustaceans held as part of aquaculture facilities and possibly some other animals.

The problem has been avoided in the Livestock Act, of course, because there is a definition of livestock in the Livestock Act which includes poultry, fish kept or usually kept in an aquarium or fish farm and bees for which a hive is kept. So, in the Livestock Act we define livestock: in this particular bill, it is not defined, according to the Law Council. The submission states that the definition of the business of primary production in section 2(1) recognises such activities as primary production and may imply the contrary intention leading to a narrow interpretation of livestock. The matter is further confused by the fact that paragraph (d) of the definition of goods excludes goods used in connection with the business of primary production. It implies that livestock are to be treated differently and a narrower conventional definition applied. Accordingly a similar definition to the Livestock Act 1997 appears to be necessary in this situation to ensure all forms of stock are covered and [those involved in aquaculture] aquaculturists do not suffer further under these provisions.

It would have been good if the government had consulted the aquaculture industry about these provisions. The council also raise some concerns about partnership interests. Section 91(4) seems to overturn the doctrine of conversion in its application to partnership interests involved in landholder situations. It argues that the justification for doing so can only be questioned. The submission states:

Section 91(5) provides that the proportionate interest of a partner is represented as the greater of the relative capital contributed and the entitlement to share on a surplus on a winding up. The need to do the computation in each situation will unduly complicate matters. Whether the provision even works, let alone fairly, is open to question.

These are some of the difficulties that we have already highlighted. Section 91(5) uses the expression 'loan capital'. There is no definition of what loan capital is so, again, there is an element of confusion and lack of clarity in relation to this bill. The expression 'loan capital' appears to have been used in the Finance Act in the United Kingdom and is defined in section 8 in connection with certain funding of companies for stamp duty purposes. It received consideration in a court case in that context. The issue here is: what does it mean in the South Australian context? It is not a term used in practice in this state. There is no definition as to what loan capital is. There are concerns about the definition of land assets which are fixtures and fixed. The submission states:

Whether the property is a fixture or not of a landholding entity, it may not be relevant if the item constitutes South Australian goods because they are now to be brought to account, on the current proposal, in determining the duty, unless primary production goods. So if the item is not a fixture then it is personal property and query goods, though this may depend on the statue deeming it to exist separately from the property. It may be relevant in determining whether the $1 million threshold is crossed.

The submission continues:

The meaning of this in the context of the tenant's fixtures and the railway improvements discussed in [a court case] Asciano Services Pty Ltd v Chief Commissioner of State Revenue...is unclear. Whilst in both situations the items may be separately owned and used primarily in connection with a business rather than the land, it is not clear whether that is the view that will be adopted. The business cannot subsist without the land so it is unclear in a lease situation whether the improvements are counted both in the fee simple interest, leasehold interests or both.

Again, the Treasurer may want to clarify that for us in his contribution.

Under the heading 'One Series of Transactions', the submission raises circular 287 of the commissioner, which describes some past concerns about the operation of the current equivalent provisions. It states:

In the past concerns have also been expressed about the width of the expression one series of transactions when there is limited if any further criteria to link the series of transactions. It is desirable if these aspects are expressly addressed in the legislation by requiring that they are a series of transactions that must have a substantive link.

The council has raised concerns about the calculation of duty. It states:

The inclusion of South Australian goods was never highlighted at the time of the announcement of the adoption of the landholder model and as described appears contrary to the IGA. Further, it appears that under section 102A(1) that the duty is to be computed by reference to the value of the acquirer's notional interest in the entity's underlying local land assets plus the value of the entity's South Australian goods.

With respect to the listed companies and public unit trust schemes, the duty is 10 per cent of what it would otherwise be. Whilst this is consistent with what was announced in September 2010, there is absolutely no explanation as to why 10 per cent is adopted and not any other figure.

I have already commented on concerns that the general anti-avoidance provisions were never announced at the original announcement of this provision. They raise a retrospective effect of section 10 of the transitional provisions. The council argues that in taxation law a retrospective effect is particularly bad, but suggest that a general anti-avoidance could have such an effect, no matter how limited. It is indeed odious. So, again, they raise the same point as the Farmers Federation and other groups, that the anti-avoidance measures in here have a retrospective element which is certainly not supported by any of the groups.

I apologise for holding the house for longer than normal. The reality is that the consultation process of this bill was poor. It is clear that it is a highly technical bill and there are a lot of issues of concern to industry groups that the government has chosen not to address. Even though the opposition is proposing no amendments in this house, we do intend to go into committee and at that time work through each of the issues raised in the submissions so that we can get onto the record exactly what the government's intention is. That is the reason I have read them into Hansard, so that if the Treasurer does choose to adjourn this at the end of the second reading, or the first clause of the committee, to give his officers time to go through those various examples to compare the answers, that would assist the debate in committee.

With those few words, the opposition looks forward to the committee debate. I know that some of my colleagues have contributions that they wish to make at the second reading.

Mr PEDERICK (Hammond) (12:32): In rising to speak to the Statutes Amendment (Land Holding Entities and Tax Avoidance Schemes) Bill 2011, I declare that I am involved in the Pederick Family Trust, which is a discretionary trust, not a unit trust. I will seek clarification from the Treasurer as to whether this legislation is all encompassing to cover trusts that are not unit trusts and I hope that can be clarified during the debate.

It is certainly interesting to note that we on this side of the house had very limited time to conduct our consultation. I am more concerned that the forestry industry, the mining industry and the fisheries (especially the aquaculture sector) have not been consulted. This is far-ranging legislation. It is technical legislation. I would challenge this place to see how many people are accountants, because I think you would need to be an accountant to know the full effect of this bill coming through. I think there will be quite a few questions asked during the committee stage.

I am very concerned about the lack of consultation, especially regarding sectors such as the forestry industry. We see the South-East under threat from the forward sale of forests. The dilemma for that region is incredible. It is disgraceful what this government inflicts on the regions in this state: the fact that the burgeoning mining industry has not been consulted, especially in relation to the interface that we are seeing, and will continue to see, between mining and agriculture. I would have thought it would be vital that mining was included in the discussion.

There are far more times now where we see proposals all around the state, on the Eyre Peninsula, the Yorke Peninsula, throughout my electorate in the Mallee and into the Riverland, with different exploration going on, whether it be for metals, zircon sands, or other mining minerals, that mining should have been involved, especially in the interaction with farmers and the potential for whether there are any payments that may come under this bill relating to access to land, whether it is under a lease arrangement or other arrangement, and whether there is any tax to be levied in that situation.

Fisheries, and especially the agriculture sector, that have had their fees roughly doubled in the last few years are already paying a significant cost just operating their businesses, so I think it is disgraceful that they have not been consulted either in as far as what effect this legislation may have on their businesses.

I know that the member for Davenport has given a very good contribution to the house on this matter. I am going to read in the submission that came in from the South Australian Farmers Federation, because I am concerned from my side of the house, representing agriculture, about the impacts that may happen to people who are involved—people, companies, whatever entities are involved in land—and what effect it may have on transactions. I want to make sure that inter-family transactions are protected. We are told they are, but I want the Treasurer to fully outline the proposals there in the bill, because poor old regional South Australia at the moment does not get too much from this government. In fact, they usually get a belting.

In regard to the letter from the South Australian Farmers Federation, addressed to Graeme Jackson, the Deputy Commissioner of State Taxation:

Thank you for the opportunity to comment on the Statutes Amendment (Land Holding Entities and Tax Avoidance Schemes) Bill 2001. The South Australian Farmers Federation submits the following.

Part 4 of the Stamp Duties Act 1923 as amended (the Act) (Land Rich Entities) provides that a land rich entity is an entity in which the unencumbered value of the underlying local land assets of the entity and associate entities is $1 million or more and the value of the entity's underlying land assets comprises:

in the case of a primary production entity—80 per cent or more; and

in any other case, 60 per cent or more;

of the unencumbered value of the entity's total underlying assets.

By adopting a landholder model, the 80 per cent and 60 per cent tests are removed. This will have the effect of broadening the tax base in relation to primary production entities, so that if control of an entity changes and the entity holds South Australian land assets, being farming land above a value of $1 million, conveyance rates of duty will apply to the land assets being transferred. SAFF objects to the broadening of the tax base in this way.

There will be many farming operations in which more than 20 per cent of the value of the entity's assets consist of assets other than land. Often a change in the underlying ownership of farming land held by a private company or trust entity will take place between generations. By removing the 80 per cent threshold in relation to farming entities, many more transactions in which there is a change in the underlying ownership between generations will be subject to duty.

Section 100 of the bill provides a general liability for duty. A transaction will be liable for duty if it acquires a prescribed interest or increases its prescribed interest in a land holding entity. In this case, the person or group notionally acquires an interest in the underlying local land assets and is liable for duty in respect of the notional acquisition.

Under section 100(2) the following transactions are dutiable:

A transaction as a result of which a person or group acquires or has a prescribed interest in a landholding entity; or

A transaction as a result of which a person or group has a prescribed interest in a landholding entity and increases its prescribed interest in the entity.

Section 100(3) provides that a transaction will be dutiable even though the person or group that has a prescribed interest or increases its prescribed interest is not a party to the transaction. A group means a group of associates. Under Section 91(8) various people will be associated with each other if certain conditions are met, for example one is the trustee of a trust and the other is a beneficiary of a trust. There are other situations in which people will be associated with each other.

The circumstances in which a person might be associated with another person and therefore be part of a group is very wide. For example, typically in the context of a family trust, the potential beneficiaries of the trust will be a large group of individuals. For the purpose of the definition of 'associated', a person may be part of a group by merely being the beneficiary of a trust and, even though that party is not a party to a dutiable transaction, they may be liable for duty simply because they are part of a group of associates. Subsection (8) should be reformed to provide more clarity as to how associations are formed.

Section 102 of the Bill provides where a group has, as a result of a dutiable transaction, a prescribed interest being in relation to a private company a proportionate interest in the entity of 50% or more in a landholding entity the value of the interest acquired in the entity's underlying local land assets, the total unencumbered value of the entity's underlying local land assets multiplied by the fraction representing the proportionate interest of the person or the group in the entity.

This means that if a person or group acquires an interest of, say, 60% in an entity, the person or group will pay duty as if it acquired a 60% interest in the entity's underlying local land assets.

However, if a person or group already has a minority interest in the entity (say 49%) with stamp duty having been paid when the entity acquired that interest and the group increases its 40% interest to say a 100% interest, then the group or person will be assessed as if it had acquired 100% interest, no credit being given for the stamp duty paid when the initial 49% interest was acquired. The Bill should be amended so the stamp duty paid in relation to the earlier acquisition is counted in determining duty in respect of a transaction in which a majority interest is acquired.

Section 102A provides that duty payable by a person or group which acquires a prescribed interest in a land holding entity in which the entity's underlying land asset is $1 million or more is, in the case of an entity that is a private company, duty payable on a conveyance of land with an unencumbered value equivalent to the value of the acquirer's notional interest in the entity's underlying local land assets plus the value of the entity's South Australian goods. I note that Section 91(12) provides that a reference to 'goods' does not include the following:

Goods that are stock-in-trade;

Materials held for use in manufacture;

Goods under manufacture;

Goods held or used in connection with primary production;

Livestock.

Given that the new provisions seek to assess for duty a transaction in which a person or group acquires a majority interest in a land holding entity on the same basis that would have been the case had the person or group acquired the land directly, there is no basis for including the value of the entity's South Australian goods. By including the value of the entity's South Australian goods, the amount of duty payable on what is essentially a land acquisition may be greater than had the person or group acquired the land directly and not acquired a majority interest in the underlying entity.

In any event the value of 'goods' to be taken in account should be limited to a proportion of goods which corresponds to the proportion of land, the subject of the transaction. Section 92(3) provides that a relevant entity's interest in land will be taken to include an interest in anything fixed to the land, including anything:

separately owned from the land; or

physically fixed to the land but notionally severed or considered to be legally separate to the land by operation of another Act or Law.

With a significant roll out of wind farms taking place on farming land, a circumstance may arise in which wind turbines are fixed to the land, but are not owned by the farmer—

which certainly happens—

This will usually be the case. Generally speaking, a wind farm operator will take a long-term lease of farming land. The value of the wind farm infrastructure may be several million dollars, depending on the size of the wind farm. In theory, the relevant entity's interest in the land would be taken to include an interest in the wind farm infrastructure, even though it is not owned by the farmer.

In addition, there may be a plantation of trees on the land or growing crops yet to be felled or harvested. The trees or growing crops may have been sold under a forward sale contract, so that, although they are physically fixed to the land (i.e. still growing on the land), they may be considered legally separate from the land by operation of law. Where there is a change in the underlying interest in the private entity which owns the land upon which the trees or crops are growing, the transaction will exclude the value of the trees and crops on the basis that the entity has already disposed of them by way of the forward sale contract. However, for the purposes of determining what is to be included in assessing the relevant entity's interest in the land, the trees and growing crops may be included.

We have some comments in relation to SAFF's comments on the Taxation Administration Act, but I was unable to find the exact section numbers. It quotes them as:

Section 13A(1) provides that if the Commissioner is satisfied that a person has used a tax avoidance scheme (as defined) the Commissioner may determine the tax which the person (and other people) would have been liable apart from the use of the scheme and take action that the Commissioner considers necessary to allow assessments of tax so determined.

The drafting of Section 13A(1) is very vague. It is not clear how the Commissioner will determine what 'other people' would have been liable for duty apart from the use of the scheme.

Section 13A(2) goes on to say that if the Commissioner makes a determination under subsection (1), then each person who has 'gained a benefit from the scheme is liable for duty. Again, it may be difficult to say who is going to benefit from a scheme and the drafting of this provision is very vague.

Section 13A(3) provides that the section applies in relation to a scheme 'whenever and wherever entered into'. This effectively means that the Commissioner can assess people who he thinks should have been liable for duty had the scheme not occurred, where the scheme took place some time ago. This means that the section has retrospective effect.

SAFF objects to any anti-avoidance provisions with retrospective effect.

It was signed off, 'Yours sincerely, Carol Vincent', from the South Australian Farmers Federation.

I believe there are many, many questions that will be raised at the committee stage. I know the member for Davenport raised many questions in his speech, and I am sure I have colleagues on my side of the house who wish to add their contribution as well. I did note this morning, having a look at members' interests in this place, that quite a few people—

Mr Venning interjecting:

Mr PEDERICK: It is on the public record; it is there to find.

Mr Venning: It is, too.

Mr PEDERICK: Many members in this place operate trusts, and it will be interesting to see how debate on this bill carries forward. I am certainly concerned in relation to any tax burdens that may be put onto farming families in this state who, through a probably once in a decade opportunity, have had the opportunity to have a decent income year this year (noting the issues with classification of grain and harvest).

I also note that sheep prices are extremely good. It is a bit tough if you want to buy them, but South Australian farmers have been able to purchase sheep that were in drought conditions in Western Australia and bring them over here; and so they have been able to make some money and make good use of an asset, instead of having these sheep potentially just put down in Western Australia. I know plenty of these sheep are heading over to the Eastern States as well. Certainly, people in the cattle industry are seeing increased returns as well.

Be that as it may, farmers have gone through many poor years, not all because of drought; some have been income-poor years. I think 2005 was a big year for grain growing—a good, wet year—but grain prices were shocking, somewhere around the $100 a tonne mark. It is unviable to grow crops for that money for any period of time, really, with the price of inputs and the associated costs of farming.

I am concerned, as I know other members on this side of the house are concerned, as to what effects this bill may have. I note that people have entered into family trust schemes and unit trust schemes because they are perfectly legal entities to operate in, but it will be interesting to see what happens with this bill and what effect it will have. I hope it has a very minimal effect on the farming community in this state. With those few words, I note that we will be going into committee and asking quite a few questions in relation to the bill.

Debate adjourned on motion of Hon. P. Caica.