Legislative Council Fifty-Second Parliament, Second Session (52-2) 52 2 Parliament of South Australia Legislative Council published Bills Payroll Tax (Miscellaneous) Amendment Bill PAYROLL TAX (MISCELLANEOUS) AMENDMENT BILL Second Reading Second Reading Adjourned debate on second reading. (Continued from 14 November 2012.) The Hon. R.I. LUCAS Legislative Council The Hon. R.I. LUCAS (20:34): I rise on behalf of the Liberal Party to support the second reading of the Payroll Tax (Miscellaneous) Amendment Bill. This is a relatively straightforward bill, essentially dealing with the principle of harmonising payroll tax legislation between the state and territory jurisdictions. This is an ongoing process, broadly supported by all governments. The member for Davenport in another place indicated the Liberal Party's support for the bill. In doing so, he read into the Hansard some questions from the Law Society (he placed them on the record) and the government has provided some answers. We are going to be a bit out of sequence here because as I understand it at the conclusion of the second reading the minister will read Treasury's responses to the Law Society's initial questions. The Law Society has now seen these proposed responses and what I am about to do is to read the Law Society's response to the government's response which is about to be read. So, we are a bit out of sequence, but given the fact that the Law Society has actually gone to the trouble of looking at the legislation in some detail I will read in full its response to what the government will indicate is its response to the Law Society's original questions outlined by the member for Davenport in the House of Assembly debate. This is a letter from the Law Society, dated 26 November, to Iain Evans, signed by John White, the president of the Law Society. It reads: Dear Mr Evans I refer to a email of 21 November 2012 from your advisor— I will not mention the adviser's name— inviting comment on the responses provided in Parliament to three questions you raised in parliamentary debate, the questions having been posed by the Society in its submission of 25 October 2012. Thank you for putting the questions before the Parliament. The responses to the three questions have been considered by the Society's Commercial Law Committee. We acknowledge that the provisions are part of a national harmonisation project, with New South Wales provisions for example having commenced on 1 July 2011. We understand that it would be highly unlikely that South Australia would introduce provisions which deviate from the national standard unless there is some major failing in those provisions. We do however consider it is worthwhile to at least consider where those provisions have scope for improvement. That said, our comments are: 1.	In respect to clause 6.1 (proposed section 19(2)), we suggest that the approach taken by the Commonwealth in not defining the meaning of 'grant' in the Income Tax Assessment Act 1997 should be considered. The prescriptive approach taken under the Income Tax Assessment Act 1936 in itself caused interpretive issues as seen in the McWilliams' case. In our view, being less prescriptive on this issue may be of greater benefit to taxpayers rather than less (as is suggested by the Treasury comments). We agree that McWilliams' case does not in itself mean that section 19(2) requires specific amendment but rather highlights one of the problems with that section as it was used in the Income Tax Assessment Act 1936. 2.	In relation to clause 6(2) (proposed section 19(3) and (4)), we agree that it is preferable to allow choice between the grant date and the vesting date for the taxing point, but where the vesting date is chosen, we look to the definition of vesting date in proposed sections 19(3) and (4). It would appear to us to be administratively easier for employers to deal with situations where employees leave employment and their shares/options (usually options) lapse at that time where that occurs within seven years of the grant date. Employers could deal with it in the payroll tax return related to the period when the termination occurs rather than attempting to keep track of this information for what may be five or six years after termination to include that transaction in the payroll tax return seven years after the grant date. This would lead to greater administrative burden on taxpayers if there is a failure to give them termination date as an option for the vesting date. We acknowledge that in most situations, there will be no payroll tax payable in these circumstances as there will be no value to those shares/options in those circumstances but at times there may be consideration given for options lapsing under certain 'good leaver' provisions. 3.	In relation to clause 7, we have no further comments to make other than those previously provided. Thank you for the opportunity to consider this matter. I trust these responses are of assistance. Yours sincerely John White In reading the Law Society's comments, I indicate that the Law Society accepts that because it is national legislation the government's position is unlikely to change in relation to this particular debate. I think what the Law Society is saying is, perhaps—not the government, it is more likely to be the government's advisers who go off to the national meetings to discuss—that they at least note the views of the Law Society. I am sure the Law Society, John White and its representatives would be happy to have ongoing dialogue with the officers of the government as they continue with this process of payroll tax harmonisation. I am sure that would be an open-ended offer from the Law Society and others in relation to at least having their views considered. The accept the fact that, in relation to this bill, there is unlikely to be any change, but I guess they are asking whether or not the government, through its advisers, will at least be prepared to consider the further views of the Law Society and, if they deem it appropriate, engage in ongoing dialogue with the Law Society and anybody else, for that matter, who may well have views on these particular issues. The Hon. G.E. GAGO Legislative Council Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for Tourism, Minister for the Status of Women The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for Tourism, Minister for the Status of Women) (20:40): I believe that there are no further second reading contributions to this bill, so by way of concluding remarks, I will address some of the issues that have been raised. In the debate on the Payroll Tax (Miscellaneous) Amendment Bill in the lower house, the Hon. Iain Evans has asked a number of questions on behalf of the Law Society of South Australia. I am advised that in order to put the answers to these question in context, it is important to note that payroll tax and income tax are very different taxes. Payroll tax is imposed on the employer, whereas income tax is imposed on the employee. Further, the taxing points differ for these taxes. Payroll tax liability arises on the grant of the share or option to an employee, although the employer can elect to treat the grant date or the vesting date as the taxing point. Income tax liability generally occurs at the grant date, expect in certain circumstances when a deferred taxing point applies. Notwithstanding the differences in the taxes and taxing points, the payroll tax legislation has been aligned with the income tax legislation where appropriate in order to minimise the administrative burden on employers. Furthermore, the payroll tax provisions relating to employee share schemes have been harmonised across all jurisdictions. The template amendments were drafted by New South Wales, in consultation with other jurisdictions, and the other jurisdictions have already adopted the changes to their respective payroll tax acts. I will now deal with each of the questions raised by the Law Society of South Australia in turn. I refer to clause 6.1—When a share or option is granted. The Income Tax Assessment Act 1936 defined the meaning of 'grant' of a share or option. However, the replacement provisions inserted in the Income Tax Assessment Act 1997 (ITAA 1997) did not include an equivalent definition of a grant, but instead left it to be determined under the common law. When the template legislation was drafted by New South Wales, in consultation with other states and territories, it was agreed that it would be preferable to retain the definition of 'grant' for the benefit of taxpayers and their representatives. There is therefore no reference to the ITAA 1997 in the proposed amendments to section 19(2) because there are no equivalent ITAA 1997 provisions to refer to. As the full Federal Court decision in Commissioner of Taxation v McWilliam was only handed down in August 2012, this case could not have been taken into account during the drafting of the harmonised employee share scheme provisions. In any event, I am advised that the decision in the McWilliam case does not require the proposed amendments to section 19(2) to be changed. The New South Wales and Victorian revenue offices have advised that they agree that the provisions do not require any amendment as a result of this case. In relation to clause 6(2)—Vesting date, I am advised that the states and territories considered it to be an unnecessary complication of the existing rules to incorporate the provision relating to termination of employment, referred to by the Law Society of South Australia, because share schemes usually have provisions withdrawing the right to shares or requiring immediate vesting on termination. Further, the states and territories agreed that this taxing point creates a considerable amount of uncertainty for tax administrators and clients alike, and that it would be preferable to retain the payroll tax provisions which allow the taxpayer to choose either the date of the grant or the date of vesting. I refer to clause 7—Value of shares and options. The words, 'and any other necessary modifications' in section 23(6) were included as a safety net provision, mainly because the commonwealth regulations dealing with the valuation of rights and options had not been made at the time the payroll tax legislation was introduced by New South Wales. The commonwealth regulations have since been promulgated but there has been no need identified as yet to provide guidance to taxpayers regarding those provisions. If such need were to be identified guidance will be provided by way of harmonised revenue ruling, and legislative amendment can also be considered. With those comments, I thank the opposition for its support for this legislation and look forward to the committee stage being dealt with expeditiously. Bill read a second time. Committee Stage Committee Stage In committee. Clauses 1 to 10 and title passed. Bill reported without amendment. Third Reading Third Reading The Hon. G.E. GAGO Legislative Council Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for Tourism, Minister for the Status of Women The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for Tourism, Minister for the Status of Women) (20:46): I move: That this bill be now read a third time. Bill read a third time and passed.