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House of Assembly - Fifty-Second Parliament, First Session (52-1)
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STATUTES AMENDMENT (LAND HOLDING ENTITIES AND TAX AVOIDANCE SCHEMES) BILL

Second Reading

Adjourned debate on second reading (resumed on motion).

Ms CHAPMAN (Bragg) (16:07): Prior to the luncheon adjournment, I think I was discussing the question of retrospectivity and where there can be circumstances where, in effect, under the proposed bill somebody may be paying duty twice. The way that the South Australian Farmers Federation propose that this issue should be dealt with is to make a requirement, by way of amendment, that any stamp duty paid in relation to an earlier acquisition is actually counted in determining the amount that is assessable at the time the majority interest is acquired.

They use the example of an entity that is a 49 per cent interest. Duty has been paid, then the owner acquires up to the 100 per cent threshold. The whole of the matter is reassessed and there is no credit given for the stamp duty that has been paid on the 49 per cent interest. I think it is very critical to the integrity of any reform in this area that proper credit be given for that, and I agree with that proposal put by the farmers federation.

One might appreciate that, in circumstances of an agricultural property, if there is more than one party in a family who has an interest and wants to acquire an increasing interest from other family members but is unable to do so at the initial time of acquisition but wants to slowly buy them out, then I can see a situation, if the asset is held in a unit trust, where that position could be compromised. In effect, we would have the multiple rate of taxation situation that I just referred to.

The other matter I wish to bring to the attention of the house is the extended definition of goods and fixtures that would be taken into account, with some restriction on goods that are somehow or other tied to South Australia. The member for Davenport has highlighted, through the business committee of the Law Council's submission, the complication with goods and, to some degree, I think, in respect of fixtures. What is common in rural South Australia is that state government-owned infrastructure, usually for the provision of services such as electricity (not just wind farms that are the new trendy look but in relation to electrical poles and infrastructure), is situated on private property to facilitate the transfer, usually, of that generated electricity, at an annual fee.

Some thousands of dollars are frequently paid for that public infrastructure to be placed on private property. A rental payment is made. The asset, namely the infrastructure, is clearly owned by the corporation or entities that are in some way government-controlled or owned, and there is a revenue stream from it. These are the sorts of things that clearly need to be sorted out before we finalise it.

It is concerning to me and, I am sure, to other members that there has been, across the nation, a transfer to this new definition, with a benefit for the state governments of the day in harvesting further funds, and that has been operational for some time. I think all jurisdictions but Victoria, which has announced it is going to do it but has not yet implemented it, have been operating it for some time.

I am at a complete loss as to why there has been a huge delay in the introduction of this, and, there having been a delay, why all these issues have still not been looked at to make sure that South Australians are not faced with an unfair circumstance or that people are not inadvertently called into tax reform in this instance, which is clearly acknowledged to be a broadening of the tax base. If it is not the government's intention to inadvertently bring in people, it should have made that clear before it came in or at least before it was announced in the 2010 budget.

The other area about which no-one appears to have made any statement, and which I find is still missing, is the question of what we are going to do with the value and income stream of water licences, particularly the value of the asset because they are becoming more and more valuable. In some areas they are treated as severable from the land. They are of independent value.

It is frequently said here in South Australia that, where there is minimal rainfall, the removal of the water licence or the right to have access to water on a piece of rural property in some instances would so deprive it of the capacity to generate any commercial revenue that the value of the land would almost diminish to nothing. Arguably, that would be, for example, on water licences in the Riverland where, clearly, people live in a desert but enjoy the benefit, thanks to the Chaffey brothers and all their successes in irrigation infrastructure in that area which created an opportunity and a lifestyle for thousands of those who live and produce in the Riverland. A classic example is the properties we now see in Loxton, where there has been a voluntary giving up of water rights for five years, during the drought period, in exchange for a compensatory payment. Those blocks have now gone into hibernation (at best how you could describe it), and now have become major plots for weed growth and other pest management issues that are attracted when this sort of thing happens.

Nevertheless, if a water licence or a water allocation is allocated to a property and it has a value, then we need to know whether it is going to be in there for assessment purposes. Several months ago—advisors to the Treasurer may not be familiar with this—we were dealing with legislation under the national securities laws, which relate to the registration of securities, which is car loans, stock mortgages, and so on, where one has security over a chattel or a good.

At that time there was an attempt in this parliament—only a few months ago—to introduce the access to water licensing or allocation permit processes as chattels. That having been identified, there were questions then about whether, in fact, there was an attempt to make it fixtures. We have had reform in this area at the national level which was to establish a national registration procedure, and there is no objection to that, but we have had debates for 100 years over the question of what is a fixture and what is a chattel, and water, historically, has been attached to the land. If a transfer which has been argued to have occurred as a result of federal legislation relating to protection of the River Murray has been used as some precedent to argue that water is in the goods category, then let us have a real debate about it, not try to deal with it in another piece of legislation.

In that piece of legislation, the Attorney-General came in and made it clear that there would be no attempt to proceed with that and we would have that debate down the track. He suggested he was doing it for some convenience to the parliament on the basis that down the track this would come in and therefore he needed to be ready for it later this year. I did not accept that, the opposition did not accept that, and we argued that it should be removed, and that was dealt with.

So I want it to be clear in this piece of legislation that there is no attempt to utilise the expansion of definitions under the Stamp Duties Act to, in effect, introduce that transfer from fixture to chattel so that, again, this can be used as some precedent in the future. That would certainly not be acceptable to me and I think we need some explanation from the government about what is happening.

I looked at section 94 of the current Stamp Duties Act, which sets out the land rich entity definition, followed by, for the purpose of this exercise, the general principle of liability to duty under section 95 of the act. In essence, that sets out the liability to pay where there is this significant interest, and it identifies that the duty is on the transaction on land rich assets and it ensures that that transaction is dutiable even though the person is transferring a minority interest and is either not a party to the proceedings or has a passive role in the transaction. That is all currently in the present act. The examples are given, and it is also to cover private entities.

The only thing that is new that I can identify in the bill, which is under section 100 (once part 4 is replaced) which sets out the general principle of liability to duty, is, first, to add an example transaction that is capable of being a dutiable transaction. Subsection (4)(d) added and it reads, 'the addition or retirement of a partner in a partnership with assets comprising shares in a company or units in a unit trust scheme'. The other new provision that is added is subclause (6) which says that, 'If a person who acquires or holds an interest in a landholding entity is a trustee for two or more trusts, any interest in the entity acquired or held by the person for different trusts are to be treated as if they were acquired or held by separate persons.'

So the concept of making sure, I suppose, that there is opportunity for governments to assess duty on land rich property is already there. It is quite expansive. So the government's stated intention, it says, is to remedy a potential loophole. I think it is a classic broadening base of the stamp duty and I do not think it has caused any loophole at all, to be frank. I actually think that this is something that has been national. Cash-strapped governments around the country have sought the opportunity to argue that point and they are going to rake in an extra $20 million a year.

I make the point that it concerns me, even though this is a budget measure, that this is money that is not going to go to infrastructure of importance that the government has identified and expanded on during the last two budgets, particularly the last budget. We have, of course, the decision to build a new children's prison. The government is not going to use the $20 million a year for that. It is going to sell the land at Magill. We have had the decision that it is going to build a new stadium facility at North Adelaide. That is $535 million that it has committed. We know that the $20 million a year is not going to that. That is money that is all going to be borrowed, according to the Treasurer. We know that this money is not going to the research institute building on North Terrace, because the commonwealth is paying for that. We know that the $20 million a year is not going to the Royal Adelaide Hospital because somebody else is going to build that on taxpayers' land and then the taxpayers are going to pay $1 million a year to rent it back for the next 35 years. So we know it is not going to that.

We know it is not going to the desal plant. That is obviously soaking up—pardon the pun—quite a lot of taxpayers' money, but in particular those who use the water from SA Water. The water users of this state are going to be stung for that major piece of infrastructure. We know it is not available for the pipeline, because the government claims that is already in the budget; this is the $403 million that it is ripping through the eastern suburbs with. We know it is not for the buildings for the transfer of the department itself, the department of transport and other major departments, including SA Water, because it has flogged off buildings at Walkerville, etc.

So, I can only hope, in the opposition's agreement to support this, that the funds will be applied wisely in the future and that they are not going to disappear into pet projects of the government repeated, like the Film Corporation relocation at Glenside hospital, etc.

Mr VENNING (Schubert) (16:22): I rise to speak on this bill and I do oppose it quite strongly. Before I say anything else, though, I declare that on my farming property we have a family trust which we have had for many years, which began right back in the time of death duties in South Australia. Many farmers resorted to family trusts to try to insure themselves against death duties. Many farming families were driven from the land when they faced death duties. Some, of course, were up for a double hit when both the father and mother died within a few years, and that was often the end of that family farm. Luckily, the Liberal government back then, the Tonkin government, got rid of death duties, but a lot of the farming identities had already put in place family trusts, and I am no exception in our family. So I see this bill as a bill that directly targets farmers and graziers, almost exclusively. It is very high compliance, as the member for Davenport put it earlier, and there are very high structural costs, and it will inhibit investment here in South Australia, particularly in the transfer of property.

I, too, am sorry this has been debated so soon, because I would have loved to have done a lot more work on this. I am not going to go through all the technicalities because this is a very technical bill. That has been well highlighted by our shadow minister, the member for Davenport, and then again by the member for Bragg, and also by the member for Hammond. So I am not going to go through all the technicalities. I will just go through the broad prospect of how I see what this bill does.

I have not had any response, I only saw this last week, and we have only got the one response that I have read and that is from the South Australian Farmers Federation. It has been far too quick, I do not know why the hurry. It is a very complicated and technical bill, as I said. Farming land is a considerable asset nowadays. A value of $2 million to $3 million would be a common value of an average family farm, often passed down from generation to generation. The normal transactions, as we have seen in this bill, apparently—purchases and sales—will not change. I am pleased about that.

Land rich legislation: there has been no litigation on this matter in South Australia. You would wonder why you are doing it, if it was not just for a tax grab. The government wants to claw, as the member for Davenport said, another $20 million per annum from the industry. Yes, it is another tax—stamp duty. It is not a tax reform; it is a tax grab.

I am very concerned that this is coming in, and what it will do is cause transaction costs—20 per cent of the assets can be assets other than the land. I presume that these are the improvements on those lands. Of course, the fences, the water pipes and all of those things are now going to be taxable. It is pretty sad indeed, when some of these people will have to sell their properties and when the new buyer will have to come in and pay these imposts, particularly if it is not within the family, and it is going to be quite an impost that somebody is going to have to pay. I think it is a double standard; it is tax avoidance versus an expanded tax. The question needs to be asked, as was asked earlier today: is it in breach of the intergovernmental agreement? When we were having discussions about the GST and everything else, the GST was supposed to take over from taxes like this, and here we are with a blatant grab for $20 million, at least.

This will also add inefficiencies and inflexibilities to a key Australian industry. What the Brown and Olsen Liberal governments did to free up land ownership, particularly in the early nineties, was a very popular move. To get it into the hands of younger Australians, the government removed the taxes and duties on the transfer of land between members of a family, i.e. father and/or mother to son or daughter. That was extremely well received, and what happened? Instantly we saw land transfers to the younger generation. I cannot think of any exceptions; people were just sitting on their land. I saw some pretty sad cases, and I will quote one where the son committed suicide because his father was 94 and still held all the property. It was too much and the lad committed suicide, and it certainly impacted on that community.

Even though intergenerationals are still exempt from this, this will send a very strong anti message for young farmers who are sharefarming neighbours' properties. If they would like to buy them, they will be up for the increase in duty if the trust transfer is to be taxed. This is, to government, a tax on wealth. Many farmers and vignerons have assets worth several millions of dollars, but, at the moment, they are very income poor. This does not take into consideration the ability of the citizen to pay, a citizen who is looking to add more land to his or her holdings in a battle to stay viable.

I note the response from the South Australian Farmers Federation, and I thank it for that. The member for Hammond dwelt on that very extensively during his speech to the house. I would have welcomed a strong commitment one way or the other—some strong advice to us—about what its point of view and that of its membership is, because it was very well laid out, and I have it here. There is no strong recommendation as to what we, as members of parliament, should do in relation to this bill, and I would have liked a clearer message about that.

Without any further ado, I oppose this bill because I think it is unnecessary. What we have is working very well. Nobody would say anybody is rorting the system. Why legislate when what you are trying to change is not broken, when it is working very well? All this is going to do is put a further impost on farmers, and surely they are doing it tough enough without this impost. I certainly hope that, between the houses, this bill is able to be modified to the extent of saving our farmers. I oppose the bill.

The Hon. J.J. SNELLING (Playford—Treasurer, Minister for Employment, Training and Further Education) (16:29): I thank honourable members for their contribution. I will try and respond to some of the issues that have been raised in the course of the debate. If there is anything which I am not able to respond to, I am quite happy for those issues to be taken up during the committee stage. In closing the debate I will attempt to respond to the many issues that have been raised by members. As I said, if I inadvertently miss any issues, I am happy to deal with them in committee or, indeed, consider anything between the houses.

Firstly, dealing with the consultation advice: consultation was undertaken. The bill was released for consultation on 21 January 2011, with comments due by 28 February this year. Submissions were received from the Law Council of Australia, the Property Council of Australia (SA Division), the Farmers Federation of South Australia, and AMP. The following bodies were also provided with a copy of the bill but did not provide comments: the Taxation Institute of Australia, the Law Society of South Australia, National Institute of Accountants, Australian Institute of Conveyancers SA Division Incorporated, the Real Estate Institute of SA, CPA Australia, and the Institute of Chartered Accountants.

In addition, meetings were held with the Law Council on 10 March 2011, and with the Property Council on 17 March, in order to discuss the matters that were raised in their correspondence. Meetings were held at AMP prior to their submission being lodged. AMP requested this meeting but were not provided with a copy of the draft bill.

I can confirm that no direct consultation occurred with the banking industry, mining industry or fishing industry. However, many of the persons who represent those bodies who were consulted are actively engaged in representing people from these industries and are aware of the issues that the bill raises in this context. Comments have been raised as to why this measure was not undertaken as part of a more significant tax reform. As members would be aware, this is a 2010 budget measure and there is no intention to look at other areas of the act as part of this process. The same comment can be made in relation to questions asked about the corporate reconstruction provisions. Those measures were never considered as part of this measure.

The Property Council also submitted that we should consider their alternative model, which was presented to government some time ago. I am advised that there are a number of issues with this model. The model proposes land rich provisions, as opposed to landholder provisions. All jurisdictions other than Tasmania have either implemented a landholder approach or have announced the intention to do so and, therefore, the model proposed by the Property Council is not considered appropriate.

The shadow treasurer mentioned several times that the bill involves tax grabs and is not tax reform. The government has made no secret of the fact that these measures will increase the revenue take; however, it remains the case that the provisions are essentially anti-avoidance provisions which ensure that duty is paid on the indirect transfer of land assets valued at over $1 million by the sale of shares or units in companies or trusts.

Contributions also focused on the fact that the $1 million threshold is not changed, that it is not consistent with New South Wales or Western Australia, where the threshold is $2 million. In the case of New South Wales it is based on site value of land and not capital value. It is also the case, however, that both Victoria and Queensland have a $1 million threshold. The Northern Territory and Tasmania have a $500,000 threshold, and the ACT has no threshold whatsoever.

The shadow treasurer has asked for an estimate of the revenue implications of raising the threshold to $2 million, and also in relation to moving to a site value threshold and not a capital value threshold. I do not have a figure for either of those changes, but am advised that work can be done between the houses in relation to the $2 million threshold estimate, and a rough estimate can be produced.

I am also advised that site values are generally much lower than capital values. So, moving to a site value threshold would have a significant revenue effect. I am also advised that the New South Wales Valuer-General does not have a computer system that captures capital values, hence the fact that they have resorted to site value, the only jurisdiction which has done so. Members opposite have also stressed the point that removing the asset test will catch more transactions, particularly in relation to primary production entities. I am advised in relation to the impact on primary producers that most farm transactions seen by RevenueSA are held in family discretionary trusts. An exemption is available under section 71CC of the act in relation to interfamilial transfers of farms. If landholder duty would otherwise be payable in circumstances where the transfer of the underlying assets would have been exempt under section 71CC the duty is not payable under part 4 either. I am advised that most farm transactions will therefore not be dutiable.

The Law Council submitted that the inclusion of goods in the landholder base is in contravention of the IGA. The IGA is not being contravened. This does not limit South Australia from raising taxes on rural property or on property closely related to land. The IGA simply requires the abolition of stamp duty on non residential conveyances before 1 July 2013. The government is committed to abolish this tax from 1 July 2012.

The approach of including goods in the landholder provisions provides consistency with the general conveyance base, where chattels and goods that are transferred with land are subject to duty, and is broadly consistent with the landholder provisions in other jurisdictions. Taxing goods also eliminates what can be costly and time-consuming arguments over what are fixtures and what are goods.

A number of changes were made to the provisions dealing with goods after taking into account the comments received via consultation. I note a number of the submissions read into Hansard dealt with provisions that were in the initial bill, not the bill as amended, which is now before the parliament. Changes in relation to goods were: firstly, the exclusion from goods at section 91(12) was moved to new section 91(1). The meaning of 'used solely or predominately' was qualified. Exclusions from the definition of goods was extended to include ships, vessels and motor vehicles. In addition, a discretion was added to allow the commissioner to exclude other goods from the provisions where it is just and reasonable to do so. The exclusion of goods used in connection with primary production was modified to goods used in connection with the business of primary production. Specific exclusion for the provisions was introduced for walk-in, walk-out sales to align with the concession already provided with the general conveyance provisions in section 31A.

I note comments were made in relation to the definition of livestock. I am advised that RevenueSA does not consider this to be an issue due to a request that a change be made to the bill. We are of the view that the Law Council has come to that conclusion also.

Tension between fixtures dutiable and non-fixtures which are not dutiable will be removed by imposing duty on the value of the goods as well as the value of the land. This approach is consistent with the New South Wales dutiable goods and the Western Australian chattels approach. The government is of the view that we are not in breach of the IGA by including goods in the duty base. I reiterate that there are a significant number of exclusions from the definition of goods.

The question was raised in relation to what is the relevant date for determining where goods are used solely or predominately in South Australia. Section 91(12)(b) deals with this point and states that the relevant time is the time of the acquisition of the relevant interest or increase in the relevant interest.

Comments were received in relation to situations where persons can be liable for duty, even if not party to the transaction. These provisions have been changed from the current act, and RevenueSA only recovers duty from persons who own an interest in the entity and are part of a group of associates. Comments were made in relation to the potential of a person obtaining discounts for owning earlier interests in landholder entities. I am advised that the act already contains provisions providing a discount for early acquisitions where stamp duty was paid and that these provisions have been significantly extended as part of the bill.

In the case where a person owns 49 per cent of a company and then acquires the remaining 51 per cent, duties will be chargeable on 100 per cent because the owner would not have paid duty on the 49 per cent initially. The provisions only apply where a person owns 50 per cent or more of an entity but sensibly apply to the whole of any interest that is acquired of over 50 per cent. The example given was when a person owns 100 per cent of a company, they control 100 per cent of the land, and they should pay duty accordingly. Considerable comment was also made in relation to section 91A which deals with the land and fixtures. These provisions are necessary to ensure that all relevant land assets are considered for the purposes of these provisions. Concerns were particularly raised in relation to double duty implications. This concern has been addressed as far as possible in amendments to the commissioner's discretion in section 92(5). This has been amended after discussions with both the Property Council and the Law Council.

The discretion in 92(5) has been deliberately narrowed to the extent that it no longer refers to the commissioner being satisfied that the separate ownership was not part of an arrangement to avoid duty under this part. This change is necessary in order to deal with assets which are separately owned due to the operation of other statutes.

Clearly, it could never be said that, where an asset is separately owned due to a statute, separate ownership was part of an arrangement to avoid duty. This has necessitated the discretion being amended. It is considered, however, that the discretion is wide enough to cover double duty situations. Fixtures will be charged with duty based on which party is directly using those fixtures, together with the interest in land. If, for example, a lessee constructs fixtures and uses those fixtures in the pursuance of a business—for example, a wind farm—they will be taxed in the hands of the lessee and not in the hands of the lessor. Wind farms are referred to as being affected by the provision, and the potential for double counting was raised specifically in this context.

I am advised that RevenueSA consider the commissioner's discretion in section 92(5) will prevent any double counting in the area and that wind farm infrastructure will only be considered to be dutiable property in the hands of a person who operates the wind farm in conjunction with the interest in land on which the wind farm is situated. If the land is leased and the lessee operates the wind farm, the lessee will be subject to duty and not the owner of the land. Pine trees were also raised as an example. Where pine trees have been sold via a forward contract the value of the landholder's land will be affected. This will be taken into account when the asset is valued under the valuation provisions. Again, comments were provided in relation to the anti-avoidance provisions, though I note that the South Australian Farmers Federation comments taken from the original submission referred to the first version of the bill, which has been significantly amended since. These provisions are broadly consistent with the provisions in the New South Wales Duties Act.

Importantly, the provisions will only apply where there is a blatant, artificial or contrived tax avoidance scheme, the sole or principal purpose of which was to reduce or avoid liability for tax. This is a very difficult hurdle for the commissioner to overcome and the provisions are likely to be sparingly used and will certainly not affect the vast majority of taxpayers. All other jurisdictions have similar provisions either in their stamp duty provisions or in their taxation administration acts.

Comments were also made in relation to the transitional effect of the anti-avoidance provisions. I am advised that the anti-avoidance provisions will only apply to liabilities that crystallise or would have crystallised on or after 1 July 2011 if not for the existence of a blatant, artificial or contrived tax avoidance scheme, the sole or principal purpose of which was to reduce or avoid taxation.

This approach is taken so that those persons who have entered into such schemes do not continue to get a taxation advantage going forward. These provisions apply to taxes that have ongoing liability, such as land tax and payroll tax. For example, if a person entered into a blatant, artificial or contrived tax avoidance scheme, the sole or principal purpose of which was to reduce land tax payable and that scheme has the effect of reducing land tax in perpetuity, this bill from the 2011-12 financial year potentially applies to such a scheme. This will prevent tax avoiders from obtaining an unfair benefit over those who had not entered into avoidance schemes. This means that people who did the right thing will not be disadvantaged compared to those who did not. I stress once again it will be a difficult burden for the commissioner to overcome to show such a scheme existed. Therefore, the vast majority of taxpayers will not be impacted by these provisions.

The Farmers Federation raised issues in relation to the broad definition of associates and referred to beneficiaries of a trust as an example. Beneficiaries of a trust would only associate persons if they both owned an interest in the relevant company or trust and were not acting independently. The definition of associate has not changed and has proved to work well in practice.

Comments were made in relation to the definition of executive officer, which is unchanged from the current act and is considered appropriate. The definition has never been used in practice because the associated person provisions operate sensibly to ensure only persons who have an interest in an entity are considered to be associates. Therefore, the very unlikely potential for this definition to operate unfairly never practically occurs.

Honourable members also made a number of comments in relation to a number of provisions that deal with partnership interests. These provisions have been included to ensure that the landholder provisions cannot be defeated by structures containing partnerships. These provisions are intended to operate to protect the status quo and will not be interpreted differently to the current provisions by RevenueSA. The need for these provisions has arisen due to doubts raised in the legal proceedings during the case of Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43. These amendments are made for clarification purposes only and there will be no change in the assessing practices of the commissioner in this regard.

In light of concerns raised by industry in relation to these provisions, amendments were made to provide the commissioner with a very broad discretion as to what method to use to calculate a partner's interest in a partnership. This provision is intended to be used to provide equitable and consistent outcomes that align with current assessing practices. RevenueSA also intends to review its revenue rulings in this area and will engage in detailed industry consultation as part of this process.

Issues were also raised regarding the market value provisions. These provisions have been included to ensure that the appropriate market value of land and assets can be ascertained by the commissioner for the purpose of part 4. It is particularly important in relation to valuing mining tenements. The intention of the government is only to ensure that the land is valued appropriately. A mining tenement is clearly valuable, or not, based on what is in the ground and this value should be brought to stamp duty as part of these provisions. Concerns were also raised with the provisions that relate to one series of transactions and transactions that are one arrangement. I am advised that these provisions and the relevant circular have been in operation since 2006. There have been no practical issues with their operation.

Concerns were also raised with the provisions that make landholder duty a first charge over an entity's land. These provisions are consistent with similar provisions of land tax, the first home owner grant and emergency services legislation. The provisions are necessary to protect the Crown's interest where assets can be transferred out of an entity in order to frustrate stamp duty recovery. As with the provisions in other legislation administered by RevenueSA, these provisions will be used responsibly. If the circumstances warrant, the first charge would be removed in order to allow for normal commercial dealings.

I hope that covers all the issues raised by honourable members, but I am more than happy to go through the bill in even greater detail and at greater length during the committee stage. I commend the bill to the house.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. I.F. EVANS: Treasurer, I just want to confirm whether you consulted the federal government as to whether this met the provisions of the intergovernmental agreement or whether you are relying on your own department's advice that this meets the terms of the intergovernmental agreement. The submissions made to the opposition clearly indicate that this does not meet the terms of the intergovernmental agreement. So, I am just wondering, rather than bringing in legislation that does not comply and having to change it next year, why not consult the federal government and get it clear that it does actually meet the terms of the intergovernmental agreement?

The Hon. J.J. SNELLING: I have not had any discussions with the federal government. It would be very unusual for us to do so. It seems quite clear to us (I have complete confidence in the advice of my department) that it does not in any way contravene any of the provisions of the IGA.

Clause passed.

Clauses 2 to 6 passed.

Clause 7.

The Hon. I.F. EVANS: Clause 7 deals with the insertion of new part 4, entitled 'Landholding entities', and deals primarily with the insertion of new division 1, section 91, which has an extraordinary number of subsections within it. The Law Council of Australia's business tax division, in its submission, raises a number of concerns regarding section 91, which is encapsulated in clause 7. There are a series of questions in relation to this.

New subsections (4) to (7) deal with partnership interests. The Law Council says that the extension of these provisions to partnership holdings is likely to create considerable difficulties in practice that are not warranted. In practice, they are unlikely to be understood. The following example highlights the difficulties. Company A Pty Ltd and company 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 the undrawn profits of $150,000 each after, say, five years.

Some time later, it is decided to admit a new equal partner, company C Pty Ltd, who is required to contribute $210,000 by way of capital contribution and $50,000 by way of a loan to the partnership. Company C pays the money into the partnership bank account. A bank overdraft of $150,000 has also been established for the partnership. The original partners then withdraw $100,000 each from the bank account in reduction of their loan accounts. Shortly after the admission of company C, they purchase premises for more than $1.5 million with wholly borrowed funds.

After that, any dealings with the shares in the partners has the potential to attract the landholder provisions, depending on how section 91(5) is to be applied. In reality, each of A Pty Ltd, B Pty Ltd and C Pty Ltd are entitled to 33.3 per cent. 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. The question from the Law Council is: is that what is intended?

The Hon. J.J. SNELLING: I think the shortest answer is that in the example that the member for Davenport gives there would be the ability for the commissioner to use his discretion under subsection (6) to make sure that the way the payable duty was calculated was done fairly.

The Hon. I.F. EVANS: That gives me no comfort, Treasurer, because you cannot answer the question whether it is meant to be 33⅓, 33⅓, 33⅓ or, under your provision, it is meant to be 4.35, 4.35 and 91.3 per cent. What is the answer?

The issue for this piece of legislation (and I am going to get this answer a lot this afternoon, I suspect) is: don't worry, the commissioner has a discretion. That is exactly the point that the industry groups raise because, before you do a corporate restructure or a purchase, the lawyers and the accountants giving that advice will be saying, 'We might be able to do it and this might be the cost, but we will have to run off and speak to the commissioner,' and they will wait who knows how long—they are concerned about months, and no-one can guarantee a time frame—for the advice. So, ultimately, the whole process becomes very bureaucratic, uncertain and unattractive for investors.

The reason I ask these questions on behalf of the industry's associations is in part to make that exact point. Surely the legislation can be drafted in the circumstance where there is some certainty for those investors wishing to go through the corporate restructure. How is it, Treasurer, that I as shadow treasurer, and you as Treasurer, after this bill has been around, in your case, six months—the government's case, six months; in fairness, you have not been Treasurer for six months—the advisers have had it at least six months, the opposition has had it, the industry groups have had it, by your own admission, since January—

The Hon. J.J. Snelling interjecting:

The Hon. I.F. EVANS: Not the industry group? Not one industry group. Not your adviser, not you and not me, as the people debating this exercise, can give that clarity to the industry groups. The legislation is that unclear. So what we are doing through this process is building in a red tape inefficiency, in effect. Don't worry, industry groups; if you want a corporate restructure, you can run off to the commissioner and if you are lucky, the commissioner will tell you whether you are going to do it right or not. Surely we can get more certainty than that. I simply ask you the question; your adviser is there. Is it 4.35, 4.35 and 90 whatever, or is it 33, 33, 33? If we cannot answer the questions, we should adjourn and go away and rethink it.

The Hon. J.J. SNELLING: I am not going to play this game with the member for Davenport and give definitive rulings on whatever hypothetical obscure tax cases he can come up with. That is just entirely unreasonable and not something I propose to do, because the circumstances of each case are different and it is only by having a thorough look at the actual case that I would be able to offer advice on any sort of definitive ruling.

The fact is that for the overwhelming majority of companies there will be certainty. There will be complete certainty and complete clarity but, of course, this area can be extraordinarily complex and it is impossible for the legislation to make provision for every possible circumstance that may arise. So in that very, very small number of circumstances there is a provision for the commissioner to use discretion to make sure that the rules are applied in a fair way and that there are not any unintended consequences from these changes.

It is clear; this is not going to throw investors into chaos and provide an incredible amount of uncertainty. The overwhelming majority of investors will be completely clear on how the rules might apply to them. There will be a very, very small number of investors which we are just unable to make provision for. No piece of legislation could envisage every possible case that might come before it. There will also be a revenue ruling, which will be put out for consultation by the commissioner to provide further clarity. That revenue ruling, after proclamation of the bill or of the then act will be issued and industry will have a further opportunity to consult on it. If the member for Davenport thinks I am going to play a game where he throws up any number of obscure possibilities and every permutation and combination that might apply and asks me to provide the house with some sort of definitive answer, I am not going to do it, because it is just not possible and it would be misleading.

The Hon. I.F. EVANS: For the sake of the record, these are not the member for Davenport's examples or what I have dreamt up. As much as I would like to have the capacity to be a corporate accountant or a corporate lawyer, that is not my lot, I am afraid. These are the submissions given to me by the corporate lawyers and the corporate accountants who do this work. They see them as very live examples, and I think I am right in saying they asked these very questions in their submissions to your agency many, many months ago. It is not as if this question is a surprise to the agency. The fact that we are sitting here and the agency cannot answer them, I think, proves the lobby group's point. I offered, as the minister knows, to adjourn the debate so they could have a look at it overnight and give me the answers tomorrow, and that offer was not taken up. If the commissioner can give a ruling on it to a company in the future, he could have easily given us a ruling on it overnight or between when the department got this submission to now—'I wonder if that pesky member for Davenport is going to ask that question that the lobby groups have put in their submission? I think we will get an answer ready.'

But not this government, no. I will tell you what we are going to get from this government: we are going to get the stonewall of, 'I'm not going to answer that detailed question. It will be up to the tax commissioner.' The best we might get is, 'We'll have a look at it between the houses,' and then the Hon. Gail Gago, that great leader of the place, will ultimately—

The Hon. M.J. Atkinson: And she is good.

The Hon. I.F. EVANS: That is not what you were saying previously.

The Hon. M.J. Atkinson: No.

The Hon. I.F. EVANS: And he admits it, Madam Chair. Thanks for having it on the record.

The Hon. M.J. Atkinson: Did you listen to me on the radio yesterday—or your mate, Lucas?

The Hon. I.F. EVANS: Ultimately, you will get the same answer in the upper house. Anyway, I have asked the question and the Treasurer has given the answer, so we will move on to the next question. The issue is still under clause 7, which deals with the new part 4—Insertion of a new section 91 dealing with interpretations. They have put in a new interpretation for goods, as to what is not included in goods. Amongst the things that are not included in goods is a thing called 'livestock'. Livestock is not defined in this bill; it is defined under the Livestock Act.

Is it the government's intention to adopt the definition of livestock as per the Livestock Act or is it going to be left open to the interpretation of the commissioner, or a court if there is an appeal, as to what livestock is?

The Hon. J.J. SNELLING: My advice is there has never been any great controversy over the definition of livestock. Presumably it would be left up to a court, if there was some controversy over what constituted livestock, but the best legal advice I am able to get at this moment tells me that, as far as we are aware, there has never been any controversy over—

Ms Chapman: What about the marine parks?

The Hon. J.J. SNELLING: Rumpole in the back there might have something to add to the debate, but—

Ms Chapman interjecting:

The Hon. J.J. SNELLING: Rumpole of the Family Court—to the best of my advice there has never been any controversy. It would just be whatever is the common definition of livestock according to the Oxford English Dictionary, perhaps.

The Hon. I.F. EVANS: That is excellent, Madam Chair. Can the minister now advise the house whether animals involved in aquaculture such as tuna and oysters are livestock?

The Hon. J.J. SNELLING: If fish were not considered to be livestock, then they would be caught up in paragraph (d), goods held or used in connection with the business of primary production. The Stamp Duties Act 1923, division 2—Interpretive provisions, section 2(1) states:

business of primary production means the business of agriculture, pasturage, horticulture, viticulture, apiculture, poultry farming, dairy farming, forestry or any other business consisting of the cultivation of soils, the gathering in of crops, the rearing of livestock or the propagation and harvesting of fish or other aquatic organisms;

The Hon. I.F. EVANS: If that is the minister's belief—

The Hon. M.J. Atkinson interjecting:

The Hon. I.F. EVANS: That would be something new to the former attorney.

The Hon. M.J. Atkinson interjecting:

The Hon. I.F. EVANS: All you did was read the TAB form guide, wasn't it? I remember the Chief Justice complaining.

The Hon. M.J. Atkinson: She asked me the number and race of a tip and I found it for her.

The CHAIR: Okay, thank you.

The Hon. I.F. EVANS: If that is the case, why do you need livestock in this provision if it is covered under the provision in the act that you have just read?

The Hon. J.J. SNELLING: The purpose of this section is to be as broad as possible with what gets excluded from being taken into account. So, it is probably being a little over-thorough in making sure that that is the case; nonetheless, it is possible for there to be livestock that is not used in the business of primary production. I can see the glint in the member for Davenport's eyes. He is going to say, 'What about fish?' Could it be possible that you could have a pet fish sitting on the farm? Would that be caught up? Well, perhaps, but we would hope that common sense would prevail. The purpose of the provision is to be as broad as possible about what is excluded. So the fish, the pet canary, the horse, whatever livestock there might be, is going to be excluded, and that is the purpose of this provision.

The Hon. I.F. EVANS: The Treasurer tries to humour the member for Davenport. The member for Davenport just reminds the committee that the reason I am asking the questions about aquaculture is that in the six months that this government has been dealing with this act it has not had the courtesy to ask the aquaculture industry what they think of having to pay stamp duty on their aquaculture licences. I suspect that they are going to be mightily annoyed. I might be wrong; it is just a guess.

However, I think the opposition has a right to ask questions about matters on which the government has not consulted the industry concerned. The Treasurer may have a different view, but I am sure that, when we go and talk to the aquaculture industry about the great progress of this government, they will be pleased that we at least took the opportunity to ask the question, because, obviously, none of the Labor backbenchers did in caucus or, indeed, in the chamber. Speaking of aquaculture and licences, that brings us to the next issue still on this particular provision, clause 7, which seeks to substitute a new Part 4, new section 91. It inserts in the definitions a definition called 'interest in land'. It talks about a lease or licence granted under the Mining Act, the Offshore Minerals Act, the Petroleum and Geothermal Energy Act and, the Treasurer will be pleased to know, leases granted under the Aquaculture Act, so fish and any aquatic organism.

The Hon. J.J. SNELLING: Marron?

The Hon. I.F. EVANS: Marron, yes, and seahorses. Phycodurus eques would be there as well—one of the minister's favourites that I am sure he knows. The reason I want to ask this question is this: during the government's briefing, we were told that it had to include aquaculture and forestry—because forestry is also a new provision—because they were so attached to the land, being basically part of the land. That was the reason given to us. I come back to the member for Bragg's point. If that is the case, how is it that water licences are treated differently? Water, I think, is very much attached to the land and it is stored in aquifers underneath. There is an argument about whether or not you can clean it. Colin Pitman stores a lot of water in underground aquifers which are surrounded by land.

I am just wondering how the government has decided that forestry (which grows above the land) and aquaculture (which is somehow attached to the land) should be included but water should not, because, without the water, the fish do not survive. I am just interested in how you have come to this policy decision. I am certainly not arguing for water licences to be included in this particular dutiable provision; I am trying to work out the government's consistency in its policy. The advice to the opposition was that forestry attached to the land must be included; aquaculture attached to the land must be included; water is not included. I am just wondering: why the policy difference?

The Hon. J.J. SNELLING: At some stage in the past it was decided that water licences would be exempt from stamp duty. It was a decision of the government. I am not sure how long ago that was; I would be happy to check. However, it is a standing—

The Hon. I.F. Evans: So were forestry agreements and aquaculture agreements.

The Hon. J.J. SNELLING: No, I am advised that that is not the case; they have never been exempt. Water licences, though, historically have been—or at least for a while—exempt from stamp duty and this simply carries on that provision.

Ms CHAPMAN: If I might clarify one matter then, minister. The licence is exempt—that is great—for the purpose of taking into account the value of the asset. Water of course is a purchasable item. In fact, in some rural communities now it has to be acquired to put in your tank or in your dam because you have not got enough rain or you have not got access to enough bore water or the like, so you buy it and you truck it in. Is the water itself assessable as a good for stamp duty?

The Hon. J.J. SNELLING: I am not sure if I entirely understand the point the member for Bragg is making. The licence is to extract the water. So, that is what the licence is for, to extract the water from the ground. If you are talking about having water trucked in or something like that, it would presumably be caught up under a good held or used in connection with the business of primary production, if you are getting water somehow trucked in in order to water your animals or whatever else. So, it would be caught up in that exclusion.

Ms CHAPMAN: Let me put another category. Leave that aside for the moment, because the water may be trucked in for aquaculture tanks that need pure water or water of a particular standard. Obviously the land itself will have a value and a factor to be taken into account in its value is its commercial capacity, and its commercial capacity and diversity of that will be influenced by the level of rainfall, etc. So, there is the value of the land itself, including one factor, which is the rainfall for the area.

A second aspect of the value of the land can be its access to bore water. Then we have the issue of water is stored on the property, which could have a commercial value if it is sold to a neighbour. Then we have the third lot, which is particular water that is acquired and purchased from someone else and brought onto the property. The first one I think is pretty clear. The value of the land, including the relevance of the rainfall to the commercial generation of that land is taken into account because the value of the land considers that factor. We dealt with the water that is trucked in. What about the water that is sitting in dams on property which does have a commercial value and which can be sold? Is that treated as a chattel or a fixture for the purposes of identifying the improved value of the asset, which is then dutiable?

The Hon. J.J. SNELLING: I think we are really debating how many angels can dance on a pinhead. Nonetheless, if the water in a dam were capable of being valued, and I doubt it, but if it were, it would be held under goods held or in connection with the business of primary production because you have the water in the dam to water your livestock.

Mr PEDERICK: I just want to make sure people are well aware of what landholding entities will be caught up in the legislation. You may have mentioned it in your opening remarks today, but I go to the paragraph under the same new subsection, and I am just going through the list:

private company means—

(a) a company that is limited by shares but whose shares are not quoted on a recognised financial market; or

(b) a company that is not limited by shares—

but then it says—

but does not include a company excluded from the ambit of this definition by the regulations;

Unit trusts are mentioned quite significantly throughout the bill. I am just wondering if this means to pick up discretionary trusts as well—family trusts and the like—and what companies are likely to be excluded from the ambit of this definition by the regulations?

The Hon. J.J. SNELLING: In terms of the trust itself, no, it is not the purpose of this provision to pick up discretionary trusts, but to the extent that discretionary trusts might have an interest in a land rich entity, then, yes. In terms of the trust itself, no, but only to the extent that a trust might have an interest in a land rich entity, in which case, yes, the land rich entity is what would be caught up in this provision.

Mr PEDERICK: So what you are saying—and I suppose I am probably speaking for possibly thousands of property owners in the farming community—is that they could be caught up in this if they have got a company established under a discretionary trust. I just want full clarification. You could have AB and BC Bloggs Pty Ltd under Bloggs family trust as trustee for the Bloggs family trust. So that does get caught up. I am just trying to make sure that we know exactly what we are talking about here.

The Hon. J.J. SNELLING: The member for Hammond is correct to this extent: yes, if you have got a company which is set up under a trust, which is a land rich entity, the purpose of this is to ensure that, if there is a change in ownership of that company and it is treated differently from any other, it is a land rich entity. But, for people who are established in this way, it is only going to affect them if there is a change in ownership of the land rich entity, in which case there would be duty payable. Otherwise, this does not affect them. It only affects them if there is a change in ownership of the land rich entity. So, the member for Hammond is correct. If there is a land rich entity or company, which is land rich, sitting underneath a trust and there is a change in ownership of that company, presumably from the trust to some other owner, then, yes, they would be subject to a higher duty as a land rich entity. That is right.

Mr PEDERICK: Obviously, if there was a transfer into family under those arrangements they would be exempt. I am just making sure we get all this.

The Hon. J.J. SNELLING: Yes, that's correct.

Mr PEDERICK: Is there any retrospectivity in regards to land held in both, say, a company as trustee for a family trust or in a unit trust ownership, as regards to this bill, or, with any deals done before the appropriate date in July, is how they act relevant to the legislation when they were formed?

The Hon. J.J. SNELLING: No, there is no retrospectivity. This only applies from 20 July 2011. There are some transitional arrangements so that if a contract is entered into and effectively signed but the acquisition itself does not occur until after 1 July, the current regime still applies. There is no retrospectivity at all.

Ms CHAPMAN: The Farmers Federation raised the question of double taxation where an interest has gone from 49 per cent to 100 per cent. Can you explain how that protection against there being a double taxation occurs? They suggested an amendment to ensure the way around it is that any stamp duty paid on an earlier acquisition is taken into account in the amount that then becomes assessable for the 100 per cent. I hope the minister recalls the example that the Farmers Federation presented. I think certainly my colleagues put it, and I briefly referred to it in my contribution.

The Hon. J.J. SNELLING: My advice is that if you have purchased anything up to 49 per cent interest in the land rich entity, then you have paid no duty. So you have paid no duty on anything up to 49 per cent of your ownership of that entity. There is no duty payable so there is no double taxation.

Progress reported; committee to sit again.

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