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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2011-06-21 Daily Xml
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STATUTES AMENDMENT (LAND HOLDING ENTITIES AND TAX AVOIDANCE SCHEMES) BILL

Second Reading

Adjourned debate on second reading.

(Continued from 19 May 2011.)

The Hon. R.I. LUCAS (15:31): I rise on behalf of Liberal members to support the second reading of the Statutes Amendment (Land Holding Entities and Tax Avoidance Schemes) Bill. The member for Davenport at length in the House of Assembly on 17 May put forward the Liberal Party's position and I do not propose in this chamber, given what has occurred since then, to repeat at length the Liberal Party's position. Suffice to say that I intend to summarise, in part, the party's position and then raise another issue and submission that the party has received since the passage in the House of Assembly and as recently as today.

In summary, this measure was a budget measure announced in September of last year, and for some reason it has taken until May of this year for the government to introduce the tax measure. The normal course of events, as we will see with this year's budget, is that the Appropriation Bill is introduced and there is a statutes amendment or tax amending piece of legislation which is introduced concurrently with the budget, and we will see that with the statutes amendment bill in the current Appropriation Bill debate.

That is the normal course of events, but in this case, for some reason, and it is for the government to put on the record and I put the question to the government to indicate why it has taken so long to introduce what in fact, as I said, was a budget measure from September of last year. While it has been dressed up as tax reform, this is a significant tax grab. There is at least a conservative estimate of an extra $20 million a year being gathered by state Treasury if this legislation goes through in the form that it is here at the moment.

As always with these things, that is a conservative estimate from Treasury. As the member for Davenport highlighted in the House of Assembly, it will be worthwhile monitoring the tax revenues from this particular measure should it be implemented because it would not be surprising if in future years we see that it has gathered much more than the conservative estimate of $20 million a year. The government's second reading indicates that this is intended to protect the revenue duty base from leakage caused by taxpayers purchasing land indirectly through companies and unit trusts rather than directly. The government argues that it is targeting contrived schemes entered into to avoid paying tax.

We are also advised that the general approach that is being adopted in South Australia is being adopted in most of the other jurisdictions as well. In this proposed legislation, we are moving from what in revenue parlance is known as the land-rich model to the landholder model. We are told that our bill is modelled significantly on the New South Wales provisions, but we have also been advised by Treasury that those similar provisions—not exactly the same, but similar—already operate in New South Wales, Western Australia, the Northern Territory and the Australian Capital Territory. We are also advised that both Queensland and Victoria in their most recent budgets have announced also that they are moving to this landholder model. South Australia, of course, is moving to the landholder model as well. So, virtually all state and territory jurisdictions, we are now advised, are moving down this general course in relation to these particular difficult issues relating to stamp duty.

I am the first to acknowledge that for probably close to 20 years we have been trying to plug the leaks and loopholes in state stamp duty law. As one particular leak or loophole is plugged, innovative, clever lawyers and tax accountants devise schemes and methods to exploit state duty law to minimise to the extent that is legally possible the amount of stamp duty paid. So, it is a never-ending task and, as I said, in all my time in the parliament, various treasurers, governments and treasuries have sought to plug the leaks and loopholes. This government is no different, and I suspect that the government elected after 2014 will equally be seeking to plug leaks and loopholes in the state stamp duty law, even though we are now supposedly moving down a course of action which will make that task a little easier than it used to be.

The member for Davenport in the house read at length from a couple of submissions from the Law Council of Australia: Business Law Section, the Property Council of Australia and I think also from the Farmers Federation. I do not propose to repeat all of the arguments that the member for Davenport raised there. What occurred as a result of that was that the government, between the houses, looked at the quite detailed, specific criticism that had been made of the government's bill. Credit to, firstly, the member for Davenport but also to those particular bodies to which I have referred that took the time and effort to make comprehensive and significant submissions to the opposition and to the government on what is a complicated piece of legislation.

As a result of that, we have seen various significant amendments tabled in our council by the minister on behalf of the government, some two or three pages of amendments. The member for Davenport took those amendments to our party room yesterday, and we believe that they have improved the legislation. They are significant changes, and I have some general questions to follow on from those but, in general, we indicate the Liberal Party's support for the amendments that the government is introducing.

What we do ask is: what impact, if any, is there on the Treasury's estimate of revenue to be collected under the bill; that is, with these amendments going in, is the revenue estimate of $20 million going to be impacted in any way by the amendments that are about to be moved to the legislation?

The second general point I raise is: can the minister's advisers advise this house which of the significant issues raised by the Property Council and the Law Council (I will leave the Farmers Federation for a moment, because I have a separate submission) have not been agreed by the government, on further reflection, and can the minister indicate, through his officers, the reasons why the government has decided that it cannot agree to the criticisms and further suggestions for change?

The PRESIDENT: Order! I remind the cameraman that it is only the people who are on their feet and speaking you can train your camera on; otherwise, you will be escorted out of the chamber. The Hon. Mr Lucas; I am sorry for the interruption.

The Hon. R.I. LUCAS: I thank you for your assistance in trying to get me on television tonight, Mr President, seeing as how I am the only one speaking.

The PRESIDENT: You could be the next George Clooney!

The Hon. R.I. LUCAS: I don't think so, Mr President; it's not something I currently aspire to, let me assure you.

The PRESIDENT: Jerry Lewis?

The Hon. R.I. LUCAS: In summary, can the minister and his advisers indicate with which significant parts of their submissions the government does not agree and the reasons why the government believes it cannot agree to the changes? In particular, does the government believe that some of those suggestions may well create unforeseen problems and, if they do, what the unforeseen problems are? If the Liberal Party, for example, wanted to move further amendments in relation to some of those submissions, rather than doing that at this stage, we are interested to hear the government's reasons why it has rejected them. It may well be that the Liberal Party's view is that we agree with the government's position but, unless we hear the government's argument, that makes it impossible for us.

The third group which had some involvement in this is the South Australian Farmers Federation. As I indicated at the outset, the member for Davenport popped in to see me just before question time today and indicated that he had only just received a letter dated 20 June (yesterday) from the South Australian Farmers Federation. Given the late arrival of this letter and given the government's desire to progress the debate on this bill, I have not had the opportunity to fully consider the Farmers Federation's submissions and to talk to the federation about them or, indeed, to talk to the member for Davenport about them.

Therefore, the only way in which we can assist, I guess, the government's desire to progress the debate on this bill, given that it was its No. 1 priority for today, is that I propose to read the Farmers Federation's submission to the member for Davenport into the Hansard record and indicate that we seek from the government its response to the Farmers Federation. I propose that it is important for all non-government members, I would have thought, who are interested in this bill to receive the government's response to this well prior to our continuing debate on the bill, if I can just flag that.

Given the complicated nature of this, it is not going to be sufficient to have the minister stand at the second reading to read the reply, which obviously she will need to do, and then expect non-government members to be able to move immediately into the committee stage and consider the rest of the bill. What will need to occur on this occasion, following my having raised the issues today, is that the very competent Treasury officers should be able to provide some time tomorrow by way of email through the minister's office, hopefully, or the Treasurer's office to non-government members the government's responses to this issue and the earlier questions that I have raised and, that way, we may well be in a position on Thursday to progress to the committee stage of the debate.

Even then, this is an extraordinarily truncated process, but we understand that the government wishes to progress this bill as far as it can this week and, to the extent that that is possible, we will certainly seek to assist. However, if there are significant issues that are now being raised by the Farmers Federation even after considering the government amendments that might require further amendment, then that is a potential impediment to the passage of the bill even by Thursday of this week. However, let us cross that bridge if and when we come to it. The letter from the Farmers Federation to the shadow treasurer is as follows:

The South Australian Farmers Federation (SAFF) has been provided with a copy of the amendments to the Statutes Amendment (Landholding Entities and Tax Avoidance Schemes) Bill 2011 that were filed in the Legislative Council on 9 June 2011.

On examining these amendments, SAFF has the following comments:

1. The Bill proposes to insert a new Part 6A into the Taxation Administration Act. This deals with tax avoidance schemes.

Under the terms of this Act, tax can be recovered from any party to a transaction. However, in many transactions the agreement between the parties will provide that stamp duty is payable by a particular party who is required to indemnify the other parties that would otherwise have a liability.

For example, in most contracts for the sale of land, the contract will provide that the purchaser is required to pay stamp duty. In such a contract, even though all parties to the transaction may be liable for stamp duty, it is the purchaser that pays it.

While Part 6A should take this into account, a provision should be inserted to the effect that if a party to a transaction assumes a liability to pay stamp duty and indemnify other parties accordingly (such as the case with a land contract), then it is the party that has assumed liability to pay land tax that should be required to pay any additional land tax under clause 40B.

For example, section 40G provides that a person is liable to pay tax avoided by the person as a result of a tax avoidance scheme, whether or not the person entered into, made or carried out the relevant tax avoidance scheme.

Section 40D(2) goes on to provide that a person is not liable to pay an amount of tax avoided by the person as a result of a tax avoidance scheme if the Commissioner is satisfied that it would be 'unfair' to impose a liability in the circumstances of the particular case.

This carve out should be expanded to make it clear that if under a transaction Party A does not have a liability to pay tax, but party B does, then the Commissioner should be satisfied that it would be unfair to impose a liability for tax on Party A.

2. Section 31 of the Taxation Administration Act provides that in the case of a deliberate tax default the amount of penalty tax payable is 75 per cent of the unpaid tax.

There may be many situations in which a taxpayer seeks professional advice regarding a transaction. That advice may set out a reasonably arguable position to the effect that the particular transaction is not a tax avoidance scheme. Where a taxpayer has sought and received professional advice and the taxpayer has a reasonably arguable position which is not frivolous, then a deliberate tax default should not be taken to have occurred.

In other words, there should be no additional penalty beyond the amount of tax assessed where the taxpayer has a reasonably arguable position.

3. A new proposed section 102A(8) has been added in so that the Commissioner may, if the Commissioner considers it to be fair and reasonable, exclude specific goods or a class of goods from the calculation of duty under this section. The new subsection 9 allows the Commissioner to exclude certain goods from the value calculation in certain circumstances although it is not clear when those circumstances will arise. In other words, when will the Commissioner consider it to be 'fair and reasonable to do so'?

4. The definition of goods does not include goods held or used in connection with the business of primary production. Therefore, in the context of a transfer of an interest in an entity which owns farming assets all goods including plant and equipment and implements used in the business of farming will be excluded.

The Legislative Council amendment relates to section 92 'Land Assets'. Section 92 defines a land asset which means an interest in land in South Australia and is taken to include an interest in anything fixed to the land. Various objections were made previously about this definition because it was possible to have an asset fixed to the land (such as a wind farm turbine) which would ordinarily be owned by a wind farm operator and should not be included as part of the land.

This problem has been overcome by the addition of a new subsection 5 whereby where the Commissioner is satisfied that there was no arrangement in place to avoid duty and an item was separately owned from the land the commission can determine that the entity's interest will not be taken to include the interest in the item.

Therefore in the case of a wind farm the turbines and other plant installed by the wind farm operator which are separately owned from the land would not include it in the land asset value. However, it will be necessary to satisfy the Commissioner that the separation of the ownership of plant in this way is not part of an arrangement to avoid duty and in the normal course it would not be.

It is noted that in section 5(b) that an entity's interest in land will not be taken to include an interest in an item which is owned by another entity unless the land owning entity and the entity which owns the other item are related. This prevents an arrangement being entered into whereby land and items on the land are owned by separate but related entities.

It is recommended that section 92 be further amended to specifically refer to wind farm assets as specifically not to be included in a relevant entity's interest in land together with mining assets or the assets of any other entity conducting non-farming business operations on the land by virtue of a lease or licence agreement on arms length terms.

I seek your support for clarification on these issues.

Yours sincerely, Carol Vincent, Chief Executive

—of the South Australian Farmers Federation. I note that copies of that letter have been sent to the Hon. Robert Brokenshire, the Hon. John Darley, and the Hon. Jack Snelling as the Treasurer. So the Treasurer and his advisers should have copies of that letter already.

So, Madam Acting President, with that I conclude the second reading contribution. As I said, again, on the basis that we have not had the opportunity to even fully read or consider that particular submission from the Farmers Federation, we express no view as the Liberal Party about it at this stage, other than clearly they have been a party interested and involved in this particular legislation as it has passed through both houses, and it therefore merits consideration by the government and, as I said, a response from the government to all non-government members prior to other non-government members being in a position to progress to the committee stage of the debate.

The Hon. G.E. GAGO (Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for Gambling) (15:52): I understand that there are no further contributions to the second reading stage of this bill, and by way of brief concluding remarks I would just like to reiterate that this bill replaces the land-rich provisions contained in part 4 of the Stamp Duties Act 1923 and the landholder provisions as announced in the 2010 state budget and that 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. The bill is a highly technical one, and a number of questions have been asked by the Hon. Rob Lucas during his second reading contribution. I look forward to the assistance of advisers to provide a response to those questions during clause 1 of the committee stage.

Bill read a second time.

Committee Stage

In committee.

The Hon. G.E. GAGO: I have been advised that, in fact, we are not able to provide full responses to the questions raised by the Hon. Rob Lucas. So, rather than deal with the responses in a piecemeal way, I believe it is probably in all of our interests that officers go away, consider the information and bring back detailed responses. In light of that, I move that we report progress.

Progress reported; committee to sit again.

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