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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2011-06-22 Daily Xml
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STATUTES AMENDMENT (LAND HOLDING ENTITIES AND TAX AVOIDANCE SCHEMES) BILL

Committee Stage

In committee.

(Continued from 21 June 2011.)

Clause 1.

The Hon. G.E. GAGO: There were a number of questions asked during the second reading stage by the Hon. Rob Lucas that I would like to take the opportunity at clause 1 to read into the record. The Hon. Rob Lucas has asked why it has taken so long to introduce what is a budget measure from September of last year. I am advised that, because the bill was a technically complex matter, it took some time to draft, and it was not considered wise to rush the bill to have it ready by the time the 2010 budget bill was passed through parliament. In addition, consultation was undertaken in relation to the bill and that also took time.

The bill was released for consultation on 21 January 2011 with comments due by 28 February 2011. In addition, meetings were held with the Law Council on 10 March 2011 and the Property Council on 17 March 2011 in order to discuss the matters raised in their correspondence. Further work was then required to be undertaken to draft appropriate amendments which arose from the consultation process. The bill was then approved by cabinet and introduced into the House of Assembly in early May 2011.

The honourable member also stated that it would be worthwhile monitoring the tax revenue 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. I am advised that RevenueSA will be able to record the amount of duty collected under the landholder provisions and the estimate can therefore be monitored as suggested.

The honourable member also asked what impact, if any, there would be on Treasury's estimate of revenue to be collected under the bill, that is, with these amendments going in; and If the revenue estimate of $20 million is going to be impacted in any way by the amendments to the legislation about to be moved. I am advised that, as the amendments are technical in nature and only clarify the intended operation of the bill, they will have no foreseeable impact on the revenue estimate.

The honourable member also asked: can ministers advise the house on which of the significant issues raised by the Property Council and the Law Council have not been agreed to by the government and indicate the reasons the government has decided that it cannot agree to the criticisms and further suggestions; and, in particular, does the government believe that some of those suggestions may well create unforeseen problems and, if they do, what are they?

I am advised that the Property Council and the Law Council provided detailed submissions in relation to the bill, some of which were agreed to and some of which were not. It is fair to say that there are a number of issues on which the government and those bodies did not agree. I therefore provide the following response to the member in relation to RevenueSA's view of the significant issues where differences exist.

First, in relation to submissions received from the Law Council of Australia, I am advised of the following issues. The Law Council has submitted that the inclusion of items that are not fixtures, such as land and the inclusion of goods in the landholder base, is in contravention of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (the IGA). The government is advised that the IGA has not been contravened, as it does not limit South Australia from raising taxes on land or on property closely related to land.

The IGA requires the abolition of stamp duty on non-real, non-residential conveyances before 1 July 2013. The government has committed to abolish this tax from 1 July 2012. The approach of including goods in the landholder provision 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.

The Law Council also raised concerns in relation to what interests are considered to be interests in land under the provisions, and it is of the view that the provisions are in breach of the IGA. I am advised that the approach taken in the bill is consistent with the proposed definition of land to apply when stamp duty on non-real, non-residential property conveyances is abolished on 1 July 2012. While it is recognised that defining interests closely related to land can be subjective, my advice is that the inclusion of certain licences and leases in the definition of land is not inconsistent with the IGA requirements.

I am advised that the LCA made a number of representations in relation to the provisions that deal with partnership interests. These provisions have been included to ensure that the landholder provisions cannot be defeated by structures containing partnerships. 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. These provisions are intended to operate to promote the status quo and will not be interpreted differently from the current provisions by RevenueSA.

In light of concerns raised in the consultation phase, amendments were made to these provisions to provide the commissioner with a very broad discretion as to what method to use to calculate partners' interests in a partnership. The provision is intended to be used to provide equitable and consistent outcomes that align with current assessing practices. The government is therefore of the view that the partnership provisions are appropriate and will not change how partnerships are treated under the current provisions.

The LCA also had issues with the market value provisions contained in the bill. These provisions have been included to ensure the appropriate market value of land and assets can be ascertained by the commissioner for the purposes of part 4. In particular, I am advised concerns were raised in relation to proposed section 99(7) of the act which relates to what purchasers are deemed to have knowledge of when purchasing property.

I am advised that the provision is included to ensure that the correct market value of land is caught for stamp duty purposes, and nothing more. The provision has been included to prevent advisers arguing that the land is worth virtually nothing when information in relation to the land is worth many millions of dollars. A similar provision is included in the Western Australian landholder provisions.

The Law Council has also raised a number of concerns about the provisions that make landholder duty a first charge over an entity's land. I am advised that these provisions are consistent with similar provisions in land tax, First Home Owner Grant and emergency services legislation. The provisions are necessary to protect the Crown's interests where assets can be transferred out of the entity in order to frustrate the stamp duty recovery. As with the provisions in other legislation administered by RevenueSA, these provisions will be used responsibly and, if the circumstances warrant, a first charge can be removed in order to allow for normal commercial dealings.

Finally, the Law Council also made some detailed comments about the anti-avoidance provisions, and I am advised that these provisions have been modified extensively and that, whilst they still have some concerns with these provisions, they have been reduced significantly. I am advised that concerns were raised in relation to the transitional clauses of the anti-avoidance provisions and 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 dominant purpose of which was to reduce or avoid taxation.

They therefore have a limited effect on schemes entered into prior to 1 July 2011 and have the effect of reducing or avoiding taxation that would have been payable after 1 July 2011. This approach is taken so that those persons who have entered into such schemes prior to 1 July 2011 do not continue to get a taxation advantage from the avoidance scheme going forward where there is an ongoing liability to tax.

I now turn to the issues raised by the Property Council. The Property Council has submitted that by removing the 60 per cent and 80 per cent asset test more transactions will be caught by the provisions, particularly in relation to primary production entities. I am advised that, whilst the changes do extend the revenue base, the provisions are essentially anti-avoidance provisions which ensure the duties paid on the indirect transfer of land assets valued over $1 million by the sale of shares or units in companies or trusts.

I am advised that, in relation to the impact on primary producers, in most farm transactions seen by RevenueSA the farms are held in family discretionary trusts. An exemption is available under section 71CC of the act in relation to inter-familial transfers of farms. If landholder duty would otherwise be payable in circumstances where the transfer of the farm assets would be exempt under section 77CC, duty is not payable under part 4, either.

I am advised that most farm transactions will therefore not be dutiable. The Property Council also raised concerns in relation to the provisions that deal with what is a group of associates who can be liable to duty under the provisions. I am advised that these provisions have not changed from the current act and are considered by the government to be appropriate as they work well in their current form.

The Property Council also raised concerns with the inclusion of goods in the revenue base, the treatment of fixtures in the bill and the introduction of anti-violence provisions in the act, which are similar to concerns raised by the Law Council. I put on the record earlier in my response the government's position in relation to those matters. I am advised that these appeared to be the significant issues in relation to where some dispute exists between government and the Law Council and the Property Council.

The honourable member also read into Hansard a copy of a letter received by the opposition from the South Australian Farmers Federation, and I can provide the following response to each of the four issues raised by the Farmers Federation. In relation to issue one, I am advised that, under the Stamp Duties Act, parties to a transaction are jointly and severally liable for stamp duty, even if parties agree themselves that one party should pay any stamp duty chargeable. This does not change the duty liability under the act.

Any agreement to apportion any duty between parties is a matter for them; they cannot change their liability at law. Having said that, in almost all cases, stamp duties, in practice, are recovered from the purchaser. I am advised that there appears to be no compelling reason why, in cases of tax avoidance, a person who has agreed with the other party to a transaction to pay any stamp duty chargeable should also be solely legally liable for the tax assessed.

This would limit the commissioner's ability to recover unpaid tax, which is not appropriate, particularly in the case where parties are proved to have entered into blatant, artificial or contrived schemes to avoid tax. As pointed out by the Farmers Federation, the commissioner does have an ability not to impose liability on a person, if satisfied that it is not fair to do so. In cases of blatant, contrived or artificial tax avoidance, the government is of the view that this discretion will provide sufficient protection in relevant cases.

I am advised that, in order for a 75 per cent penalty to occur, the commissioner will have to prove that there was a blatant, artificial or contrived tax avoidance scheme, the sole or dominant purpose of which was to reduce or avoid liability to tax. Once this has been proved, it is considered appropriate that a taxpayer receive an appropriate penalty for entering into such a scheme.

It is considered that, once the commissioner has established a tax avoidance scheme has been entered into, an additional penalty is appropriate, otherwise a tax avoider is in the same position as someone who has paid their tax appropriately. I stress that it would be quite difficult for the commissioner to initially establish that a tax avoidance scheme has been entered into and for these provisions to be activated. The provisions are intended to operate as a deterrent and will not apply to the vast majority of taxpayers.

I am advised that under the Taxation Administration Act, the commissioner has an ability to remit penalty. In appropriate cases, the commissioner would have the ability to exercise his discretion in appropriate circumstances and that this power, under the TAA, is not restricted in any way and could be applied in the circumstances raised by the Farmers Federation, if appropriate in the circumstances of the case. The government, therefore, does not support an amendment to this provision as suggested.

In relation to issue 3, I am advised that this provision was added to the bill after submissions we received from the Property Council. There is already a list of items which are not considered to be goods and this provision was inserted as a catch-all in order to make sure that nothing was caught by the provisions that was unintended. The commissioner will look at the circumstances of a particular case when considering whether it is fair and reasonable to exclude particular goods. This is a provision which will be of benefit to the taxpayer. This provision recognises that having an exhaustive list of goods which are to be excluded can always run the risk of leaving something out.

In relation to issue 4, I am advised that the amendments as drafted are considered sufficient in this area and that to amend the provisions as suggested by the Farmers Federation would potentially leave the provisions open to abuse. Under the amendments filed by the government, any assets genuinely owned by a third party will not be taken into account when a farmer's land is sold, under the provisions.

Where items are notionally severed or considered to be legally separate to the land by operation of another act or law—for example, wind farms—the amendments will operate to ensure that only those items that are owned by the landholder or a related entity of the landholder will be included as part of the landholder's interest in land. In all other cases where items fixed to land are owned separately from the land, the amendments operate to reinstate the provisions in the current act—that is, they maintain the status quo.

The amendments which have been filed by the government in this area were required to be drafted with considerable care in order to avoid unintended consequences, and the government is of the view that the amendments as tabled are sufficient to meet the concerns raised by industry bodies in relation to how the bill will operate in practise in this area. I trust that the above response answers the questions raised by the Hon. Robert Lucas.

As can be seen from the submissions received and the response I have given, these provisions are somewhat complex. In provisions such as these, a balance needs to be struck between robust anti-avoidance provisions and equity and clarity for taxpayers. The government has engaged in a significant consultation process in relation to these provisions and is of the view that, subject to the filed amendments being agreed to, these provisions will operate effectively and fairly. I look forward to the support of honourable members in relation to this bill.

The Hon. R.I. LUCAS: As I understand it, we are going to report progress as a result of the minister taking the opportunity of replying to the questions raised during the second reading contribution. On that basis, we are obviously consulting with SAFF and other interested parties. We are hoping to continue to the committee stage tomorrow and, on that basis, I would prefer that we did not vote on clause 1 just in case I need to respond, in the broad, to the minister's statement.

Progress reported; committee to sit again.

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