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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2011-06-23 Daily Xml
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STATUTES AMENDMENT (LAND HOLDING ENTITIES AND TAX AVOIDANCE SCHEMES) BILL

Committee Stage

In committee.

(Continued from 22 June 2011.)

Clause 1.

The Hon. R.I. LUCAS: I rise to speak generally at clause 1 in response to the minister's answers, which she provided in clause 1, to questions which were raised in the second reading on a previous day, and I thank the government officers for the information that has now been provided to the committee.

There really are only two issues to which I want to refer specifically at clause 1. Many issues were raised in the second reading and were answered in clause 1, and there are only two I would like to raise specifically here—at the moment, anyway.

The first issue relates to a claim that the Law Council has made that the inclusion of items that are not fixtures as land, and the inclusion of goods in the landholder base, was in contravention of the intergovernmental agreement on the reform of commonwealth/state financial relations (or the IGA).

The government's advice is that it has been 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 government further advised that the IGA requires the abolition of stamp duty on non-real non-residential conveyances before 1 July 2013 and that the government is committed to abolish this tax from 1 July 2012.

Further on, the government noted that the Law Council had also raised concerns in relation to what interests are considered to be interests in land under the provisions and that they were of the view that the provisions are in breach of the IGA. Again, I am advised that the government has 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.

There are a number of other aspects of the Law Council's submission, but I just highlight those two in relation to the intergovernmental agreement to indicate that, essentially, we have warring legal advice, I guess, or lawyers at 30 paces; that is, clearly, the government's legal advice indicates one thing and the Law Council's legal advice, in essence, is indicating a different view.

The Hon. D.G.E. Hood: Lawyers never agree!

The Hon. R.I. LUCAS: As the Hon. Mr Hood indicates, that is perhaps not surprising but it nevertheless highlights in this complicated area how difficult it is to resolve issues in a black-and-white fashion. To be fair to the government, at the end of its lengthy statement at clause 1, the government itself acknowledges that these are complex complicated areas.

I think we have been amending these particular provisions for decades, in terms of trying to close new loopholes which are leveraged open by lawyers and tax accountants and others who, in an innovative way, manage to find ways of minimising the amount of tax that they have to pay. It is a never-ending game, if one can refer to it that way, between, as I said, lawyers at 30 paces. Much of the government's response yesterday (which I thank the government for) is essentially of that particular nature.

It is therefore difficult for those of us who are not lawyers ultimately to do anything other than note, at this stage anyway, the differing views, the different opinions, that have been given by the lawyers and I guess probably also note that it would not surprise any of us if, in the space of a couple of years, we are not back again facing further legislative change either by this government or the next government because a legal case has established that the views the government has here and the parliament ultimately has endorsed were not 100 per cent accurate and that, again, clever lawyers and clever tax accountants have managed to find a loophole around even these new provisions which are being drafted.

The second issue was raised by the Farmers Federation in their late letter delivered to the opposition early this week. They had raised the issue in relation to the Legislative Council amendment relating to Section 92—Land Assets. The letter states:

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.

SAFF went on to say:

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.

SAFF went on to recommend 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.

This is an issue that has been raised by many farmers and primary producers. In reply the government states:

...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.

We need to note that the government's advice is that any assets genuinely owned by a third party will not be taken into account when a farmer's land is sold under the provisions. It continues:

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—ie, 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 practice in this area.

That is the second and final area that I wanted to raise in clause 1. Again, it further illustrates the difficulty of drafting provisions to meet all potential circumstances. Certainly, the issue of wind farms has only been an issue in recent years in relation to properties, and it is now obviously creating a range of further issues in terms of administration of, at the very least, state tax law.

Again, all the opposition can do is note the government's confidence that the provisions as drafted will resolve the issues that have been raised by the Farmers Federation and hope that, indeed, that is the case. I note also the commitment from the government in the terms that it was given in relation to how these provisions will be interpreted to prevent any unreasonable interpretation of these laws in terms of generating additional revenue to the state government as a result of any unfair application of these new laws.

With that, I indicate that, after consultation with the member for Davenport, who has had carriage of the bill for the Liberal Party, we will in the broad during the committee stage support the government amendments that have been flagged. We do not propose to move any further amendments. As I said, we hope and trust that the advice the government has relayed to the parliament and to the committee will prove to be accurate and that we do not see this legislation back before us too soon.

Clause passed.

Clauses 2 to 6 passed.

Clause 7.

The Hon. G.E. GAGO: I move:

Page 9, line 19 [clause 7, inserted Part 4, Division 1, section 92(3)(a)]—After 'the land' insert:

other than where the separation of ownership occurs by virtue of or as a result of the operation of another act or law

Amendments 1 to 3 moved in my name relate to items fixed to land which are either separately owned from the land or notionally severed or considered to be legally separate to the land by operation of another act or law.

Where items are notionally severed or considered to be legally separate to the land by operation of another act or law, 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.

The amendments are intended to address concerns raised in relation to cases where, for example, a wind farm is constructed on a farmer's land in circumstances where the farmer has no ownership interest in the wind farm. The amended provisions make it clear that the wind farm will not be included as part of the farmer's interest in land unless the wind farm is also owned by the farmer or a related entity of the farmer. In all other cases where items fixed to the 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 Hon. R.I. LUCAS: I support the amendment.

Amendment carried.

The Hon. G.E. GAGO: Amendment Nos 2 and 3 are consequential. I move:

Page 9, line 21—After 'to the land by' insert:

virtue of or as a result of the

Amendment carried.

The Hon. G.E. GAGO: I move:

Page 9, lines 31 to 36 [clause 7, inserted Part 4, Division 1, section 92(5)]—Delete subsection (5) and substitute:

(5) In addition—

(a) in connection with the operation of subsection (3)(a), if the Commissioner is satisfied that, at a relevant time, it was not part of an arrangement to avoid duty under this Part that an item was separately owned from the land, the Commissioner may determine that an entity's interest in land will not be taken to include an interest in the item; and

(b) in connection with the operation of subsection (3)(b), an entity's interest in land will not be taken to include an interest in an item which is owned by another entity unless—

(i) the relevant entity and the other entity are related entities and—

(A) the relevant entity holds a significant interest in the other entity or vice versa; or

(B) a chain of significant interest can be traced between the relevant entity and the other entity; or

(ii) a person or group holds a significant interest in both the relevant entity and the other entity.

Amendment carried.

The Hon. G.E. GAGO: I move:

Page 10—

Line 37 [clause 7, inserted Part 4, Division 1, section 95(1)]—Delete 'relevant entity' and substitute:

private company or a private unit trust scheme

Line 38 [clause 7, inserted Part 4, Division 1, section 95(1)]—Delete 'relevant entity' and substitute:

private company or a private unit trust scheme

Line 40 [clause 7, inserted Part 4, Division 1, section 95(2)]—Delete 'a relevant' and substitute:

an

Page 11—

Lines 8 and 9 [clause 7, inserted Part 4, Division 1, section 95(3), Example]—Delete '(a listed company)'

Line 10 [clause 7, inserted Part 4, Division 1, section 95(3), Example]—Delete '(a private unit trust scheme)'

Line 11 [clause 7, inserted Part 4, Division 1, section 95(3), Example]—Delete '(a private company)'

My amendments Nos 4 to 9 are related and operate together to limit the operation of the proposed section 95 of the Stamp Duties Act. Section 95 is a tracing provision that allows ownership of land holding entities to be traced through indirect ownership structures. As currently drafted, the bill allows indirect interests to be traced through listed entities where ownership in a listed entity is less than 90 per cent.

This is at odds with the principle that control of a listed entity is only taken into account when the 90 per cent ownership level is reached. This was an unintended consequence of the bill and the amendments operate to prevent the tracing of indirect interests through the listed entities.

The Hon. R.I. LUCAS: The Liberal Party supports the amendments. Again, I congratulate the member for Davenport and the stakeholder groups, such as the Law Council, the Property Council and others, that have highlighted the concerns that they raised with the initial drafting of the bill. If it had not been for the work that those groups and the member for Davenport undertook, these particular provisions would not have been picked up through the work of the Legislative Council—the house of review, ultimately. I place on the record congratulations to those groups and also acknowledge that the government has conceded that the bill was deficient in this particular area and needed to be corrected. I congratulate the government on recognising that fact.

Amendments carried.

The Hon. G.E. GAGO: I move:

Page 11—

Line 16 [clause 7, inserted Part 4, Division 1, section 96(1)]—Delete 'related entity' and substitute:

private company or a private unit trust scheme

Lines 17 and 18 [clause 7, inserted Part 4, Division 1, section 96(1)(a)]—Delete 'related entity' and substitute:

private company or private unit trust scheme

Line 20 [clause 7, inserted Part 4, Division 1, section 96(1)(b)]—Delete 'related entity' and substitute:

private company or private unit trust scheme

Lines 27 to 29 [clause 7, inserted Part 4, Division 1, section 96(2)]—Delete subsection (2)

Line 35 [clause 7, inserted Part 4, Division 1, section 96(3)]—Delete 'related entity' and substitute:

private company or private unit trust scheme

Amendments Nos 10 to 14 operate together to limit the operation of proposed section 96 of the Stamp Duties Act. Section 96 is a provision that deems a relevant entity to have notional interest in assets held beneficially by a related entity in certain circumstances. As currently drafted, the bill deems a private entity to have a notional interest in assets held beneficially by a listed entity, when the private entity owns 50 per cent or more of a listed entity.

If unamended, this provision will operate to effectively charge duty on land owned by a listed entity when the relevant level of ownership of the listed entity is less than 90 per cent. This is an unintended consequence of the bill and the amendments operate to prevent a private entity having a notional interest in assets held by a listed entity.

The Hon. R.I. LUCAS: The Liberal Party supports it and I reiterate the comments I made on the previous amendments.

Amendments carried.

The Hon. R.I. LUCAS: Can the minister's advisers advise the council on the background to the proposed changes in section 102E; that is, separation of statutory funds held by life companies? Was this the result of lobbying by insurance companies in South Australia? If so, what was the nature of that lobbying and why has the government agreed, in this legislation, to make the changes as proposed?

The Hon. G.E. GAGO: I have been advised that we were, indeed, lobbied by one insurance company in particular. It came to us with an unsolicited submission and put forward a case that life companies that have statutory funds were dealt with unfairly by the provisions, and it outlined the reasons around that in detail. We looked at that and acknowledged that it raised legitimate concerns and made the amendments accordingly.

The Hon. R.I. LUCAS: Was that life company AMP?

The Hon. G.E. GAGO: I am advised that it was.

The Hon. R.I. LUCAS: Do the changes proposed by the government under 102E now put our law in relation to this issue in a position which is consistent with all or the majority of other jurisdictions, or does it set us apart from the majority or all other jurisdictions?

The Hon. G.E. GAGO: I am advised that New South Wales, Queensland and Victoria have similar provisions.

The Hon. R.I. LUCAS: I assume the minister means similar provisions as proposed in this bill?

The Hon. G.E. GAGO: That is right, I am advised.

The Hon. R.I. LUCAS: Finally on this issue: does this particular change have any revenue implications for the state government?

The Hon. G.E. GAGO: I am advised that there were revenue implications in so far as the company indicated that, without changes, it would not be able to invest in South Australia but, with these changes, it would be able to invest and, of course, that has potential revenue implications for South Australia.

The Hon. R.I. LUCAS: Given that the existing law, I assume, has existed for some time, what was it that prevented AMP investing in South Australia?

The Hon. G.E. GAGO: I have been advised that the company has two statutory funds. Currently the interest that each fund has in property would be amalgamated, so they have kept their interest below 50 per cent. Now, with the bill as it stands with the changes that we have made, that would enable them to individually invest more because of these provisions.

The Hon. R.I. LUCAS: Whilst I understand the view put by the AMP, has Revenue SA projected whether there would be any increase in revenue collected by Revenue SA or any reduction in revenue collected by Revenue SA, or no impact at all, as a result of these changes?

The Hon. G.E. GAGO: I am advised that we believe that there will be an increase because of potentially increased investment.

Clause as amended passed.

Remaining clauses (8 to 10) and title passed.

Bill reported with amendment.

Third Reading

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 move:

That this bill be now read a third time.

Bill read a third time and passed.

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