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Legislative Council - Fifty-Fourth Parliament, First Session (54-1)
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Bills

Land Tax (Miscellaneous) Amendment Bill

Second Reading

The Hon. R.I. LUCAS (Treasurer) (15:25): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation and the detailed explanation of clauses inserted into Hansard without my reading them.

Leave granted.

Today, I am pleased to introduce the Land Tax (Miscellaneous) Amendment Bill 2019, a Bill to amend the Land Tax Act 1936, which is part of a reform package that will reduce the net amount of land tax payable by around $90 million over three years.

As part of the Marshall Liberal government's election platform, a commitment was made to lower costs for South Australians. The government has already abolished payroll tax for all small businesses and we have delivered reductions in Emergency Services Levy bills. Further, the government remains committed to capping council rates; reducing electricity prices; cutting water bills; and, of course, reducing revenue collected from land tax.

For far too long, South Australia has been in the unenviable position of having the nation's highest top marginal tax rate, which has acted as a disincentive to investment and has inhibited strong economic growth.

Some investors have for years preferred to invest in other states because of the uncompetitive nature of our 3.7 per cent top tax rate. The government's land tax reform package will release this hand-brake on investment attraction, boost business and consumer confidence, create jobs and put more money back into the pockets of hardworking South Australians.

The Marshall Liberal Government's commitment is to reduce total land tax revenue collected and to implement a fairer, more competitive land tax system.

The vast majority of 'mum and dad' investors, and company groups, who currently pay land tax will be financially better off as a result of the Marshall Liberal Government's reforms.

It has not, in the past, been usual practice for a government to undertake public consultation prior to the introduction of a tax Bill. However, the government, recognising the importance of these reforms, has conducted a wide-ranging and extensive public consultation since the initial announcement of the land tax reforms in the June budget.

The government has listened to the views expressed by many community members and has made significant amendments to its proposed reform package. The strong message from many stakeholders was if the government was intent on amending aggregation rules then it needed to make significant reductions in tax rates.

The elements of the package

The revised land tax reform package comprises the following elements, the first of which has already been legislated and the others which are included in this Bill. They are:

Increasing the tax free threshold from $391,000 in 2019-20 to $450,000 from 1 July 2020 which will provide relief to all taxpayers. In fact, an estimated 9,300 taxpayers will no longer pay any tax as a result of this change.

An immediate reduction from 1 July 2020 in the top tax rate from 3.7 per cent to 2.4 per cent. The proposed new rate of 2.4 per cent is in line with the average rate for all mainland states;

Setting the maximum threshold at which the top tax rate of 2.4 per cent will apply in 2020-21 to the value of $1.35 million and then increasing it by a further $250,000 in 2022-23, so that the top threshold will then be $1.6 million.

Introducing a new lower tax rate of 2.0% to apply from 2020-21 for site values between about $1.1 million and $1.35 million and then in 2022-23 from about $1.1 million to $1.6 million.

Changes to aggregation rules similar to New South Wales and Victoria to ensure that we have a fairer system. This will stop the possibility of some investors who have structured themselves into complex legal arrangements not paying a single dollar in land tax. Throughout the debate, the opponents of the reforms have comprehensively failed to defend the inequity of the current law which allows that to happen.

And finally, the Bill also introduces a requirement that an independent review be undertaken by 31 December 2023 on the operation and impact of the land tax reform package. The review will cover changes contained within this Bill, in addition to those in the Statutes Amendment and Repeal (Budget Measures) Act 2018.

Rationale for aggregation

It is important to note that the government is not introducing aggregation.

Aggregation has existed in South Australian land tax law for as long as land tax has been collected.

The simple principle behind the proposed amended aggregation rules is that two investors who each own $1 million in property should be taxed equally even if one investor has one property and the other has four properties.

While the total net land tax payable was always intended to be reduced, it was originally estimated that the aggregation measures would generate an additional $40 million per year. However, one of the purposes of the extended consultation was to allow greater investigation and clarity on this estimate.

Access to more detailed information, such as cross-referencing with ASIC databases and TRUMPs driver's licence data has enabled a more accurate estimate of revenue to be collected.

Treasury has now estimated that at a top tax rate of 2.4 per cent, aggregation changes will raise an extra $86 million per annum.

Independent accounting firm PricewaterhouseCoopers (PwC) has reviewed and supported as reasonable Treasury's methodology for constructing this estimate. When reviewing the methodology used by Treasury, PwC did not identify any alternative ways to use the existing data sets to improve the reasonableness of the estimate.

It would clearly be inappropriate and unlawful for the Government to disclose the confidential details of individual taxpayers who would be affected by the changes, however, the Government has made PwC's report on the review of the methodology available to the public.

The tax cuts are now estimated to be worth:

$111 million in 2020-21;

$115 million in 2021-22; and

$121 million in 2022-23.

Over three years, that equates to a net reduction in revenue of around $90 million, made up of:

$25 million of relief to taxpayers in 2020-21;

$29 million in 2021-22; and

$35 million in 2022-23.

The revised reform package will mean that the overwhelming majority of individuals and company groups will pay less land tax under the reforms.

Estimates show that around 92% of all individuals will pay less tax under the reforms and around 75 per cent of company groups will pay less land tax under the reforms.

The revised package was welcomed by many investors and other members of the community, some who had initially been opposed to the reforms.

There are about 52,500 ownerships that currently pay land tax in South Australia. Of these there are some 22,300 ownerships comprising individuals, companies and trusts that own multiple properties and are already paying tax on aggregated site values.

In fact, there are 16,600 individual ownerships or 'mum and dad' investors who own multiple properties either by themselves or jointly with other individuals who clearly receive sufficient return from rental income to justify continued investment in multiple properties.

This 'blows out of the water' claims by opponents of the land tax reform that almost everyone has used trusts and companies to minimise the amount of land tax they pay.

A case in point is Paradise teacher Lynnette Deguglielmo, and her husband Dominic, who own several investment properties and currently pay land tax on an aggregated basis.

They have worked hard all their lives and have used property as their form of superannuation for their retirement and what they have said is that under the current law that they have felt penalised because they've had to pay such excessive land tax.

They have said 'good on you' to the government for looking to do something for the ordinary mum and dad investor so that they don't have to rely on the pension to support themselves in retirement. They have said they will save thousands of dollars on their land tax bill because of the increased tax-free threshold and the massive reduction in tax rates.

This is a clear demonstration that it is not just very wealthy individuals with significant property holdings who will benefit from the reforms.

SA Centre for Economic Studies Executive Director Michael O'Neil has also said that there will be 'no impetus now for landlords to increase rental charges' under the reforms.

Consultation

Consultation on the proposal occurred over fifteen weeks, with a further consultation on the draft Bill over an additional four weeks which yielded 193 submissions from stakeholders and members of the community.

Since then, more and more interested groups and members of the community are coming to terms with the fact that if the Bill does not pass, the chance for this transformative reform will be lost and we will be stuck with the highest tax rates of land tax in the nation for decades to come.

SACOSS, the Australia Institute, the Shopping Centre Council of Australia, the Property Council, Emmett Property, Lendlease, ICAM and Buildtec Group are amongst the interest groups and companies advocating and supporting the Bill. In addition, an increasing number of 'mum and dad' investors have also indicated their support for the Bill.

Grandfathering

Some submissions received during the consultation raised the prospect of grandfathering the changes to aggregation rules. That is not part of this Bill. Grandfathering, with respect, would create a scheme that would fundamentally fail to achieve the two main objectives of the reforms. Those are, to reduce total land tax revenue collected and to implement a fairer, more competitive land tax system.

There are several reasons why grandfathering will not work:

Firstly, grandfathering means that those who will be worse off under the new changes will opt not to move into the new system of aggregation. That would have significant revenue impacts and would potentially mean that the reforms raise no revenue at all and, in turn, that would prevent the government implementing the cut to the top tax rate to 2.4%.

Secondly, as SACOSS and others have reiterated in their submissions, the starting point for the aggregation reforms is that the current system is inequitable. In that context, grandfathering the changes would be highly unfair to taxpayers who are already paying tax on an aggregated basis by denying them much-needed relief.

For example, if Company A owns $1.4 million in landholdings all contained in a single ownership and does not have an interest in any other companies, Company A will have paid $16,870 in land tax in 2019-20. Whereas, if Company B wholly owns four other companies that each own a single property with a site value of $350,000 (a combined site value of $1.4 million), Company B and its subsidiaries would not be liable for any land tax at all in 2019-20. Grandfathering would only serve to preserve these inequities. Under the reforms, in 2020-21 Companies A and B will face the exact same land tax liability—estimated to be $13,424.50 each.

Thirdly, grandfathering would create a two-tiered system which would be virtually impossible to administer and even more difficult to understand for taxpayers. It raises many complex questions about what would happen, for example, in the event of the death of a joint owner of property, would the other owners of the property then move from the old system to the new system? How would it work where someone adds a new company to their share portfolio? How would it work where the directors of a company are changed? And so on.

Fourthly, if grandfathering is implemented, a very likely unintended consequence will be a dramatic slowdown in the property market. This is because persons who already own land will be highly incentivised to hold onto their existing property and also to completely cease making any new investments in property. This would reduce market activity substantially and impact negatively on the State's economy generally.

Technical amendments

The government is grateful for the submissions of the Law Council of Australia, the Tax Institute, the Law Society of South Australia, Perks and Associates and others, which sought to address technical issues in the consultation draft of the Bill that, in some cases, have resulted in minor amendments to make sure that the terms of the Bill are consistent with the government's stated policy intention.

These amendments include ensuring that companies will not be subject to both grouping as related corporations as well as the trust surcharge and that self-managed super funds, or SMSFs, will be unaffected by the changes to aggregation rules.

Myths associated with the changes

Throughout the consultation, the government also received contact from taxpayers alarmed by misinformation that their land tax bills would increase by five thousand percent or more. However, when assessed against the proposed measures, many of these were found to be cases where their tax liability would actually reduce. In cases where the tax liability did increase, the increase was nowhere near what they had initially thought it would be.

It became apparent throughout the consultation that there are several myths surrounding the changes to the aggregation rules. I will address some of those myths now.

A person's principal place of residence will not be subject to land tax, nor will it be aggregated together with other land owned by that person.

SMSFs will be unaffected by the changes to aggregation laws and will also be exempt from paying the trust surcharge under the Bill.

Persons who own only one investment property and do not have any other interests in property will not be affected at all by land tax aggregation under the Bill. In fact, these persons will benefit from a higher tax-free threshold and potentially also the lower top tax rate, depending on the site value of the land.

Domestic partners or family members who each have land in their own individual names will not be aggregated under the Bill. For example, a husband and wife who each own a property in their own name will not be aggregated.

All trusts will not be automatically aggregated under the Bill. Trustees of discretionary trusts, for example, will have a choice of nominating a designated beneficiary for land tax purposes or paying a surcharge of 0.5% (capped at a maximum of about $6,500 in 2020-21). If they opt to pay the surcharge, they will not be subject to aggregation. Beneficiaries of discretionary trusts who have not been nominated as a designated beneficiary will not be liable for land tax or have their interests aggregated with other land they may own.

All of a person's land will not necessarily be aggregated together and assessed as one landholding under the Bill. There will still be the ability for persons to disaggregate their landholdings, to the extent that they are held in different types of structures. That is, a person who owns land in their own name as a natural person, land in a company that they own and land in a family trust where the trustee has opted to pay the trust surcharge, will not be aggregated together into one, single group for land tax purposes.

Key aspects of the Bill

I now turn to explain the key details of five major features of the Bill, namely:

the revised land tax scales;

the changes to aggregation rules;

the grouping of related companies;

the trust surcharge; and

the exemptions to land tax.

The revised land tax scales

Between the 2019-20 and 2020-21 financial years, the new proposed tax scales will see the tax-free threshold lifted from $391,000 to $450,000.

In addition, it is estimated that the 0.5 per cent threshold will be lifted from $716,000 to around $755,000; the 1.65% threshold lifted from $1,042,000 to around $1,098,000; and the introduction of a new 2 per cent threshold for land valued between $1,098,000 and a new top threshold of $1,350,000. The top land tax rate is reduced from $3.7 per cent to 2.4 per cent for total site values over the new top threshold of $1,350,000—in line with the average of the mainland states.

The actual thresholds in 2020-21, apart from the $450,000 tax-free threshold and the top threshold of $1,350,000, will depend on the final indexation factor determined by existing legislative provisions.

The top threshold will remain unchanged in 2021-22, and will then increase from $1,350,000 to $1,600,000 in 2022-23. The top threshold will then be indexed annually thereafter, consistent with the other thresholds.

There is a 0.5 per cent surcharge for trusts, which I will return to later. Whilst our top threshold remains lower than other states, this is, in part, a reflection of the fact that our average site values are also lower—in other words, land is more affordable in South Australia than in other states.

Changes to aggregation rules

There will be a simplified version of the New South Wales and Victorian approach to aggregation. Landholders' interests will be aggregated across joint and individual ownerships. Joint ownerships will receive a land tax bill as at present, but if the joint owners own other properties in their own right, they will receive a separate bill for their total landholdings, including their share of the joint ownership.

To avoid double taxation, a deduction will be made on an individual's liability equivalent to their share of the land tax assessed on any jointly owned land (proportional to the ownership share). This is simpler than the approach taken in Victoria and New South Wales and can result in a bigger deduction for taxpayers.

The deduction will be taken off their entire liability, even if it includes land tax payable on properties other than the joint ownership. Where the deduction for jointly owned land is greater than the individual land tax liability, the individual liability is zero.

By way of comparison, in New South Wales and Victoria, there is a deduction on an individual's land tax bill equivalent to the lesser of the individual's share of the land tax assessed on the jointly owned land, and the amount of tax which the jointly owned land represents in the individual's land tax assessment.

Grouping of related companies will occur broadly in line with the current arrangements in New South Wales and Victoria, and is a similar concept to existing grouping provisions for payroll tax in South Australia. Where corporations are deemed to be 'related', they will be jointly assessed for land tax on the land as if it were owned by a single corporation.

Two or more companies will be grouped where there is established control. This can be through the ability to control or cast more than 50 per cent of the votes at a general meeting, where the owner has 50 per cent of the issued share capital or where the owner has control of the board of directors.

Control may be exercised by a corporation over other corporations; by the same person or persons over two or more corporations; or jointly by a company together with its shareholders.

Where one corporation is related to another corporation and the second corporation is related to a third corporation, the first and third corporations will also be taken to be related. If one corporation owns over 50 per cent of shares in two different corporations, all three corporations will be related.

We have listened to feedback on the draft Bill from those in the property development industry, including the UDIA and others, about the potential impact of the company grouping provisions on property developers who establish unit trust arrangements for development purposes, and, in response, we have included an ability for related companies to apply for de-grouping in defined circumstances.

The Commissioner for State Taxation will be able to de-group related companies at her discretion under certain conditions. The primary intention of this provision is to provide relief where land is being held for the purpose of being developed as a residential development of more than 10 allotments. The development must also commence within two years of the application, unless the Commissioner considers an alternative period is required.

The de-grouping will be for an initial period of up to 5 years reflecting the expected development period with any extension subject to a new application to the Commissioner. Further conditions on the exercise of the Commissioner's discretion may also be prescribed by regulations.

Trust surcharge

This Bill also introduces a number of new provisions for land held in trust. The design of trusts means that it can be difficult to determine the true beneficiary of land held in trust. As such, a trust surcharge of up to 0.5%, capped at the maximum tax rate, will apply for land held in trust with a site value of greater than $25,000. If applied, it will be levied on the full site value of the land, with no surcharge-free threshold.

There is also a transitional measure for discretionary trusts to provide notice of a single beneficiary and avoid the surcharge. This measure is voluntary and will be available for any land held in discretionary trusts up to the date of introduction of the Bill into Parliament. Trustees will have until 30 June 2020 to provide notice.

This is broadly consistent with the law in Victoria. The surcharge is levied against the full value of the land to avoid a situation where trusts can still be used to avoid any land tax being paid where multiple parcels of land that are below the tax-free threshold of $450,000 are split into multiple trusts.

The reason that the surcharge applies for properties valued over $25,000 rather than $0 is to avoid catching very low-value landholdings and to minimise administrative burden for taxpayers.

The surcharge will be capped at a fixed amount, such that the land held in trust will not pay a marginal tax rate greater than the top rate. This fixed amount is estimated to be around $6,500 for 2020-21, but will ultimately depend on any adjustments to the tax scales for that year. This means that land held in multiple trusts will not be aggregated if each trustee opts to pay the trust surcharge.

Certain trusts will be exempt from the surcharge, such as self-managed superannuation funds, charitable trusts, concessional trusts, deceased estates, child maintenance land and a number of other trusts which would otherwise be exempt from land tax.

There are provisions for fixed and unit trusts to voluntarily provide a notice of beneficial interests, such that they will not be liable for the surcharge. This is an optional provision, and where a notice of beneficial interest is in place, a beneficiary's interest in the trust land will be aggregated with any other interests in land that they hold as an individual. In other words, where the true owners of land are notified, they will be treated like any other land held individually.

This Bill also includes new notification provisions which require trustees to notify the Commissioner of the existence of trust land within one month after the commencement of the Bill—being the end of July 2020 where the Commissioner has not previously been advised of the existence of the trust.

Exemptions to land tax

All existing exemptions from land tax will be maintained, including the exemptions for a principal place of residence and for primary production land.

The principal place of residence exemption will be expanded somewhat under the reforms. Where a notification of beneficial interests is in force, land will be exempt from land tax in the case of fixed and unit trusts if all beneficiaries or unitholders use it is as their principal place of residence (and other existing requirements are met).

In the case of discretionary trusts, the exemption will apply if their nominated beneficiary uses it as their principal place of residence.

Conclusion

Finally, the government believes that it is imperative that this Bill is passed swiftly to end any ongoing uncertainty for businesses and property investors associated with the pending changes.

This Bill provides a once in a lifetime opportunity for comprehensive land tax reform which will drive down the top rate of land tax from 3.7% to 2.4% and drive economic investment and jobs growth in the South Australian economy.

Explanation of Clauses

Part 1—Preliminary

1—Short title

This clause is formal.

2—Commencement

Some of the transitional provisions will commence on assent to allow certain notifications to be given in the lead-up to commencement of the amendments to the Land Tax Act 1936. The amendments to the Land Tax Act 1936 will however commence on 30 June 2020, immediately after the commencement of amendments to the Land Tax Act that were contained in the Statutes Amendment and Repeal (Budget Measures) Act 2018.

3—Amendment provisions

This clause is formal.

Part 2—Amendment of Land Tax Act 1936

4—Insertion of heading

The Land Tax Act 1936 is currently not divided into Parts. This clause is the first of a number of amendments contained in the measure that insert headings to divide the Act into Parts and Divisions to better assist the reader in finding content in the Act.

5—Amendment of section 2—Interpretation

This clause inserts a number of new definitions for the purposes of the measure.

6—Insertion of headings

7—Insertion of heading

These clauses insert new headings.

8—Insertion of section 5AA

This clause inserts a new section allowing the Commissioner to disregard minor interests in considering the application of the residential land exemptions in section 5.

9—Substitution of section 6

This clause is part of the restructuring of the Act. The current section 6 (which is being relocated to later in the Act to fit the new structure created by the insertion of headings—see new Division 2 inserted by clause 13) is repealed and replaced with what is currently section 11.

10—Insertion of heading

11—Insertion of headings

These clauses insert new headings.

12—Amendment of section 8A—Calculation of land tax

This clause amends section 8A to provide for the application of new rates of land tax specified in the Schedule that is proposed to be inserted by clause 18 of the measure. Section 8A(1) deals with the general land tax rates and (1a) deals with land tax rates for trustees (where the land has a taxable value of more than $25,000), subject to various exclusions in (1b) and (1c). The new rates will apply from the 2020-21 financial year onwards.

The provision also deletes the current threshold E and changes threshold D (and provides for its future adjustment).

13—Substitution of sections 9 to 13A

This clause contains some measures that are part of the restructuring of the Act as well as substantive changes relating to land tax where there is more than 1 owner of land, land held on trust and grouping of related corporations.

Current sections 9 and 10 are proposed to be repealed because they essentially contain definitional material which is now to be relocated into section 2 of the Act with the other definitions. Similarly, current section 11 is relocated for structural reasons to become section 6.

The current provisions on multiple ownership are repealed and replaced with a new provision as follows:

9—Land tax where more than one owner of land

This clause makes provision in relation to land tax where two or more persons are the owners of land (whether in the same or in different capacities). Under this provision joint owners are assessed in two stages. Firstly, the joint owners are assessed together (and all the joint owners are liable for the land tax together). Secondly, each joint owner is assessed individually on all the lands they own in any capacity that are liable to land tax. To avoid double taxation, an owner may receive a deduction in their individual assessment in accordance with the formula in proposed subsection (8).

New Divisions are also inserted as follows:

Division 2—Land divided by a community or strata plan

10—Assessment of tax against land divided by a community or strata plan

This proposed provision is a relocation of the current section 6.

Division 3—Land held on trust

11—Separate assessment of trust land

This section provides for trust land to be assessed for land tax as if it were the only land owned by the trustee.

12—Land tax for fixed trust if beneficial interests notified to Commissioner

This section allows the trustee of a fixed trust to lodge a notice of the beneficial interests in the land, in which case a beneficiary of the trust is deemed to be the owner of a proportion of the trust land (equivalent to the beneficiary's beneficial interest), and is liable for land tax on that land accordingly. The trustee is still liable for land tax on the whole of the land as if the land were the only land owned by the trustee but this is calculated at the rates applicable to non-trust land. Subsection (5)(b) allows for the application of the principal place of residence exemptions to the land (and if the beneficiaries are exempt from land lax under that paragraph, the trustee will also be exempt because the effect of the residential land exemptions is to render the land exempt from land tax). Subsection (6) provides for deduction from the land tax payable by a beneficiary of an amount (if any) necessary to avoid double taxation

13—Land tax for unit trust scheme if unitholdings notified to Commissioner

This section allows the trustee of a unit trust scheme to lodge a notice of the unitholdings in the scheme, in which case a unitholder in the scheme is deemed to be the owner of a proportion of the scheme land (equivalent to the unitholder's unitholding), and is liable for land tax on that land accordingly. The trustee is still liable for land tax on the whole of the land as if the land were the only land owned by the trustee but this is calculated at the rates applicable to non-trust land. Subsection (5)(b) allows for the application of the principal place of residence exemptions to the land (and if the unitholders are exempt from land lax under that paragraph, the trustee will also be exempt because the effect of the residential land exemptions is to render the land exempt from land tax). Subsection (6) provides for deduction from the land tax payable by a unitholder of an amount (if any) necessary to avoid double taxation.

13A—Land tax for discretionary trust if beneficiary notified to Commissioner

This section allows the trustee of a discretionary trust to lodge a notice specifying 1 beneficiary of the trust who is to be taken to be the designated beneficiary for the purposes of the section, in which case the designated beneficiary is deemed to be the owner of pre-existing trust land (i.e. land that was subject to the trust at midnight on the day on which the measure was introduced in the House of Assembly), and is liable for land tax on that land accordingly. The trustee is still liable for land tax, which will be calculated:

(a) at the non-trust land rates for pre-existing trust land;

(b) at the trust land rates for subsequent trust land (i.e. land that becomes subject to a trust after midnight on the day on which the measure was introduced in the House of Assembly); and

(c) in accordance with a formula set out in subsection (9) where land subject to the trust consists of both pre-existing trust land and subsequent trust land.

Subsection (9)(b) allows for the application of the principal place of residence exemptions to the land (and if the designated beneficiary is exempt from land lax under that paragraph, the trustee will also be exempt because the effect of the residential land exemptions is to render the land exempt from land tax).

13B—Land tax for beneficiary/trustees

This section makes provision in respect of someone who is both a nominated beneficiary under section 12 or 13 and a trustee and provides for deduction from the land tax payable by the beneficiary/trustee of an amount (if any) necessary to avoid double taxation.

13C—Land tax for excluded trusts and public unit trust schemes

This section provides for the payment of land tax at the general rates on various categories of trusts that are exempt from the trustee rates applicable under section 8A(1a).

Division 4—Miscellaneous trust land provisions

13D—Requirements for trustees to notify Commissioner

This section sets out various notification requirements for trustees. A failure to notify, as required by the section, that results in a reduced tax assessment (or no tax assessment) will constitute a tax default by the person for the purposes of the Taxation Administration Act 1996 in accordance with section 19 of the Land Tax Act 1936 (as amended by the measure).

Division 5—Land held on implied, constructive or resulting trust

13E—Land held on implied, constructive or resulting trust

The other provisions relating to trusts do not apply in relation to an implied, constructive or resulting trust but this proposed provision provides that the owner of land as trustee of an implied, constructive or resulting trust is liable for land tax on the land at the general (non-trust land) rates.

13F—Trustee's right to reimbursement under implied, constructive or resulting trust

A trustee of an implied, constructive or resulting trust is entitled to recoup the amount of any land tax paid by the trustee from trust property.

Division 6—Grouping of related corporations

13G—What are related corporations?

This section defines what constitutes a 'related corporation'.

13H—What is a controlling interest in a corporation?

This section defines when a person has, or persons have together, a controlling interest in a corporation.

13I—Further provisions for determining whether corporations are related corporations

This section sets out a list of further matters that go to the question of whether corporations are related corporations.

13J—Grouping of related corporations

Related corporations that own land are jointly assessed for land tax as if the land were owned by a single corporation and are jointly and severally liable for the tax so assessed. The section also sets out particular circumstances in which a corporation may apply to the Commissioner for an exemption from this grouping.

14—Insertion of heading

15—Insertion of heading

These clauses insert new headings.

16—Amendment of section 19—Time for payment of tax

This clause makes consequential amendments to section 19.

17—Insertion of heading

This clause inserts a new heading.

18—Insertion of Schedule 1

This clause inserts a new Schedule setting out land tax rates for the 2020-21 financial year and subsequent financial years.

19—Review

This clause provides for a review of the effect of the measure, as well as the amendments to the Land Tax Act 1936 contained in the Statutes Amendment and Repeal (Budget Measures) Act 2018. The review is to be completed by the end of 2023.

Schedule 1—Transitional provisions etc

The Schedule contains transitional provisions.

The Hon. C.M. SCRIVEN (15:26): I rise to speak against this bill. This is an $86 million new land tax grab. The figures change frequently. We hear different things from the Treasurer at different times. First it was one amount, then that was revised, and then it was a second amount. I think many South Australians have lost track of how many versions of this land tax proposal there have been. Regardless, it is a tax grab and it should be seen for what it is—a tax grab.

It is bad for South Australian jobs, it will drive up rents, it is bad for the construction industry, it is bad for the housing industry and for South Australia's economy, it will impact small investors and there are a number of risks that it will affect people in regional areas in ways that have not even, as yet, been contemplated or addressed.

Labor has held a series of open forums. Most people who have been following this debate should be aware of the sort of response that we have had at those open forums. People have been absolutely outraged by the changes that are being introduced by this Liberal government—absolutely outraged. Many of those people are those who would traditionally be Liberal supporters, and not just Liberal supporters but also other people who have worked very hard and who have built up, perhaps, a small property portfolio in lieu of superannuation.

Many people, like my late father, who were never offered the opportunity of superannuation, were instead able to invest, perhaps, in one property and then, over time, in a second one, and the rents from those properties provide them with their income in retirement. The ways that these South Australians have established trusts and other financial structures have been legal and legitimate. Although the Hon. Rob Lucas has categorised it otherwise, that is the case. They were legal and they were legitimate.

Then, without warning, in this year's budget the Marshall Liberal government announced that they would penalise people who had set up legitimate investment mechanisms in the past. I think what most people are most angry about in regard to this entire debate is the retrospective nature of the bill—people who have made investment decisions, received advice and structured their affairs accordingly, only to then be told that, with the stroke of a pen almost, they will lose their livelihoods or they will be severely impacted by these changes.

Prior to the last election Steven Marshall was very clear. He said a Liberal government would not impose sudden and discriminatory tax changes. Going back further to 2014, Steven Marshall said, 'We will take the axe to land tax in South Australia.' Instead, this Liberal government is taking the axe to small investors and those who have established themselves in a small income—a reasonable, modest income—because they do not have superannuation and in many cases are not eligible for the aged pension. It really does sit with the no privatisation broken promise, the lower costs for South Australians broken promise and the better services broken promise.

Many people who attended Labor's forums said that they will have no choice but to pass on increases in land tax to their tenants. Many people in rental accommodation are on low incomes and they are the ones who will bear the brunt of this tax grab from the Marshall Liberal government. It will be tens of thousands of ordinary South Australians who will foot the bill for this tax grab.

The flow-on effects—increased rents, etc.—will have a negative impact on what is already quite a difficult business environment. We saw today that business confidence in South Australia is at an all-time record low. Business confidence in this state at the moment is worse than it has ever been before. That can only be slated home to this government, and the uncertainty around land tax and the uncertainty about this huge tax grab from the Marshall Liberal government must surely be one of the reasons for that record low confidence in the state.

Businesses that are leasing their properties will similarly be impacted. The landlords will have no opportunity to recoup their losses other than to pass it on to their tenants, including their business tenants. Whilst landlords may not be able to directly pass it on, they can certainly be factored into rent reviews or lease renewals, and ultimately someone must pay the cost of this tax increase.

Many small business owners at the forums spoke about other flow-on effects and said that already they have ceased hiring staff, that already they are freezing future investment, that already they are halting expansions; all of this because of this broken promise from the Marshall Liberal government, which is increasing and creating a greater taxation burden for the people of this state.

Recently, the Department of Treasury and Finance was asked what modelling had been done on the impacts of the land tax changes on regional areas. The answer—none; there was no modelling on the impact of the land tax changes in regional areas. I was so surprised that I asked the question again, and the answer again was no, none; no modelling whatsoever. This is from a government that claims that regions matter. This is from a government that said before the election that they want to make sure they support small businesses, that they want to support small businesses in regional areas. Instead, what do we have? Small towns being put at risk because of this Liberal government's changes.

I draw the chamber's attention to a number of towns, many of which have one supermarket only, towns that now have the risk of their supermarket closing because of these land tax imposts. In Robe and Kingston in the South-East, there is only one supermarket in town. I am sure members can appreciate that if the only supermarket in town closes, the chance of that town surviving, much less thriving, is severely reduced.

Even those towns that have more than one supermarket will have competition affected. If people think that this is not an outcome of these proposed changes, let me quote Mr Alistair Schuller, who is the managing director of Eudunda Farmers. Eudunda Farmers owns 24 stores across regional South Australia. Eudunda Farmers is looking at an increase of 500 per cent in their land tax bill—500 per cent. Can a business reasonably be expected to absorb that sort of increase? As Mr Schuller said:

This could be the difference between keeping stores open or closing our doors in some towns.

If we are forced to close, it is local people who will lose out. If we are forced to sell our stores, who will buy them?

Eudunda Farmers has had stores in country towns since 1896. Their first was in—believe it or not—Eudunda. They have provided an excellent service throughout regional areas, including in many towns, as I say, that have only one supermarket. Those services, those retail outlets, are at risk because of this Marshall Liberal government's land tax grab. As Mr Schuller said, where is the concern for country residents, and where is the concern for country jobs in these measures?

I must say, I need to particularly refer to Millicent. It is true that Millicent has three supermarkets. I have addressed this chamber before on the threats to at least one of those supermarkets under the proposed changes to shop trading hours that were fortunately defeated in this chamber earlier. One might be tempted to think that the Treasurer has something against Millicent, that he is out to get it, because it is, again, one of the stores in Millicent that will be threatened with closure if these land tax changes progress.

The towns we are looking at that could be affected significantly—a supermarket is a pretty core kind of service in any town—are Angaston, Barmera, Bordertown, Clare, Crystal Brook, Eudunda, Gladstone, Jamestown, Kingscote, Kingston South-East, Lameroo, Loxton, Mannum, Meningie, Millicent, Naracoorte, Penola, Peterborough, Pinnaroo, Port Augusta, Robe, Tailem Bend, Tanunda and Waikerie. Any of these towns could have a significant service withdrawn from it because of the potential 500 per cent increase to land tax that would affect the owners of stores in these towns.

Even before the introduction of Steven Marshall's land tax hit, we had seen a severe deterioration in the economy. Unemployment is up. State final demand has gone backwards for two consecutive quarters. South Australia has recorded a huge fall in retail trade. We heard today that there may yet be more changes to the land tax proposals. One must ask: how was this policy, in any way, shape or form, brought to this place amid such chaos? How can any government that says it has the right to govern bring something to this place that requires so many changes, that has so much opposition from within so many sectors of the community?

The opposition is from small business, from mum-and-dad investors, from retailers and from people who are supporting themselves through income from a couple of properties because they do not have superannuation. Is there any part of the community that will not be affected negatively? Tenants, particularly those on low incomes, will also be affected. All of these are facing negative impacts because of this government's changes, which have changed so many times and, it would appear, may yet change again. Business SA has today attributed the huge drop in business confidence to the chaos around land tax. It says that land tax uncertainty is responsible in a significant way for the huge drop in business confidence.

A number of organisations have come out against these land tax changes. Labor has listened to those organisations but, more importantly, Labor has listened to those people who have contacted us directly, come to forums and said, 'This is not about a theoretical change that will deliver wonderful things. This is what it will mean to me. This is how it will affect me. This is how it will affect my business. This is how it will affect my family.' That is unacceptable. The changes have been chaotic. The whole approach by this government has been chaotic. As a result, Labor will not be supporting this bill.

The Hon. T.T. NGO (15:39): I rise to speak in opposition to the government's Land Tax (Miscellaneous) Amendment Bill. Before the state election, Premier Marshall informed South Australians that he would be cutting land tax. Less than 18 months later, he broke this promise and announced a series of reforms to land tax aggregation.

The outlined reforms are not land tax cuts; they are land tax increases. The new land tax aggregation measure is being used to try to fill the Marshall Liberal government's budget black hole. This is on top of the already $500 million of fee increases and charges over the next four years, outlined in the state budget, which will be paid by everyday South Australians.

This tax increase will hurt local jobs, small businesses and small investors, and it will drive up commercial and residential rents. The fact that this tax will negatively impact jobs is one of the primary reasons for opposing this bill. South Australia's unemployment rate has increased from 5.6 per cent to 6.3 per cent since the election, making it the second highest in Australia—and we were last for a few months prior to that. South Australia needs to be creating more jobs and opportunities for South Australians, not taking them away. In The Advertiser today it was reported that:

Business confidence in South Australia has hit a record low in the three months to the end of September, declining for the third quarter in a row according to a new survey by Business SA William Buck Survey of Business Expectations. The fall in confidence to 71.6 points is the lowest on record.

Mr Martin Haese, Chief Executive of Business SA and former Lord Mayor, stated in the article:

…confluence of issues including high unemployment, interest rate cuts, land tax uncertainty, geopolitical tensions and ongoing high utility costs.

Clearly, the government should be doing a lot more to help business grow and create jobs. This tax increase will mean that businesses will have less money, the housing construction industry will suffer job losses, and investors will be less likely to build new houses. Fewer houses being built means fewer places for people to rent and, therefore, rent will be higher in the medium term.

Another troubling factor is how these land tax increases were rushed into the budget without any consultation or modelling showing the impacts these taxes will have on jobs and the broader economy. Furthermore, Premier Marshall has already produced five different versions of his policy, with the last one happening just hours before it was set to be debated in parliament.

The Hon. C.M. Scriven: There might be more.

The Hon. T.T. NGO: And there might be more, as the Hon. Clare Scriven said. As I understand it, it was to try to appease some members of the Liberal backbench who the government feared might cross the floor.

InDaily online newspaper yesterday reported that the Treasurer is negotiating another version of the bill. These sudden and unexpected changes from Premier Marshall have created unnecessary stress for South Australians, especially the mum-and-dad investors, the people who have worked hard and invested in properties as a form of superannuation because back then there was no compulsory superannuation. It is unfair that the majority is being taxed more to pay for the tax cuts for the top end minority.

Premier Marshall assures us that this is fair because he consulted on it. But I ask: who has he consulted? Has Premier Marshall consulted the hardworking South Australians who find that this new policy actually increases their land tax bill? Has the Premier asked South Australians how land tax should be reformed to make it fairer for every South Australian?

Instead, the Marshall Liberal government focused on consulting the Property Council, which, after four months of campaigning against the changes, especially aggregation, suddenly became advocates, after a minor additional change to the top rates and thresholds. There is still no credible answer as to why the Property Council changed their position on aggregation.

Premier Marshall, after consulting with the Property Council, added an additional benefit of a new rate of 2 per cent to apply to a narrow band of properties valued between $1.1 million and $1.35 million. This is on top of increasing the maximum threshold at which the top tax rate of 2.4 per cent will apply by $250,000 in 2020 and a further $250,000 in 2022 so that the top threshold will then be $1.6 million. These land tax proposals are only looking after the small percentage of people at the top end of town, who are getting a huge reduction, while people at the lower end, where most people are, are being forced to pay more.

It is unfair that smaller property owners with a few residential properties which are less than the $1.1 million will be forced to pay more, while bigger companies will pay less. The average mum-and-dad investors, who are the biggest losers, are people with multiple low-value properties (less than $450,000) held in trusts and people with multiple direct properties which are not currently aggregated. The biggest winners are those with properties greater than $1.6 million held in unaggregated trust structures and those with unaggregated properties exceeding $1.3 million in other structures.

The Marshall Liberal government has failed South Australians, small businesses and small investors, who are now being asked to dig deeper and pitch in more. It is not just a little more; in some cases, as we heard from other members from the other house, it is a whole lot more. There is no fairness in this policy. It has been rushed and changed to suit the top end. After 18 months, I would have expected a better and a more thought-out effort. I would have expected the Treasurer to deliver legitimate and well considered tax changes that would be fair and consistent across the board.

I am disappointed that this has not occurred here with this land tax bill, which significantly disadvantages a good number of hardworking South Australians and, for some, eats away at their retirement nest egg. I ask the Premier and the Treasurer to go back to the drawing board and come up with a fairer tax system for everyone, not just the people at the top end of town. Please have another look at this bill and maybe in another 18 months deliver land tax version 6.0, after it has been fully consulted, release the modelling and focus on a plan that takes account of the circumstances of all South Australians and does not leave anyone much worse off.

The Hon. R.P. WORTLEY (15:48): I rise to speak on the Land Tax (Miscellaneous) Amendment Bill, a bill which, quite frankly, does not meet the fairness test, a bill which seeks to legislate unfair tax hikes which will impact the local job market, hurt small businesses and push up rents.

In determining our position on this legislation, Labor held a series of public forums across Adelaide, consulting widely with stakeholders and hence have now formulated our considered position. Labor opposes this bill for three key reasons; namely, that this bill will have a negative impact on the local job market, will have an adverse effect on small business and smaller investors, and will cause the increase of commercial and residential rents.

Our forums on land tax were well attended, with hundreds of people turning out at each event to voice their frustration and their anger. We heard from families, self-funded retirees, post-war migrants and the adult children of post-war migrants whose parents had worked hard to provide a good standard of living for their families, whose livelihoods are now threatened owing to this proposed retrospective tax. Many people who attended clearly articulated in precise detail how their families and their hope for future generations would be impacted by this bill.

The point was made many times that neither the Premier nor the Treasurer told the electorate that this was what they were planning to do before the 2018 state election. Many people also described what the impact of this bill would have on not only their own livelihoods and that of their families but on the wider community. One man said, 'If my land tax increases by $5,000 or $6,000, I will be looking to recover that from my tenants.' Another gentleman said, 'No-one is going to invest here in South Australia and no-one is going to have jobs in South Australia.' That is only a sample of the comments from those who attended the forums.

Later, I will be reading out material from a significant number of people who expressed their frustration, anger and dismay at this tax that I found on the government's website. I will come back to rent in a moment but on the point of jobs and security I will read a quote from the Housing Industry Association:

Developers will move elsewhere, denying South Australians massive investment dollars, with the resultant impact on jobs, apprentices and the flow-on in economic activities through to retail, hospitality and many other sectors.

Labor has consulted widely on this bill, speaking with small businesses, investors and industry groups that are well known and well respected. I reference a quote from the Motor Trade Association:

Several sectors of the automotive industry are very land-intensive and many small and medium businesses who own their own premises and employ between 10 and 50 staff, have indicated that they may have to lay off staff due to the proposed changes.

Builders, tradies, realtors and others will rightly be worried about securing their next job if this bill passes: fewer projects mean fewer jobs. South Australia has an unemployment rate of 6 per cent, the second highest in the nation. We must reasonably ask ourselves about the wisdom of passing legislation that will create further uncertainty in the labour market. Labor believes that this bill will not increase the number of jobs available; indeed, it stands to reason that this bill will create further job uncertainty and, hence, one of the key reasons why Labor opposes the bill.

Based on broad consultation, the message time and time again is that if a landlord's tax bill increases then so, too, will the rent they charge. This means that lower income earners living in rental properties may be hit hard, potentially driving people out of the private rental market and into an already stretched public housing system. I also make the point that the Marshall Liberal government is seeking to increase land tax in a year when people's council rates are increasing, as well as sewerage rates and other fees and charges. Additional taxes and fees and charges are coming in from multiple directions, a consideration that a landlord must take into account when weighing up whether to increase tenants' rents.

This bill will also have an unfair and adverse impact on small businesses and small investors. Many small businesses have told Labor that this proposed bill will have a devastating impact on their bottom line and their ability to provide job security for their workers, let alone create new jobs in the future. The Australian Institute of Conveyancers SA Division has commented about the impact of the bill and stated:

Many conveyancers are small business owners and lessees of commercial property. Our concern is that this measure will restrict the property market and that small businesses will end up bearing the cost of this measure.

The taxation committee of the Business Law Section of the Law Council of Australia stated:

…that Land Tax (Miscellaneous) Amendment Bill 2019 Consultation Draft…takes us from a relatively simple and relatively light administrative regime to a practically complex and relative burdensome regime. One may question whether the cost of fairness aspects justifies it? The Land Tax Bill also appears to favour—

those with significant portfolios. It goes on:

Trusts are not the entity of choice of large corporate enterprises. Trusts are generally the entity of choice to small and medium enterprises. So, the trust surcharge penalises that group.

The bill will impact South Australians who have played by the rules and made long-term investments. These are the people who Steven Marshall promised would be the beneficiaries of lower costs before the last election. Now, with no warning, the same South Australians are served with a tax hike. Smaller investors are set to bear the brunt of this impact.

The Premier and Treasurer, along with their spin doctors, have attempted to present this bill as a tax cut, yet the $60 million in tax cuts has, in fact, been handed to the minority of landholders at the top end of the scale. Indeed, most of the top-end-of-the-scale landowners are interstate investors who will receive a tax cut that, in effect, is being paid for by many hundreds of families and mum-and-dad investors who attended our forums.

How is this fair or equitable? The Liberal Party seems to be relying on their much admired theory of trickle-down economics, the theory that if you provide those at the top with tax cuts then they will take care of the economy. It is the belief that the top end of the scale will create jobs by investing in labour and capital. Trickle-down economics does not work. It has not worked for the past 10 years and the proof is in the pudding when you look at the nationwide wage stagnation.

The bill has been overwhelmingly rejected by South Australian small investors, self-funded retirees and small businesses. The package has either not been endorsed or received criticism from key groups, such as Business SA, the Master Builders Association, the Urban Development Institute of Australia and the Motor Trade Association. It has only recently been endorsed by the Property Council, obviously after a private lunch or coffee with the Treasurer. We can only imagine the sort of enticements that were made for their support.

Before reading out those comments from desperate, fearful and angry investors about the impact it will have on them, I will finish today with a couple of quotes from individual mum-and-dad investors who have taken the time to provide feedback on this so-called land tax reform. In the words of Ms Ana Nicou:

I am one half of a mum and dad investor with three children ranging from ages 11 to 15 years. We have a mortgage…several in fact. In the whole scheme of things, we are merely two small fish in a big ocean of property owners and investors. But we have worked so damned hard to get where we are and want to know our concerns actually mean something to someone.

Both my husband and I come from families of migrants. We watched our parents slave in factories to put food on the table and to provide a secure home over our head. We were taught as youngsters to dare to dream and aspire to be self sufficient in our adult lives…that Australia is the land of plenty if you are prepared to work hard and make sacrifices then your wildest dreams can come true. Today, I am questioning whether this dream has been forsaken.

This from Paula and Michael Rusanoff:

It's incomprehensible to us that this is even a consideration given that mum and dad investors have followed the rules and guidelines stipulated by the government and are now going to have the rug pulled out from underneath them.

The bill does not propose tax reform and it certainly does not propose a tax cut for those who need it most. The bill proposes a punishing tax hike for landowners, mum-and-dad investors and small businesses. If the bill passes, it will, by extension, hurt the local labour market, fail to create new jobs and push up rents.

I went to the government website and went through the land tax segment. I found many, many comments from people who, out of desperation, have left these comments on the government website. I have taken only a few of them to read today, just to give an indication to those on the government bench of exactly how this land tax is going to affect normal mum-and-dad investors. It states:

Hi there,

I am concerned about the changes to land tax. My partner and I are young working professionals aiming to prepare ourselves for retirement early so we do not require a pension, and have therefore invested in property. The proposed land tax changes present huge concerns for us as all our disposable income goes towards funding our investments or saving for the next one.

Further, close family friends of ours are approaching retirement age. After 35+ years of working for themselves and no superannuation, their retirement plan is to live off their investment properties. Aggregation changes and the land tax changes impact their future so much so that they are considering a bulk sell-off of their properties, applying for a government pension, and living off that. This is a drastic plan but it is their only option.

This concerns me very much so, and so many people are experiencing the same potential fate.

Kind regards,

Sonja.

Another writes:

To whom it may concern,

I have never felt so threatened and angry at any political government.

This is political class warfare at its worst.

I am a 53 year old electrician with a young family and have worked tirelessly only investing in SA property as a form of future financial stability for me and my family.

I now find myself paralysed in fear not knowing how to deal with this financial turmoil that this new policy will create.

I urge the government to have understanding the angst that this policy will create for many South Australians.

Steven Marshall you promised to work for all south Australians, and so we handed you our blessing to serve us in this great state.

So please have some compassion by grandfathering the policy to allow those negatively affected to transition to this new legislation.

Kind regards, Roberto...

Another writes:

Dear Mr Marshall and Mr Lucas,

I think by now you have heard the stories of many 'mum and dad' investors so I will only try to reiterate those points that very adversely affect me.

Although I own three or so properties by the time we pay all the outgoings and serve the loan there's barely anything left. This is especially so in my case who has been retrenched.

Please put yourselves in our position, yes there's some capital growth there but even that it can only take us so far.

Why dump the burden of the money you want to rise on just 9 per cent of the investors (not all in the top end of town) and not more uniformly on all investors.

This proposed reform could wipe has much as 40 per cent of my fairly average income of about 45-50K a year.

Best Regards,

Chris…

Another states:

Premier of South Australia,

…My husband and I have built four homes in Grange and inherited another.

We are currently paying $26,000 in land tax.

By our calculations our land tax bill will increase to $160,000. Between the mortgage, council rates, emergency services levy, insurances, agent fees and maintenance costs we are only just keeping our heads above water now let alone trying to find an additional $130,000.

The current rental income is already insignificant to the outlay in costs to manage and run these properties but we make sacrifices hoping that one day this will be our self managed superannuation. Our dream will never be affordable now. We give the government $26,000 a year already of which we get nothing in return. I understand the need for council rates and emergency services levy but not land tax. The proposed aggregation scheme is nothing short of robbery.

The next one states:

I am writing to express my dismay, concern and opposition to the Liberal Party's proposed land tax changes.

I would firstly emphasise that the Liberal Party went to the election and in retrospect obtained votes by deception promising lower land tax in SA. Major increases are now proposed for thousands who voted for the Government. The party now seems to have moved left of even the Labor party attacking company and trust structures that have served us well for many decades.

Another writes:

To whom it may concern,

I would like to express my frustration and deep concern about the proposed changes to land tax. I am a full time nurse, I have worked hard and saved money wherever possible with the aim of purchasing property so I can become a self funded retiree at the end of my career.

Over time I saved enough to secure several loans and purchased some run down properties, two of my own and two in joint with a friend. I worked on these properties at every available moment that I had in between working shift work. I loaned as much as possible and poured all the finance that I could into the properties. My budgeting has been strict and precise, however I did not plan for my land tax to increase by over 600 per cent!

This increase is not affordable to me and if the proposed change is put in place I will definitely have to increase the rents to hold the properties. However this is not a long term solution as it will not come close to covering the cost so sadly it is likely that I will be giving the tenants notice and placing the property on the market.

South Australia has not seen an increase in property. South Australia has definitely not seen a boom in property. The building industry in South Australia is flat. Forcing investors to sell at this time is a great threat to the state's already struggling economy. Regrettably I will have to cut my losses and there will be losses and then like many others I will take my money interstate.

Belinda.

Another writes:

To whom it may concern,

I am starting to look at properties interstate. I will sell my property in Adelaide and look to invest in Melbourne asap. If the aggregation of properties previously separated by their entities goes ahead I will have no choice as the land tax bill will be crippling to me!

This can not go ahead if South Australia wants to encourage investors to South Australia.

Simon writes:

Hello,

This land tax aggregation will have a devastating effect on house prices in Adelaide. All investors who provide low income housing will be selling or massively increasing their rent.

Another writes:

To whom it may concern,

I am not a rich person. My wife and I have worked very hard to get where we are.

We have invested in property to try and make sure we do not rely on the government for a pension and burden the already impossible task of providing social security for all older people.

We will find it impossible to pay a tax bill if the properties are aggregated and will have to sell.

This is very backward thinking when it comes to trying to encourage investment in South Australia.

I can see that aggregation will have a devastating effect on people investing in property in South Australia.

I can't understand the government's position as these changes will increase the burden on the government to provide public housing. And when all investors leave the state and property prices fall what will be the incentive for anyone to come to South Australia to invest?

We have a property in a trust to protect us from litigation if this was ever to happen. By putting a 'natural person's name' to a property it will be impossible for us to protect our assets! NO INVESTORS will invest without asset protection in this state.

There is no way that aggregation of all assets held in different entities is a good idea. It is a terrible idea in fact. If SA is trying to encourage new investments in the state this will have the opposite effect.

This is only a small sample of the many, many hundreds of people who have expressed their absolute fear and contempt for this policy. All Labor members spend time out in the electorates. I know that I, with my colleague Justin Hanson, have been spending quite a bit of time in the north-eastern suburbs. We talk to a lot of people and I can tell you that the message is loud and clear to us from every person we speak to. They all went to the last election voting for the promise of no cuts to services, no increased taxes and no privatisation agenda. They have seen every one of those promises broken.

They are very, very angry, and there are seats out there, like Newland, Adelaide, Elder and Hartley, that will feel the anger and wrath of people at the next election, and quite rightly so, because this government has lost the trust of the people of this state. This government was full of promises before the last election. What do we have now? We have the second highest unemployment rate in the country, we have business confidence at an all-time low and we have people who are desperately in need of financial security, and they have all been let down by this Liberal government.

In conclusion, this Labor opposition will not be supporting the bill. We are there to look after those small investors and the people who have saved all their life and worked all their life to give themselves a self-funded retirement, who now feel they have been totally cheated—I see the Treasurer has fallen asleep over there. They have felt cheated by this government; and I am sure there are a lot of backbenchers who are very, very nervous about this tax. They might all sit there with a smile on their face and look very happy, but the warning is there I can tell you now. We know it is there, and they will be very nervous leading up to the next election.

The PRESIDENT: The Hon. Mr Wortley, you should not reflect on another member's position. I asked the Hon. Mr Ridgway to apologise to you, so could you apologise to the Treasurer?

The Hon. R.P. WORTLEY: I apologise.

The Hon. M.C. PARNELL (16:10): In a fair and compassionate society like Australia, everyone should contribute to ensure that we have the public services and amenities that we all need and use. However, inequality in wages and wealth mean that some are able to contribute more than others. So when those people in our society who have more wealth and more assets deliberately avoid contributing their share, it costs us all.

We all have less—less investment in our health services, less money for education, less for the environment, less for essential infrastructure, less for public transport, less for everything. The Greens believe that everyone should contribute their fair share, so allowing some people to avoid paying their fair share just is not acceptable to us. The Greens support a progressive tax system, and we support closing legal loopholes that allow people to avoid or reduce paying their fair contribution. Properly applied, land tax is widely recognised as one of the fairer taxes because the more property you own the more you contribute in tax. Also, land tax is difficult to avoid. You cannot pick up your investment property in Adelaide and move it to the Cayman Islands.

However, some landowners have been avoiding paying their share of land tax by using multiple legal entities, such as private companies and trusts, to split the legal ownership of property to get around rules that require tax to be paid on the total value of an owner's property holdings. So the Greens will support closing these legal loopholes. Other states have done this already, and it is time for South Australia to do the same. We will be supporting the aggregation provisions of this bill, but I think we do need to talk about tax minimisation because the debate around the legitimate bounds of taxation planning, the legalities of tax minimisation and the illegality of tax avoidance and tax rorting has been with us for as long as human societies have levied taxes.

In relation to land tax and the impact of the aggregation, there is no suggestion of illegality but there is no doubt that the bulk of those affected people have made a deliberate choice to structure their affairs in order to pay less tax. Certainly, there are plenty of people who claim that their control of multiple legal entities is purely a fluke of historical circumstance and not a deliberate ploy to pay less tax. That may be the case in relation to a few people, but it is certainly not in relation to most. So we need to get real about this.

Australia's population is about 25 million people. There are 2.5 million companies in Australia. There is one company for every 10 adults and children in this nation. In South Australia, there are 120,000 companies, and guess what? Most of them are not making widgets, most of them are not providing services. The vast bulk of these companies are simply vehicles for holding property. Sure, a few make things and some provide services, but most of the 120,000 companies are simply created to hold property. Many property companies are also trustees of discretionary or unit trusts, which in turn own properties. Why? The answer is pretty simple. Go online and have a look at the industry that has been established over many, many decades for the creation of shelf companies.

Registration of an Australian company currently costs around $650 to $750 if you use a shelf company provider or a company formation agent. In fact, I found them for closer to $500. There are some cut-price businesses out there on the market. You can buy shelf companies very cheaply. If you go to an accountant, they might charge you a bit more—maybe $1,200, maybe $1,500—to set up a shelf company. The Australian government charges $495 to register a proprietary company, and each year you will have to pay $254 in an annual fee, again to ASIC.

Let's translate those costs that investors have chosen to spend with the savings that they have achieved in the South Australian land tax system. If you own two properties, each worth $300,000, and you own them in your own name, then your land tax on the combined value of $600,000 is $1,155. That is the tax that you pay. But if you own one of them in your own name and one of them in the name of a private company, then you pay no land tax at all.

So if your main objective is to pay less tax, it makes sense to buy a shelf company. Even taking into account the establishment costs, you will recover double what you spent in your first year, and you will save $900 in land tax every year, even taking into account the $254 fee payable to ASIC. If you buy another $300,000 property, using another shelf company, you avoid paying about $4,000 a year in land tax. That is why people do it. It is not surprising that that is what people do. It is what their tax accountants advise them to do.

I have told this story to a few people. If ever I am asked why I do not practise law anymore, having given up the practice of law in the private sector in 1988, the answer is that my employer had great plans for me: I was moved into the tax minimisation section of the law firm. My job was to create discretionary trusts for our wealthy clients, with the sole objective of helping them to pay less tax. That is what the bosses at my legal firm in country Victoria wanted me to do.

The Hon. J.S.L. Dawkins: In Warrnambool?

The Hon. M.C. PARNELL: An honourable member interjects, but I am not going to respond because I do not want to identify the firm. They were good employers otherwise, but the area of work they wanted me to go into was not something that I wanted on my gravestone, hopefully in a long time hence: 'Here lies Mark Parnell. He created great tax minimisation schemes for our wealthy clients.' That was not going to be my legacy to this world. I thought I could do better than that. I decided that practising law was good and I had enjoyed it for many years, but I was not going to be taken down that path, so I decided to go in a different direction.

The other members who have spoken in this debate have referred to various letters that have been written, online forums, letters that have been written to them directly. I will refer to a few things as well, but I want to point out that these aggregation measures also have some very credible champions in the community.

I think we will start with SACOSS. This is the South Australian Council of Social Service, the umbrella body for the charitable sector, the people in our society at the coalface of looking after those most in need. That is what SACOSS is; that is who they represent. They represent the religious charities, Anglicare for example, and they represent a whole range of service providers whose job is to help those who need help the most. Sometimes people call it, I think unkindly, a poverty lobby. The people whom they most help are often living in poverty. SACOSS CEO, Ross Womersley, said:

The proposed changes to the legislation to stop tax avoidance are good, sensible policy—both for fairness and to limit existing incentives that encourage investors to 'crowd out' low income and first-home buyers in the housing market.

That is the view of those at the coalface. I know some members, like the Hon. Russell Wortley, will talk about people who are saying, 'Well, if you make me pay more tax, I might have to sell my property.' Well, if you do sell your property, it will be sold to someone else who will rent it out or, even better, someone who will live in it themselves.

People are bemoaning the fact that, whilst completely unsubstantiated, property prices will crash. This is the great dilemma that we have in society. If you talk to someone under 30 about property prices crashing, they love the idea. They cannot see themselves ever getting into the property market because the prices are so high. If you talk to those who already own property, it is regarded as a national disaster when property prices go down. We have to get real about this. SACOSS is behind this measure. Again, Womersley says:

Changes to the land tax aggregation will be good for the housing industry, good for the economy and good for South Australia—we just need the political good will.

There was also a very pertinent opinion piece that was published in InDaily back in July, a little while ago, by Noah Schultz-Byard, who is The Australia Institute's person in South Australia. I will read a couple of paragraphs of his opinion piece because I think he summarises it quite well:

While some government backbenchers and potentially influential crossbenchers are apparently concerned by the PR push from the property lobby, Australia Institute research has shown that regular South Australians are less inclined to support tax cuts and special favours for investors.

When asked recently what they thought was the best way for the State Government to make up a $517 million loss in GST revenue, two out of three voters backed increasing taxes on wealthier South Australians and property investors.

Similarly, in research undertaken in early 2019, nearly two-thirds of South Australian voters (63 per cent) said they believed that keeping funding for public services, like health and education, is a more effective way to create jobs and encourage investment in our state than a tax cut for property investors…

If these changes are not passed by the Parliament, it will be an unfortunate win for vested interest and pressure-group politics that will have a lasting effect on this government's ability to enact meaningful reform in the future.

I might come back to that point later on because I think that is important. That brings me to the politics of this and the position of the Labor Party. I understand the political advantage in the Labor Party making hay while the Liberals are being attacked by the propertied classes and the lobbyists. I can understand why they want to throw some petrol on those flames, sit back and enjoy their opponents' discomfort. I understand that that is what the Labor Party does in opposition.

What I do not understand at all is that, having had their fun, having enjoyed the Liberal Party's internal disputes and the disputes they have with people who are otherwise their supporters, they did not then eventually say, 'Okay, we've had our fun. Why don't we now do the right thing and support measures that prevent people from avoiding paying their fair share of tax?'

In fact, to anyone who has asked me over the last several months, I have said, 'The Labor Party is having a bit of fun with this. They are enjoying the politics. But in the end, if they stand for anything, if their social policies are at all to be believed, then of course they will get behind putting in an aggregation provision, the same as the other states have done—we haven't, but the other states have. They will get behind it.' Then, we find that the hypocrisy of the Labor Party knows no bounds.

Listening to the Hon. Clare Scriven, the Hon. Tung Ngo and the Hon. Russell Wortley, I think they all used a particular word taken from 'Tory Talking Points 101', and that word is 'burden'. The Hon. Clare Scriven kept talking about 'a greater tax burden'. That is straight out of the Conservative playbook.

Any guide as to how to be a good Conservative advocate states, and I am making this quote up as if it were a quote but it is actually from me—I have not actually read 'Tory Talking Points 101', but I expect this is what it says—'Always refer to tax as a burden. Burdens are bad. Burdens are things we want to get off our backs. Relieving the burden will set us free. It will provide us with opportunity and incentive. Tax is bad: less tax is good. Whatever you do, don't talk about fairness or wealth redistribution. Don't talk about the services that are provided by the public sector. Don't talk about schools, hospitals or police and, whatever you do, don't talk about community, don't talk about society or our common wealth. Talk to individual aspiration and how governments should get out of the way.' That is 'Tory Talking Points 101' and that is all we have heard today from the Labor Party.

Their true believers, if there are any left, must be furious with what the Labor Party is doing here. I am not surprised, because the Labor Party's moral bankruptcy never surprises me. Their abandonment of their base has been a constant work in progress over many decades. Who could forget that magic moment when the Australian Electoral Commission finally reported that the trade unions had been overtaken as the biggest donors to the Labor Party? Who were they overtaken by? Property developers. What a magic moment that was in Australian politics, when the property developers outspent the unions in support of the Labor Party. Remarkable!

In New South Wales, we saw the corruption that resulted from that shift in political allegiance. Members of the Labor Party can get up in here and they can bemoan their political opponents who apparently subscribe to the trickle-down effect and how the best way to improve our economy and improve the lot of people who need help is to just help the wealthy and that wealth will trickle down. So they rail against it, but then you listen to their speeches and that is all they talk about. All they talked about was providing relief from the burden for millionaires so that they might keep rents reasonable for those who are in the private rental market. It is just remarkable.

The other thing that has been disappointing has been the level of misinformation. I cannot direct all of this to the Labor Party. I think there are people in the Property Council and elsewhere who are equally to blame. I will criticise the government on this: how well has this been explained? There was one email that I got just today. They always start with, 'I have always been a Greens supporter.' You know there is something coming when the email starts with, 'I have always voted Green,' and then they tell you what you need to do to help them keep that behaviour going.

This person said they had heard that Mark would be voting in favour of this aggregation measure. This person who contacted me was not happy and said that it was going to impact on the underdog. He then set out his own personal circumstances. He owns one property, jointly with his wife, and they live in it. He is worried that these shocking land tax changes are going to absolutely impact negatively on him and his wife.

Where has that misinformation come from? It is widespread. I think it is a problem for us all, but it is particularly the Treasurer's problem, that people do not understand that not only does land tax aggregation not impact most people who either own no property or only own one property, it still does not impact on people who even own two properties—one they live in and one they might rent—and for most people who might own a house they live in and own two investment properties, if they own them in their own names aggregation does not kick in. It only kicks in in relation to people who are multiple investment property owners who have chosen to divide their investments in different legal entities for the purpose of avoiding tax. That is why they did it. They are the people who are affected.

Yet, here we have this story from the Labor Party that somehow everyone's rent is going to go up, all capital will flee South Australia, properties will remain boarded up, vacant and covered with cobwebs, because the wealthy are not to pay their fair share of tax. But what perhaps most disappoints me, other than the immediate impact of what is happening today, is the missed opportunity. When I say 'missed opportunity' I think that this country is appalling at debating tax reform. I think that this debate in South Australia has set back any prospect of meaningful, progressive tax reform for probably 10 to 20 years.

We know that every tax inquiry undertaken in Australia, whether it was Ken Henry or anyone else, even the Labor Party in South Australia, when they have undertaken comprehensive reviews of taxation policy, they nearly always come up with this idea, 'Hang on. Why do we not get rid of stamp duty? That is a really ineffective transactional tax. We could get rid of that. If we replaced it with a broad-based land tax, that would be a fairer system, much less prone to rorting, and it would be better for society all around.' I have suggested that at various times. I have suggested it to the Treasurer; he smiled politely and suggested that it might not happen.

But if we are real, and if we are serious, and if we look at all of the serious economic reviews of Australian taxation, they nearly all recommend that. Mind you, it is not something we can go alone on. We cannot go alone; you could not just overnight get rid of stamp duty and replace it with land tax because you would have a serious cash flow problem. A policy like that would only work at a national level; the feds would need to bankroll it, because you would be losing a steady stream of stamp duty and it would not be replaced in the short term without it being bankrolled by the feds.

But what a missed opportunity! What government, Liberal, Labor, or Greens, in the future is going to be able to come out and touch the taxation system after the horrors of this debate over the last several months? It is really disappointing.

The Greens' policy is that we would like to go much further. Aggregation is a simple no-regrets option that, as I have said, other people have done. We would have gone further. We would like to join with other parties in meaningful tax reform that does look at things like stamp duty and a broader based land tax, of course at a much, much lower rate because it would be on a broader base. But I think that is now off the agenda for a while.

So I am disappointed with the direction this bill appears to be heading in. The Greens will certainly be supporting the second reading of this bill. We also have amendments; I do not know if they have been filed yet. They are the same amendments that the member for Florey, Frances Bedford MP, in another place, tabled. These are amendments that were crafted by SACOSS—again, by those people at the coalface of helping the most disadvantaged in society. They are amendments that go towards increasing public housing, increasing social housing and sharing the benefits of this additional taxation that will come from removing the rorting and removing the unfairness in the system. With those words, the Greens will be supporting the second reading of this bill.

Debate adjourned on motion of Hon T.J. Stephens.

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