NEW BUSINESS TAX SYSTEM (CONSOLIDATION) BILL (NO. 1) 2002: Second Reading
Mr CADMAN (Mitchell) (5.05 p.m.) —Deputy Speaker Wilkie, I am delighted to see you in the chair. I will wind up my remarks on the New Business Tax System (Consolidation) Bill (No. 1) 2002, which is a complex piece of legislation the result of which I think will be beneficial.
It is a process which allows companies to consolidate their entity for the purposes of taxation and a whole range of other purposes. It is a process of simplification for business but which will also help to reduce the prospect of tax avoidance or minimisation by a series of pass-on processes where companies are related.
I believe that the government has to be careful to make sure that where there are unintended consequences identified with this consolidation process the government is ready to listen and to make changes. But of course it is not the government so much in this instance as the Australian Taxation Office which first of all identifies the problem and then proposes the legislation to make changes. I believe that the government will be listening—and it was during the GST debate—but I would want to see a quicker response from the ATO when difficulties are identified so that these changes can come about with a minimum of fuss. [start page 2464]
I notice that the Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, promised a new approach to tax changes, where business could codesign laws with the government. I think that is a very welcome change, and I am sure business will welcome the approach that Senator Helen Coonan is making to tax law. She said:
This signals a new inclusive way for the Australian Tax Office to roll-out complex tax legislation. We develop it more or less as we go, with business making a contribution and users making a contribution.
I like that approach, and I think that we will resolve some of the problems that were obvious in the past. As with all legislation, there are of course costs and benefits. I will quote from the CA Charter magazine with regard to the costs consolidated groups have. It states:
Transition costs may be significant depending on group structure and group assets, valuation rules and substantiation requirements and whether safe harbour valuation are developed. Software changes, information gathering, professional advice, valuations for ACA calculations and loss-factor calculations.
All those must be a downside. There are some estimates that I have seen which say that the process will cost businesses up to $1 billion. But there are also concessions of about the same amount from the government. Let us hope it turns out square at the end of the day. The article in CA Charter continues:
Retention of single entity for FBT, PAYGW and possibly GST tax liabilities.
I would really like to see us get to work on that to make sure that those factors can be consolidated. I cannot see why the FBT factors cannot be consolidated—really, for the life of me, I cannot. It would seem to me that, if it were of benefit for employees across companies, they should be consolidated. I would like to have a response when the parliamentary secretary comes into the chamber as to what the difficulties are in the consolidation for a single entity for FBT, PAYGW and the GST—although I believe the GST would have a reporting process that would allow them to group and consolidate for GST. I am not sure that I agree with that point made by the Chartered Accountants. The article goes on:
Possible adverse impacts on existing tax assets. For example, access to and speed of tax-loss utilisation. Ongoing notification requirements for changes to consolidated groups and deconsolidations. Due diligence process changes required for acquisitions and divestments of entities.
For the non-consolidated group, there is the prospect if companies decide not to consolidate of the introduction of additional integrity measures for the non-consolidating group. That could be quite onerous, and it is something that I would advise companies to watch for. There is also the prospect of what they would face in the removal of current tax grouping concessions and dividend rebates.
The fact is that it is a one-off chance. It has to be completed by the end of the next financial year—that is the end of June 2003. The benefits include eventual savings, calculated at $1 billion over three years. Maybe that is a bit optimistic, but there are savings. It allows companies to ignore intra-group transactions for tax purposes, including intra-group dividends. The CA Charter lists further benefits as follows:
Pooling of franking credits drives better imputation and dividend management.
Potential benefits for resetting asset cost bases on a subsidiary by subsidiary basis pursuant to ACA method.
This is part of the Howard government's agenda. The introduction of the new tax consolidation is part of it and so is the development of a free trade agreement with the United States, which is significant, as well as a change in industrial relations and significant other measures of reform.
Author: Alan Cadman MP
Source: House Hansard - 29th May 2002
Release Date: 10 Jun 2002