Northern Territory Second Reading Speeches

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DEBITS TAX AMENDMENT BILL 2001

Mr Speaker, I move that the bills be now read a second time.

The bills seek to put in place a package of measures announced as part of the 2001-02 budget. This speech is quite lengthy due to the significant number of amendments contained in the bills.

Specifically, there are four bills proposing amendments to the Pay-Roll Tax Act, Taxation Administration Act, Stamp Duty Act and Debits Tax Act. The key proposals include the reduction of the pay-roll tax rate from 6.6 to 6.5 per cent and amending the Pay-Roll Tax Act to put in place more equitable and efficient grouping provisions for pay-roll tax in the territory.
In addition, the bills propose amendments to counter several stamp duty avoidance schemes and will enhance the fairness and efficiency of the Territory’s taxes. These amendments are in line with the government’s commitment to ensuring the territory’s own source revenue base remains sound
I will now address the Pay-Roll Tax Amendment Bill in more detail. The bill proposes a commencement date of 1 July 2001. For the third consecutive budget, I was pleased to announce a reduction in the pay-roll tax rate. The rate will drop from 6.6 to 6.5 per cent. This is expected to reduce pay-roll tax revenues by an estimated $1.5 million in a full year. This reduction follows the rate reductions in 1999-2000 from a top rate of 7 per cent to 6.75 per cent and down to 6.6 per cent last year confirming the government’s commitment to reducing business tax costs.

The second pay-roll tax measure puts in place more equitable and efficient grouping provisions for pay-roll tax in the Territory. As the honourable members would be aware, pay-roll tax is imposed on a business or a group of businesses which pay wages in excess of a certain threshold level, currently $600 000 in a financial year. The grouping of businesses is necessary to prevent an otherwise liable employer from splitting the business operations into separate entities to ensure that the wages paid by each entity fell below the pay-roll tax threshold. Currently, a group of businesses is one in which there is common control of 50 per cent or more of each business. The wages of these commonly controlled businesses are aggregated to determine any pay-roll tax liability.

The act provides that where a business is grouped on the basis of only a bare 50 per cent interest, the Commissioner has a discretion to exclude it from the group. However, exclusion is only permitted where the Commissioner is satisfied that the business is operated substantially independently of other businesses which are commonly controlled. This can be an administratively onerous and cumbersome process. The circumstances where a bare 50% interest is held in a business commonly arises where joint venture partners each hold 50% interest in the business. In such a case, the Act provides that the business in which the first joint venture partner has an interest would be grouped with any other business in which the second joint venture partner has a controlling interest. As a result, pay-roll tax may be chargeable on the first joint venture partner’s business unless the commissioner’s discretion is sought and exercised to exclude that business from the group.

The problem with the current arrangements is that, although a person may only have a bare 50% interest in a business, the Pay-roll Tax Act automatically considers that to be a controlling interest in that business. Accordingly, if the same person has a controlling interest in another business, those businesses automatically constitute a group for the purposes of pay-roll tax. The reality is that outside of the pay-roll tax context, a bare 50% interest does not accord with the normal commercial understanding of a controlling interest, and the commercial sector understandably has had difficulty accepting the position in the Act.

The measure in this bill limits the effect of the grouping provisions so that they only apply where there is greater than 50% ownership of a business. As such, the grouping of businesses on the mere basis of a bare 50% controlling interest will no longer apply. This will provide greater clarity in the grouping provisions and reduce the administrative steps necessary to exclude a person from a bare 50% grouping, whilst still maintaining the integrity of the pay-roll tax scheme. As a result of this change, those businesses currently grouped solely on the basis of a bare 50% interest will, upon application to the commissioner, be removed from the group. The proposed change accords more closely with the normal commercial understanding of controlling interest, which should increase the understanding of employers as to what businesses should be grouped for pay-roll tax purposes.

Given the size and complexity of the rail and proposed gas projects, bare 50% joint venture arrangements are likely to be a common vehicle for Territory businesses to participate in these projects. As such, these changes will assist these businesses in participating in these projects. As a consequence of the change, it is also proposed to remove the ability for the commissioner to exclude a business from a group where a controlling interest is greater than 50%, except where the business is operated by a discretionary trust or where common employees are used by two or more businesses. A beneficiary’s interest in a discretionary trust is deemed by the Act to be more than 50%. Therefore, the authority to exclude a business operated by a discretionary trust is still necessary to ensure that no anomalous groupings occur. The anti-avoidance provisions currently in the Act which ensure grouping occurs in certain cases where common employees or management exist will remain unchanged.

The third pay-roll tax measure corrects a problem whereby an interstate employer that ceases employing in the Territory part way through the year is unable to finalise any pay-roll tax outstanding until the end of the year. The proposed amendment attends to this problem by allowing the calculation of pay-roll tax on the basis of the time the employer paid wages in the Territory, rather than by reference to a full financial year.

The fourth measure assists interstate businesses in determining whether they are required to register for pay-roll tax by clarifying that wages paid elsewhere in Australia are wages as defined by the pay-roll tax legislation that is in force in the state they are paid.

The fifth measure proposes to lower compliance costs by removing the requirement to lodge monthly returns, where a business chooses to pay pay-roll tax electronically. However, employers will still be required to furnish a single annual return. This measure operates in conjunction with an electronic returns package which assists businesses by streamlining the calculation and payment of pay-roll tax.

The last pay-roll tax measure clarifies that interest is chargeable where an outstanding pay-roll tax debt is settled by instalments.

I will now address the amendments proposed by the Taxation (Administration) Amendment Bill and the Stamp Duty Amendment Bill in more detail.

The commencement date is set for 1 July 2001 for the majority of the provisions in these bills. However, the bills contain anti-avoidance measures which will have a commencement date of 29 May 2001, being the date of their initial announcement as part of the budget. Moreover, there is one provision relating to stamp duty on insurance which is to commence from a date to be proclaimed. Stamp duty avoidance schemes that use discretionary trusts are becoming increasingly prevalent in the Territory. In many instances, what would normally be a simple transfer of property, is processed through a number of complex legal and administrative steps for the predominant purpose of avoiding stamp duty and/or other tax obligations.

All other jurisdictions have provisions to deal with these schemes, and the measures proposed for the Territory adopt some elements from the legislation in these other jurisdictions. The measures proposed for the Territory are as follows.

Firstly, stamp duty is to be payable on all trust property where a new beneficiary is added to the trust that is not a member of the family that the discretionary trust is intended to benefit. This approach is based on the inference that there is no other reason for the admission of a new unrelated beneficiary other than the intention to distribute the property to the new beneficiary. However, to ensure there are no unforeseen circumstances from this approach, it is proposed to allow the commissioner to exclude an admission where he is satisfied that it is not part of a scheme that has a collateral purpose of avoiding stamp duty that would otherwise be payable on the transaction.

Secondly, stamp duty will now be payable on all trust property where a person gains control over an incorporated beneficiary and gains control over the power of appointment or trustee under the trust deed. This approach imposes duty where a person has assumed control over the use of a trust for the purpose of gaining ownership of the trust property, irrespective of whether the property is to be distributed to the person. Furthermore, these measures apply to all trust property even though the new beneficiary may only be seeking control over certain property.

To ensure there are no unforeseen circumstances from this approach, it is proposed to allow the commissioner to exclude the effect of these provisions where he is satisfied that it is not part of a scheme that has a collateral purpose of avoiding stamp duty that would otherwise be payable on the transaction.

Thirdly, the Stamp Duty Act currently provides an exemption to distributions of trust property where no consideration is paid in relation to the distribution. The trust distribution exemption will now be limited to natural persons that are not acting in a fiduciary relationship, not as a trustee for another trust. This will prevent a person obtaining control of an incorporated beneficiary or another trust and then distributing the property free of stamp duty.

Furthermore, a definition for valuable consideration is inserted to ensure that the forgiving or exoneration of a debt or assumption of a liability is included as consideration for the purposes of the trust property distribution exemption.

The final anti-avoidance measure will remove the opportunity for a scheme that exploits another stamp duty exemption. This exemption is provided to the transfer of company property to a shareholder on the winding up of the company. The scheme operates by a shareholder acquiring shares in a company, often with a preferential entitlement to the company’s property. Shortly thereafter the company is wound up and its property is distributed to this shareholder. The bill proposes that the commissioner must be satisfied that the transfer of the property of the company is not part of a scheme that has a collateral purpose of avoiding stamp duty that would otherwise be payable on the transaction.

Mr Speaker, in total, these amendments are designed to discourage the manipulation of discretionary trusts and companies to acquire or acquire the use of property without the payment of stamp duty. These measures are not designed to discourage the normal use of a family discretionary trust and commercial transactions. As such, it is unlikely that these provisions will be applied, as it is expected that parties will revert to a direct transfer of property rather than transferring property via a discretionary trust or company.

Nonetheless, in the instance that there are unforeseen commercial circumstances, these measures allow the commissioner a discretion to exclude a transaction from the provisions where he is satisfied that the transaction is not part of a scheme that has a collateral purpose of avoiding stamp duty that would otherwise be payable on the transaction. The bill also provides that where the commissioner makes a determination in respect of a discretionary trust under these provisions, the only means by which the assessment can be reviewed by a court is the objection and appeal mechanism.

That completes the proposed anti-avoidance measures, all of which take effect from 29 May 2001.

The bill also provides a clear basis for calculating the proportion of property relating to a Territory business. This will provide greater certainty in determining the stamp duty payable when; for instance, a national business is sold. The proportion of industrial and intellectual property, such as goodwill, relating to the Territory business undertaking will be by way of a formula. The proposed formula is based on where the goods are delivered and where services are supplied to customers of the business. Also relevant is whether the principal place of business is in the Territory or elsewhere. Where the principal place of business is in the Territory, the formula provides that the Territory’s proportion is determined by the proportion of goods delivered and services provided in the territory and overseas relative to the total goods delivered and services provided to all customers. Where the principal place of business is not in the Territory, the formula provides that the Territory’s proportion is determined by the proportion of goods delivered and services provided only in the Territory relative to the total goods delivered and services provided to all customers.

The bill also allows the commissioner to determine the proportion of dutiable property on another basis if he is satisfied that it is more appropriate in the particular circumstances.

The bill also proposes changes to the method for returning stamp duty on policies of insurance. Currently, where a policy of insurance is effected outside the Territory in respect of property or a risk located in the territory, the client paying the premium is liable for the duty and the insurer is required to lodge an information return with the commissioner. However, as a matter of commercial practice, the insurer generally pays the duty on behalf of their client, which is later recovered from the client.

To acknowledge industry practice, the bill proposes amendments to require an Australian insurer to register and pay stamp duty in relation to policies of insurance where the property or risk is located in the Territory. As a result, the information return required under the old scheme will no longer be necessary. This measure will take effect upon the proclamation of a suitable commencement date determined in consultation with the industry.

The bill also provides five measures that relate to stamp duty on hiring arrangements.

The first measure increases the maximum hiring duty cap from $7500 to $9000. This change arises from the increase in the rate of hiring duty as announced in last year’s budget. Prior to the budget changes, the rate was 1.5% and the maximum duty cap was $7500. Consequently, any amount paid for a hiring arrangement above $500 000 was not subject to duty for the component beyond that amount.

With the increase in the rate to 1.8%, no consequential change was made to the cap. As such, the proposed increase in the cap will restore the relativity between the $500 000 limit and the rate of duty.

The second measure proposes to increase the annual liability threshold provided to hiring arrangements from $12 000 to $36 000. Increasing the threshold will relieve a number of small operators from the burden of this tax.

The third measure allows the hiring duty liability threshold to be apportioned within a financial year. This will allow the threshold to be apportioned where a hirer ceases or commences part way through a year.

The fourth measure ensures that duty is not imposed on motor vehicle dealer bailment arrangements in respect of the dealer’s trading stock and display or demonstration vehicles.

The fifth measure provides an exemption for a hiring arrangement whereby a person lends goods exclusively to a related person. For the purposes of the exemption, “related persons” are:

· Related corporations for the purposes of the Corporations Law;
· Corporations in which the same persons have a controlling interest;
· A natural person and a corporation where the person has a controlling interest in the corporation;
· Partnerships in which the same persons have a controlling interest;
· A natural person and a partnership in which the person has a controlling interest in the partnership; and
· A corporation and a partnership in which the same persons have a controlling interest.

The bill also clarifies that an application to transfer a fishing licence or rights relating to that licence is required to be stamped prior to registration with the Department of Primary Industry and Fisheries.

The bill also ensures that a Territory statutory licence or permission transferred to a person who carries on a business undertaking anywhere, is subject to duty. An amendment relating to the application of the stamp duty ‘land rich’ provisions was introduced in last year’s budget. This measure ensured that mining tenements and mining information relating to such tenements were caught by the ‘land rich’ provisions.

The bill proposes a technical amendment to ensure that the value of all mining tenements, rights of a similar nature and related information, held by a company or a private unit trust outside the Territory are taken into account when determining whether it is land rich.

The bill also removes stamp duty on the transfer of corporate debt securities such as bonds, notes and other instruments that acknowledge the indebtedness of a company. This change has a minimal affect on the revenue as very few corporate debt securities are transferred in the Territory. Moreover, this change brings the Territory in line with all other states and the ACT.

The bill includes several miscellaneous amendments that seek to improve the administrative operation of the stamp duty legislation.

The first measure provides a new basis from which the due date for the payment of stamp duty is to be determined. Currently dutiable instruments are required to be lodged with the commissioner for assessment of stamp duty within 30 days of execution. Stamp duty is then payable within 30 days of an assessment being issued by the commissioner. In circumstances where additional information is necessary for an assessment to be made, some taxpayers have been able to delay the payment of stamp duty by not providing the requested information in a timely manner.

To overcome this problem, the bill proposes to require an instrument to be lodged and stamp duty to be paid within 60 days of the date of the transaction. This ensures that in most cases the focus for the lodgement and payment of stamp duty is now 60 days from the execution of the instrument. However, where there are circumstances beyond the control of the taxpayer which delays the payment of duty by the due date, the commissioner is able to grant additional time for the payment of duty.

The second administrative measure allows the commissioner to send a notice to the post office box of a taxpayer. This is an alternative to delivering a notice to a taxpayer personally or posting the notice to a business or residential street address.

The third administrative measure is to allow the commissioner to waive the payment of an amount of duty less than $5. This will improve administrative efficiency by allowing the commissioner to not collect small amounts of stamp duty where it is uneconomical to do so.

The final administrative measure proposes to standardise the record keeping provisions of the stamp duty legislation by adopting a standard five-year period for record retention for all returns based stamp duties.

The last measure is to remove the exemptions from stamp duty provided to government business divisions. Currently, government business divisions receive an exemption from stamp duty on the conveyance of property, leases, motor vehicles certificates and policies of insurance. This places other competing businesses at a disadvantage. The proposed amendments will require government business divisions to factor in these costs when making economic decisions and ensure that they reflect in their accounts the true cost of their operations.

The proposed amendments are consistent with the imposition of pay-roll tax on government business divisions.

I will now address the fourth and final bill, the Debits Tax Amendment Bill.

The bill provides for a commencement date of 1 July 2001. The bill proposes an amendment to require debits tax records to be kept and preserved for five years. This is consistent with the standardised five-year record keeping retention period proposed by the Taxation (Administration) Amendment Bill.

I commend the bills to honourable members.

Debate adjourned.

 

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