Northern Territory Second Reading Speeches

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FIRST HOME OWNER GRANT AMENDMENT BILL 2003

(This an uncorrected proof of the daily report. It is made available under the condition that it is recognised as such.)

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

The bills seek to put in place a package of measures announced as part of the 2003-04 budget. Specifically, there are six bills proposing amendments to the Taxation (Administration) Act, Stamp Duty Act, Pay-roll Tax Act, Mineral Royalty Act, First Home Owner Grant Act, and Motor Vehicles Amendment Act 2001. These bills are about assisting Territory business and promoting a more fair, equitable, and robust tax system. The key proposals announced in the budget involve reducing the tax burden on Territorians and Territory businesses by:

· abolishing the Temporary Budget Improvement Levy from 1 July 2003;

· reducing the payroll tax rate from 6.3% to 6.2%;

· exempting from stamp duty leases and franchises with an average annual rent of $30 000 or less; and

· increasing the hiring duty exemption threshold from $36 000 to $90 000.

I will now address the measures included in the Motor Vehicles Amendment Act 2001 Amendment Bill. The Temporary Budget Improvement Levy was introduced as part of the November 2001 mini-budget and was originally set to cease on 28 November 2004 for new motor vehicle registrations, and 4 January 2005 for motor vehicle registrations due for renewal on or after that date. This bill proposes to cease the levy from 1 July 2003, nearly 18 months ahead of its original cessation. This will have the effect of reducing the Territory’s motor vehicle registration fees to be among the lowest in the country and will benefit the owners of over 90 000 vehicles.

I now turn to the Pay-roll Tax Amendment Bill. The bill delivers on the government’s commitment to reduce the burden of payroll tax on business by providing a reduction in the payroll tax rate from 6.3% to 6.2%, with effect from 1 July 2003. This measure will benefit all employers that pay payroll tax in the Territory, some 1400 employers. The revenue foregone from the rate reduction is expected to be $1.5m on a full-year basis. The $3m previously earmarked for payroll tax reductions in 2003-04 has been used to fund this rate cut as well as partly defray the cost of the early cessation of the Temporary Budget Improvement Levy.

In addition, the bill proposes to allow the designated group employer of a payroll tax group to lodge a single payroll tax return encompassing all members of the group and to make one payroll tax payment for the whole of the group from 1 July 2003. The amendment will assist with reducing taxpayer compliance and administration costs because at present all employers, including members of a payroll tax group, are required to lodge their own return and pay their own tax. This change follows similar treatment in New South Wales and Victoria.

The payroll tax grouping provisions relating to discretionary trusts operate when a person is a beneficiary of a discretionary trust as a result of a trustee or another person, or the trustee and another person, exercising a power or discretion. However, recent amendments to similar provisions in New South Wales have highlighted that a person may also become a beneficiary of a discretionary trust as a result of the failure of a power or discretion being exercised. The bill proposes to amend the grouping provisions to ensure that a person will be considered to be a beneficiary of the discretionary trust where they may benefit as a result of the failure of a power or discretion being exercised. As this change is an anti-avoidance measure, it is proposed to commence from 27 May 2003, the date that it was announced as part of the budget.

I now turn to the Taxation (Administration) Amendment Bill 2003 and the Stamp Duty Amendment Bill 2003. The government is concerned about impediments faced by Territory business, and small business in particular, and is committed to doing what it can to assist business. In recognition of this commitment, the bills introduce a stamp duty exemption for leases and franchises of $30 000 per annum, or a lesser proportionate amount if the lease or franchise has a term of less than a year. Where the average rent payable under the lease or franchise does not exceed this amount, no duty will be payable. It is expected that this concession which will apply from the 1 July 2003, and will be the second highest exemption threshold in Australia, will exempt over 450 leases and franchises from stamp duty each year. Most of these leases and franchises are held by small Territory-based businesses. Importantly, stamp duty will no longer be paid in respect of nearly half of all leases and franchise agreements that were subject to stamp duty before the introduction of this concession.

To maintain the integrity of the tax base, the exemption threshold will not apply to leases executed prior to 1 July 2003, even if they are stamped after that date. In addition, refunds of stamp duty will not be given where a person attempts to minimise stamp duty by cancelling leases executed prior to 1 July 2003, and seeking a refund of the duty paid.

From 1 July 2003, the bill has also proposed to increase, from $36 000 per annum to $90 000 per annum, the exemption threshold that applies to hiring businesses before their hiring receipts become subject to stamp duty. This will result in the Territory having the third highest hiring duty exemption threshold in Australia. It is expected to result in 34 businesses no longer paying this tax, which is approximately 15% of businesses that do pay the tax. Of these businesses, the vast majority operate solely in the Territory.

The bills also contains several measures to rectify inequities that arise when a person acquires interest in land in the Territory indirectly through a corporation or unit trust that owns such land. To limit avoidance opportunities, each of these measures commence from 27 May 2003; the date they were announced as part of the budget. Together, these measures will have the effect of more closely aligning the stamp duty consequences of direct and indirect acquisitions of land, and act to simplify the rules that determine the assessment of ‘land rich’ stamp duty. These measures broadly align the Territory’s land rich provisions with those of the Australian Capital Territory.

The ‘land rich’ provisions provide a mechanism to cause the transfer of a majority interest of shares in a land rich corporation, or units in the land rich unit trust, to be subject to duty as if the interest was acquired directly in the land owned by the corporation or trust. A land rich corporation or trust is characterised by 60% or more of the assets of that entity comprising land or mining tenements in the Territory with a value greater than $500 000.

These provisions attempt to ensure the indirect transfer of land and mining tenements by way of an unlisted corporation or trust is taxed as if ownership of that property was transferred directly. The first of these measures removes the requirement for land to comprise 60% or more of all the assets of a corporation or trust before such an entity qualifies as being land rich. Consequently, a person who acquires 50% or more of the shares or units in the corporation or trust that owns land in the Territory with a value of $500 000 or more will be liable for land rich duty, irrespective of the value of any other assets owned by the corporation or trust. Importantly, duty will continue to be based on the entitlements of the shares or units acquired and the value of land owned by the corporation or trust. For example, the acquisition by a person of 70% of the shares in a corporation that owns land in the Territory valued at $500 000 or more, will result in duty being charged on 70% of the value of Territory land owned by the corporation.

Transitional provisions preserve the previous 60% land rich test for transactions that occurred prior to 27 May 2003. Furthermore, any interest acquired on or after 27 May 2003, but before 1 January 2004, pursuant to an agreement entered into before 27 May 2003, will be subject to the former land rich provisions to determine if land rich duty is payable on that acquisition.

The measures also alter the existing majority interest provisions to cause land rich stamp duty to apply to an acquisition that results in a person acquiring or increasing a majority interest in a corporation or trust, where that person and related persons, previously held an interest in that corporation or trust, irrespective of when any previous interest were acquired.

The measures also alter the valuation rules to provide that, where a majority interest is acquired or increased through a series of transactions within a three-year period, duty is to be calculated on the value of the land owned by the corporation or trust at the time each interest is acquired. However, this period may be extended where the majority interest is acquired or increased through the exercise of an option. To ensure that this measure will not operate retrospectively to charge duty on transactions that did not fall within the former land rich aggregation rules, transitional provisions ensure that the three-year period will not generally extend back beyond 20 August 2001.

In addition, an anti-avoidance measure is being inserted to rectify a loophole that reduces the land rich duty payable on a series of accumulating acquisitions. Another measure changes the way in which acquisitions of interests in corporations and trusts that are quoted on a recognised financial market, such as the Australian Stock Exchange, are excluded from land rich duty. This change clarifies that stamp duty is not payable in respect of acquisitions of interest in corporations and trusts while they were quoted. However, the provisions cause these acquisitions to be taken into consideration when determining whether a person has acquired an interest of 50% or more in such a corporation or trust when an acquisition occurs after the corporation or trust is no longer quoted. To further align the stamp duty treatment of direct and indirect acquisitions of land all existing stamp duty exemption for intergenerational transfers of pastoral land between family members will also apply to indirect transfers of ownership of land that arise through the change in ownership and control of corporations and trusts. This replaces an existing concession in the land rich provisions which excludes primary production land when determining whether a corporation or trust meets the 60% land rich test, but charges duty on such land if the corporation or trust is land rich.

These proposals fundamentally change the way in which land rich stamp duty will be applied in the future. They remove the advantage that many big businesses have enjoyed in the past, where they have been able to indirectly acquire high value land and pay substantially less stamp duty than someone buying their home. For example, corporations with multi-million dollar land holdings in the Territory have been sold in the past incurring less than $100 in stamp duty whilst many families incurred several thousand dollars buying their home.

The bills also propose two amendments in relation to the application of stamp duty to motor vehicle certificates of registration. The first proposed amendment seeks to make motor vehicle dealers jointly and severally liable with the purchaser for the duty payable on the issue of a motor vehicle certificate of registration arising from the transfer of used motor vehicles. This change, which will commence from the date to be proclaimed, has been made in response to the practices of some dealers and purchasers in relation to the sale of used vehicles that has resulted in no stamp duty being paid, stamp duty being minimised in contravention of the law, and stamp duty being paid long after the law requires. The amendment will bring the Territory into line with legislation operating successfully in Victoria and is expected to result in the improved timeliness of collections. The commencement date for this measure will be determined having regard to an appropriate period to enable dealers and the Motor Vehicle Registry to implement the change.

The second amendment relating to motor vehicle stamp duty proposes to allow a refund of duty on the cancellation of the sale of a motor vehicle. This amendment is consistent with other stamp duty refund provisions and is proposed to commence from 1 July 2003.
Some laws in force around the world operate to provide that an entity is the successor in law of, continuation of, or the same entity as another entity in which property was previously vested. Attempts have been made in other states to use these laws to effectively transfer dutiable property by amalgamating entities to avoid paying stamp duty. However, the Territory stamp duty laws impose duty on a conveyance of dutiable property that vests in or accrues to a person. Consequently, notwithstanding the operation of other laws, stamp duty would still be payable. To put the matter beyond doubt, the bills propose a number of amendments that clarify that a stamp duty liability results from these transaction. It is recognised, however, that it is not appropriate for stamp duty to be paid where a vesting occurs only because of the registration of a body corporate as a company under the Corporations Act of the Commonwealth. Accordingly, the bills provide that no stamp duty is payable in these circumstances. These changes are proposed to take effect from 27 May 2003.

The bills also propose to introduce two stamp duty anti-avoidance measures, both of which are necessary to ensure the integrity of the Territory’s stamp duty regime. The first measure relates to the so-called ‘Clayton’s contract’ provisions. Under these provisions, certain changes in beneficial ownership of dutiable property or marketable securities are subject to stamp duty even though the ownership change has not been effected by a dutiable instrument. An exception to this rule arises when the change occurs as a result of the issue or redemption of units in unit trust. This exception has been successfully exploited as part of a complex scheme to avoid stamp duty in another state. Accordingly, the bill proposes to amend the exception by providing that stamp duty will be payable on the change in beneficial ownership of dutiable property occurring as a result of the issue or redemption of units unless it is shown that the issue or redemption is not a tax avoidance scheme or part of a tax avoidance scheme.

The second measure relates to stamp duty exemption provided for conveyance of property made for the purpose of effecting the appointment of a new trustee on the retirement of a former trustee. A number of schemes have been detected and have exploited this exemption through the use of complex schemes involving the use of trusts to avoid the payment of stamp duty. In order to prevent further abuse of this exemption, the bill proposes to limit the exemption to situations in which the conveyance is made solely for the purpose of appointing a new trustee on the retirement of a former trustee. Both these anti-avoidance measures are proposed to commence from 27 May 2003, the date that they were announced as part of the budget.
The bills also provide a number of minor administrative and technical amendments that enhance the efficiency and equity of the stamp duty scheme. The first proposes to introduce an exemption from stamp duty on the conveyance of dutiable property and marketable securities to a former bankrupt from the estate of that former bankrupt. This exemption is to commence on 1 July 2003 and brings the Territory into line with all of the states and the Australian Capital Territory.

It is also proposed to exempt from stamp duty agreements to temporarily transfer licences issued under the Fisheries Act and on temporary transfers made in accordance with such agreements from 1 July 2003. The change brings the Territory in line with the majority of the states and the ACT, and enhances the regulation of the commercial fishing industry by removing a perceived impediment to registering temporary transfers of fishing licences.

Another stamp duty exemption is proposed for policies of health insurance entered into by insurers in the course of their health insurance business under the National Health Act. The Territory has never sought stamp duty in respect of health insurance policies as they were never considered to be dutiable policies of insurance. Accordingly, this exemption provides certainty in the operation of the law and will align the Territory with all the states and the ACT. This proposal is to take effect from 1 July 2003.

Where a partnership holds dutiable property and there is a conveyance of an interest in the partnership, stamp duty is payable. Acquisitions of interest in partnerships are valued by assessing the unencumbered value of the interest acquired by a partner, less the value of the partner’s existing interest in the partnership, if any. It has become apparent that the provisions of stamp duty legislation that value partnership interests on the formation of a partnership do not always operate as originally intended and in some instances partners will not be assessed for the correct amount of stamp duty. Accordingly, the bills propose to amend from 1 July 2003 the manner in which partnership interests are valued on the formation of a partnership to ensure that these interests are valued equitably.

Under the stamp duty legislation, an ‘Australian insurer’ is required to register to pay stamp duty on policies of insurance in respect of property or risks in the Territory. For administrative reasons, the bills proposed broaden the definition of ‘Australian insurer’ to include the Territory government. It is proposed that this amendment will take effect from 1 July 2003.

Following amendments made to the stamp duty laws as part of last year’s budget, an exemption from stamp duty is provided on the reconstruction of certain corporate groups. The bills propose two minor amendments in relation to this exemption to enable corporations incorporated outside of Australia to cease to exist without triggering a clawback of duty on an exempt corporate reconstruction; and clarify one of the conditions relating to how consideration for a transfer of property can be provided. Both these amendments are proposed to commence from 1 July 2003.

Deeds are subject to stamp duty of $20. This includes agreements under seal that are not otherwise subject to stamp duty. Liability may arise, for example, where a company has executed an agreement using its company seal but will not apply to similar agreements executed by individuals who do not place a seal on an agreement. Therefore, charging deed duty on agreements under seal discriminates against certain businesses and places an unnecessary compliance burden on them. Accordingly, the bills propose to remove deed duties on agreements under seal from 1 July 2003. It should be noted that other deeds will continue to be subject to stamp duty.

Madam Speaker, I turn to the First Home Owner Grant Amendment Bill. Currently the first home owner grant legislation does not specify a time within which prosecutions for offences may be commenced. Consequently, the Justices Act applies such that a prosecution under the act must be commenced within six months of an offence being committed. This time period is considered to be inadequate in many instances as information in relation to first home ownership must often be sought from interstate. Accordingly, the bill proposes to amend the grant legislation to allow for the prosecution of offences within three years of the offence allegedly being committed. Of note is that this change is intended to apply only to offences alleged to have been committed on or after 27 May 2003, the date the change was announced as part of the budget.

The amendment brings the act more closely in line with similar provisions in other Territory taxing acts, as well as broadly aligning it with the states and the ACT.

I turn to the last of the bills proposing changes to the Territory’s revenue regime, being the Mineral Royalty Amendment Bill.

This bill proposes to put in place a number of measures that together enhance the administration of, and provide for more equitable operation of, the Territory’s mineral royalty regime by reforming the manner in which exploration expenditure is used to reduce the payment of mineral royalty. Under the Territory’s mineral royalty regime, miners are able to obtain a royalty deduction for ‘eligible exploration expenditure’. This includes expenditure incurred in the Territory for exploration work conducted in the Territory; or outside of the Territory, where it relates directly to exploration work conducted in the Territory.

Generally, there are two methods by which exploration expenditure can be claimed by a miner. The first is where the miner incurs the expenditure itself. The second is by way of the miner purchasing an exploration expenditure certificate, or EEC, from an explorer. Under the EEC scheme, explorers submit details of their exploration expenditure to the Treasury which then issues an EEC. An EEC has a face value equivalent to the amount of exploration expenditure incurred within the Territory by the explorer.

The EEC scheme is intended to assist explorers by allowing them to ‘sell’ their EECs to a royalty paying miner so that explorers can recoup some of their exploration expenditure. Miners are able to use EECs that they acquire to reduce their royalty liability. The market sets the price of EECs. They generally sell for 10% of their face value.

This scheme is not confined to explorers, however, as miners are also able to convert their own exploration expenditure incurred in the Territory into EECs. This allows miners to reduce the amount of royalty that they pay and to carry forward their exploration expenditure to reduce future royalty payments.

There are two important aspects to claiming exploration expenditure for royalty purposes. Firstly, miners are able to deduct from their mining revenue 150% of exploration expenditure incurred by them, and also that purchased through the EEC scheme. That is, exploration expenditure incurred by a miner and the value of the EECs purchased by the miner is taken to be increased by 50%. Secondly, the extent to which royalty can be reduced by deducting exploration expenditure and EECs from mining revenue is capped by legislation to 35% of the royalty that would otherwise be payable.

The increasing supply of unclaimed EECs and the small number of royalty payers, has constrained the price that explorers are able to obtain for their EECs. Due to these factors, the current scheme has operated to the detriment of explorers and Territory royalty collections and to the benefit of royalty payers. The bill seeks to reduce the detrimental impact on explorers and royalty collections by decreasing the exploration expenditure deduction cap from 35% to 25%, and removing the 50% uplift factor on exploration expenditure. These amendments together are expected to increase royalty collections by $3.8m per annum, and will result in additional EECs being purchased each year by royalty payers from explorers.

The additional revenue from increased royalty collections will be committed to funding the ‘Building the Territory’s Resource Base’ initiative to the tune of $3.8m per year for the next four years. It should be noted that these amendments are not intended to be retrospective, so will apply from the first ‘royalty year’ to commence on or after 1 July 2003.

The second amendment proposed by the bill will cease the issue of EECs in respect of expenditure incurred on or after 1 July 2003. The amendment is considered necessary because notwithstanding the changes outlined previously, the current EEC scheme will continue to result in more EECs being issued than claimed, which will perpetuate the deficiencies of the current scheme. It should be noted that even though no more EECs will be issued for exploration expenditure incurred after 30 June 2003, royalty payers can continue to use existing EECs to reduce future royalty payments until 1 July 2010. That is, royalty payers will no longer be able to use exploration expenditure certificates beyond 1 July 2010, which is considered sufficient time to utilise the current stock of EECs.

To assist miners in the Territory, the bill provides that royalty payers will continue to be able to reduce the royalty payable by them to the extent of exploration expenditure that they incur in their mines. Again, Treasury is available for briefing for members of parliament who seek clarification or further information on those bills.

Madam Speaker, I commend the bills to honourable members.

Debate adjourned.

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