Second Reading - Tax Integrity

I rise to speak in support of the Treasury Laws Amendment (Tax Integrity and Other Measures) Bill 2018. We on this side of the chamber believe in lower taxes and in entrepreneurship. We believe in the hard work and aspiration of everyday Australians who want to get ahead. We know that lower taxes and more entrepreneurship are good for the economy, good for jobs and good for innovation. That's why this government has committed to and has delivered tax relief for small and medium-sized businesses, as well as for working families, through reductions in company and personal income tax.

This agenda of lowering taxes is working. Australia's unemployment rate is at 5.3 per cent, the lowest level since the peak of the mining boom. Well over one million jobs have been created since the coalition government was elected five years ago, and we have the strongest economic growth in the OECD. But, while we firmly believe that taxes should be low, we also believe that taxes must be paid. That's why this government has legislated a range of measures to combat multinational tax avoidance. They include a diverted profits tax; the establishment of a tax avoidance task force; strengthened international transfer pricing rules; increased penalties for multinationals who engage in profit shifting; and new whistleblower protections. The Australian Taxation Office expects that an additional $7 billion in sales revenue each year will be returned to the Australian tax base because of these reforms. The actions already taken by the government show its firm belief that while taxes should be low, they must also be paid.

This bill continues to deliver on the goal by further cracking down on multinational tax avoidance while, at the same time, providing tax relief for both innovative venture capital investors and Australian Defence Force personnel who receive reparations. For instance, schedule 4 amends the Income Tax Assessment Act to exempt payments made as reparation to victims of abuse in the Australian Defence Force. This will ensure that payments that are made as reparations to these victims will be exempt from income tax. The government previously made similar payments to victims of abuse in the ADF through the Defence Abuse Response Taskforce. The task force administered reparation payments of up to $50,000 to complainants who likely suffered sexual or other abuse by a member of Defence. These payments were specifically exempted from income tax because there was a possibility that the payments could be seen as arising from employment with Defence and understood, were it not for this legislation, to be income in the hands of the recipient.

The task force concluded on 31 August 2016. However, this bill will ensure that the important work it carried out is continued by expanding the role of the Defence Force Ombudsman to include the ability to make recommendations for reparation payments, which the government has already provided some $19.5 million to deal with. From now on, these reparation payments will be made on the recommendation of the Defence Force Ombudsman and will be exempt from income tax. This is because the government believes that the recipient of a payment of this kind should receive the full benefit of it, particularly the men and women who so honourably serve and protect our country in our Australian defence forces.

Furthermore, the government is committed to encouraging innovation and entrepreneurship through the Australian economy. Key to this is fostering competition. We know that greater competition leads to greater innovation, and that's what grows economies and creates jobs and wealth for their citizens.

While Australia has a sophisticated financial sector underpinned by a strong regulatory system, our financial services are at risk of becoming uncompetitive if they fail to keep pace with technological disruption and the global change in this field. That's why the government has already introduced new tax incentives for early-stage venture capital investors in relation to investments in financial technology, as a part of the $1.1 billion National Innovation and Science Agenda. This is an important step in ensuring the competitiveness of the fintech sector, as venture capital is a vital mechanism for financing new innovative enterprises at the start-up and early expansion stages of their commercialisation. Venture capitalists invest funds in such enterprises in return for an equity share or the equivalent of partial ownership. The funds provided to the enterprise are used to develop their ideas in the early stages of development and ensure early-stage commercial viability. These tax concessions support high-risk fintech businesses at the start-up and early expansion stages where it would otherwise be difficult to attract investment using normal commercial means.

The fintech sector is a largely new industry composed of companies that use technology to make financial services more efficient. These innovators are harnessing technology to deliver services in more relevant and convenient ways to Australian businesses and consumers. In a recent study, Fintech in Australia—trends, forecasts and analysis 2015–2020, research firm Frost & Sullivan says the Australian fintech sector is poised to contribute $3 billion of new revenue to the Australian financial services sector by 2020, while it is also estimated that fintech investment reached US$20 billion in 2015. It's clear that developing our fintech industry here will not only drive expansion and growth in our financial exports but will also deliver benefits to Australians through new services that will create value or bring efficiencies and convenience to the market. Indeed, with our financial services sector being the largest contributor to the financial economy, advancements in research and development represent a crucial opportunity for innovation in a key services sector of our growing economy.

However, current uncertainties about tax concessions have restricted the access of the fintech sector to venture capital investment, which could potentially create stagnation if it's not dealt with in this vital sector of the economy. So schedule 3 of this bill amends the Income Tax Assessment Act to ensure that the venture capital tax concessions are available for investments in fintech businesses. This clarification means that early-stage venture capital partnerships can receive tax concessions when they invest in new fintech businesses that are developing new technology, including using technology that might already exist but in a new and novel way. The removal of ambiguity from the tax law will help to foster a culture of entrepreneurship and encourage the necessary early-stage risk-taking while improving access to capital for Australian business to ensure that they grow and succeed. Innovation and Science Australia will be enabled to make public and private findings on the eligibility of investments, while banks that split their obligations in order to receive the benefits of the tax concessions, should they choose to take that path, will be excluded under anti-avoidance rules.

While Labor is promising a $200 billion tax increase across the Australian economy, the government is creating an environment to make Australia's fintech sector more internationally competitive through lower taxes. While we want lower taxes, as I said before, we're also serious about compliance. If taxes are due, they have to be paid, and that's why we're committed to ensuring that multinational entities pay their fair share of tax. The OECD has estimated that, globally, between US$100 billion and US$240 billion of corporate tax revenue is lost annually due to base erosion and profit-shifting strategies.

Some multinationals artificially structure their company to avoid Australian tax by booking revenue from Australian sales offshore. When that happens, they have an unfair advantage as against local businesses, families and small businesses, who have no choice about where they pay their tax and are inevitably left to shoulder more of the tax burden when those who are multinationals don't bear their share. Our already implemented multinational anti-avoidance laws allow the Commissioner of Taxation to treat the multinationals as though they have a taxable presence in Australia and were subject to Australian tax on their Australian income. As a result, 38 multinational corporations have changed or are in the process of changing their tax affairs to bring their Australian-sourced sales back onshore, including businesses like Google and Facebook.

However, the Australian Taxation Office has identified that certain partnership arrangements have been designed to avoid these laws. The bill will ensure that the original laws operate as intended. For example, schedule 1 of the bill toughens our multinational anti-avoidance laws by ensuring corporate structures involving foreign trusts and partnerships are subject to the law. This measure involves a technical amendment to prevent large multinationals from avoiding the application of the anti-avoidance laws by interposing partnerships that have foreign resident partners, trusts that have foreign resident trustees or beneficiaries, or foreign trusts that temporarily have their central management and control in Australia. This will continue to ensure fairness in this sector. Importantly, this measure will not negatively impact on investment by multinationals in Australia, as the measure is targeted towards those that attempt to avoid being subject to anti-avoidance laws by manipulating a certain target structure.

Furthermore, the government believe in and are committed to supporting small and family business. That's why we have consistently delivered support to small businesses through the life of this government. Whether that's initiatives such as the $20,000 instant asset write-off or company tax reductions for small and medium-sized businesses—which I believe the Labor Party have a policy to take away if they're successful at the next election—this government stands side by side with small businesses every day of the week. I'm glad to see that Prime Minister Scott Morrison has dedicated a minister for small and family business to his cabinet table.

Small businesses can also attract capital gains tax concessions to assist owners by providing relief from capital gains tax when they dispose of assets related to their business. This helps them to reinvest, to grow, to employ more Australians and to contribute to their own retirement savings. However, it is important to the integrity of our tax system that these capital gains tax concessions are appropriately targeted. We want to ensure that the concessions continue to benefit those who need them most—hardworking small and family businesses.

Unfortunately some taxpayers are currently able to access the small business capital gains concessions for assets that are unrelated to their small business. For example, it's possible to arrange one's affairs so that ownership interests in larger businesses don't count towards the tests for determining eligibility for the concession. So schedule 2 of the bill tries to deal with that, improving the integrity of these concessions. The concessions themselves aren't changing, and they'll continue to be available to genuine small business taxpayers. The proposed amendments will mean the small business capital gains tax concessions can only be accessed in relation to assets that are used in a small business or for ownership interests in a small business.

Key features of this new law will include a limitation on the size of the company or trust being disposed of to ensure that it is genuinely a small business in the Australian market, and clarifying that a taxpayer is required to be a small business entity at the time they dispose of their interest in the company or trust. This ensures taxpayers don't benefit from the concession where the relevant business activities are too remote. It will involve modifying the active asset test so that it looks through shares in companies or interests in trusts to the activities and assets of the underlying entities. This prevents concessions from being available where most of the value of the company or trust is in fact unrelated to small business activities.

This bill is just another example of how the Liberal-National government is taking action in a space where Labor failed to do so. While those on the other side love to talk about multinational corporations and tax integrity, it's been the Liberal-National government who has taken action to tackle multinational tax avoidance every day of the week. In doing so, it enables us to lower taxes for all Australians. I support this bill because it will ensure a more effective and targeted tax system while continuing our agenda of providing tax relief, equipping us to reduce more taxes for more Australians.