MINERAL ROYALTY AMENDMENT BILL 2004 Second Reading Speech

Northern Territory Second Reading Speeches

MINERAL ROYALTY AMENDMENT BILL 2004

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

Bills presented and read a first time.

Mr STIRLING (Treasurer): Madam Speaker, I move that the bills be now read a second time.

The bills seek to put in place a package of revenue measures announced as part of the 2004-05 budget. Specifically, there are five bills proposing amendments to the Taxation (Administration) Act, Stamp Duty Act, Pay-roll Tax Act, Mineral Royalty Act, and the Debits Tax Act. These bills will go to assisting Territory business and promoting a fairer, more equitable and robust tax system.

The key proposals announced in the budget involve reducing the tax burden on Territorians and Territory businesses by increasing the payroll tax-free threshold to $800 000 from 1 July 2004, and increasing it again to $1m from 1 July 2005; and abolishing debits tax from 1 July 2005.

I will now address the measures included in the Pay-roll Tax Amendment Bill as outlined in the government’s pre-election financial statements committed to reducing the burden of payroll tax on business. Since coming to office, the Labor government has reduced the rate of payroll tax over two successive budgets from 6.5% to 6.2%. This once again delivers on this government’s commitment to reduce payroll tax by increasing the payroll tax-free threshold to $800 000 from 1 July 2004, and then to $1m from 1 July 2005. At $800 000, the Territory will have a payroll tax-free threshold that is greater than all other states other than Queensland, Tasmania and the ACT. When the payroll tax threshold increases to $1m from 1 July next year, the Territory will have a payroll tax-free threshold that is the third highest in Australia. This is great news for Territory businesses.

Treasury estimates that these changes will ultimately mean that 127 local-based businesses will no longer pay payroll tax, with other local-based businesses which continue to pay payroll tax being, on average, $20 400 better off. In addition, increasing the tax-free threshold to $1m will mean that 35 interstate businesses will no longer be required to pay this tax. The cost of increasing the payroll tax-free threshold to $800 000 is expected to be $4m on a full year basis, and the further increase in the threshold to $1m is expected to cost an additional $3.2m on a full year basis.

I now turn to the technical and administrative measures. The payroll tax grouping provisions cause employers to be grouped where employees of one business are shared with the business of another person. These employers are grouped by the legislation because they are considered to operate as a single unit. Without this provision, it would be possible for two separately owned but closely associated businesses to share workers with the aim of taking advantage of the payroll tax–free threshold to avoid payroll tax.

A recent Victorian case has highlighted a deficiency in that state’s legislation which, in turn, may cast doubt on the Territory’s ability to group two or more businesses, rather than just two businesses where the same employee works for multiple businesses. There is no reason why this provision should be limited in this way. This was not the intention of the grouping provisions, and the bill proposes to rectify this deficiency.

In addition, the bill proposes to vary the commissioner’s ability to exclude an employer from a payroll tax group that arises as a result of businesses sharing employees. It has recently been discovered that the Pay-roll Tax Act does not provide the commissioner with the ability to de-group two independent employers that operate a business together through an unincorporated joint venture. This can result in unintended and inequitable consequences for a business carried on through this business structure.

Accordingly, the bill proposes to allow a group member, who is grouped only through the use of shared employees, to be excluded from the group, where the commissioner considers it just and reasonable to do so. The commissioner will release a revenue circular detailing matters that will be considered in deciding whether to exclude someone from a group on this basis.

The Pay-roll Tax Act also includes provisions that cause two people to be grouped where there is a common controlling interest between the businesses carried on by those people. One of the ways in which a controlling interest can be established is where a person is the beneficiary of more than 50% of the value of the interest in a trust. However, the law does not clearly define how to determine when a person is a beneficiary in respect of more than 50% of the interests in a trust, as a beneficiary may only be entitled to the capital or income of a trust, rather than both.

Accordingly, the bill proposes to clarify that a person has, or persons together have, a controlling interest in a business carried on under a trust where they are beneficiaries in respect of more than 50% of the capital of the trust, or more than 50% of the income of the trust. This treatment accords with that already given to partnerships under the grouping provisions. Minor administrative changes are also proposed to the Pay-roll Tax Act to ensure consistency in the way that the general exemption is calculated for single employers and for payroll tax groups that commenced or ceased to pay wages part-way through a financial year, and remove an unnecessary compliance cost by allowing employers to claim the general exemption without having to advise the Commissioner of Taxes. All of the changes proposed in the bill commence on 1 July 2004, other than the increase in payroll tax-free threshold to $1m, which is set to commence 1 July 2005.

I now turn to the Debits Tax Amendment Bill. In the Territory, debits tax currently raises over $6m each year. As I announced on 26 March 2004, the Territory has joined with all states in agreeing to abolish this tax as part of national tax reform. This follows the abolition of financial institutions duty, stamp duty on quoted marketable securities, and tourism marketing duty in recent years - also as part of national tax reform.

These taxes raised in excess of $20m a year, which is no longer payable by Territory businesses and householders. The bill proposes to cease the collection of debits tax from 1 July 2005. To facilitate this, the bill ensures that no liability will arise in respect of a debit made to an account held with a financial institution on or after 1 July 2005. In addition, the bill proposes amendments to ensure that financial institutions will no longer be required to lodge returns in respect of debits that occur after 1 July 2005. However, to provide for the continued administration of past debits tax liabilities, investigations powers, record keeping requirements, assessment, objection and appeal provisions, and other supporting administrative powers will be retained past 1 July 2005.

I now turn to the Taxation (Administration) Amendment Bill 2004 and the Stamp Duty Amendment Bill (No 2) 2004. The government is committed to doing what it can to assist business and to provide appropriate tax exemptions. In recognition of this, the bills propose to extend an existing stamp duty exemption that applies to conveyances from a retiring trustee to a newly appointed trustee, to include the conveyance of property arising solely from the addition of a new trustee to a trust. This amendment makes the Territory consistent with most other jurisdictions and is proposed to commence from 1 July 2004.

Where a statute operates such that property of one entity vests in another, conveyance stamp duty is payable. It is recognised, however, that it is not always appropriate for stamp duty to be paid in relation to such a statutory vesting. Accordingly, the bills propose to introduce exemptions from stamp duty where a vesting occurs only because of the incorporation of an association where property held by a person on behalf of the association vests in the association under the Associations Act; death of a person where their property vests in the executor or the administrator of his or her estate under the Administration Probate Act; or establishment or variation to the area of a community government council pursuant to the Local Government Act whereby property that was owned by a council previously governing an area vests in the community government council. It is proposed that these exemptions take affect from 1 July 2004.

I am disappointed to say four anti-avoidance measures are proposed by these bills as a direct result of actions of taxpayers and advisors that have highlighted weaknesses in the stamp duty law of the Territory, or of similar laws in another state. Each of these measures are necessary to maintain the integrity of the Territory stamp duty regime, and commence from 18 May 2004, being the date they were announced as part of the budget.

The first and second anti-avoidance measures relate to the land rich stamp duty provisions. These provisions provide a mechanism to cause the indirect transfer of land and mining tenements by way of an unlisted corporation or unit trust to be subject to stamp duty as if ownership of that property was transferred directly. A land rich corporation or trust is characterised by having land or mining tenements in the Territory with a value of $500 000 or more. The first measure rectifies a deficiency in the land rich provisions by ensuring that the land rich definition of ‘acquire’ is aligned with the treatment of direct conveyances. At present, conveyance stamp duty is payable on certain transactions relating to dutiable properties such as land and goodwill, and to marketable securities as if those transactions where conveyances of the dutiable property or marketable securities.

While the land rich provisions cover a wide range of circumstances that can result in a person obtaining an interest of 50% or more in a corporation or unit trust, the provisions have not kept up with legislative changes relating to direct conveyances. Accordingly, the bill proposes to bring the land rich provisions up to speed with direct conveyances, by ensuring that the following four types of transactions are acquisitions for the purposes of the land rich provision:

· declarations of trust;

· the addition of a beneficiary, or class of beneficiaries to a discretionary trust;

· a change of, or in the control of, a trustee of the discretionary trust that occurs within 12 months of the change in control of the beneficiary of that trust; and

· a statutory vesting.

The second measure clarifies the scope of an exception to the land rich provisions. At present, land rich stamp duty does not apply where property owned by a land rich entity could have been conveyed directly to the person acquiring an interest in the entity without incurring a conveyance stamp duty liability. The intent of this limitation is to ensure that land rich stamp duty is not payable where a direct change in ownership in land to which the land rich entity is entitled, would not have been subject to duty.

However, the concession can be mischievously interpreted to totally negate the operation of the land rich provision. The bill proposes to clarify that an acquisition in the land rich entity will not be subject to land rich duty, if the land in which the entity is entitled, either directly or through it subsidiaries, could be conveyed to the person making the acquisition without incurring conveyance stamp duty. All other states have adopted a similar approach to this issue.

However, it is recognised that this exception will not always be appropriate due to the existence of stamp duty exemptions or other provisions of the stamp duty legislation that should otherwise apply. These circumstances are where:

· the conveyance of land might otherwise be exempted by the corporate reconstruction exemption. Members will recall that this exemption was provided by this government to enable efficient restructure of business; and

· the acquisition in the land rich entity is made by way of declaration of trust, or addition of beneficiaries, or the changing control of a discretionary trust. This is necessary to reduce avoidance opportunities.

The third anti-avoidance measure relates to compromises and arrangements available under the Commonwealth’s Corporations Act. At present, no stamp duty is payable on conveyances of dutiable property and marketable securities, including under the land rich provisions, made by companies pursuant to court approved compromises or arrangements under the Corporations Act. This concession was initially provided in recognition of the fact that the transfers of assets under compromises and arrangements were mostly only made with the company’s creditors to settle a debt. However, due to considerable corporations law reform, compromises and arrangements can now be used for numerous purposes, and are often used to facilitate company takeovers. As a consequence, the conveyance of assets resulting from a takeover effected by a compromise or arrangement can be made stamp duty free, whereas takeovers made using traditional means are subject to stamp duty.

The bills propose to remove this avoidance opportunity by limiting the stamp duty concessions, so that it only applies to court approve compromises, and arrangements under the Commonwealth Corporations Act that the Commissioner of Taxes is satisfied are not made for the purpose of avoiding tax, and are made with the corporation’s creditors, or a class of creditors.

The fourth and final anti-avoidance measure proposed in the bills relates to the stamp duty change of trustee exemption. It is proposed to limit this exemption so that it only applies where the property being conveyed was acquired by the retiring or existing trustee by virtue of an instrument for which stamp duty has been paid, exempted from duty, or was not otherwise subject to duty. The amendment is necessary following a Victorian court decision that related to a stamp duty avoidance scheme which successfully exploited that state’s equivalent exemption. If the amendment is not made, similar schemes have the potential to seriously erode the stamp duty revenue base.

The bills also propose to rectify an inequity in the land rich provisions. Before determining the amount of land rich stamp duty payable, credits are provided for any marketable securities duty paid; duty paid on earlier acquisitions; and for interest acquired where a corporation is quoted on a stock exchange or when a unit trust is not a private unit trust.

Land rich duty is also not payable in relation to an interest acquired by an exempt corporate reconstruction. However, if a further interest is acquired, after a corporate group is reconstructed, land rich duty may become payable on the total interest acquired including the previously exempted acquisition. To ensure that the original corporate reconstruction exemption is maintained, the bills propose that, with effect from 1 July 2004, a duty credit be provided for an acquisition that has been exempted from land rich stamp duty under the corporate reconstruction provisions.

Finally, the bills also propose to make minor changes to the definition of the term ‘tax avoidance scheme’ in order to reflect the introduction of anti-avoidance provisions as part of this and previous budgets. These changes are to take effect from 18 May 2004, being the date of the budget announcement.

I turn not to the last of the bills proposing changes to the Territory’s revenue regime, being the Mineral Royalty Amendment Bill. The bill proposes two minor amendments to the Mineral Royalty Act. Presently, this act uses inconsistent terminology to describe what is available for inspection by a person authorised under that act. In particular, references are made to ‘records and documents’. For consistency, the bill replaces all references to the term ‘records’ in the act with the term ‘documents’.

The capital recognition deduction, or CRD, is an allowance provided to mines for capital investments such as infrastructure and plant and equipment. A royalty payer uses capital recognition deduction to legitimately reduce the amount of royalty payable by them. CRD incorporates an interest rate factor that I set as the Treasurer in my capacity as the minister responsible for administering the act. This interest rate factor is derived from long-term Commonwealth securities. The bill proposes to transfer the responsibility for setting the CRD interest rate factor from the Treasurer to the Secretary under the act, which is presently the Under Treasurer. This will provide for more efficient administration of mineral royalties and the Secretary will remain accountable to the Treasurer.

Madam Speaker, I commend these bills to honourable members.

Debate adjourned.

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