Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016

Thursday, 03 March 2016

Mr HAWKE (Mitchell—Assistant Minister to the Treasurer) (12:35): Firstly, let me thank all members who have contributed to this debate. This bill is making important changes to the application of the GST to cross-border transactions and the operation of the Farm Management Deposits Scheme.

The first element of this bill changes the goods and services tax, the GST law. Schedule 1 applies the GST to digital products and other services imported by Australian consumers. Under current law, digital supplies and products imported by consumers are not captured by the GST legislation. This is, of course, an anomaly from when the GST legislation was first implemented back in the year 2000, when the potential growth in the digital economy was not well understood and thus not captured by the legislation at the time. This measure seeks to rectify this gap, and digital products and other services imported by consumers will now be subject to the GST, under similar GST laws as those that apply to resident businesses. This measure is the product of extensive stakeholder feedback and consultation.

The government will require overseas businesses making supplies to Australian consumers to register, collect and remit GST on sales to Australian consumers, in the same way as Australian businesses. We are able to implement such a system through the strong and collegiate engagement we have had with international tax authorities and bodies such as the OECD and the EU, who are pursuing similar models and, in Europe's case, have already implemented them.

Schedule 2 complements this measure with a second GST amendment, which implements an announced but unenacted measure from the 2010-11 budget which limits when GST will apply to supplies involving non-resident businesses. The origin of the measure was the Board of Taxation's review of how GST is applied to cross-border business-to-business transactions. This measure ensures that fewer non-resident businesses are unnecessarily drawn into Australia's GST system, reducing the costs of compliance for business and simplifying administration for the Australian Taxation Office. These measures are a good example of the government's objective to pursue a simpler and fairer tax system.

Schedule 3—the second element of this bill—makes three important reforms to farm management deposits. It doubles the maximum amount that can be held in a farm management deposit to $800,000 and allows primary producers experiencing severe drought conditions to withdraw an amount that has been held in a farm management deposit for less than 12 months without losing the tax concession. It also allows amounts held in a farm management deposit to be utilised as an offset to reduce the interest on a primary production business loan or debt.

These changes were announced in the Agricultural competitiveness white paperon 4 July 2015 and are the product of extensive stakeholder feedback and consultation. Farm management deposits are a risk management tool to help primary producers deal with uneven income between years, which frequently occurs as a result of weather variations, the occurrence of natural disasters and changing market conditions. Farm management deposits allow primary producers to set aside pretax income from primary production in a special account that can be drawn on in a future year. Income deposited is tax deductible in the year the deposit is made and is included in assessable income in the year it is withdrawn.

However, we have heard from stakeholders that the current rules impose a number of unnecessary restrictions. The current rules limit the total amount that can be deposited to $400,000, bring forward tax paid where a primary producer affected by drought needs to access their funds within 12 months and prevent financial institutions from offering farm management deposits as an interest loan offset.

The reforms in this bill seek to alter these restrictions, ensuring that farm management deposits remain a useful tool and provide farmers with enough flexibility to be self-reliant and adapt to harsh conditions in the longer term. This schedule provides farmers with higher amounts to build up larger cash reserves to act as a buffer in hard times. The schedule reintroduces earlier access provisions to ensure that primary producers are not discouraged from making deposits if they fear they may have to withdraw them within 12 months as a result of severe drought. This schedule also removes the restriction that prevents financial institutions from allowing farm management deposits to offset loans, providing the potential for farmers to have greater flexibility in how they manage debt and improve cash flows. Full policy details are in the explanatory memorandum.

Both the GST and farm management deposit amendments adapt Australia's tax laws to meet contemporary business needs and respond to our changing economy. Australia's GST law needs to evolve to capture the international digital economy, and our domestic law needs to adapt, be adaptable and account for the difficult and trying conditions that our farmers may encounter. The two GST measures contained in this bill ensure that the overseas businesses that should be in our GST system are in the system and paying the GST on their sales to Australian consumers. At the same time, businesses that should not be caught in the system are removed, reducing red tape and simplifying administration and compliance. A similar principle applies to the farm management deposit amendments. These amendments reduce red tape for primary producers and provide them with the vital flexibility that they need to prepare for hard times. These measures seek to ensure that Australian taxes are contemporary to the needs of the economy and are fairer, simpler and more consistent.