Tax Laws Amendment Bill 2011
It gives me great pleasure tonight to speak in favour of the Tax Laws Amendment (2011 Measures No. 4) Bill 2011. This bill covers a number of areas which are important for streamlining the tax system, supporting small business, strengthening the economy and restoring the budget to surplus in 2012-13. To begin with, this bill implements the government's budget measures to strengthen the integrity of the low-income tax offset by removing the ability of minors to use the low-income tax offset. This is important because there is evidence to suggest that 200,000 distributions from trusts have increased in line with the low-income tax offset, taking advantage of an opportunity to minimise tax by allocating income to children.
The low-income tax offset—or LITO, as some people refer to it—was never intended for this purpose. It was intended to assist low-income earners and not to be a tax minimisation vehicle. This measure will merely protect the integrity and fairness of the system by discouraging families from splitting their income as a means of avoiding tax. Further, the measure has no effect on the low-income tax offset for work income. Nor does it have any impact on the 660,000 small business trusts that operate in Australia. Small business trusts are a legitimate business tool and we are undertaking a significant review to look at simplifying their operation.
This bill also contains measures to assist super funds to transition to a new, better super system. Once again, these provisions are an example of how this government listens to the concerns of the Australian people and the Australian business community. We acted in response to the concerns raised about the potential difficulties that super funds will face in complying with the law once the current transitional relief expires.
This bill streamlines the process for claiming tax deductions for the cost of total and permanent disability insurance provided through superannuation. As it currently stands, if a super fund wants to claim the deductibility for total and permanent disability, it must gain medical certification that an individual is incapable of being gainfully employed. Where broader insurance cover is provided, a super fund is required to obtain an actuary's certificate to determine the portion of the premium that can be claimed as a deduction.
This bill allows a super fund to claim a deduction for a percentage of the premium of a TPD insurance policy specified in regulations. This will mean that super funds will no longer need to engage an actuary to determine the deduction.
I would like to discuss this TPD issue a little bit further. I know just from reading about superannuation funds, particularly industry superannuation funds, that there are a number of people who sign up to these funds and yet do not sign up to the TPD element of them. The last time I checked, it usually works out to be about a dollar a week. It gives a lot of people protection and insurance in the event of total or permanent disability. I would like to use this opportunity to encourage people who are in industry super funds to take up that opportunity of TPD because it is highly competitive. I know it is something that industry super funds have been mounting a campaign on for a number of years. I encourage people, and I encourage the members here tonight to encourage the people in their electorates, to take advantage of the TPD in whatever superannuation fund they have chosen to use or that their organisation has chosen for them to use.
Schedule 4 of this bill alters the definition of a reportable employer superannuation contribution to exclude certain employer contributions made for the benefit of the employee which are mandated by some requirement beyond the control of that employee. As it stands, additional super payments beyond the mandated nine per cent are considered part of income when determining a person's eligibility for government financial assistance. This is because such payments have the potential to be taken as cash or some other accessible benefit, not just super. This amendment follows concerns that some contributions mandated by law or industry agreement were being considered by the ATO as reportable employer super contributions. As these payments cannot be controlled by the employee or taken out as cash or another benefit, the government believe that these types of contributions should be considered part of income. So we have moved to amend that through this bill.
Finally, observant members will have noted that I have left schedule 1 until last. That is because I want to spend some more time talking about the importance of small business and also the fact that this bill has a significant impact on small business in a very positive way.
Before I do that, I just want to go back to the super issue. Again, it is of great concern to me. Every week I meet a number of women who are doing it tough in retirement. It is essentially because they have not put enough money away for their retirement. They have taken time out for their babies and have been in and out of the workforce. So I am very keen for women to be aware of their superannuation, to actually sit down and look at their super statements and get an understanding of what they have in there, how much they need for the future and how much they need to contribute between now and whatever age they choose to nominate for their retirement. Then they can plan around that. They can plan to take time off for a baby. They can plan to do part-time work. They can work out when they want to retire and that they may need to do part-time work in the lead-up to retirement. I encourage all Australians, but particularly women, to take control of their super. Understand it, first off, but also take control of your super so that you are aware of what you need for when you retire so that you can work back from there and have complete control of your finances right throughout your working life.
As part of that exercise, I am going to be running a series of 'how to read your superannuation statement' seminars later in the year. I have colleagues who are very well versed in that. They have worked for a number of super funds. It will be a free seminar. It will not be telling people where to invest or which super plan they should be using. It is going to sit them down and get them to work through the super statement that they have now and decipher it—explain to them in plain English what it means and what it is saying to them about how much they will have when they retire and how much they may need when they retire if they want a particular lifestyle and, most importantly, how much they will need to contribute till that time. I have seen a number of women who are doing it tough in retirement because they just do not have the money and they did not have the money set aside to get them through.
Schedule 1 will also reduce PAYG instalments for the 2011-12 income year for taxpayers who pay quarterly instalments on the basis of the GDP adjusted notional tax method. This will have the benefit of freeing up some $700 million in cash flow for 2.7 million small businesses. It is a significant figure which, as a former small business owner myself, I can attest is most welcome.
Small business is the backbone of the economy, constituting up to 96 per cent of all businesses in Australia. This measure builds upon other measures announced in the budget such as the $7.1 million to continue the small business support line, instant writeoff for assets costing less than $5,000 from 2012-13, a $5,000 immediate deduction for motor vehicles and improvements to Enterprise Connect centres and businesses. These measures build on the previous actions taken by this government to help small business in areas such as reducing the tax obligation of small business companies to 29 per cent in 2012-13—earlier than other companies. In addition, the small business support line is helping small business owners access information and referral services, and the program that is associated with that line is helping small business owners to go online and engage in the digital economy. There is also the award-winning website business.com.au which is connecting small business to information about start-up, taxation, licensing and legislation, as well as significant transactions such as ABNLook up, taxation compliance and licence applications.
I recently held a small forum—another free seminar —for people who are interested in setting up small businesses, who have got that little bright idea that they have been kicking around for a while and want to turn it into a business but do not know how. The seminar not only took them through the steps they need to take to set up a business but also made them think about a whole range of things that people often do not think about when setting up a business, particularly the fact that they need to spend money to make money. You need to put some cash upfront to get the business going, particularly for your public liability insurance and professional indemnity insurance, which can be very significant when you are first starting out in a business. I know that when I first started my small business my insurance bill was probably worth about four months of income. It was a significant chunk and when you have just got going and you have not got cash flow because you have worked for three months and you are still waiting for the bills to be paid it means that you eat a lot of mince.
It is a challenge but it is very exciting to have your own business once you get going. There are lots of risks and there are lots of moments when you think, 'Why have I done this?' But, generally, the personal and professional rewards are great and it was great to be with these people who were thinking of setting up a small business and sharing with them my experience and the experiences of others in what to do, what not to do and, in a way, pointing them in the right direction.
As I have outlined, there are many services and support systems available to support small business throughout Australia at the federal level, the state level and at the local level. For small business there is an embarrassment of riches in the services and support systems they can access. Again, I encourage anyone who has got a small business, wants to expand the size of their small business or is just thinking about a small business to take advantage of these fabulous support systems that the government has provided in a range of areas.
I also commend the government for the tax reductions they are giving to small business, particularly to ease up cash flow. Cash flow is a significant issue, particularly when you are just starting, and if you want to make an investment it really does help out with the day-today running of the business. I am sure that will be most welcome.
This bill is very important for a strong Australian economy, it is very important for a strong small business sector, it is very important for streamlining the tax system and it is very important to bring the budget back into the black by 2012-13. I commend it to the House.