Russell DeborahHon Dr DEBORAH RUSSELL (Labour): Thank you Mr Chair. First of all I'd just like to thank the Minister for tracking down that definition of fiscal year. It sounds remarkably like an income year but I can see why it needs to sit with the fiscal year definition.We've sort of gone through about four of the 11 major topics that there are within this bill and the Amendment Paper. There's still more to be said on interest deductibility and on all sorts of matters. So I'll take the question I have on interest deductibility first and then I do want to come back and start looking at the trustee tax rate changes. I guess it's a somewhat theoretical question maybe. The rule of course for getting a tax deduction is that in order to be able to claim a tax expense it has to be incurred in the process of earning income or incurred in the process of running a business. But there's a pretty clear nexus between: in order to get that tax deduction you have to be doing something that gets taxed as well. And that's a fairly straightforward point.One of the problems around investment in residential rental properties is that a large part of the income that people earn from them is capital gains and in fact untaxed capital gains. So when people claim interest deductions against residential rental property income what they're doing—well they're paying interest sorry. Partly they're paying it because they're earning assessable income of rent but partly they're paying it and they're earning untaxed income in the form of capital gains. Now traditionally people have been able to claim an interest deduction in full. And part of the reason is that it's pretty hard to prise apart which part of the interest deduction relates to the rent and which part relates to the capital gains. So it's always been hard to apportion between the taxed income and the untaxed income. So the rule has been to claim the full amount; basically it was concessionary—it was a concessionary treatment. It got flipped back the other way under the interest deductibility changes that were put in place by the previous Government. So it flipped the other way. There was a portion of those interest deductions that relate to untaxed income so the entire amount was disallowed. Except the interesting thing is that if a person was caught by the brightline test—so they paid tax on the capital gains—then they could claim the interest deductions as part of that tax calculation. So there was a whole lot of consistency there around the treatment of interest deductions. Now by reverting to the old practice of allowing the full deduction—well it's going to be 80 percent in the next tax year and then a full deduction in the following tax year—in fact the Government is reverting to the practice of giving a really concessionary treatment with respect to interest in comparison to other sort of regular expenses that people incur with respect to a residential rental property such as insurance or rates and so on. So I just want to hear from the Minister whether they considered some form of apportionment some way of trying to assess what part of the interest deduction was related to the untaxed capital gain and what part was related to the taxable rental income. It goes to the consistency of the treatment of other expenses which always have to have that nexus with income. In particular the rule is really no deduction unless you're earning taxable income. So it's a little hard to see the justification on a theoretical basis as well as all the practical implications that my colleagues have talked about of allowing those interest deductions again.I'd like to submit that actually the previous Government's treatment of it by allowing the tax deductions when the person paid a tax on the capital gain was actually a rather more consistent treatment of interest; and in fact was the better treatment. So just from a tax theoretical point of view the better treatment would be to disallow those interest deductions.