Cosgrove Clayton: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — Second ReadingText is incorporated into the Bound VolumeCosgrove Clayton: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — Second Reading[Sitting date: 20 October 2015. Volume:709;Page:7383. Text is incorporated into the Bound Volume.]Hon CLAYTON COSGROVE (Labour): Labour will continue to support the bill but I want to digress slightly—and I do this with a lot of good will for the Minister Todd McClay—because it has been brought to my notice that there does appear to be a problem. He may wish to address this with his officials in another Supplementary Order Paper. In respect of bodies corporate the bill includes reforms to GST and bodies corporate—that is clauses 248 to 254. A large number of small businesses could face unfair unjustified and unexpected retrospective liabilities and potential penalties if the bill proceeds in its current form. I have to say that the Finance and Expenditure Committee was not informed of this. I am advised that no submissions on the point were made because the private sector was not aware of the issues. I am not trying to make a political point here tonight; I am trying to be of assistance.The issue concerns GST on those small businesses that own premises in a building by way of a unit title interest in a body corporate. GST is based on the idea that it is a tax on consumers of goods and services not the business that supplies them. It is also designed so that the GST is paid once and once only through the supply chain. That is self-evident. The problem has arisen where instead of the registered business directly incurring business expenses those costs are incurred by a separate body corporate that is funded by the owner—that is the business.The Inland Revenue Department’s old view was that bodies corporate are just conduits for owners—that a body corporate in itself cannot register and claim GST input credits on expenses. The practice was that owners claimed the input credits themselves on the basis that they funded the body corporate through levies so ultimately owners paid the bills incurred by that body corporate. The Inland Revenue Department’s view was that bodies corporate could not register for GST—that was its view because the body corporate was merely a conduit through which owners operated their businesses but was a firm of one if you like. In some cases the Inland Revenue Department actually forced I am advised registered bodies corporate to deregister.In May 2013 the Inland Revenue Department changed its view of the GST law. Instead of being of the view that bodies corporate were unable to register for GST it concluded that the law actually required them to be registered for GST. However the Commissioner of Inland Revenue issued a statement saying that in effect the issue was being considered and despite the law unregistered bodies corporate and owners could carry on as before. That was a definitive statement—the Minister is nodding.Then we go to June 2014. The Minister of Revenue who has just spoken announced the Government’s intention to change the law so as to disallow bodies corporate from registering for GST and to deregister all existing registered bodies corporate as of that date. To deal with the issue the Government in effect proposed a look-through rule. The difficulty is that the Government announced that these rules would apply from the date of the press release—6 June. Then you fast-forward to February 2015. The Minister introduced the bill. However instead of disallowing bodies corporate from registering for GST the bill proposes that the registration be generally elective. Right? No look-through rule was provided. As I recall the select committee looked at it and said: “OK because it is elective it seems to be more reasonable than forcing bodies corporate that want to be registered to deregister.” OK?I am now advised that the Inland Revenue Department says it will apply its new view of the GST law which is consistent with the clarification made in the latest bill. Importantly it reverses the position for those who followed the Inland Revenue Department’s old view and the Minister’s 6 June 2014 statement relating to the conduit look-through rule. Unit holders are now disallowed GST input credits for legitimate business expenses incurred on behalf of owners by unregistered bodies corporate. The Inland Revenue Department has now I am told reached the view that all those businesses that followed the Inland Revenue Department’s old policy the ministerial commitment and the commissioner’s assurance and kept their bodies corporate unregistered for GST but continued to claim input credits for legitimate business expenses on the basis that these were indirectly incurred for business purposes will be denied input credits. Instead of the expected GST refund such businesses can be liable for GST.I am advised that the Inland Revenue Department’s view also means that the Inland Revenue Department can and should by law go back 4 years and demand repayment of previous GST input credits of this nature claimed in the past. Essentially what this means is that small businesses that have followed past Inland Revenue Department views ministerial statements and the commissioner’s statement face the prospect of additional GST bills going back 4 years and the prospect of penalties. I say to the Minister that I think there is a simple solution to this and I would invite him in a non-partisan way to check with his officials that the way through this is as proposed by him on 6 June—he had an effective date which is re-instating if you like the look-through rule.I have got some amendments and some proposals that could be of assistance to the Minister but I say that this is simple: it is the look-through rule as proposed by him—he had an effective date—and perhaps looking at some amendments around this might be appropriate. I think it may well be an oversight. It may be that somebody has got it wrong somewhere but I have got to say that ministerial commitments and the fact that the Commissioner of Inland Revenue said she was going to look at it but said they could effectively carry on as I understand it means that businesses have acted in good faith but could be up the river for substantial costs. So we will raise that in the Committee stage of the bill and I am happy to liaise with the Minister in respect of possible solutions; there may be others.I will say on another issue that this bill deals with a whole host of issues. It deals of course—and we have had very little explanation—with child support issues. It deals with those issues but it fails to front up and tell explain the blowout in expenses in respect of this policy. The cost has blown out from what Peter Dunne I think said was a $30 million budget under his watch to up to $120 million under his watch. It then bounced out to $210 million under the Minister’s watch and we now have ratcheted it back to $163 million. However we know that is only temporary because the other stages of this policy have yet to go through.So in the Committee stage as we go through we would appreciate some sort of explanation as to why that occurred. I understand—and I have expressed my sympathy for the relatively new Minister in the portfolio; he is the guy with the shovel walking behind the elephant—that Mr Dunne is the longest-serving revenue Minister in any Commonwealth Parliament in the world. The issue is the fact that Mr Dunne freely admits in some of his quotes that he does not quite know why that cost blew out. He does not have the answers—and it is a bit like a hospital pass as we say in rugby: pass the ball as the forwards come over to coathanger the new Minister because he does not seem to know why it happened at all.Without digressing I note that the information and communications technology transformation project is supposed to be the basis for more efficient tax processing. It is supposed to help along the child support policy. Again money is being spent like water. We had the Commissioner of Inland Revenue in and she said it is on budget it is on target. I did ask her at the Finance and Expenditure Committee whether she was around when INCIS was being promoted. She is Irish and I do not think she was in the this country—I think she was the revenue commissioner in Ireland—when INCIS the integrated national crime information system another great project promoted and managed by a National Government blew out to I think $600 million. The infamous integrated national crime information police computer system was subsequently canned.I am grateful that the Minister has indicated that he will look at clauses 248 to 254. I appreciate that. But I would also like some sort of explanation—and I think this House and the taxpayer deserves it—as to why that money has been used why the money flows like water and why there is the blow out on operational side of the child support policy as well as some assurances as to cost control over the life of the Business Transformation project. I am happy to work the Minister on those clauses 248 to 254 and I look forward to the debate.