Treasury Laws Amendment (2018 Measures No 1) Bill 2018 - Commentary on Ministerial Responses [2018] AUSStaCSBSD 87 (21 March 2018)

• Treasury Laws Amendment (2018 Measures No. 1) Bill 2018
• Power for delegated legislation to amend primary legislation (Henry VIII clause)294

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Treasury Laws Amendment (2018 Measures No. 1)
Bill 2018

Purpose	This bill seeks to amend Acts relating to superannuation, corporations and taxation and to repeal certain Acts and provisions of Acts Schedule 1 makes a number of regulatory amendments to Treasury portfolio Acts Schedule 2 extends the tax relief for merging superannuation funds until 1 July 2020 Schedule 3 enables recovery of the ongoing cost of the governance of the superannuation transaction network from the superannuation supervisory levy Schedule 4 transfers the regulator role for early release of superannuation benefits on compassionate grounds from the Chief Executive Medicare to the Commissioner of Taxation Schedule 5 requires purchasers of new residential premises and new subdivisions of potential residential land to make a payment of part of the purchase price to the Australian Taxation Office
Portfolio	Treasury
Introduced	House of Representatives on 7 February 2018
Bill status	Passed the House of Representatives

2.712 The committee dealt with this bill in Scrutiny Digest No. 2 of 2018. The minister responded to the committee's comments in a letter received 9 March 2018. Set out below are extracts from the committee's initial scrutiny of the bill and the minister's response followed by the committee's comments on the response. A copy of the letter is available on the committee's website.^[293]

Power for delegated legislation to amend primary legislation (Henry VIII clause)^[294]

Initial scrutiny – extract

2.713 Schedule 5 to the bill seeks to establish a framework to prevent certain forms of tax evasion (relating to goods and services tax) by property developers. Within that framework, purchasers of new residential property and subdividers of residential land would be required to withhold a certain amount of the purchase price from the seller, and to pay that amount directly to the Australian Taxation Office (ATO). This is referred to as a 'withholding obligation'. The sellers of the property or land would subsequently be able to apply for a tax credit in respect of the amount withheld.

2.714 To implement the withholding obligation, proposed subsection 14-250(1) seeks to require a person who is the recipient of a taxable supply^[295] that is, or that includes, a supply to which proposed subsection 14-250(2) applies, to pay to the Commissioner of Taxation (Commissioner) a certain amount.^[296] Proposed subsection 14-250(2) applies to the supply, by way of sale or long-term lease, of new residential premises and potential residential land, other than supplies of a kind determined by the Commissioner under proposed subsection 14-250(3). Proposed subsection 14‑250(3) then provides that the Commissioner may, by legislative instrument, determine that proposed subsection 14-250(2) (and therefore the obligation in proposed subsection 14-250(1)) does not apply to a kind of supply specified in the determination. Proposed subsection 14-250(3) therefore appears to allow delegated legislation (the Commissioner's determination) to amend the operation of primary legislation.

2.715 A provision that enables delegated legislation to amend the operation of primary legislation is known as a Henry VIII clause. There are significant scrutiny concerns with enabling delegated legislation to override the operation of legislation which has been passed by Parliament as such clauses impact on the level of parliamentary scrutiny and may subvert the appropriate relationship between the Parliament and the executive. As such, the committee expects a sound justification for the use of a Henry VIII clause to be provided in the explanatory memorandum.

2.716 In this instance, the explanatory memorandum only provides that the power of the Commissioner to override the operation of the withholding obligation by legislative instrument has been included '[t]o avoid any unintended consequences.'^[297] The explanatory memorandum does not provide any further explanation, nor does it include examples of circumstances in which the power would be used. Given the apparent significance of the withholding obligation to the anti-evasion measures sought to be introduced by Schedule 5 to the bill, the committee does not consider this to sufficiently explain or justify the inclusion of a Henry VIII clause. In this regard, the committee also notes that the bill does not appear to provide any limitations on the power to make determinations under proposed subsection 14‑250(3). For example, it does not set out any criteria that must be satisfied.

2.717 The committee seeks the minister's more detailed justification as to why it is proposed to allow the Commissioner to determine, by legislative instrument, that the withholding obligation does not apply to certain kinds of supply.

2.718 The committee also seeks the minister's advice as to the appropriateness of amending the bill to insert (at least high-level) guidance concerning the making of a determination under proposed subsection 14-250(3).

Minister's response

2.719 The minister advised:

Schedule 5 to the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 requires purchasers of new residential premises and subdivisions of potential residential land to make a withholding payment of part of the purchase price on or before the day they first provide consideration (other than as a deposit) to the supplier.

• Suppliers of property to which a withholding obligation applies are required to provide a notice to the purchaser informing them of certain matters, including that the purchaser is required to make a payment.

• To ensure that the obligation does not apply in circumstances that are not intended, the Commissioner of Taxation is provided with a power to exempt classes of supplies from the withholding obligation, as well as the notice requirement.

• More detail is provided on each of these amendments in Appendix A.

Appendix A
The committee seeks the minister's more detailed justification as to why it is proposed to allow the Commissioner of Taxation to determine, by legislative instrument, that the withholding obligation does not apply to certain kinds of supply.
As noted in the explanatory memorandum to the Bill, the inclusion of the power to allow the Commission of Taxation to determine, by legislative instrument, that the withholding obligation under the Bill does not apply to certain kinds of supply, is to avoid any unintended consequences that may arise from imposing a withholding obligation. The legislative instrument will not affect whether GST is payable in relation to the supply.
Broadly, the withholding obligation in the Bill is designed to align with when GST is attributed on the supply and is therefore payable. The general rule for this under the GST law provides that, other than when accounting on a cash basis, that GST payable is attributed to the earliest tax period when either consideration for the supply is first provided, or the tax period which an invoice is provided. However, the Commissioner of Taxation may vary this in certain cases by legislative instrument.
The types of supplies to which the withholding obligation applies are new residential premises, or subdivisions of potential residential land. These are types of supplies that in all cases will be governed by State or Territory (State) laws regulating property and land releases. In some cases, this makes the relevant State the supplier of the new residential premises. As State governments may change these laws and policies over time, it is appropriate that there is some flexibility in the legislation so that the withholding obligation does not apply inappropriately as these rules change.
An example of such a scheme is the ACT Land Rent Scheme, where a Land Rent Release is granted by a government entity over vacant land for 99 years. An annual land rent amount is calculated on the unimproved value of the land at a particular percentage. A lessee under a Land Rent Lease is required to construct a house on the land within two years of the lease being granted. A New Tax System (Goods and Services Tax) (Particular Attribution Rules Where Total Consideration Not Known) Determination (No. 1) 2000 applies to these supplies, and requires that the supplier attribute GST on each instalment, rather than the tax period in which consideration is first provided. Application of a withholding obligation which would require the whole of the GST payable on the supply across a 99 year lease (where the payment amount may vary) would produce an inappropriate outcome. Therefore it is appropriate to allow the Commissioner of Taxation a broad power to exempt certain classes of supplies.
The determination in each case will also be a legislative instrument, which will be subject to disallowance under section 42 of the Legislation Act 2003, so Parliament will be involved in determining whether exemption from the withholding obligation for the class of supply is appropriate.
The committee also seeks the minister's advice as to the appropriateness of amending the bill to insert (at least high-level) guidance concerning the making of a determination under proposed subsection 14-250(3).
For the reasons I have set out in my earlier response, I do not think that it is necessary to limit or provide additional legislative guidance about the circumstances in which a legislative instrument can be made.
The purpose of the power is to deal with unintended consequences of the application of a withholding obligation, which may arise from a number of sources and

• there are relevant State laws which affect the supply;

• the Commissioner of Taxation has made specific attribution rules to deal with the supply; or

• there are contracts of sale that set out that consideration is to be provided other than as a lump sum cash payment (such as where it is provided as non-monetary consideration, or there are a significant number of instalment payments) and it would be inappropriate to apply the withholding obligation in those circumstances.

These instruments are subject to disallowance, so Parliament will have the opportunity to determine whether it is appropriate that the type of supply is excluded.
Given the reasons why a legislative instrument will be made will be
highly-specific to the circumstances of the supply, it is appropriate that the Commissioner of Taxation exercise the power to exempt certain classes of supply in line with this purpose.

Committee comment

2.720 The committee thanks the minister for this response. The committee notes the minister's advice that the supplies to which the withholding obligation would apply are new residential premises, or subdivisions of potential residential land, and that these supplies will in all cases be government by State or Territory (State) laws regulating property and land releases.

2.721 The committee also notes the minister's advice that, as State governments may change laws and policies over time, it is appropriate that there is some flexibility in the legislation so that the withholding obligation does not apply inappropriately as these rules change, and it appropriate to allow the Commissioner of Taxation a broad power to exempt certain classes of supplies. The committee also notes the example provided by the minister of when it may be appropriate for the Commissioner to exercise the power of exemption under proposed subsection 14-250(3).

2.722 The committee further notes the minister's advice that a determination made under proposed subsection 14-250(3) will be a legislative instrument, which will be subject to disallowance under section 42 of the Legislation Act 2003, and that Parliament will therefore be involved in determining whether exemptions from the withholding obligation for the class of supply is appropriate.

2.723 Finally, the committee notes the minister's view that it is not necessary to limit or provide additional legislative guidance about the circumstances in which a determination under proposed subsection 14-250(3) may be made, as each determination made under the subsection will be highly specific to the circumstances of the supply to which it relates.

2.724 The committee requests that the key information provided by the minister be included in the explanatory memorandum, noting the importance of this document as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).

2.725 In light of the detailed information provided by the minister, the committee makes no further comment on this matter.

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[293] See correspondence relating to Scrutiny Digest No. 3 of 2018 available at: www.aph.gov.au/senate_scrutiny_digest

[294] Schedule 5, item 1, proposed subsection 14-250(3). The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(iv) and (v).

[295] 'Taxable supply' is defined in Subdivision 9-A of the A New Tax System (Goods and Services Tax) Act (GST Act). Section 9-5 of that Act provides that a person makes a taxable supply if they are registered (or required to be registered) under the GST Act, they make a supply for consideration (e.g. payment), the supply is made in the course or furtherance of an enterprise that the person carried on, and the supply is connected with the indirect tax zone.

[296] Under proposed section 14-250, the amount to be paid to the Commissioner is seven per cent of the contract price for the relevant supply, or the price for the relevant supply. The Commissioner may, by legislative instrument, raise that amount to up to nine per cent.

[297] Explanatory memorandum, p. 51.