Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 [2019] AUSStaCSBSD 138 (13 November 2019)

• Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019
• Retrospective application 48

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Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019

Purpose

This bill seeks to amend various Acts in relation to taxation and foreign acquisitions and takeovers Schedule 1 seeks to amend the Income Tax Assessment Act 1997 to: • remove the entitlement to the capital gains tax (CGT) main residence exemption for foreign residents under certain circumstances; and • modify the foreign resident CGT regime Schedule 2 seeks to provide an additional affordable housing capital gains discount Schedule 3 seeks to enable a reconciliation payment to be made by developers who sell dwellings to foreign persons under a near-new dwelling exemption certificate

Portfolio

Treasury

Retrospective application ^[48]

1.86 Schedule 1 to the bill seeks to remove foreign residents' entitlements to the capital gains tax (CGT) main residence exemption, and to modify the foreign resident CGT regime to clarify that, for the purposes of determining whether an entity's underlying value is principally derived from taxable Australian real property (TARP), the principal asset test^[49] is to be applied on an associate inclusive basis.

1.87 Schedule 2 to the bill seeks to provide additional CGT discounts on CGT events that occur with respect to residential premises that have been used to provide affordable housing.

1.88 Schedule 3 to the bill seeks to create a reconciliation mechanism to ensure that where a near-new dwelling is sold by a developer to a foreign person, the developer provides a reconciliation payment in respect of that sale. The measures in Schedule 3 are complemented by the provisions of the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019.

1.89 It is proposed that all of the measures identified above would apply retrospectively. The measures in Schedule 1 (relating to CGT exemptions for foreign residents) are proposed to apply to CGT events happening on or after those measures were announced in the 2017-18 Budget (7.30 pm on 9 May 2017).^[50] The measures in Schedule 2 (relating to CGT discounts with respect to affordable housing) are proposed to apply to CGT events happening on or after 1 January 2018.^[51] The measures in Schedule 3 (relating to payments with respect to near-new dwellings) are proposed to apply in relation to the acquisition of a near-new dwelling occurring on or after 1 July 2017.^[52]

1.90 The committee has a long-standing concern about provisions that apply retrospectively, including provisions that back-date commencement to the date of the announcement of particular measures (i.e. 'legislation by press release'), as such an approach challenges a basic value of the rule of law that, in general, laws should only operate prospectively. The committee has particular concerns where legislation will, or might, have a detrimental effect on individuals.

1.91 The committee also notes that, in the context of tax law, reliance on ministerial announcements, and the implicit requirement that persons arrange their affairs in accordance with such announcements rather than in accordance with the law, tends to undermine the principle that the law is made by Parliament, not by the executive. Retrospective application or commencement, when used too widely or insufficiently justified, can diminish respect for the rule of law and its underlying values. In outlining issues around this matter previously, the committee has accepted that some amendments may apply retrospectively when legislation is introduced. However, this has been limited to the introduction of bills within six calendar months after the relevant announcement. In fact, where taxation amendments are not brought before the Parliament within six months of being announced the bill risks having the commencement date amended by resolution of the Senate (see Senate Resolution No. 45).

1.92 The committee notes that, in this case, the bill that first contained this measure—the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018—was introduced almost nine months after the budget announcement on 9 May 2017, and this bill was introduced well over two years after the announcement.

1.93 Generally, where proposed legislation will apply retrospectively, the committee would expect the explanatory materials to set out the reasons why retrospectivity is sought, and whether any persons are likely to be adversely affected and the extent to which their interests are likely to be affected.

1.94 With respect to the amendments in Schedule 1, the explanatory memorandum states that the measures need to generally apply from the date of announcement to prevent opportunities for affected taxpayers or entities to dispose of their dwelling or assets to avoid application of the measures.^[53]

1.95 With respect to the amendments in Schedule 2, the explanatory memorandum states that 'the additional CGT discount provides a benefit to taxpayers and does not disadvantage any taxpayers'.^[54]

1.96 With respect to the amendments in Schedule 3, the explanatory memorandum states that:

The retrospective application of this measure is consistent with the announcement of the near-new dwelling exemption certificate in the 2017-18 Budget announcement. Any adverse impact is expected to be minor, given the retrospective application was included in the Explanatory Statement that accompanied the regulations that introduced the near-new dwelling exemption certificate.^[55]

1.97 The committee reiterates its long-standing concerns that provisions with retrospective application (including where provisions are back-dated to the date of announcement of an initiative) challenge a basic value of the rule of law that, in general, laws should only operate prospectively.

1.98 In light of the explanation provided in the explanatory memorandum as to the retrospective application of the amendments proposed by the bill, the committee draws its scrutiny concerns to the attention of senators and leaves to the Senate as a whole the appropriateness of applying the amendments in the bill on a retrospective basis.

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[48] Schedule 1, items 33 and 36; Schedule 2, item 3; and Schedule 3, item 11. The committee draws senators' attention to these provisions pursuant to Senate Standing Order 24(1)(a)(i).

[49] The principal asset test applies in relation to certain membership interests held by a foreign resident entity in another entity. The test is satisfied if the market value of the other entity's TARP assets exceeds the market value of its non-TARP assets.

[50] Schedule 1, items 33 and 36.

[51] Schedule 2, item 3.

[52] Schedule 3, item 11.

[53] Explanatory memorandum, pp. 32–3. The bill shares an explanatory memorandum with the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2019.

[54] Explanatory memorandum, p. 55.

[55] Explanatory memorandum, p. 61.