Land Tax

September 11, 2019

The Hon. J.A. DARLEY (14:56): I seek leave to make a brief explanation before asking the Treasurer questions regarding land tax.

 

Leave granted.

 

The Hon. J.A. DARLEY: Treasurer, under the draft bill, division 6, clause 13H(5):

 

Corporations are related corporations if 1 of those corporations is a related corporation of a corporation of which the other of those corporations is a related corporation (including a corporation that is a related corporation of the other of those corporations because of 1 or more other applications of this subsection).

 

My questions are:

 

1. Can the Treasurer please explain what this means?

 

2. Does the Treasurer expect laypeople, that is, mum-and-dad investors, to be able to understand this?

 

3. Given this passage demonstrates the complexity of the bill and the fact that the government has provided no other information to assist the community in providing feedback on the draft bill, how is this considered meaningful engagement?

 

4. Will the government be providing a plain English explanation of the bill so that feedback can be provided on something that people can actually understand?

 

The Hon. R.I. LUCAS (Treasurer) (14:58): I thank the honourable member for his question. I have to say, that is one of my favourite clauses in the land tax reform bill. It does indicate the extraordinary complexity of the land tax legislation. Indeed, I could quote existing provisions of the existing Land Tax Act, which has existed for decades, which are equally complex. The honourable member has also ventured, as I have, through the intricacies of the stamp duty legislation over a period of time that he has been in this parliament, and it is even more complex and complicated than the land tax legislation.

 

The plain meaning explanation of those particular provisions and other provisions is that they are based on existing provisions in New South Wales and Victoria in terms of their interpretation. I am also advised by Treasury and RevenueSA that they are extraordinarily similar to existing provisions in the Payroll Tax Act. The honourable member will have, I am sure in his time in this parliament, provided advice to constituents in relation to related corporations under the payroll tax legislation. There are similar grouping provisions, similarly drafted, I am advised, in relation to payroll tax, which has existed for many years in South Australia as well.

 

The simple premise is that, I think as I referred to indirectly yesterday, if ultimately an individual or group of individuals control a group of companies, whether it be through a noodle nation complexity of related and interrelated companies, if ultimately the control rests with an individual or group of individuals, then they are related corporations, and therefore tax purposes will be aggregated.

 

It is a relatively simple principle: it is the same principle applied in New South Wales and in Victoria, and it is a similar principle as is applied in payroll tax grouping provisions. If you are a related corporation, you are grouped or aggregated and you pay payroll tax on the particular group. The premise is simple but, as has occurred in other states and jurisdictions, and as occurs with payroll tax, lawyers who argue for constituents may well argue against Treasury and Revenue SA and take court action, as is their entitlement, as to whether or not the grouping provisions have been appropriately applied.

 

There is nothing simple in tax law, and the Hon. Mr Darley should be (or would be, I am sure) one of the members in this chamber well versed to acknowledge that tax law is never simple. I can quote any number of clauses, both in the existing Land Tax Act and Payroll Tax Act, but in particular the Stamp Duties Act, which are incredibly complex, incredibly difficult to understand, but the reason they have to be is that lawyers and accountants manage to work their way around various provisions, whether it be payroll tax, stamp duty or land tax legislation, and case law establishes that you need to do this and make an amendment to that, as governments have done over the years.

 

There is no simple way to draft tax law—commonwealth or state—there is no simple way to draft tax law. You rely on the best advice your lawyers can give you, and in this case it is the Crown in terms of trying to draft the law. In simple terms, as I said, it is modelled on existing provisions in New South Wales and Victoria, and it is very similar to the payroll tax grouping provisions that already exist in South Australia and have existed for some time.

 

The Hon. J.A. DARLEY (15:02): Supplementary question: so, in effect, the answer to my fourth question is, 'No, the government will not provide a simple English explanation'?

 

The Hon. R.I. LUCAS (Treasurer) (15:02): I just provided a simple English explanation to the honourable member, so I have answered question 4. The government may well be in a position to provide further detail as part of our consultation process in terms of how payroll tax grouping provisions work, whether or not there are any tweaks in relation to the grouping provisions for land tax aggregation provisions or related corporation provisions and payroll tax. We are very happy to try to assist people in terms of trying to understand tax law, but the premise of the question, that in some way you can summarise complex tax law so that everyone in the community can understand it, is a very difficult task to achieve.

 

I have sought to explain to the honourable member that it is not just the case of land tax, it is also the case with stamp duty and payroll tax. The simple explanation is—as I have just given, to anyone who is out there, a mum-and-dad investor—if ultimately you as an individual or you and your business partner control a group of companies, that is, you control the decisions, whether it be through other companies or directly, if you have a controlling interest in a particular company, and that company then has a controlling interest in another company, and that interest has another controlling interest in another company, and it is the fourth layer of company that actually owns the land, then you actually control that particular company. That is the simple explanation.

 

If you have effective control—and that might not be the precise legal explanation, but if you want to talk about a layperson's explanation of it—and they are related companies, then you are aggregated in all the other jurisdictions and you will be aggregated in South Australia. I do not think you can get any simpler explanation than that. The actual drafting, as the member has quoted, is much more complicated and complex because the lawyers have to draft it to cover for all circumstances.

 

But as I said yesterday and I say again today, if you look at the ownership structures that currently exist in South Australia, it looks like noodle nation in some circumstances, where, ultimately, you trace the company or entity that owns the land back through three or four various layers of other ownership entities before you find out who it is that actually controls all these particular companies. The complicated tax law has to cater for all those sets of circumstances.

 

 

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