Water Week

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Federal Tax Laws Amendment (2007 Measures No. 5) Bill 2007, designed specificially to help six NSW irrigator valleys escape tax on water compo

Posted by waterweek on 25 September 2007

John Anderson, National Party MP and member for Gwydir had succeded in a Federal Tax Laws Amendment (2007 Measures No. 5) Bill 2007, designed specificially to allow NSW irrigators to escape tax on water compo. The Tax Laws Amendment (2007 Measures No. 5) Bill 2007 Second Reading – Debate resumed from 16 August, on 12 September 2007.

The NSW connection explained: Tony Windsor (New England) supported the Bill and referred to schedule 7—’Partial capital gains tax roll-over for statutory licences’.

Is water compo income or capital? ” The issue, which goes back a number of years, is that the New South Wales state government removed entitlements from irrigators—specifically groundwater licence holders—across a number of valleys in New South Wales. Over a period a $150 million package was developed with the state and the Commonwealth putting in $50 million each to structurally adjust/ compensate. The word ‘compensate’ has led to some of the difficulties that Treasury and Tax have had with the interpretation of whether the removal of an entitlement and the payment of a sum of money should be treated as income or capital”.

Bill intended to remove tax: Windsor said “The legislation before us today was introduced to resolve that question;

• Up until a few months ago, the $50 million from the state, the $50 million from the Commonwealth and the like contribution from the irrigators was to be treated as income, in which case the Commonwealth would have been able to reclaim up to 85 per cent of its contribution through the Income Tax Assessment Act.

Irrigator lobby strong:“That was seen as a double play by many in the irrigation sector, particularly those who were viewing this as a precedent in natural resource management and in the payment of structural adjustment/compensation for the loss of entitlement. Schedule 7 of the legislation deals with that issue.

Water compo is capital: ” The proceeds from the Commonwealth and the state government for the loss of water entitlement for those groundwater licence holders in those six valleys in New South Wales will now be treated as capital under the assessment processes. That will make a significant difference to the amount of money that the groundwater users receive in their pockets”.

Triggered by water-sharing plans: Windsor said..”the deeming of the rollover provisions and the trigger mechanisms for the capital gains tax event have, as I understand it, been triggered by the acceptance of what I would call ‘water-sharing plans’. In five of those six valleys those water-sharing plants came into place in 2006.

Lachlan Valley water-wars: “So it was deemed that the trigger mechanism for the application of schedule 7 of this bill would occur as of 2006. The water-sharing plant in the Lachlan Valley has not been approved as yet. I am told it will most likely be approved in 2007. I am open to correction from the members of the government that are here to listen today. In a sense, the application of schedule 7 means two things to two different groups who are getting compensated for essentially the same event—the loss of groundwater entitlement as part of their licence”.

Precedent set: As part of this $150 million package, the New South Wales government made a contribution to the same groundwater users, particularly of the Namoi groundwater system, of $20 million. When the $150 million package was agreed between the states and the Commonwealth, that $20 million was rolled into the $150 million joint state – Commonwealth compensation package. The state said, ‘We have already made a contribution of $20 million, so if we add another $30 million that will make our $50 million, and the Commonwealth should put in its $50 million and the irrigators should put in their $50 million in kind.’
House of Representatives, Commonwealth of Australia, 12 September 2007.

Erisk Net, 22/9/2007

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