Heath Aston, 24 November 2015
The Turnbull government is likely to face pressure in the Senate to scrap a controversial accounting exemption enjoyed by some of Australia’s wealthiest business families after Prime Minister Malcolm Turnbull requested one of his investment companies be removed from the so-called “grandfathered” list.
About 1500 companies on the list, including LinFox, Meriton Apartments and Kerry Stokes’ private investment vehicle Australian Capital Equity, do not have to submit audited annual financial accounts, including tax contributions, to the corporate regulator the Australian Securities and Investment Commission.
After being contacted by Fairfax Media on Monday, Mr Turnbull said he would write to ASIC to have his company Turnbull & Partners Holdings Pty Ltd removed from the grandfathered list. The company was his former investment bank, founded with Neville Wran and Nick Whitlam.
ASIC documents show the company has remained largely inactive until it was used in July and August to make investments in a number of Wall Street funds including the Wisdom Tree hedge fund.
Its former directors include the convicted businessman Rodney Adler, Kerry Packer and Mr Turnbull’s close friend Bruce McWilliam, commercial director at the Seven Network. Lucy Turnbull and the Prime Minister are now its sole directors.
ASIC recently recommended the exemption for large proprietary companies, granted in 1995, be torn up due to the “inequity” it creates with thousands of other large private companies that are forced to file accounts. Treasury also said it should be dumped in 2006.
Tax transparency campaigners say the grandfathered list was a large part of their motivation to lobby for a law – which the Turnbull government is seeking to rescind – that would force the largest private companies to disclose the most basic of tax information each year.
As the Senate prepares to debate tax transparency laws, crossbencher Ricky Muir has proposed an amendment that would scrap the exemption for all 1500 companies, Senate sources told Fairfax Media.
Senator Muir has had discussions with Treasurer Scott Morrison’s office and it is unclear whether his pursuit of the grandfathered list could mean he gives ground on a separate amendment that recently shot down a law that would force private companies with revenues of more than $100 million to disclose simple details of their annual tax liability.
Senator Muir’s office did not return calls.
Senator Nick Xenophon said his position had not changed after he reversed his original support to shield private companies from being put on a tax contribution list by the Australian Tax Office.
“I’ve given an undertaking that I’m not going to be negotiating on the side,” he said.
On Tuesday, Mr Morrison said: “There are some issues around disclosure there that we are looking at closely at the moment and when that bill goes back to the Senate, I envisage we might be making some amendments there.”
Grandfathered companies include scandal-plagued 7-Eleven stores, Ramsay Healthcare – formerly owned by the deceased Liberal Party donor Paul Ramsay, Red Lea Chickens and swimwear brand Seafolly.
Blundstone, Bob Jane, Akubra Hats, Reebok Australia and Dick Honan’s ethanol company Manildra have also been grandfathered since 1995, when a a group including Linfox, the Myer family, Yalumba wines and Mr Stokes’ Australian Capital Equity argued that it would be unfair to force established companies under a new regime of transparency that now dominates the corporate landscape.
Under the Keating Labor government it was decided that established private companies that fitted two of three criteria would be exempt from lodging financial accounts with ASIC: 50 employees, $12.5 million in assets and $25 million in turnover.
Mining billionaire Gina Rinehart, who was fined $130,000 in August for filing accounts late with ASIC, has argued that her companies should be on the grandfathered list. There is even a secondary market – similar to the trade in taxi licence plates – for business names on the list.
In question time on Tuesday, Mr Turnbull said the exemption list “makes absolutely no difference to tax collections” but said he would write to ASIC and ask that Turnbull & Partners be removed. He described the company as as “passive investment company” compared to its heyday as an investment bank.
“It really shouldn’t be on the list at all because it’s not a large company at all. In fact, it’s a relatively small company,” he said
Mark Zirnsak, a Uniting Church representative of the Tax Justice Network, said the Prime Minister should show leadership by removing his company from the list.
“It’s not a good look for the PM to be seen as someone benefiting from provisions that promote tax secrecy. It is disappointing that this government has wound back the tiny bit of corporate transparency introduced by the former government,” said Mr Zirnsak, referring to laws that would have required the Australian Tax Office to publish the tax contribution of private companies with revenues over $100 million from December.
But the Turnbull government is fighting to shield large private companies, many of whom are on the grandfathered list, from having to disclose three simple figures: revenue, taxable revenue and tax paid.
The Coalition scrapped the requirement but in a stunning change of heart this month, senators Xenophon and Muir reversed their previous position in support of an exemption for privately owned companies with revenues of more than $100 million a year.
The Greens, supported by Labor, led the push to reverse the exemption in response to a Fairfax Media investigation, which revealed one of the key stakeholder organisations used to justify exempting the largest private companies was actually a front group without any members.
The Family Office Institute Australia, which was quoted at length in a Senate committee report, was established in August by two lawyers and a Canberra lobbyist who represent Australia’s ultra-rich in disputes with the Australian Tax Office.
Extracted in full from the Sydney Morning Herald.