Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)Main features
The main features of the Income Tax Assessment Amendment Bill (No. 4) 1982 are as follows :
Disclosure of information to Australian Statistician (Clause 3)
The Bill will amend the secrecy provisions of the Income Tax Assessment Act to authorise the Commissioner of Taxation to disclose additional information to the Australian Statistician for the purposes of the Census and Statistics Act - that is, information as to the numbers of male and female employees of an employer. The amendment will also remove the limitation that information may be provided to the Australian Statistician only for purposes of the Census and Statistics Act in relation to statistics as to employment.
Exemption of the Phosphate Mining Company of Christmas Island Limited (Clause 4)
The Bill also provides for exemption from tax of income derived by the Phosphate Mining Company of Christmas Island Limited. Under proposed new arrangements for the mining of Christmas Island phosphate that company is to replace the Christmas Island Phosphate Commission, which is itself exempt from income tax, and become responsible for the mining operation. The Commission is then to be wound-up.
The proposed exemption will be effective from a date to be notified in the Gazette - which is intended to be the time that the Christmas Island Phosphate Commission is wound-up.
Foreign pensions related to war-time persecution (Clause 4)
The Bill will give effect to the proposal announced on 3 March 1982 to exempt from Australian tax certain foreign pensions that are related to war-time persecution or disablement. The exemption is to apply to relevant pension payments derived on or after 3 March 1982.
Broadly, the Bill proposes that the following pensions, annuities and allowances be exempt from tax -
- (a)
- those paid under a law of the Federal Republic of Germany, where the entitlement arises wholly or partly from the treatment of periods of National Socialist persecution, or of flight from that persecution, as periods of contribution to the Republic's pension scheme;
- (b)
- those paid under a law of the Kingdom of the Netherlands as compensation in respect of persecution during the Second World War by enemy forces occupying the Netherlands or the former Dutch East Indies, or in respect of disablement arising from participation in the Dutch resistance movement in the Netherlands during its occupation during the Second World War; and
- (c)
- any other pensions, annuities and allowances paid under a foreign law that are related to or take into account enemy persecution (or flight from such persecution) during the Second World War or disability arising from participation in a resistance movement against enemy forces during that War.
Sale of securities purchased at a discount (Clause 5)
The Bill will also give effect to the proposal announced on 23 July 1982 to exempt from income tax profits made from the sale or redemption of debt securities purchased at a discount on or before 30 June 1982, other than profits made by traders or dealers in securities and profits to which section 26AAA, section 26C or paragraph 26(a) of the Income Tax Assessment Act refers.
Under the existing law, profits of this kind are assessable under section 25 of the Act or one of the provisions mentioned above. The proposed exemption will apply to the relevant profits only to the extent that they are represented by the discount. Any part of the amount received on the sale or redemption of securities that represents accrued interest as such will continue to be assessable income.
Gifts (Clause 6)
Amendments proposed by clause 6 will extend the gift provisions of the income tax law under which deductions for gifts of the value of $2 or more are available where gifts are made to specified funds, authorities or institutions in Australia.
Amendments proposed by this clause will make tax deductible gifts made after 31 May 1982 to the Connellan Airways Trust or made after 30 June 1982 to the Queensland Cultural Centre Trust.
Further amendments will authorise deductions for gifts to certain overseas relief funds. The first of these amendments will extend the existing provisions authorising deductions for gifts made during the 1981-82 financial year to the Help Poland Live Appeal and the Polish relief appeals conducted by Australian Red Cross and World Vision of Australia to gifts made during that period to all public funds established and maintained exclusively or principally for the relief of persons in Poland. The second will authorise deductions for gifts made during the 1981-82 financial year to a public fund established and maintained exclusively for the relief of persons in Tonga affected by the cyclone disaster in that country; while the final amendment to the gift provisions proposed by clause 6 will authorise deductions for gifts made during the 1981-82 and 1982-83 financial years to a public fund established and maintained exclusively for the relief of Falkland (and South Georgian) Islanders, British servicemen (and associated personnel) or the families of Islanders or servicemen affected by the Falkland Islands dispute.
Expenditure recoupment schemes of tax avoidance (Clauses 7, 8, 10 and 11)
Anti-tax avoidance provisions of the Income Tax Assessment Act that apply to "expenditure recoupment" schemes of avoidance are to be extended to counter further variants of those schemes involving effective recoupment of expenditure formally incurred by way of calls paid on shares in an afforestation company or by way of moneys paid on shares in a petroleum exploration company.
The proposed amendments will extend the operation of the existing law so that a deduction or rebate will not be available for expenditure of those kinds where the expenditure is incurred after 24 September 1978 as part of a tax avoidance agreement entered into after that date that involves the receipt by the taxpayer (or an associate) of a compensatory benefit, the value of which, when added to the tax saving sought in respect of the expenditure, effectively recoups the taxpayer for the expenditure so that no real loss or outgoing is suffered. The amendments will not apply in relation to deductions for calls paid on shares in an afforestation company where the calls are paid under a scheme entered into after 27 May 1981, as those deductions are within the scope of Part IVA of the Act.
In addition, taxpayers who claim a rebate in respect of expenditure incurred under an expenditure recoupment scheme entered into after 9 February 1982 will be statutorily liable to pay an amount of additional tax equal to double the tax sought to be avoided under the scheme. The additional tax will be subject to a power of remission by the Commissioner of Taxation and subject also to a power of review by a Taxation Board of Review.
Sufficient distribution (Clause 9)
A private company that does not make a sufficient distribution of its after-tax income to its shareholders is liable to pay a 50 per cent undistributed income tax on the shortfall in its dividend payments. The sufficient distribution requirements are not satisfied if arrangements under which a dividend is paid result in a substantial benefit flowing back to the company, with the practical effect that the whole of the dividend is not really distributed.
Where dividends are satisfied by an issue of shares or debentures with a market value appreciably less than their face value, and the dividends are effectively subject to tax in the hands of the shareholders, there is no tax avoidance. The amendments will make it clear that after 20 January 1982 dividends satisfied in this manner may qualify as part of a sufficient distribution.
The Bill is explained in more detail in the notes that follow.