Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)Main features
The main features of the Bills are as follows:
Income Tax Assessment Amendment Bill (No. 5) 1982
Rebates for spouse, daughter-housekeeper, housekeeper and sole parent (Clauses 9 to 11)
The Bill will implement the Budget proposal to increase the spouse, daughter-housekeeper and housekeeper rebates, where there is a dependent childunder 16 or student child under 25 in respect of whom a rebate of tax would have been allowable but for the replacement of such rebates by family allowances, and to increase the sole parent rebate.
The amendments proposed will increase the sole parent rebate by $200 from $580 to $780 for the 1983-84 and subsequent years and, where appropriate, the other rebates by $200 from $830 to $1,030 for those years. Reflecting the date of effect of the proposal - 1 November 1982 - the increase for 1982-83 will be $133, being two-thirds of the full increase.
Rebate of tax in respect of home loan interest (Clauses 14 to 21)
The Bill also gives effect to the proposal announced in the Budget to allow an individual resident taxpayer a rebate of tax for home loan interest payments made on or after 1 July 1982 in respect of a dwelling in Australia occupied by the taxpayer as his or her sole or principal residence. The rebate will be available in respect of such part of the qualifying interest on a loan as is attributable to the portion of the interest rate which exceeds 10 per cent per annum.
The rebate will be at the standard rate of tax (30.67 cents in 1982-83) for qualifying interest but will not exceed the tax otherwise payable on assessment and will not be available unless the taxpayer owns or partly owns the dwelling and the interest accrues while the taxpayer is an occupier of the dwelling. Where the balance of a loan or loans on a dwelling at the end of a year of income (or at the time when a taxpayer ceased to occupy a dwelling in a year) is in excess of $60,000, only the interest payable on $60,000 - and being interest attributable to the interest rate portion in excess of 10 per cent per annum - will attract the rebate.
Interest will qualify for the rebate if it is paid on moneys lent to a taxpayer and applied by the taxpayer for certain specified purposes connected with a dwelling used by the taxpayer as his or her sole or principal residence. Those purposes include the acquisition of land on which a dwelling is subsequently constructed, the construction of a dwelling or the acquisition of land on which there is already a dwelling. Interest on moneys used to extend a dwelling by adding additional living space will also qualify but not where the moneys are used to build improvements such as swimming pools, garages or fences.
Where moneys are borrowed partly for the purpose of acquiring a dwelling and partly for other purposes, so much only of the interest as is attributable to that part of the moneys applied to acquire the dwelling will qualify for the rebate. Where a dwelling is used partly as a sole or principal residence and partly for other purposes the Commissioner will be empowered to allow a rebate in respect of the amount of interest which is reasonable in all the circumstances. This could occur, for example, where a person borrows moneys to purchase a building containing a flat above a shop and occupies the flat as his or her residence. In this case, the intention is that interest on money attributable to the flat would be rebatable.
The Bill gives effect to the proposal by providing a rebate for that part of the qualifying interest paid in a year of income which exceeds 10 per cent per annum of the average balance of the loan during the year. For this purpose the average balance will generally be taken to be the average of the opening and closing balances of the loan in the year of income. Adjustments may be made in determining the average balance, however, to account for abnormal payments in reduction of the loan during a year and for increased borrowings. In calculating the amount to be excluded as interest up to the 10 per cent per annum limit, the calculation will be made by reference to interest paid during the year and not on the basis of interest accrued. As a result, a portion of any payment of qualifying interest on a loan will attract the rebate if interest is accruing on the loan during the year of income at a rate in excess of 10 per cent per annum, notwithstanding that loan repayments may be in arrears. This will be so even if interest payments in the year fall short of an amount equal to the interest accrued at 10 per cent per annum.
Where a taxpayer is eligible in a year of income for a rebate under this proposal and is also eligible in the year for a rebate under the existing home loan interest scheme which applies to taxpayers in their first five years of owner-occupancy, the taxpayer will receive the benefit of the greater of the two rebates.
In a case where a taxpayer is entitled to a rebate, or would have been so entitled if he or she were liable to pay tax, the taxpayer will be able to elect to transfer the whole or a part of the rebate entitlement to his or her spouse.
Interest payments which are otherwise allowable as a deduction from assessable income under ordinary income tax rules will continue to be allowed as a deduction and will not attract the rebate.
Rebate for pensioners (Clause 22)
A further Budget proposal to which the Bill will give effect is the introduction of a rebate of tax for taxpayers in receipt of Australian social security or repatriation pensions that are subject to income tax in Australia. The maximum rebate of $167 for 1982-83 ($250 for subsequent years) will shade-out at the rate of 12.5 cents for each dollar of taxable income in excess of $5,007 ($5,429 in subsequent years). No rebate will thus be available at taxable incomes in excess of $6,342 in 1982-83 and $7,428 in subsequent years.
Rebate on certain dividends (Clause 4)
The Bill will give effect to the Budget proposal to allow a rebate of tax at the standard rate - 30.67 per cent in 1982-83 and 30 per cent in subsequent years - on up to $1,000 of certain dividends included in the taxable incomes of Australian resident individual taxpayers.
Broadly, the Bill proposes that the rebate be available in respect of dividends paid by resident public or private companies, resident corporate unit trusts or non-resident companies the shares in which are listed on Australian stock exchanges, other than -
- (a)
- amounts deemed to be dividends under sections 65, 108 or 109 of the Income Tax Assessment Act;
- (b)
- dividends paid by co-operative companies that are afforded special treatment under Division 9 of the Act; or
- (c)
- dividends that are taxed at special higher rates under section 94 or 99A or under Division 6AA of the Act.
By virtue of the limitation of $1,000 and the rate applicable, the maximum rebate will be $306.70 in 1982-83 and $300 in the 1983-84 and subsequent years.
By the amendments proposed by this clause the retention allowance in respect of trading or business income which is available to private companies for undistributed income tax purposes is to be increased from 70 to 80 per cent, the increase first applying in respect of the 1981-82 year of income.
Amendments proposed by clause 5 will extend the gift provisions of the income tax law which authorise deductions for gifts of the value of $2 or more made to specified funds, authorities or institutions in Australia.
The first of the amendments will permit tax deductions for gifts made during the 1981-82 and 1982-83 financial years to certain Lebanon relief appeals. The concession will extend to public funds in Australia established and maintained exclusively for the relief of persons (other than members of armed forces) who are in Lebanon, or are refugees from Lebanon, and who are in necessitous circumstances as a consequence of attacks upon, or the invasion of, that country by the armed forces of Israel.
A second amendment will authorise deductions for gifts made after 17 August 1982 to the United Nations Association of Australia Decade of Trees Greening Australia and to a number of conservation organisations in Australia. These are the National Parks Association of New South Wales, the Victorian National Parks Association, the Victoria Conservation Trust, the National Parks Association of Queensland, the Nature Conservation Society of South Australia Incorporated, the National Parks Foundation of South Australia Incorporated, the Western Australian National Parks and Reserves Association Incorporated, the Tasmanian Conservation Trust Incorporated and the National Parks Association of the Australian Capital Territory.
Further amendments will authorise deductions for gifts made after 26 August 1982 to the Centre for Independent Studies, the Playford Memorial Trust, the Boy Scouts and the Girl Guides Associations in Australia and Amnesty International in Australia.
Provisional tax for 1982-83 (Clause 28)
Provisional tax for the 1982-83 year of income is to be calculated, basically, by applying 1982-83 rates of tax to 1981-82 taxable incomes, as increased by 10 per cent. Generally, to the extent that rebates are allowed in 1981-82 income tax assessments, they will be taken into account in calculating the provisional tax.
However, where it appears from the information available in the taxpayer's 1981-82 return of income that he or she will be entitled in 1982-83 to an increased spouse, daughter-housekeeper, housekeeper or sole parent rebate, as proposed by clauses 9 to 11 of this Bill, the relevant rebates (including zone rebates where appropriate) allowable in 1981-82 will be increased accordingly for provisional tax purposes. Also, where the available information permits, the proposed dividend rebate (clause 4) and pensioner rebate (clause 22) will be taken into account in the 1982-83 provisional tax calculation.
Exemption of payments of rehabilitation allowance (Clauses 3, 6, 9 and 11)
The Bill will give effect to the income tax aspects of the proposal announced in the Budget that a non-taxable rehabilitation allowance is to be introduced from the first pension payday in March 1983. All persons undergoing treatment or training with the Commonwealth Rehabilitation Service otherwise eligible for a social security pension or benefit will be eligible to receive, while under treatment or training and for a period of up to six months thereafter, a non-taxable rehabilitation allowance equivalent to the invalid pension and subject to the same income test conditions as the invalid pension. The Bill provides tax exemption for the allowance and associated training and living away from home allowances and makes a number of consequential amendments to the Income Tax Assessment Act so that no taxpayer will be disadvantaged as a result of a person who would otherwise be eligible to receive an invalid pension becoming eligible to receive a rehabilitation allowance.
Consequential amendments (Clauses 12, 13, 16, 23 and 26)
As a consequence of the proposed reduction in the standard rate of tax from 32 per cent to 30 per cent from 1 November 1982 (provided for in the accompanying Income Tax (Rates) Bill 1982), the rate used to calculate the concessional expenditure rebate, the health insurance rebate and the housing loan interest rebate, and the rate of tax on certain lump sum payments on retirement or termination of employment, is to be similarly reduced. The rate of withholding tax on payments made by mining companies to Aboriginal groups from 1 November 1982 is also to be reduced - from 6.4 per cent to 6 per cent.
Formal amendments (Clause 27 and Schedule)
The Bill makes a number of formal amendments to the Income Tax Assessment Act necessitated by the change in the title of, and other formal amendments to, the Social Services Act 1947 made by the Social Services Legislation Amendment Act 1982.
Income Tax (Rates) Amendment Bill 1982
As the accompanying Income Tax (Rates) Bill 1982 will declare the relevant rates of tax payable for individuals and trustees generally for 1982-83 and subsequent years, this Bill will amend the Income Tax (Rates) Act 1976 - which presently declares these rates for the 1981-82 and subsequent years - so that it has no application beyond the 1981-82 year.
Income Tax (Rates) Bill 1982
In declaring the rates of tax payable for 1982-83 and for 1983-84 and subsequent years by individuals and trustees generally, this Bill will give effect to the Budget proposal to alter the personal income tax rate scale, with effect from 1 November 1982, to -
- •
- increase the zero rate step from $4,195 to $4,595;
- •
- increase the top of the standard rate step in the rate scale from $17,894 to $19,500; and
- •
- reduce the standard rate of tax from 32 per cent to 30 per cent.
An average rate scale for 1982-83 is provided for, the average being that of the scale applicable up to 31 October and that to apply from 1 November 1982.
The Bill will also give effect to the Budget proposal to withdraw the benefit of the tax-free threshold from non-resident individuals (including trustees taxed on their behalf), other than those who were residents for any part of a year of income or who are in receipt of Australian social security and repatriation pensions that are subject to Australian tax.
Reflecting the fact that the threshold is to be withdrawn from 17 August 1982 (Budget day), the Bill provides for a proportionate threshold for 1982-83 of $585, and for the full 1982-83 threshold to be available to non-residents who came to Australia on or before 17 August 1982 for a short working visit or who had made firm arrangements for such a visit by that date.
The proposed withdrawal - also from Budget day in the 1982-83 income year - of the minimum taxable income levels applying to accumulating income of non-resident trust estates to which section 99 of the Income Tax Assessment Act applies, and to the income of non-resident minor children to which Division 6AA of the Act applies, is also provided for.
Income Tax (Individuals) Bill 1982
The rates of tax payable for 1982-83 and, until the Parliament otherwise provides, for 1983-84 by individuals and trustees generally, which are to be declared by the accompanying Income Tax (Rates) Bill 1982, will be formally imposed by this Bill. It will also formally impose provisional tax for 1982-83.
Income Tax (Companies, Corporate Unit Trusts and Superannuation Funds) Bill 1982
The rates of tax payable for 1982-83 by companies and by trustees of corporate unit trusts and superannuation funds will be declared and imposed by this Bill. The rates are the same as those for 1981-82.
Income Tax (Mining Withholding Tax) Amendment Bill 1982
This Bill will amend the Income Tax (Mining Withholding Tax) Act 1979, which imposes and declares the rate of tax payable in respect of mining payments made to Aboriginal councils. The amendment is consequential on the proposed reduction in the standard rate of tax to be effected by the accompanying Income Tax (Rates) Bill 1982 and will reduce - also from 1 November 1982 - the rate of tax in respect of mining payments from 6.4 per cent to 6 per cent, which represents the new standard rate of 30 per cent applied to one-fifth of the gross payments.
A more detailed explanation of the Bills is contained in the following notes.