House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)

Notes on Clauses

INCOME TAX ASSESSMENT AMENDMENT BILL (NO. 5) 1982

Clause 1: Short title, etc

By sub-clause (1) of this clause the amending Act is to be cited as the Income Tax Assessment Amendment Act (No. 5) 1982.

Sub-clause (2) will facilitate references to the Income Tax Assessment Act 1936, which, in the Bill, is referred to as the "Principal Act".

Clause 2: Commencement

So as not to delay the operation of the provisions of the amending Act, a number of which are to have effect from earlier dates specified in them, this clause will cause the amending Act to come into operation on the day on which it receives the Royal Assent. But for this clause the amending Act would, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent.

Clause 3: Exemptions of certain pensions

Clause 3 of the Bill proposes amendments to 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 pay-day in March 1983.

Under amendments to the Social Security Act 1947 proposed by the Social Security Legislation Amendment Bill 1982 persons undergoing treatment or training with the Commonwealth Rehabilitation Service and who are otherwise eligible for a social security pension or benefit will, from 1 March 1983, be eligible to receive, while under treatment or training, and for a period of up to six months thereafter, a rehabilitation allowance equivalent to the invalid pension and subject to the same income test conditions as the invalid pension.

The effect of clause 3 is to exempt from income tax the rehabilitation allowance and associated training and living away from home allowances by amending section 23AD of the Principal Act to remove references to training allowances paid to Commonwealth Rehabilitation Service trainees. That section currently operates to declare certain classes of pensions, benefits and allowances (including some training allowances) - defined as "excepted payments" - to be assessable income. As other payments under the Social Security Act by way of pension, benefit or allowance are exempt from tax under section 23AD, no amendment to the Principal Act is required to ensure exemption for the new rehabilitation allowance and living-away-from-home allowance.

By paragraph (a) of sub-clause (1), a new sub-paragraph (b)(i) is substituted in the definition of "excepted payment" in sub-section 23AD(1) to omit references to paragraph 4(f) and section 135D of the Social Security Act. Omission of the reference to paragraph 4(f) is consequential on the repeal of that paragraph by the Social Services Legislation Amendment Act 1982. Section 135D of the Social Security Act, so far as it is relevant to this sub-paragraph, provides for the payment of training allowances to persons receiving training with the Commonwealth Rehabilitation Service who would otherwise be entitled to pensions under Part IV (widows' pensions) or benefits under Part IVAAA (supporting parents' benefits) of that Act. By virtue of their inclusion within the definition of "excepted payment", training allowances received in lieu of these pensions or benefits are assessable. Consequent upon the pending amendment to section 135D of the Social Security Act and deletion of references to the section in the definition training allowances will, with effect from 1 March 1983, be exempt from tax.

Paragraph (b) of sub-clause (1) will effectively exempt from tax a training allowance payable in accordance with the new section 135D of the Social Security Act to a recipient of the new rehabilitation allowance who would otherwise be entitled to a benefit under Part VII of that Act (i.e. an unemployment or sickness benefit). This will be achieved by omitting the reference to that section in paragraph (c) of the definition of "excepted payment" in sub-section 23AD(1) of the Principal Act.

Paragraph (c) of sub-clause (1) will delete references to former paragraph 4(c) and section 135D (in relation to pensions under Part III) of the Social Security Act from paragraph (a) of the definition of "excepted pension" in sub-section 23AD(1). The present reference in relation to pensions under Part III (i.e., age and invalid pensions) of the Social Security Act means that training allowances received in lieu of such pensions are presently assessable. The effect of the amendment, achieved by substituting a new paragraph 1(a) in the definition, will be to exempt from tax training allowances paid to recipients of rehabilitation allowances who would otherwise be entitled to such pensions.

Sub-clause (2) gives effect to the proposal that the exemption authorised by sub-clause (1) is to operate in relation to payments made on or after 1 March 1983.

Clause 4: Rebate in respect of certain dividends paid to residents

This clause proposes the amendment of the Principal Act to insert new section 46C which, broadly, will authorise a rebate of tax at the standard rate on up to $1,000 of eligible dividends paid to Australian resident individual taxpayers, and certain trustees, by Australian resident companies or corporate unit trusts or by non-resident companies the shares in which are listed on Australian stock exchanges. For 1982-83, the proposed rebate will be allowed at the rate of 30.67 per cent (to a maximum of $306.70) and for subsequent years at 30 per cent (a maximum of $300). The rebate allowable cannot, however, exceed the amount of tax that would otherwise be payable - existing section 160AD of the Principal Act provides for this.

Excluded from the scope of the proposed rebate are certain amounts that are deemed to be dividends for limited income tax purposes, as well as dividends paid by companies that are co-operative companies for taxation purposes and dividends taxed at special higher rates of tax.

Proposed sub-section 46C(1) will define certain terms used in section 46C.

"eligible dividend"

, being a dividend in respect of which the rebate may be allowed, is defined to mean a dividend that is paid by a resident company (public or private) or a non-resident company listed on an Australian stock exchange, as well as a "unit trust dividend" (as defined) paid by a "resident unit trust" (also defined). The term does not, however, include an amount that is deemed to be a dividend under sub-section 65(1B) (where a partnership in which a private company is a partner pays an excessive amount to an associated person, for example, for services rendered) or 108(1) (where a loan or other payment by a private company to a shareholder represents a distribution of income) or section 109 (where an excessive amount is paid by a private company to a shareholder, for example, for services rendered by the shareholder), a dividend paid by a company that is a co-operative company for the purposes of Division 9 and which is allowed a deduction for dividends paid or, in effect, dividends taxed at higher rates under section 94 or Division 6AA of the Principal Act.

"eligible taxpayer"

, the term used in the new section for a taxpayer who may be entitled to the proposed rebate, is defined to mean an individual taxpayer, not being a taxpayer in the capacity of a trustee, who at any time during the year of income is a resident; a trustee who under section 98 of the Principal Act is taxed on behalf of a beneficiary who is a resident at any time during the year of income; and a trustee of a resident trust estate (for the purposes of Division 6 of the Act) who is taxed under section 99 of the Act.

"net eligible dividend income"

is the term used to describe the part of gross eligible dividends received by an eligible taxpayer that will attract the proposed rebate. Broadly, it is the net dividend income - that is, after setting off deductions related to the gross dividends - included in the taxable income of an eligible taxpayer who is an individual or included in the net income of a trust estate the trustee of which is an eligible taxpayer.

Deductions related to gross eligible dividends are those deductions allowable from dividends that are related directly to the dividends - for example, interest on a loan obtained to acquire the shares on which the dividends are paid - and those other deductions from dividend income that may appropriately be related to the eligible dividends. Such other deductions would include a proportionate part of deductions allowable from dividends generally, as well as such a proportion of, for example, deductions allowable from property income other than dividends that are in excess of such income, which excess, in terms of section 50 of the Principal Act, is to be deducted successively from dividend income and then from personal exertion income.

"resident unit trust"

is defined to mean a unit trust that is a resident unit trust in relation to the year of income for the purposes of Division 6B of the Principal Act. Basically, such a trust is one that has either trust property in Australia or one the trustee of which carries on business in Australia and, in addition, either the trust had its central management and control in Australia or more than 50 per cent of the beneficial interests in the income or property of the trust was held by a resident or residents of Australia.

"unit trust dividend"

is defined to have the same meaning as it has in Division 6B of the Principal Act - that is, broadly, distributions made or credited to a unitholder by the trustee of a corporate unit trust out of profits derived by the corporate unit trust.

Sub-sections (2) and (3) are the operative provisions of the proposed section under which an eligible taxpayer, not being a trustee (sub-section (2)), or an eligible taxpayer being a trustee of a trust estate (sub-section (3)), is entitled to a rebate of tax of 30 per cent - 30.67 per cent for 1982-83 by virtue of sub-clause (3) - of so much of any net eligible dividend income as does not exceed $1,000.

By sub-clause (2) the amendment proposed by sub-clause (1) is to apply to assessments in respect of income of the 1982-83 and subsequent years of income.

Sub-clause (3) is a transitional provision under which, consistent with the reduction in the standard rate of tax from 32 per cent to 30 per cent effective from 1 November 1982 (proposed in the Income Tax (Rates) Bill 1982 - see notes on that Bill), the rate of the proposed rebate on dividends for the 1982-83 income year is to be 30.67 per cent.

Clause 5: Gifts, calls on afforestation shares, pensions, etc.

The purpose of clause 5 is to authorise income tax deductions for gifts to certain relief appeals established in response to the conflict in Lebanon, the Centre for Independent Studies, the Playford Memorial Trust, the Boy Scouts and Girl Guides Associations in Australia, Amnesty International in Australia, the United Nations Association of Australia Decade of Trees Greening Australia and to a range of conservation organisations.

Under section 78 of the Principal Act, gifts of the value of $2 or more of money or of property purchased within the preceding 12 months are deductible when made to a fund, authority or institution listed in paragraph 78(1)(a). The amount of the deduction available in respect of gifts of property other than money is generally limited by sub-section (2) to the lesser of the value of the property at the time when the gift was made or the amount paid by the donor for the property.

Paragraph (a) of sub-clause 5(1) will insert new sub-paragraphs (1xxii) to (1xxviii) in paragraph 78(1)(a) of the Principal Act to extend the list of organisations and funds to which the income tax deduction authorised by paragraph 78(1)(a) applies.

Proposed new sub-paragraph (1xxii) will authorise deductions for gifts 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 the armed conflict in that country. By virtue of the amendment proposed by paragraph (b) of sub-clause 5(1), gifts to eligible funds will qualify for deduction where made during the 1981-82 and 1982-83 financial years.

New sub-paragraphs (1xxiii) and (1xxiv) will respectively extend the operation of paragraph 78(1)(a) to gifts made to a range of conservation bodies and to the United Nations Association of Australia Decade of Trees Greening Australia. The eligible conservation bodies 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 Incorporated.

By the operation of sub-clause 5(2), gifts to eligible conservation bodies qualify for deduction where made after 17 August 1982.

Proposed new sub-paragraphs (1xxv) to (1xxviii) operate respectively to extend the operation of paragraph 78(1)(a) to the Centre for Independent Studies, the Playford Memorial Trust, the Boy Scouts and Girl Guides Associations in Australia and Amnesty International in Australia. By sub-clause 5(3) gifts to these organisations qualify for deduction where made after 26 August 1982.

Paragraph (b) of sub-clause 5(1) and sub-clauses (2) and (3) of clause 5 prescribe the various application dates for the extensions of the gift deduction provisions authorised by paragraph 78(1)(a) and have been explained in the preceding notes.

Sub-clause (4) of clause 5, which will not amend the Principal Act, will ensure that the Commissioner of Taxation has authority to re-open an assessment made before this Bill becomes law if that should be necessary in order to give effect to the extension of the gift deduction provisions of the Principal Act proposed by this clause.

Clause 6: Persons to whom Division applies

This clause complements the amendments made by clause 3 which will ensure that rehabilitation and associated allowances that are to be paid as from 1 March 1983 under the Social Security Act 1947 will be exempt from tax. Clause 6 will amend section 102AC of the Principal Act so that a person who would otherwise be eligible to receive an invalid pension will not be disadvantaged by becoming eligible to receive a rehabilitation allowance instead of that pension under related amendments to the Social Security Act 1947.

The clause enlarges the categories of "excepted person" in sub-section 102AC(2) to include minors in receipt of rehabilitation allowances. Such allowances would, but for the amendment, fall to be assessed by reference to the provisions of Division 6AA of the Principal Act - the special code dealing with the taxing of incomes of certain minors. Clause 6 will ensure that a minor eligible for invalid pension who becomes a rehabilitation allowance recipient will not have the allowance dealt with under Division 6AA.

New sub-paragraph (c)(iii) limits the application of the paragraph to minors who were eligible to receive an invalid pension under the Social Security Act immediately before becoming eligible to receive the rehabilitation allowance.

By sub-clause (2) the amendment made by sub-clause (1) will apply in respect of payments of allowances made on or after 1 March 1983.

Clause 7: Retention Allowance

A company that is classified as a private company for the purposes of Division 7 of Part III of the Principal Act has a period of 12 months commencing 2 months before the end of an income year (the "prescribed period" in relation to that income year) within which to make a prescribed level of distribution to its shareholders (a "sufficient distribution") in respect of its taxable income of that year. A private company's taxable income less company tax is its "distributable income". A distribution of the balance of its distributable income after deducting the "retention allowance" is a sufficient distribution. A company which has not made a sufficient distribution is liable to pay additional tax on the amount of the shortfall.

Section 105B of the Principal Act sets the retention allowance as the aggregate of 70 per cent of a private company's distributable income that comprises trading or business income and 10 per cent of its distributable income that is property income other than dividends from other private companies. There is no retention allowance for property income consisting of private company dividends.

It is proposed by sub-clause (1) of clause 7 to amend paragraph 105B(a) of the Principal Act to increase the present rate of retention allowance for trading or business income from 70 to 80 per cent. There is to be no change in the rate of retention allowance for property income.

Under sub-clause (2) the new retention allowance for trading or business income will apply in determining whether a private company has made a sufficient distribution in respect of income of the 1981-82 income year and subsequent income years.

Clause 8: Rebates and provisional tax

This clause will effect a technical amendment to paragraph (b) of section 121DD consequential upon the proposed introduction of a dividend rebate by clause 4. Paragraph (b) provides that a trustee of a superannuation fund is not entitled to the rebates on dividends authorised by section 46 or 46A of the Principal Act and, by the amendment, such a trustee will also be excluded from entitlement to the dividend rebate under the new section 46C proposed to be inserted by clause 4.

Clause 9: Rebates for dependants

This clause proposes two amendments of section 159J of the Principal Act under which concessional rebates of tax may be allowed to resident taxpayers who contribute to the maintenance of certain dependants.

By sub-clause (1), a new sub-section 159J(1B) is to be inserted to provide for an increased rebate of tax in respect of a dependent spouse or daughter-housekeeper where a taxpayer would, but for sub-section 159J(1A), have been entitled to a rebate under section 159J in respect of a child less than 16 years of age (not being a student) or a student less than 25 years of age. Sub-section 159J(1A) was inserted in 1976 to withdraw entitlement to concessional rebates for children and students, such rebates being replaced by family allowances.

In determining whether a taxpayer would be entitled to a rebate for a child or student but for sub-section 159J(1A) (in these notes referred to as a notional rebate), the other provisions of section 159J have application. For example, where a child or student has separate net income for the year in excess of $282, the notional rebate would be reduced by $1 for every $4 of the excess, and if the separate net income of the child or student was such that the notional rebate was reduced to nil, the increased spouse or daughter-housekeeper rebate would not be allowable. The taxpayer could, however, be entitled to the full amount of the increased spouse or daughter-housekeeper rebate as long as any part of the notional rebate would have been allowable.

Where a taxpayer would have been entitled to any notional rebate for a child or student, the maximum rebate for a spouse or daughter-housekeeper is, in terms of new sub-section 159J(1B), taken as $1030 - $963 for 1982-83 by virtue of sub-clause (4) - in lieu of $830. The period of the year during which the spouse or daughter-housekeeper was a dependant of the taxpayer and the level of the separate net income (if any) of the dependant are factors that are then taken into account in arriving at the actual rebate allowable in respect of the dependant.

Section 159J of the Principal Act also authorises the allowance of a concessional rebate for a dependant who is an "invalid relative". Consequent on the amendments proposed by clause 3 of the Bill, clause 9 will also amend section 159J to ensure that no taxpayer who would otherwise be entitled to claim a rebate of tax in respect of a dependent invalid relative is disadvantaged by reason of the dependent person becoming a recipient of a rehabilitation allowance instead of the invalid pension.

Sub-clause 9(2) means that a relative not less than 16 years of age -

(a)

who is receiving an invalid pension under the Social Security Act 1947;

(b)

who, being otherwise eligible to receive an invalid pension, is in receipt of a rehabilitation allowance; or

(c)

in respect of whom the taxpayer produces a certificate from a specified doctor certifying the person to be permanently incapacitated for work within the meaning of Part III of the Social Security Act 1947,

will be treated as an invalid relative of the taxpayer for the purposes of section 159J of the Principal Act. In effect, the definition of "invalid relative" will be extended to include a person who is not less than 16 years of age and who is a child, brother or sister of the taxpayer and who is in receipt of a rehabilitation allowance. This extended meaning will apply only in respect of persons who were eligible to receive an invalid pension under the Social Security Act 1947 immediately before becoming eligible to receive the rehabilitation allowance.

By sub-clause (3), the amendment proposed by sub-clause (1) will apply to assessments for the 1982-83 and subsequent years of income.

Sub-clause (4) is a transitional provision under which the maximum rebate allowable for the 1982-83 income year is to be $963. This amount represents the existing maximum rebate of $830, as increased by $133, being two-thirds of the proposed full year increase of $200, corresponding with the 1 November 1982 commencement date announced in the Budget Speech.

Sub-clause (5) provides that the amendment made by sub-clause (2) will operate in relation to rehabilitation allowance payments made on or after 1 March 1983.

Clause 10: Sole parent rebate

This clause will amend section 159K of the Principal Act under which a rebate of $580 is allowable to a taxpayer who has the sole care of a child under 16 years of age, or a student under 25 years of age, and who would have been entitled to a rebate of tax in respect of that child or student if such rebates had not been replaced by family allowances.

Sub-clause (1) of clause 10 will increase the maximum rebate by $200 from $580 to $780 - by $133 to $713 for 1982-83 by virtue of sub-clause (3). This increase is in line with the proposed increase in the dependent spouse or daughter-housekeeper rebate (clause 9) and in the housekeeper rebate (clause 11).

Sub-clause (2) proposes that the increased rebate apply to assessments in respect of income of the 1982-83 and subsequent years of income.

Sub-clause (3) is a transitional provision under which the maximum sole parent rebate allowable in 1982-83 is to be $713, that is, the existing rebate of $580, as increased by $133, being two-thirds of the full year increase of $200, reflecting the 1 November 1982 commencement date announced in the Budget.

Clause 11: Housekeeper

This clause will amend, in two separate respects, section 159L of the Principal Act under which a taxpayer may be entitled to a rebate of tax in respect of a housekeeper who is wholly engaged in keeping house in Australia for the taxpayer and in caring for certain dependants. The maximum rebate allowable is $830.

Sub-clause (1) of this clause will make the first of these amendments. It will amend section 159L to increase the maximum rebate for a housekeeper by $200 to $1030 - by $133 to $963 for 1982-83 by virtue of sub-clause (3) - where the taxpayer would, but for sub-section 159J(1A) of the Act (refer to the notes on sub-clause (1) of clause 9), have been entitled to a rebate of tax in respect of a child less than 16 years of age or a student less than 25 years of age.

The second amendment of section 159L will be made by sub-clause (2) which, as with the amendments proposed by clauses 3, 6 and 9, is consequential on the proposed payment under the Social Security Act 1947 of a special rehabilitation allowance from 1 March 1983.

One of the classes of dependant being cared for by a housekeeper in respect of whom a taxpayer may be entitled to claim a rebate of tax is a spouse who is in receipt of an invalid pension under the Social Security Act. A taxpayer who is married is not entitled to such a rebate if the spouse is not receiving an invalid pension, unless the Commissioner of Taxation considers it reasonable in the particular circumstances to allow the rebate.

The effect of sub-clause (2) will be to allow a taxpayer to continue to claim a housekeeper rebate where the dependent spouse becomes a recipient of a rehabilitation allowance if the spouse was, immediately before becoming eligible to receive that allowance, eligible to receive the invalid pension. This will be achieved by the insertion of a new sub-section (6) in section 159L.

By sub-clause (3) the amendment made by sub-clause (1) is to apply to assessments in respect of income of the 1982-83 and later income years.

Consistent with the corresponding provisions of clauses 9 and 10 (see notes on those clauses), sub-clause (4) of this clause will limit the increased rebate to $963 for the 1982-83 income year.

Sub-clause (5) ensures that the amendment made by sub-clause (2) in respect of a recipient of a rehabilitation allowance will have effect in relation to payments of allowance made on or after the commencement of the new scheme, i.e., from 1 March 1983.

Clause 12: General concessional rebates

This clause will amend the rate used in section 159N of the Principal Act to calculate the general concessional rebate. Under section 159N, a taxpayer is entitled to a rebate of tax in respect of certain private expenditure, including private rates and land taxes, life assurance premiums and superannuation payments, education expenses and medical and hospital expenses, calculated at the rate of 32 per cent (the standard rate of tax) of the excess of such rebatable amounts over $1,590.

As a consequence of the reduction in the standard rate of tax from 32 to 30 per cent - proposed by the Income Tax (Rates) Bill 1982 - sub-clause (1) of this clause will similarly reduce the rate at which the general concessional rebate is calculated from 32 to 30 per cent. By virtue of sub-clause (3), the rate for 1982-83 is to be 30.67 per cent.

By sub-clause (2) the amendment made by sub-clause (1) will apply as from the 1982-83 year of income.

For the 1982-83 income year, the rebate rate for the purposes of section 159N will, by sub-clause (3), be 30.67 per cent. This is the rate to be declared for the 1982-83 income year by the Income Tax (Rates) Bill 1982 which represents an average of the 32 per cent standard rate applying to 31 October 1982 and the reduced standard rate of 30 per cent applying from the announced commencement date of 1 November 1982.

Clause 13: Premiums paid for basic health insurance

Similar to clause 12 above, the amendment proposed by this clause will vary the rate used in section 159XA to calculate the rebate for basic health insurance premiums consequential upon the proposal to reduce the standard rate of tax from 32 per cent to 30 per cent, effective from 1 November 1982.

Section 159XA authorizes an income tax rebate of 32 per cent (equivalent to the standard rate of tax) in respect of amounts paid by a taxpayer to a registered health fund for the purpose of obtaining basic medical or hospital cover.

Sub-clause (1) will substitute the rate of 30 per cent for the 32 per cent rate.

By sub-clause (2) the amendment will apply for the 1982-83 and subsequent years, while by sub-clause (3), the rate to be used for 1982-83 is to be 30.67 per cent (see notes on clause 12).

Clause 14: Eligible and prescribed occupation of dwelling

It is proposed by clauses 14 to 21 to amend Subdivision AA in Division 17 of Part III of the Principal Act to provide a rebate of tax in respect of certain home loan interest payments. Payments qualifying under the new scheme are, broadly, those which relate to the interest slice in excess of 10 per cent per annum, on the first $60,000 of a loan or loans on a person's sole or principal residence.

At present, the Subdivision authorises a rebate of tax for home loan interest paid during the first 5 years of owner-occupation of a sole or principal residence and the amendments will introduce the alternative rebate scheme which has been outlined in the introductory part of this explanatory memorandum. Because the same home loan interest payments will form the basis of a taxpayer's entitlement to a rebate under either scheme, several of the existing provisions in Subdivision AA will also operate with equal effect for the new scheme.

Existing provisions of the law which are relevant in the operation of the new rebate scheme in determining the interest which will qualify for rebate are outlined hereunder.

Firstly, the terms "building society", "dwelling", "spouse", "stratum unit" and "taxpayer", which are defined in sub-section 159ZA(1), will have the same meaning in relation to the new scheme.

Section 159ZB sets out the rules that determine for both schemes whether a person has a "relevant interest" in a dwelling, that is, whether the person has ownership rights as an owner or long-term lessee or licensee of the dwelling. A rebate of tax will be allowable only in connection with interest paid in respect of a dwelling which the taxpayer uses as his or her sole or principal residence and in which he or she has a "relevant interest".

Section 159ZC sets out the general circumstances in which an amount paid by a taxpayer by way of interest is to be taken as having been paid in respect of a loan connected with a dwelling. Such an amount is the amount to which proposed section 159ZNA will apply in determining the interest which is to be the subject of the new rebate. Section 159ZC performs a similar function for the purposes of section 159ZJ as part of the existing rebate scheme.

Section 159ZC stipulates that, subject to certain exceptions, interest is to qualify for a rebate if it is paid by a taxpayer on moneys lent to the taxpayer and used by him or her "for housing purposes connected with a dwelling" - those purposes are set out in detail in section 159ZD. To safeguard against abuse, interest will not qualify if it is the result of a loan arrangement in which the taxpayer and the lender do not deal with each other independently and the interest rate is higher than might reasonably have been expected in an arm's length situation. Interest on bank overdraft finance used for housing purposes will qualify for a rebate only if the bank maintains a separate account in relation to the moneys used for that purpose.

Section 159ZD specifies the purposes for which loan moneys must be wholly or partly applied in connection with a dwelling if interest on moneys is to attract a rebate of tax in respect of the existing home loan interest rebate scheme. One of those purposes will also have to be present if loan interest is to attract the operation of the new rebate scheme. They are -

•

to acquire a prescribed interest in land on which a dwelling has since been constructed, or to acquire such an interest and construct, or finish construction of, a dwelling on the land;

•

to construct, or complete the construction of, a building constituting or containing a dwelling on land in which a prescribed interest is held;

•

to acquire land on which there is an existing building constituting or containing a dwelling;

•

to acquire a prescribed interest in a stratum unit, that is, to acquire a home unit, town house or flat;

•

to extend a dwelling by adding one or more rooms or a part of a room to the dwelling;

•

to finance extensions to a dwelling subject to a stratum title;

•

to acquire a proprietary right in respect of a flat or home unit;

•

to repay or refinance an earlier housing loan the interest on which would qualify for the rebate.

The terms "prescribed interest" and "proprietary right" are defined in section 159ZB and refer to a person's ownership interest in a dwelling.

Section 159ZE operates in conjunction with section 159ZD and is designed to ensure that a taxpayer who does not, in a strict sense, borrow moneys to acquire a dwelling but who incurs interest under a deferred payment, instalment purchase or other arrangement is brought within the scope of the rebate provisions.

The section which permits the transfer between a taxpayer and his or her spouse of the right to claim a rebate, section 159ZO, will continue to apply. A taxpayer who meets the requirements of both rebate schemes is to be entitled to transfer the rebate to which he or she is entitled, that is, the greater of the two rebate amounts.

Details of the proposed provisions necessary to implement the new rebate scheme are contained in the notes that follow.

Sub-clause (1) of clause 14 will replace existing section 159ZF which sets out the tests to be met by a taxpayer to be an "eligible occupier" of a dwelling at any particular time. The term is a drafting aid used to describe a taxpayer who can qualify for a rebate under the existing scheme.

New section 159ZF will retain the definition of "eligible occupier" in paragraph (b) and will insert, in paragraph (a), a new definition of "prescribed occupier" of a dwelling at any particular time. This latter term is also a drafting aid used to describe a taxpayer who can qualify for a rebate under the new scheme. The tests are that the taxpayer:

(a)

occupied the dwelling as his or her sole or principal residence; and

(b)

had a relevant interest in the dwelling, i.e., had a "prescribed interest" or a "proprietary right" in terms of existing sub-section 159ZB(1).

By sub-clause (2) the amendment proposed by sub-clause (1) will apply to assessments in respect of income of the year of income that commenced on 1 July 1982 and of all subsequent years of income.

Clause 15: Rebatable interest

Section 159ZJ specifies the amounts paid by a taxpayer in a year of income by way of interest in respect of a loan connected with a dwelling (section 159ZC) which are to be taken into account in calculating the rebate allowable under section 159ZK for the purposes of the existing rebate scheme applying to the first five years of owner-occupation.

The amendment proposed by sub-clause (1) of clause 15 to sub-section 159ZJ(7) is a drafting measure occasioned by the incorporation of the new rebate scheme in Subdivision AA.

By sub-clause (2) the amendment proposed by sub-clause (1) is to apply to assessments in respect of income of the year of income that commenced on 1 July 1982 and of all subsequent years of income.

Clause 16: Rebate of tax

Section 159ZK is the operative provision which authorises a rebate of tax in a taxpayer's assessment of an amount equal to 32 per cent of the interest subject to rebate under the existing scheme. The rebate applies to interest paid on or after 1 July 1982. Consistent with the reduction of the standard rate of tax from 32 per cent to 30 per cent as from 1 November 1982, the rebate will from that date be an amount equal to 30 per cent of the interest subject to rebate. To account for the availability of the rebate at 32 per cent for part of the 1982-83 income year and at 30 per cent for the remainder of the year, the average of 30.67 per cent will in practice be applied for the year.

Paragraphs (a), (c) and (d) of sub-clause (1) are drafting measures occasioned by the implementation of the new rebate scheme.

Paragraph (b) will change the rate at which the rebate is calculated from 32 per cent to 30 per cent.

By sub-clause (2) the amendments proposed by sub-clause (1) are to apply to assessments in respect of income of the year of income that commenced on 1 July 1982 and of all subsequent years.

Sub-clause (3) means that the rebate of tax, which by paragraph (1)(a) is to be 30 per cent for subsequent years, will be 30.67 per cent for the purpose of assessments in respect of income of the year of income that commenced on 1 July 1982. This reflects the reduction in the standard rate of tax from 1 November 1982.

Clause 17: Limitation of rebate under section 159ZK where first occupation date before 1 July 1982

Section 159ZL imposes an upper limit on the amount of the rebate of tax allowable to a taxpayer under the existing scheme (first five years of owner-occupation) where the taxpayer first occupied as owner a dwelling as his or her sole or principal residence before 1 July 1982.

Sub-clause (1) of clause 17, which inserts a reference to section 159ZK, is purely a drafting measure occasioned by the implementation of the new rebate scheme and, by sub-clause (2), is to first apply to assessments in respect of income for the year of income that commenced on 1 July 1982.

Clause 18: Limitation of rebate under section 159ZK where first occupation date after 30 June 1982

Section 159ZM has a similar operation to section 159ZL in imposing an upper limit on the amount of the rebate of tax allowable to a taxpayer under the existing scheme and applies where the taxpayer first occupied as owner a dwelling as his or her sole or principal residence on or after 1 July 1982.

Sub-clause (1) of clause 18 is a further drafting measure to similarly insert in that section reference to section 159ZK.

By sub-clause (2) that amendment also will apply to assessments in respect of income of the 1982-83 and subsequent years of income.

Clause 19: Reduction of rebate limit in cases of co-ownership

Section 159ZN establishes the basis on which an upper rebate limit, determined under section 159ZL or 159ZM, applicable to a taxpayer in respect of a rebate of tax under the existing scheme for home loan interest paid in the first five years of owner-occupation is apportioned where another co-owner or co-owners also qualify for a rebate in respect of the dwelling.

The amendments proposed by sub-clause (1) of clause 19 are formal drafting measures required by the insertion of the new rebate scheme provisions.

By sub-clause (2) these amendments are also to apply to assessments for the 1982-83 and subsequent income years.

Clause 20: Rebate of tax on home loan interest

Sub-clause (1) of clause 20 proposes the insertion of three new sections - sections 159ZNA to 159ZNC - in the Principal Act.

Section 159ZNA will specify the amounts paid by a taxpayer in a year of income by way of interest in respect of a loan connected with a dwelling which are to be taken into account for the purpose of calculating the rebate allowable under section 159ZNB.

Section 159ZNB is the operative provision for calculating the rebate on qualifying interest while section 159ZNC will limit a taxpayer to only one rebate in a year of income where he or she meets the conditions of eligibility under both this scheme and the existing scheme which relates to the first five years of owner-occupation of a dwelling.

Section 159ZNA : Rebatable amounts

The rebate allowable in a year of income under proposed section 159ZNA for interest paid in a year of income will apply only to interest which accrues while the taxpayer is a prescribed occupier (section 159ZF).

If the loan moneys are applied by the taxpayer only partly for purposes connected with the dwelling then the interest attributable to moneys used for other purposes is not to be taken into account in calculating the interest qualifying for the rebate. In cases where a dwelling is used only partly as a sole or principal residence, or where any profit or loss on its disposal would be required to be taken into account for income tax purposes, the Commissioner of Taxation will determine the appropriate amount of the interest paid that is to qualify.

The rebate will be available only in respect of qualifying interest that is attributable to the portion of the rate of interest on a loan that exceeds 10 per cent per annum, and being interest limited to the first $60,000 of a loan or loans on the dwelling.

Sub-section 159ZNA(1) ensures that the section applies to an amount of interest on a loan connected with a dwelling (section 159ZC) only if the amount is paid by a taxpayer in a year of income and during the year of income he or she was, at any time, a prescribed occupier of the dwelling. The amount must be paid on or after 1 July 1982 and the interest must accrue while the taxpayer is a "prescribed occupier". Sub-section (1) is subject to sub-sections (2), (3) and (4).

Sub-section (2) will ensure that interest payments on home loans by building societies of an actuarial kind, generally referred to as terminating building societies, are treated on a comparable basis to interest payments on home loans made by other building societies and lending institutions which operate under a credit foncier method of repayment.

Paragraphs (2)(a), (b) and (c) outline the circumstances in which an actuarial-type society is the lending institution. These are that moneys have been lent to a taxpayer for housing purposes (paragraph (a)), the building society credits or makes an allowance to the borrower for interest on his or her subscriptions related to the loan moneys (paragraph (b)) and those credits or allowances do not form part of the borrower's assessable income (paragraph (c)). Where all of these circumstances are present the amount of interest paid by the taxpayer which would otherwise be taken into account in section 159ZNA is to be reduced in accordance with paragraphs (d) and (e).

By those two paragraphs the reduction is to be the amount of credit or allowance referred to in paragraph (b) in the case of a sole borrower or, in the case of joint borrowers, an amount, not exceeding that credit or allowance, as determined by the Commissioner. Such a determination would, if the taxpayer disagreed, be capable of being reviewed by an independent Taxation Board of Review.

Proposed sub-section (3) allows for the apportionment of interest paid in a year of income where loan funds are applied only partly in connection with acquiring, constructing or extending a dwelling. Section 159ZD sets out the kinds of expenditure to which loan moneys are to be applied before interest on the loan will qualify for the rebate. To the extent that the taxpayer applies the loan moneys other than for those purposes, interest which relates to the proportion so applied will be excluded from the operation of section 159ZNA. By way of example, a taxpayer may spend part of a loan to purchase a car or acquire furnishings, in which case interest on the moneys so applied will not qualify.

Sub-section (4) relates to the apportionment of home loan interest paid by a taxpayer in a year of income in certain other specified circumstances where it would not be appropriate to take the whole of the interest paid into account. Where the sub-section applies, the Commissioner of Taxation is empowered to determine how much of the total interest payment is reasonably to be regarded as coming within section 159ZNA. A Taxation Board of Review would review the Commissioner's decision where a dissatisfied taxpayer exercises his rights under the objection and appeal provisions of the law.

Paragraph (4)(a) means that where a taxpayer is a prescribed occupier of a dwelling during the whole or part of the year of income and has paid during the year of income interest on a loan connected with the dwelling, the Commissioner may, in the circumstances specified in paragraph (b), reduce the otherwise qualifying amount to an amount which, in his opinion, is reasonable in all the circumstances. This will generally involve ascertainment of the proportion of loan moneys applied to that part of a building or dwelling used as the sole or principal residence of the taxpayer.

The specified circumstances in which the Commissioner may decide to reduce the amount of home loan interest otherwise qualifying are where the dwelling or part of the dwelling, the building containing the dwelling or a part of that building, the land on which the building stands or a part of that land was -

•

used or held for the purpose of gaining or producing income or for carrying on a business for that purpose (sub-paragraph (i)); or

•

used for some other purpose by the taxpayer - not being use as the taxpayer's sole or principal residence or a use related to such use (sub-paragraph (ii)).

This sub-section has two purposes. First, it aims to prevent a taxpayer from obtaining both a home loan interest rebate and a deduction from assessable income in relation to the same interest payments. Second, it is designed to deny a rebate in respect of an approprite part of interest payments in any case where a taxpayer's dwelling is used during a year for a purpose other than as his or her sole or principal residence.

For example, a taxpayer may have a flat attached to the house which is used for income producing purposes. Interest incurred on loan moneys attributable to acquiring the flat would be an allowable deduction, from the rent received, in calculating the taxpayer's taxable income and therefore would, by virtue of sub-section (4), be ineligible for the rebate.

Sub-section (5) expands the operation of sub-section (4) to a case where a taxpayer disposes of property or part of a property on which a dwelling is situated and a profit from the sale of the property is assessable not under the general provisions of the law (in which case sub-section (4) would itself apply), but under paragraph 26(a) or section 26AAA or a loss on sale is deductible under section 52. In that case the property is to be taken to have been used (at the time or times specified in paragraph (5)(d) and (e)) for the purpose of gaining or producing income so that any interest paid in relation to it will be subject to reduction by the operation of sub-paragraph (4)(b)(i).

In more detail, paragraph (5)(a) deals with the acquisition of property for the purposes of profit-making by sale where the profit on sale falls to be included in assessable income under the first limb of paragraph 26(a) or a deduction is allowable under section 52 for any loss which occurs on sale.

Where paragraph (a) applies to particular property, that property will, by virtue of paragraph (d), be deemed to have been used by the taxpayer for income-producing purposes at all times during which the property was owned by the taxpayer. The effect of this will be to deny a taxpayer a rebate for interest which has already been taken into account in calculating the profit included in the taxpayer's assessable income or in calculating the loss allowed as a deduction.

A similar result is achieved under paragraphs (b) and (e) if a profit is to be included in assessable income under the second limb of paragraph 26(a) or a loss is allowable as a deduction under section 52 in respect of property which has been ventured in a profit-making undertaking or scheme. Where this occurs the property is to be taken to have been used by the taxpayer for the purpose of gaining or producing income from the time it was held for the purpose of, or in connection with, the profit-making undertaking or scheme.

Paragraph (c) concerns cases where a profit from the sale of property within 12 months of acquisition is included in assessable income under section 26AAA. By virtue of paragraph (d) the property will be deemed to have been used for income-producing purposes at all times during which the property was owned by the taxpayer and this will bring cases involving section 26AAA within the ambit of the Commissioner's authority to determine, under sub-section (4), the extent (if any) to which interest on the property is rebatable.

Proposed sub-section 159ZNA (6) sets out the formula by which an amount of interest paid in a year of income in respect of a loan connected with a dwelling, which after the operation of sub-sections (1) to (4) is to be taken into account for the purposes of section 159ZNA, is to be reduced to achieve the result that the rebate is allowed only on such part of the qualifying interest as represents the proportion attributable to the excess of the interest rate above 10 per cent per annum.

The formula calculates the amount to be excluded from interest which attracts the rebate as 10 per cent per annum of the average balance of the loan during its currency in the year of income. The formula also allows an adjustment to be made to account for a situation where the amount of interest paid in a year of income and which is interest taken into account for the purposes of section 159ZNA is greater or less than the amount of interest which in fact accrues on the loan during the year of income.

The formula is

(((A + B)/(2)) * ((CD)/(365)))


which represents the following factors:

A

is an amount equal to the balance at the commencement of the year of income of the loan in respect of which the interest is paid in that year or, where the loan was made during the year, an amount equal to the amount of the loan;

B

is an amount equal to the balance at the end of the year of income of the loan in respect of which the interest is paid or, where no amount is owing on the loan at the end of the year, nil;

C

is the number ascertained by dividing the amount of interest which is to be taken into account for the purposes of section 159ZNA in respect of the loan, after the operation of sub-sections (1) to (4), by the amount of interest which accrued in respect of the loan during the year of income; and

D

is the number of days during the year of income in respect of which interest accrued in respect of the loan.

The amount obtained after deducting the amount ascertained by the formula from the amount of interest taken into account for the purposes of section 159ZNA is the "rebatable amount" being the amount which, subject to sub-sections (7) and (8), is to be subject to the rebate of tax calculated in accordance with section 159ZNB.

Sub-section (7) is the mechanism for adjusting the amount calculated as the average balance of a loan throughout its currency in a year of income (the component

(A + B)/(2)


of the formula in sub-section (6)), where significant additions or reductions to the unpaid balance of the loan occur during the year of income.

The Commissioner of Taxation is to be given a discretion in certain circumstances to adjust the component if he is of the opinion that the amount represented by the component is not a reasonable approximation of the average unpaid balance during the period of the loan in the income year. This adjustment may be made to account for payments of principal during the year additional to payments of principal required to be made under the loan contract (paragraph (a)), to take account of repayment of principal on early termination of the loan (paragraph (b)) or for an increase (additional borrowing) in the amount of the loan during the year (paragraph (c)).

For example, if a loan is paid off during a year of income otherwise than by payment of the last scheduled instalment under the loan agreement, such as may occur when a mortgage is discharged on sale of a house, an adjustment may be made if the average of the opening and closing balances of the loan for the year would not fairly represent the average amount outstanding during the year.

Sub-section (8) contains provisions to reduce the rebatable amount calculated in accordance with sub-section (6) where the unpaid balance of the loan, or the total of that unpaid balance and the unpaid balance of any other loan connected with the dwelling, at the end of the year of income (or at an earlier time during the year when the taxpayer ceases to be a prescribed occupier of the dwelling) exceeds the statutory limit of $60,000.

Where the sub-section operates in respect of a loan or loans, the rebatable amount otherwise applicable (sub-section (6)) is to be reduced in the same proportion as the statutory amount of $60,000 bears to the balance of the loan (or sum of the loans). Loans to be taken into account for this purpose include not only the loan to which the interest which is rebatable relates but any other loan made to the taxpayer or any other person where the moneys were applied for housing purposes connected with the dwelling.

Paragraph (b) of sub-section (8) will ensure that the unpaid balance of a loan at the relevant time is taken into account in applying the sub-section to the extent only that the loan was used wholly for eligible purposes referred to in sub-section 159ZD(1) in connection with the dwelling. This reflects the fact that, to the extent a loan is not applied for eligible housing purposes, interest on the loan is not treated as interest to which section 159ZNA applied.

Sub-section (9) relates to the operation of sub-section (8) and the reduction of a rebatable amount where the balance of an unpaid loan (or loans) on a dwelling at the relevant time exceeds $60,000. It has effect where it would not be appropriate to take into account the whole of the unpaid balance of a loan in deciding whether or not the outstanding balance or balances exceed $60,000 in applying sub-section (8).

Sub-section (9) will operate where the building containing the dwelling, a part of the building, the parcel of land on which the building is constructed or a part of the land was -

•

used or held for the purpose of gaining or producing income or for carrying on a business for that purpose (sub-paragraph (b)(i)); or

•

used for some other purpose by the taxpayer - not being use as the taxpayer's sole or principal residence or a use related to such use (sub-paragraph (b)(ii)).

Where one of these circumstances applies the Commissioner may, if he considers it fair and reasonable to do so, decide either not to reduce the rebatable amount under sub-section (8) or to reduce it by less than sub-section (8) would. An example of such a circumstance would be where a loan has been used both in acquiring a building containing a flat for use as the taxpayer's sole or principal residence and an attached shop. The part of the loan attributable to purchase of the shop would not be taken into account in a calculation under sub-section (8). Consonantly, the interest paid on that part of the loan would not be rebatable (sub-section 159ZNA(4)). On the other hand, if a dwelling is used partly as a sole or principal residence and partly for other purposes the unpaid balance of the loan related to acquiring the dwelling will not be reduced because of that other use even though the interest otherwise rebatable would be reduced because of that use.

Sub-section (10) will allow a greater proportion of a rebatable amount in respect of a loan to be taken into account following the operation of sub-section (8) where the Commissioner of Taxation is satisfied that, having regard to the timing of any increase in the unpaid balance of a loan (or loans) on a dwelling during the year or any additional loan (or loans) made during the year, that result is appropriate - the provision will apply only if the unpaid balance of a loan (or loans) on a dwelling at the end of a year of income (or earlier time when the taxpayer last occupies the dwelling in a year) exceeds $60,000.

The Commissioner will be empowered to take either no part of the increase (or the new loan) or only a specified part of the increase into account in reducing the rebatable amount in sub-section (8).

This recognises that where there has been an increase in a loan (or loans) during the year the balance at the end of the year may not be a sufficient approximation of the average balance outstanding over the period. As a consequence, in applying sub-section (8) the Commissioner will be able to decide that no adjustment, or a lesser adjustment, need be made to the rebatable amount if the unpaid balance of a loan increases during the year.

Sub-section (11) will ensure that prepayments of interest are disregarded in determining the amount of rebatable interest in a year of income. Pre-paid interest will be deemed to have been paid in the income year in which the interest falls due and is to be considered in rebate calculations for that year and not in the year in which it is in fact paid.

Section 159ZNB

Section 159ZNB is the operative provision for calculating the rebate of tax allowable in a taxpayer's assessment. The rebate is an amount equal to 30 per cent of the rebatable amount (paragraph (a)) or, where there is more than one such rebatable amount, the sum of those amounts (paragraph (b)). For assessments of income of the 1982-83 year the rebate will be at the rate of 30.67 per cent (see sub-clause (2)).

The "rebatable amount" is the amount ascertained under section 159ZNA.

Section 159ZNC

Section 159ZNC gives effect to the intention that, where a taxpayer satisfies the conditions of eligibility for a rebate in a year of income under both the new scheme and the existing home loan interest scheme (related to the first 5 years of home ownership), the taxpayer is to be entitled only to the greater of the two rebate amounts.

Sub-clause (3), which does not amend the Principal Act, will allow any assessment that may already have been made in respect of the 1982-83 year to be amended so as to allow a rebate under this scheme.

Clause 21: Rebate where interest paid by trustee

Sub-sections 159ZQ(1) and (2) operate in respect of the rebate scheme related to the first five years of owner-occupation of a dwelling and extend the scheme to those cases where a trustee of a trust estate pays home loan interest out of income to which a beneficiary is presently entitled, or applies income of the trust estate for the benefit of the beneficiary by payment of home loan interest, and the interest relates to a dwelling which the beneficiary uses as his sole or principal residence. These sub-sections will also operate in respect of the new rebate scheme.

Sub-section 159ZQ(3) permits a rebate of tax to be allowed in the assessment up to date of death of a deceased person in respect of interest accrued before the date of death and paid by the trustee during the year of income in which the deceased person died. Sub-clause (1) of clause 21 proposes a drafting amendment which will allow for the sub-section to operate in a similar manner in respect of the new rebate scheme.

Sub-clause (2) will provide that the amendment applies to assessments in respect of income of the year of income that commenced on 1 July 1982 and of all subsequent years.

Clause 22: Rebate in respect of certain pensions

This clause proposes the insertion of new section 160AAA in Division 17 of the Principal Act under which taxpayers in receipt of Australian social security or repatriation pensions that are subject to tax in Australia may be entitled to a rebate of tax designed to ensure that persons wholly or mainly dependent on such pensions will not have to pay tax. The rebate, the maximum amount of which is $250, will be shaded-out at the rate of 12.5 cents for each dollar by which the taxpayer's taxable income exceeds a specified level.

Sub-clause (1) will insert the new section. To qualify for a rebate, the assessable income of the taxpayer must include a pension, allowance or benefit paid under one of the Acts listed in paragraphs (a) to (f) of the section, namely:

(a)

the Interim Forces Benefits Act 1947;

(b)

the Repatriation Act 1920;

(c)

the Repatriation (Far East Strategic Reserve) Act 1956;

(d)

the Repatriation (Special Overseas Service) Act 1962;

(e)

the Social Security Act 1947 other than Part VII of that Act; and

(f)

the Tuberculosis Act 1948.

The rebate will not be allowable by virtue of the receipt of a pension, allowance or benefit that is not subject to tax in Australia, for example, a war widow's pension, or a pension that is, under the terms of one of Australia's agreements for the avoidance of double taxation, subject to tax only in the country in which the recipient resides. Nor, by virtue of the exclusion in paragraph (e), will the rebate be allowable for recipients of payments made under Part VII of the Social Security Act 1947 (unemployment, sickness and special benefits), unless they have qualified by reason of the receipt of one of the other taxable pensions, allowances or benefits.

Where a taxpayer's assessable income includes one of the relevant pensions, allowances or benefits, he or she is to be entitled to a rebate calculated in accordance with paragraphs (g) and (h) of the new section.

Paragraph (g) is to the effect that where a taxpayer's taxable income (that is, total assessable income less allowable deductions) is $5,429 or less, the rebate to be allowed is $250 ($167 for 1982-83 - see sub-clause (3)). The rebate cannot, however, in terms of existing section 160AD of the Principal Act, exceed the tax that would otherwise be payable.

By paragraph (h), the rebate will be "shaded-out" where a taxpayer's taxable income exceeds $5,429 ($5,007 for 1982-83, see sub-clause (3)). In such a case, the rebate of $250 is to be reduced by 12.5 cents for each $1 of the excess. For example, if the 1982-83 taxable income of a taxpayer were $5,807, the maximum rebate for that year - $167 (see sub-clause (3)) - would be reduced by $100 to $67. The rebate will shade-out fully at a taxable income of $6,343 in 1982-83 and $7,429 in subsequent years.

By sub-clause (2), the new section 160AAA is to first apply in income tax assessments of the 1982-83 year of income, but this is subject to sub-clause (3) which is a transitional provision having application for that year only.

In applying proposed section 160AAA in 1982-83 assessments, the rebate to be allowed is, by virtue of sub-clause (3), to be $167 - being two-thirds of the full rebate of $250 (which will be allowed in 1983-84 and subsequent years) reflecting the date of introduction of the rebate, 1 November 1982. The rebate of $167 will be allowed where taxable income does not exceed $5,007 and will shade-out at the rate of 12.5 cents for each $1 of taxable income in excess of $5,007.

Paragraph (c) of sub-clause (3) is a transitional provision consequential on changes proposed to the Social Security Act 1947 to provide for a tax-free rehabilitation allowance. For 1982-83, a taxpayer will not be entitled to the proposed new rebate by virtue of the inclusion in assessable income of an allowance paid under section 135D of the Social Security Act 1947, to the extent that the section applies in relation to a benefit paid under Part VII of that Act - that is, an allowance related to unemployment, sickness or special benefits, which themselves do not attract the rebate.

Payments made under section 135D of the Social Security Act 1947 on or after 1 March 1983 will not be included in assessable income (see notes on clause 3 of this Bill) so that for 1983-84 and subsequent years the receipt of such a payment will not be relevant for the purposes of the rebate.

Clause 23: Rebate in respect of payments received in lieu of annual leave or long service leave

The amendments to section 160AA of the Principal Act proposed by this clause are consequential upon the proposals in the Income Tax (Rates) Bill 1982 to reduce the standard rate of tax from 32 to 30 per cent and to remove the tax-free threshold from non-residents.

A rebate of tax is allowed under section 160AA of the Principal Act to ensure that no more than the standard rate of tax is payable on any amount included in the assessable income of a taxpayer because of the operation of section 26AC of the Principal Act (that is, a payment received on retirement in respect of unused annual leave), or because of the operation of section 26AD (that is, a payment received on retirement in respect of unused long service leave attributable to eligible service after 15 August 1978). Broadly, the rebate allowable is the amount by which the actual tax that can be attributed to the relevant payments exceeds the tax that would be payable at the standard rate on the payments.

For this purpose, the section contains references to the 32 per cent standard rate and to the taxable income levels of $4,195 (the top of the zero rate step) and $17,894 above, and up to which, respectively, the standard rate presently applies. Changes to that rate, and to those amounts, and the withdrawal of the zero tax step from non-residents, proposed in the Income Tax (Rates) Bill 1982, necessitate the amendments proposed by sub-clause (1).

Paragraph (a) of sub-clause (1) omits the reference in paragraph 160AA(1)(b) to $17,894 and substitutes $19,500 with effect from 1983-84 (see sub-clause (4)), that is, the top of the standard rate step in the personal income tax rate scale as proposed in the Income Tax (Rates) Bill 1982.

Paragraph (b) substitutes the proposed new standard rate of tax - 30 per cent - for the reference to 32 per cent in paragraph 160AA(1)(d). By virtue of sub-clause (4), the proposed rate for 1982-83 - 30.67 per cent - will apply for 1982-83.

Paragraph (c) will insert in sub-section 160AA(2) a definition of the term "non-resident taxpayer". This term has the same meaning as it is to have in sub-section 3(1) of the Income Tax (Rates) Bill 1982 (see notes in this memorandum on that Bill). The question of whether or not a taxpayer is a non-resident taxpayer is relevant in the calculation of the rebate to be allowed under section 160AA. As a non-resident taxpayer is no longer to be entitled to the benefit of the tax-free threshold, that is, the zero rate of tax on the first slice of taxable income, a different basis of calculating the rebate allowable to such a taxpayer is necessary.

Paragraph (d) of sub-clause (1) proposes the substitution in sub-section 160AA(2) of a new definition of "relevant income amount" which is, in effect, the amount of the annual leave or long service leave payment on which tax at the standard rate only is payable.

Paragraph (a) of the definition is effectively a restatement of the existing definition with the references to the tax-free threshold of $4,195 altered to the proposed new level of $4,595 ($4,462 for 1982-83 by sub-clause (4)). The paragraph applies only where the taxpayer is a resident taxpayer (that is, where he or she is not a non-resident taxpayer as defined). As is the case with the existing definition, the amount of the annual or long service leave payment (or the sum, where there are 2 or more amounts) that is to attract tax at the standard rate is, in effect, the whole of that amount, where other taxable income is equal to or exceeds the tax-free threshold, or the excess of that amount over the tax-free threshold, where other taxable income does not exceed that threshold.

Paragraph (b) of the definition of "relevant income amount" applies in the case of a non-resident taxpayer. Reflecting the fact that such persons are not to be entitled to the benefit of the tax-free threshold, the relevant income amount for a non-resident taxpayer is the amount of the assessable annual leave or long service leave payments, or where there are two or more such amounts, the aggregate thereof. Under transitional arrangements for 1982-83, a proportionate tax-free threshold of $585 is to be allowed to non-resident taxpayers in 1982-83 and the definition of "relevant income amount" in relation to such taxpayers for that year is modified accordingly by paragraph (c) of sub-clause (4).

Paragraph (e) of sub-clause (1) inserts a definition of "resident taxpayer", which - like that of "non-resident taxpayer" - has the same meaning as that proposed in the Income Tax (Rates) Bill 1982.

By sub-clause (2), the amendment made by paragraph (a) of sub-clause (1) - substituting $19,500 for $17,894 in section 160AA - is to first apply in 1983-84 income tax assessments. This is so because the full effect of the changes to the income tax rate scale, one of which is to increase the top of the standard rate step from $17,894 to $19,500, will not operate until 1983-84. For 1982-83, the rate of 30.67 per cent which, by sub-clause (4), is to be rate of tax payable on relevant annual and long service leave payments in 1982-83, will apply up to $17,894 (see notes in this memorandum on the Income Tax (Rates) Bill 1982).

By sub-clause (3), the amendments made by paragraphs (b) to (e) of sub-clause (1) apply from the 1982-83 year, subject to the provisions of sub-clause (4).

Sub-clause (4) applies only for the 1982-83 year of income and is to the effect that, for that year, the 30 per cent referred to in paragraph (1)(d) of section 160AA (as proposed to be amended by sub-clause (1)) shall, by paragraph (a), be read as 30.67 per cent; and the reference to $4,595 in sub-section (2) shall, by paragraph (b), be read as being $4,462. These provisions reflect the income tax rate scale that is to apply for 1982-83 (see notes in the memorandum on the Income Tax (Rates) Bill 1982).

Paragraph (c) of sub-clause (4) proposes that, for 1982-83 only, paragraph (b) of the new definition of "relevant income amount" (inserted by sub-clause (1)) is to have a different meaning. This transitional measure reflects the partial tax-free threshold of $585 (proposed by the Income Tax (Rates) Bill 1982) that is to be available in 1982-83 to non-residents. (See notes on sub-clause 23(1)).

The "relevant income amount" for 1982-83 in the case of a non-resident taxpayer is to be the amount of the assessable annual or long service leave payment (or their sum, if there is more than one), where other taxable income is equal to or exceeds $585, or the excess of that amount over $585, where other taxable income (if any) does not exceed $585.

Clause 24: Amendment of assessments

This clause will amend sub-section (10) of section 170 of the Principal Act, which section governs the power of the Commissioner of Taxation to amend income tax assessments. Sub-section 170(10) provides that nothing in section 170 is to prevent the amendment of an assessment at any time for the purpose of giving effect to specified provisions of the Principal Act.

By this clause it is proposed to insert in sub-section 170(10) a reference to new sub-section 159ZNA(5) which clause 20 of the Bill proposes to insert in the Principal Act.

As amended, sub-section 170(10) will enable the Commissioner to give effect to sub-section 159ZNA(5) by amending at any time the assessment of a taxpayer where, by operation of the relevant provisions, a taxpayer is assessed on a profit arising, or is allowed a deduction for a loss, on sale of a dwelling in respect of which a home loan interest rebate has been allowed. Similar provisions also operate in respect of the existing home loan interest rebate scheme (sub-section 159ZJ(6)).

The need to include a reference to sub-section 159ZNA(5) in sub-section 170(10) arises because facts may emerge some time after a taxpayer acquired a dwelling, which he or she used as his or her sole or principal residence, which indicate that the dwelling (or part of the property on or in which the dwelling is situated or contained) was acquired for a purpose which results in a profit or loss on disposal being reflected in taxable income or that the property was ventured as part of a profit-making undertaking or scheme. Where such an event occurs the Commissioner will be authorised by sub-section 170(10) to amend an assessment at any time to give effect to sub-section 159ZNA(4) as affected by sub-section 159ZNA(5).

Clause 25: Provisional tax on estimated income

This clause proposes an amendment to section 221 YDA of the Principal Act to insert references to proposed new sections 46C (rebate in respect of certain dividends paid to residents - clause 4) and 160AAA (rebate in respect of certain pensions - clause 22) and to existing Subdivision AA of Division 17 of Part III as amended by clauses 14-21 (home loan interest rebates).

Under section 221YDA, a taxpayer may apply for a variation of the provisional tax that he or she has been called upon to pay (see notes on clause 28 for the basis of calculating 1982-83 provisional tax). In his or her "self-assessment" application, the taxpayer provides an estimate of taxable income for the year in question, the composition of that taxable income and the rebates or credits to which he or she will be entitled for the year. Provisional tax is then recalculated on the basis of those estimates.

The amendments proposed by sub-clause (1) will enable a taxpayer to make estimates for this purpose relating to the new rebates in respect of dividends and pensions, and the home loan interest rebate, and have the estimates taken into account in recalculating his or her provisional tax.

By paragraph (a) of sub-clause (1), paragraph 221 YDA(1)(da) will be amended to permit the taxpayer to estimate his entitlement (if any) to these rebates. Similarly, paragraph (b) proposes an amendment to sub-paragraph 221YDA(2)(a)(ii) under which a taxpayer's estimated entitlement to these rebates may be taken into account in recalculating the provisional tax payable.

By sub-clause (2), the amendments made by sub-clause (1) are to apply in ascertaining provisional tax payable for the 1982-83 and later income years.

Clause 26: Deductions from mining payments

This clause will amend sub-section 221ZB(1) of the Principal Act in consequence of the reduction in the standard rate of tax, as from 1 November 1982, proposed by the Income Tax (Rates) Bill 1982.

Section 221ZB provides that a person shall not make a mining payment, that is, broadly, a payment in respect of mining operations on aboriginal land, unless the person has made a deduction therefrom of an amount equal to 6.4 per cent of the payment, that is, an amount equal to tax at the standard rate of 32 per cent on an amount equal to one-fifth of the payment.

By sub-clause (1), the reference to 6.4 per cent in sub-section 221ZB(1) is to be replaced by a reference to 6 per cent, equal to the amount ascertained by applying the proposed new standard rate of 30 per cent to an amount equal to one-fifth of the payment.

Sub-clause (2) specifies that the amendment made by sub-clause (1) is to apply to mining payments made or applied on or after 1 November 1982.

Clause 27: Formal amendments

The Bill makes a number of formal amendments to the Act necessitated by the change of title of and other formal amendments to the Social Services Act 1947 made by the Social Services Legislation Amendment Act 1982. The amendments are specified in column 2 of the Schedule to the Bill.

Clause 28: Provisional tax for 1982-83 year of income

The purpose of this clause, which will not amend the Principal Act, is to specify the basis for calculating 1982-83 provisional tax of taxpayers who do not "self-assess". Broadly, the provisional tax is to be calculated by applying 1982-83 rates of tax to 1981-82 taxable incomes as increased by 10 per cent. Rebates are to be taken into account as allowed in 1981-82 income tax assessments, except where it appears from the information available in the taxpayer's 1981-82 income tax return that he or she will be entitled in 1982-83 to an increased spouse, daughter-housekeeper, housekeeper or sole parent rebate (proposed by clauses 9 to 11 of this Bill). In such cases, the relevant rebates - including zone rebates as appropriate - allowed in 1981-82 will be increased accordingly.

Provided the information available from the taxpayer's 1981-82 return permits, the proposed rebate in respect of certain dividends (clause 4) and that in respect of certain pensions (clause 22) that would have been allowable if those amendments had applied in 1981-82, will also be taken into account in calculating 1982-83 provisional tax.

Where a taxpayer chooses to "self-assess", i.e., to have 1982-83 provisional tax based on his or her own estimate of 1982-83 income, the provisional tax will be, basically, the amount calculated by applying 1982-83 rates of tax to that estimated income and by deducting estimated 1982-83 rebates.

For a taxpayer whose 1981-82 taxable income reflects a deduction allowed for capital moneys expended in producing a qualifying Australian film, 1982-83 provisional tax is to be calculated as if no such deduction had been allowed, with the taxable income so adjusted increased by 10 per cent.

For primary producers who do not self-assess, the clause will require that, for provisional tax purposes, any averaging rebate to which the primary producer is entitled be recalculated using 1981-82 taxable income (as adjusted for any income equalisation deposits or withdrawals or capital expenditure on a qualifying Australian film) as increased by 10 per cent. 1982-83 rates of tax will be applied, as will the average income for 1981-82 taxation purposes - the average income itself will not be increased to reflect the 10 per cent adjustment of taxable income. If a primary producer qualified for a part only of the averaging benefit in 1981-82 (i.e., where his or her income other than from primary production in that year exceeded $5,000), the clause will require, in effect, that the proportion of the recalculated averaging benefit to be allowed in calculating 1982-83 provisional tax is to be the same as that allowed in calculating 1981-82 tax payable, that is, it is not to be reduced to reflect the notional 10 per cent increase in income other than from primary production.

For taxpayers deriving a notional income as specified by section 59AB (depreciation recouped), section 86 (lease premiums), or section 158D (abnormal income of authors or inventors) of the Assessment Act, the clause will have the effect that, unless they "self-assess", their provisional tax, before deduction of rebates, is to be calculated by applying to their 1981-82 taxable income increased by 10 per cent, the 1982-83 rate of tax applicable to their 1981-82 notional income, that is, the rate of tax is not to be increased to reflect a 10 per cent increase in notional income.

For taxpayers who were minors, (i.e., under 18 years of age) at 30 June 1982 and who were liable for tax for 1981-82 under the arrangements applying to minors (i.e., the minor's eligible taxable income for the purposes of Division 6AA of Part III of the Assessment Act for that year was greater than $1,040) the proportion of the taxable income, as increased by 10 per cent, that is to be taken as being eligible taxable income, for purposes of the provisional tax calculation, is to be the same as that which the 1981-82 eligible taxable income of the taxpayer bore to his or her taxable income for that year.

Of course, if a taxpayer derives salary or wage income in addition to income on which provisional tax is payable, sub-section 221YC(1A) of the Assessment Act enables the provisional tax otherwise payable to be appropriately adjusted.

INCOME TAX (RATES) AMENDMENT BILL 1982

This Bill will amend the Income Tax (Rates) Act 1976 which declared the rates of tax payable by individuals and trustees generally for the 1981-82 and subsequent financial years.

As the Income Tax (Rates) Bill 1982 (which is discussed later in this memorandum) will declare the rates payable for 1982-83, and those for 1983-84 and subsequent financial years, the 1976 Act is to be amended so that it will have no further application in relation to income of years subsequent to the 1981-82 year.

To this end, each of the amendments proposed by clauses 3 to 10 of this Bill formally delete references in the 1976 Act to years subsequent to the 1981-82 year.

INCOME TAX (RATES) BILL 1982

This Bill will declare the rates of tax payable by individuals and trustees (other than trustees or corporate unit trusts and superannuation funds in respect of whom the relevant rates of tax are to be declared and imposed by the accompanying Income Tax (Companies, Corporate Unit Trusts and Superannuation Funds) Bill 1982) for the 1982-83 financial year and the 1983-84 and subsequent financial years.

The Bill provides for the proposed increase in the zero rate step (tax-free threshold) from $4,195 to $4,595, the increase in the top of the standard rate step from $17,894 to $19,500 and the reduction in the standard rate of tax from 32 per cent to 30 per cent - each applying from 1 November 1982. It also provides for the proposed withdrawal of the zero rate step from non-resident individuals (including trustees taxed on their behalf) from Budget day, 17 August 1982.

The Bill is divided into three Parts. Part I is a preliminary Part, which includes definitions of terms used in the Bill. Part II declares the rates of tax payable for the 1982-83 financial year and Part III declares those payable for the 1983-84 and subsequent financial years. Parts II and III each have four Divisions.

In each case, Division 1 formally provides that the rates declared by the Part apply for the financial year referred to in the Part. Division 2 declares the rates of tax and notional rates ordinarily payable for the relevant financial year, while Divisions 3 and 4, dealing with residents and non-residents respectively, declare the rates of tax payable where Division 6AA of the Assessment Act applies to certain income of minor children. The rates of tax payable in the various circumstances are set out in the Schedules to the Bill.

The rates of tax declared for a financial year are imposed and levied for that year by a separate Act. The accompanying Income Tax (Individuals) Bill 1982 will impose tax, at the rates declared in this Bill, for the 1982-83 financial year and, until the Parliament otherwise provides, for the 1983-84 financial year.

Notes on the clauses of the Bill are set out below.

PART I - PRELIMINARY

Clause 1: Short title

This clause provides for the Act to be cited as the Income Tax (Rates) Act 1982.

Clause 2: Commencement

By this clause, it is proposed that the Act will come into operation on the day on which it receives the Royal Assent. But for this clause, the Act, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, would not come into operation until the twenty-eighth day after the date of Assent.

Clause 3: Interpretation

The provisions of clause 3 are comparable, in many respects, with section 3 in the Income Tax (Rates) Act 1976 and the following notes are confined to the areas in which they differ from the provisions of that Act.

Several definitions which are relevant to the proposed withdrawal of the zero rate step from non-resident individuals (including trustees taxed on their behalf), other than non-residents in receipt of Australian social security and repatriation pensions that are taxable in Australia, have been included in the Bill. These are:

"prescribed non-resident"

is defined as a person who, at all times during the year of income, was a non-resident for the purposes of the Assessment Act, other than a person to whom there was payable at any time during the year of income an Australian social security or repatriation pension, allowance or benefit that is taxable in Australia and, for the 1982-83 income year only, other than a person who came to Australia on a short working visit on or before 17 August 1982 (Budget day) or who had made firm arrangements for such a visit by that date. This term is used in the definitions of "non-resident beneficiary", "non-resident taxpayer", "resident beneficiary" and "resident taxpayer". A person who is a non-resident but is not, in relation to a year of income, a "prescribed non-resident" by virtue of the exclusions in this definition, will be entitled to the zero rate step in respect of that year of income.

"non-resident beneficiary"

is defined to mean a beneficiary in a trust estate who is a "prescribed non-resident" (see notes on that definition). The term is relevant in determining the rate of tax payable by a trustee who is assessed on behalf of such a beneficiary.

"non-resident taxpayer"

is the term used to describe a taxpayer who is not to be entitled to the zero rate step (tax-free threshold) in 1983-84 and subsequent years and who is entitled to only a partial threshold in 1982-83. Such a taxpayer is defined as a taxpayer who is a "prescribed non-resident" (see notes on that definition).

"non-resident trust estate"

is defined to mean a trust estate that is not a "resident trust estate" (as defined). The term is relevant in determining the rate of tax payable by the trustee of a trust estate in pursuance of section 99 of the Assessment Act.

"resident beneficiary"

is defined as a beneficiary of a trust estate who is not a "prescribed non-resident" (see notes on that definition). The tax payable by the trustee of a trust estate on behalf of a beneficiary will depend on whether that beneficiary is or is not a "prescribed non-resident".

"resident taxpayer"

is to mean a taxpayer who is not a "prescribed non-resident" (see notes above on this definition). A resident taxpayer will be entitled to the tax-free threshold, as proposed to be increased.

"resident trust estate"

has, in effect, the same meaning as for the purposes of the trust provisions (Division 6) of the Assessment Act. Under that Division, a trust is taken to be a resident trust estate where a trustee is a resident or the trust's central management and control is in Australia. The tax payable by a trustee of a trust estate to which section 99 of the Assessment Act applies will depend on the residential status of the trust estate.

PART II - FINANCIAL YEAR COMMENCING ON 1 JULY 1982

Part II, comprising four Divisions and clauses 6 to 11 inclusive, in conjunction with Schedules 1 to 6 will formally declare the rates of tax payable for the 1982-83 financial year.

Division 1

Clause 6: Application of Part

This clause will state formally that the rates of tax declared by Part II are to apply for the 1982-83 financial year.

Division 2

Clause 7: Rates of tax and notional rates

Clause 7 declares the ordinary rates of tax payable by individuals and trustees generally, and the notional rates for purposes of the primary producer averaging provisions, for the 1982-83 financial year. The relevant rates so declared are set out in Part I of each of Schedules 1 to 4, as they are to apply in respect of resident taxpayers, resident beneficiaries and resident trust estates, and in Part II of each of Schedules 1 to 4 as they are to apply in respect of non-resident taxpayers, non-resident beneficiaries and non-resident trust estates.

The 1982-83 general rates of tax for individuals are declared by sub-clause (1) and are set out in Schedule 1 - Part I for residents and Part II for non-residents. The 1982-83 rates for resident taxpayers vary from those of the 1981-82 year, reflecting the proposed increase in the zero rate step from $4,195 to $4,595, the increase in the top of the range over which the standard rate is to apply from $17,894 to $19,500 and the reduction in the standard rate of tax from 32 to 30 per cent, as from 1 November 1982. The rate scale set out in Part I of Schedule 1 is, in effect, an average of the rates applicable up to 31 October 1982 (as to four-twelfths) and of the new scale to apply from 1 November 1982 (as to eight-twelfths).

The general rates of tax for resident taxpayers for 1982-83 are as follows:

Tax payable may be calculated from the following table:

For non-resident taxpayers, the general 1982-83 rates, as set out in Part II of Schedule 1, differ in that the zero rate step (tax-free threshold) is $585, in lieu of $4,462. This reflects the proposed removal of the threshold with effect from Budget day, 17 August 1982.

The general rates of tax for 1982-83 for non-residents are:

Tax payable may be calculated from the following table:

Sub-clauses (2) to (7) of clause 7 correspond with sub-sections (2) to (7) of section 6P of the Income Tax (Rates) Act 1976.

The averaging benefit under section 156 of the Assessment Act for primary producers to whom the averaging provisions of the Assessment Act apply for 1982-83 will be calculated by reference to the notional rates declared by sub-clause (2), as set out in Schedule 2 - Part I for residents and Part II for non-residents. These rates will be used to determine the averaging benefit of a primary producer whose taxable income exceeds his or her average income.

Basically, averaging benefit is the difference between tax payable on the taxable income at general rates and tax payable on that income at the notional rate, that is, the rate of tax applicable to the average income.

Sub-clause (3) (which is subject to clauses 8 and 10) and Schedule 3 - Part I for residents and Part II for non-residents - will declare the 1982-83 rates of tax applicable to a taxpayer deriving a notional income as specified by section 59AB (depreciation recouped), section 86 (lease premium) or section 158D (abnormal income of authors and inventors) of the Assessment Act. In these cases the rate of tax payable will be a rate ascertained by dividing by the notional income, an amount equal to the tax payable at the general rates specified in Schedule 1 on a taxable income equal to the notional income.

Sub-clause (4), which is also subject to clauses 8 and 10, will declare the 1982-83 rates of tax (as set out in Schedule 4 - Part I for residents and Part II for non-residents) payable by trustees assessed under section 98 of the Assessment Act on behalf of a beneficiary, or assessed under section 99 on accumulating income of a trust estate.

The effect of the average rate scale applying for 1982-83 is reflected in Schedules 2 to 4 by references to the rates of tax payable under Schedule 1.

Sub-clause (5) of clause 7 declares the rate of further tax payable for the 1982-83 financial year in pursuance of section 94 of the Assessment Act where there is included in the taxable income of a taxpayer any amount of income to which that section applies, i.e., a share of partnership income that is or is deemed to be income over which the person does not have the real and effective control and disposal.

The sub-clause will impose further tax on income to which section 94 applies at a rate equal to 50 per cent reduced by the average ordinary rate of tax applicable to the taxpayer's total taxable income. The average ordinary rate of tax is determined for this purpose as being ordinary tax payable divided by the total taxable income. It is expressly provided by the sub-clause that the ordinary tax payable is to be the tax before allowance of any rebate or credit to which the taxpayer is entitled.

Sub-clause (6) declares the rate of further tax payable for the 1982-83 financial year in pursuance of section 94 of the Assessment Act where the taxpayer is a trustee liable to be assessed and to pay tax under section 98 or section 99 of that Act.

Sub-clause (7) declares 60 per cent as the rate of tax payable by a trustee liable to tax pursuant to section 99A for the 1982-83 financial year - the same rate as for 1981-82.

Division 3 - Resident taxpayers, resident beneficiaries and resident trust estates

Division 3 is comprised of clause 8 - declaring the rates of tax payable by resident taxpayers or trustees taxed on behalf of resident beneficiaries, where Division 6AA of Part III of the Assessment Act applies - and clause 9 which deals with the limitation on tax payable by trustees of certain resident trust estates who are liable to be assessed under section 99 of the Assessment Act.

Clause 8: Rates of tax where Division 6AA of Part III of the Assessment Act applies

This clause will declare the rates of tax that are to be payable for the 1982-83 financial year by a resident taxpayer who is a minor and whose taxable income includes income that is eligible taxable income for the purposes of Division 6AA of Part III of the Assessment Act of more than $1,040. The clause will not apply if the eligible income is $1,040 or less, and the general rates of tax will in that case apply to the whole of the taxable income.

The clause will also declare the rates of tax that are to be payable for the 1982-83 financial year by a trustee of a trust estate who is liable to be assessed and to pay tax under section 98 of the Assessment Act on a share of the net income of a trust estate to which a resident taxpayer who is a minor is presently entitled, where Division 6AA is applicable to a part of that share or to parts of two or more such shares, if the part, or sum of the parts, is greater than $1,040.

Sub-clause (1) will declare the rates of tax that are to be paid for 1982-83 by a resident minor whose income includes eligible taxable income of more than $1,040. The rates declared by that sub-section are set out in Part I of Schedule 5.

Paragraph (a) of Part 1 of Schedule 5 sets out the rates of tax that are to be payable on that part of the minor's taxable income that is not eligible taxable income. This income is referred to in the Schedule as the "relevant part" of the taxable income.

The rates of tax that, by paragraph (a), are to apply to the relevant part of a minor's taxable income are the same as the normal rates that would have applied to that income if it had been the minor's only income.

Paragraph (b) of Part 1 of Schedule 5 sets out the rates of tax that are to be paid on the eligible taxable income. The rate is 46 per cent, except where the ordinary rate payable on the income is higher. In the latter circumstances the excess over $35,788 of the person's taxable income will be taxed at the ordinary maximum rate of 60 per cent applicable to taxable income above that level.

Sub-clause (2) of clause 8 is set against the background that $1,041 is the minimum amount of eligible taxable income that is to be taxed at the rates applicable to eligible income of resident minors - eligible income up to $1,040 is to be taxed in the ordinary way and, if total taxable income does not exceed $4462, no tax will be payable on eligible income of up to $1,040. If the 46 per cent rate were to apply to eligible income of $1,041, the result could be that the derivation of one additional dollar of eligible income would produce tax of almost $500.

To avoid this result, sub-clause (2) provides for "shading-in" arrangements to apply where the eligible taxable income is between $1,041 - the point where such income becomes liable to be taxed at the 46 per cent rate - and $3432 - the point where the tax under the "shading-in" arrangements reaches the tax at the 46 per cent rate.

Sub-clause (3) of proposed clause 8 declares the rates of tax payable by a trustee, who is taxable under section 98 of the Assessment Act in respect of a resident beneficiary's share of the net income, if Division 6AA of Part III of the Assessment Act applies to more than $1,040 of the share.

The rates payable in those circumstances are set out in Part I of Schedule 6 which is to the same broad effect as Part I of Schedule 5 which applies to eligible income derived directly by a minor.

Sub-clause (4) of proposed clause 8 specifies that the rates of tax set out in Part I of Schedule 6 may in defined circumstances also apply where the eligible part of the share of the net income of a trust estate in respect of which a resident minor is presently entitled does not exceed $1,040. This will be the case where Division 6AA also applies to a part of the beneficiary's share of the net income of another trust estate or other trust estates and the total of all of the eligible parts exceeds $1,040. Sub-clause (5) is also relevant in this regard.

Sub-clause (5) is set against the background that "shading-in" arrangements, to the same effect as those described in the notes on sub-clause (2) in relation to the eligible income of a minor, are to apply under sub-clause (6), when read with sub-clause (7), where a resident beneficiary is entitled to a share of the net income of only one trust estate and Division 6AA applies to an amount of that share of between $1,041 and $3,432. These arrangements cannot apply in a case where sub-clause (4) applies since the eligible part in this case is $1,040 or less. However, sub-clause (5) will empower the Commissioner of Taxation to reduce the tax that would otherwise be payable in accordance with sub-clause (4) where the sum of the eligible parts of the shares of net income of trust estates in respect of which the resident beneficiary is presently entitled does not exceed $3,432. Sub-clause (9) sets out matters to which the Commissioner is to have regard in deciding on the amount of the reduction in the tax payable that is to be made in accordance with sub-clause (5). The broad aim is to arrive at an amount of tax on the notionally aggregated trust incomes that is equivalent to the amount that would result under the "shading-in" provisions of sub-clause (6) if the income were that of only one trust estate.

Sub-clause (6) provides, subject to sub-clause (7), "shading-in" arrangements that are to apply where the eligible part of the share of a minor resident beneficiary of the net income of a trust estate exceeds $1,040 but does not exceed $3,432. The "shading-in" arrangements correspond in effect with those applicable to eligible income of between $1,041 and $3,432 derived directly by a minor - see notes on sub-clause (2).

Sub-clause (7) specifies that sub-clause (6) is not to apply to limit the tax payable by a trustee on the eligible part of a share of the net income of a trust estate in respect of which a resident minor is presently entitled that is between $1,041 and $3,432 if the beneficiary is also entitled to a share of income of another trust estate or other trust estates, to a part of which or of each of which Division 6AA applies. However in circumstances where sub-clause (6) is not applied because of the operation of sub-clause (7), sub-clause (8) empowers the Commissioner of Taxation to reduce the tax that would otherwise be payable by the trustee in accordance with sub-clause (3) if the sum of the eligible parts does not exceed $3,432. Sub-clause (8) will have a corresponding effect in relation to a trustee who would otherwise be liable to pay tax under sub-clause (3), as sub-clause (5) is to have in relation to a trustee who would otherwise be liable to pay tax under sub-clause (4).

Sub-clause (9) sets out the matters to which the Commissioner is to have regard in forming an opinion, for the purposes of sub-clause (5) or (8), as to the amount, if any, by which the tax that would otherwise be payable by a trustee on a share of the net income of a trust estate should be reduced. The sub-clause, in effect, requires the Commissioner to notionally aggregate all of the shares of trust net income in respect of which a resident beneficiary is presently entitled, and all of the parts of those shares to which Division 6AA of Part III of the Assessment Act applies. Having done that, the Commissioner then has to determine the amount to which the tax payable by a trustee on a share of the net income of a trust estate would have been limited under sub-clause (6) if that share were equal in amount to the sum of those shares and included an eligible part equal in amount to the sum of those eligible parts. As a final step, the Commissioner has to have regard to the amount by which he has, by the application of sub-clause (5) or (8), reduced the tax payable on the share or shares of the resident beneficiary of the net income of any other trust estates.

Clause 9: Limitation on tax payable by certain trustees

This clause is the counterpart of section 6R of the Income Tax (Rates) Act 1976. It will apply for the 1982-83 year where a trustee is assessable under section 99 of the Assessment Act in respect of the net income of a resident trust estate that is either an inter vivos trust or the estate of a person who died 3 years or more before the end of the year of income, and in respect of which the trustee is not entitled to the zero rate step. The clause will limit the tax otherwise payable by the trustee in terms of sub-clause 7(4) and Part I of Schedule 4.

Sub-clause (1) will provide that the trustee is not to be liable to tax if the net income or the part of the net income of the resident trust estate does not exceed $416. Sub-clause (2) will apply where the net income does exceed $416 but not $1,076 and will limit the tax to 50 per cent of the excess over $416.

Division 4 - Non-resident taxpayers, non-resident beneficiaries and non-resident trust estates

Division 4 applies to non-residents in much the same way as Division 3 applies to residents. It declares the 1982-83 rates of tax payable by non-resident taxpayers, and trustees assessed on their behalf, where Division 6AA of Part III of the Assessment Act applies, and limits the 1982-83 tax payable by trustees of certain non-resident trust estates who are liable to be assessed under section 99 of that Act.

Clause 10:

Clause 10 deals with Division 6AA cases and is similar to clause 8, except that tax is payable by a non-resident on eligible taxable income exceeding $136 ($1,040 for residents). This reduced minimum taxable income for 1982-83 reflects the removal of the $1,040 minimum taxable income from non-residents with effect from 17 August 1982 (Budget day). Where the eligible taxable income of a non-resident exceeds $1,040, tax is payable at the same rate (46 per cent) as that payable by a resident. Where the eligible taxable income exceeds $136 but does not exceed $1,040, the rate is 30.67 per cent. "Shading-in" arrangements are provided for in both cases.

Sub-clause (1) of clause 10 declares the rates of tax that are payable for 1982-83 by a non-resident taxpayer whose income includes eligible taxable income of more than $136. The rates declared are as set out in Part II of Schedule 5, which operates in a similar way to Part I of that Schedule (resident taxpayers) - see notes on clause 8.

Sub-clause (2) is set against the background that $137 is the minimum amount of eligible taxable income that is to be taxed at the rates applicable to eligible income of non-resident minors. The rate of tax is 30.67 per cent on such income in excess of $136 but not in excess of $1,040. However, if the 30.67 per cent rate were to apply from $137, the result would be that the derivation of one dollar of eligible income more than $136 would produce an amount of tax payable of $42. Accordingly, paragraph (a) of the sub-clause "shades-in" the tax payable over the income range $137 to $254, at the rate of 66 per cent of the excess of income over $136, at which point an average rate of tax of 30.67 per cent is reached. If a greater amount of tax would be payable at ordinary rates of tax on the eligible income when aggregated with other income, the greater amount will be payable.

Paragraph (b) limits the tax that would otherwise be payable under Part II of Schedule 5 to 30.67 per cent or tax at normal rates, whichever is the greater. The limitation applies to income in excess of $254 - the point at which 30.67 per cent becomes payable under the earlier shading arrangement - but not in excess of $1,040 - where, subject to further shading, a rate of 46 per cent becomes payable under Part II of Schedule 5. The further shading (paragraph (c)) operates between $1,041 and $1,837, so that the tax at 30.67 per cent on $1,040 moves gradually to 46 per cent at $1,837.

Sub-clause (3) of clause 10 declares the rates of tax payable by a trustee who is taxable under section 98 of the Assessment Act in respect of a non-resident beneficiary's share of the net income, where Division 6AA of Part III of the Assessment Act applies and the share exceeds $136. The rates of tax payable in those circumstances are set out in Part II of Schedule 6.

Allowing for the reduced minimum taxable income of $136, the rate of tax of 30.67 per cent applying from $137 to $1,040 and the "shading-in" arrangements which are basically as for a non-resident individual minor (explained above), sub-clauses (4) to (9) have similar application to a trustee taxed on behalf of a non-resident beneficiary where Division 6AA applies as sub-clauses (4) to (9) of clause 8 (see earlier notes on these sub-clauses) do in the case of a resident beneficiary where the Division applies.

Clause 11: Limitation on tax payable by certain trustees

Clause 11 applies to limit the tax payable for 1982-83 by a trustee assessed under section 99 in respect of the net income of a non-resident inter vivos trust or a non-resident trust estate of a person who died 3 years or more before the end of the year of income. The clause mirrors clause 9 that applies in the case of resident trust estates, except that a minimum taxable income of $54 and "shading-in" arrangements up to $139 (in lieu of $416 and $1,076 respectively for resident trust estates) are provided for. The $54 reflects the removal of the minimum taxable income of $416 from non-residents with effect from 17 August 1982. The rates of tax otherwise payable by such a trustee are declared by sub-clause 7 (4), as set out in Part II of Schedule 4.

PART III - FINANCIAL YEAR COMMENCING ON 1 JULY 1983 AND SUBSEQUENT FINANCIAL YEARS

This Part has four Divisions, corresponding in effect, in relation to 1983-84 and subsequent financial years, with the four Divisions in Part II relating to 1982-83.

Division 1

Clause 12: Application of Part

Clause 12 formally provides that the rates of tax declared by Part III will apply for the 1983-84 and subsequent financial years.

Division 2

Clause 13: Rates of tax and notional rates

Clause 13 will declare the ordinary rates of tax payable for 1983-84 and subsequent financial years by individuals and trustees generally. The rates are set out in Schedules 7 to 10 to the Bill. The rates to apply to resident and non-resident taxpayers are set out in Part I (residents) and Part II (non-residents) of those Schedules.

The general rates of tax to apply to resident individuals are those declared by sub-clause (1) of clause 13 and set out in Part I of Schedule 7. The rates will differ from those for the 1982-83 financial year (as set out in Part 1 of Schedule 1) in that they will reflect the full effect of the proposed increase in top of the zero rate step (or tax-free threshold) and the top of the standard rate step in the income tax rate scale from $4,195 and $17,894 respectively to $4,595 and $19,500 respectively, and the reduction in the standard rate from 32 per cent to 30 per cent.

The effective rates of tax for residents, under Part I of Schedule 7, are:

The general rates of tax applicable to non-resident individuals are also declared by sub-clause (1) of clause 13, and are set out in Part II of Schedule 7. These rates also differ from those set out in Part II of Schedule 1 that is to apply for the 1982-83 financial year. They provide no zero rate step (or tax-free threshold) - the partial threshold of $585 applying for 1982-83 being a transitional measure reflecting the removal of the threshold from non-residents with effect from 17 August 1982 (Budget day). The rates for 1982-83 and subsequent years for non-residents do, however, provide for the increase in the top of the standard rate step to $19,500 and the reduction in the standard rate itself from 32 per cent to 30 per cent.

These effective rates for non-residents are set out below:

Sub-clauses (2) to (7) of clause 13, as applicable to 1983-84 and subsequent financial years, correspond with sub-clauses (2) to (7) of clause 7 (applicable for 1982-83) which were discussed earlier in this memorandum. The notes on sub-clauses (2) to (7) of clause 13 are therefore limited to a brief outline of their purpose and the practical differences as compared with the sub-clauses for 1982-83.

Sub-clause (2) declares the notional rates of tax for purposes of the average rebate for primary producers to whom the averaging provisions of the Assessment Act apply. These rates are set out in Schedule 8 - Part I for residents and Part II for non-residents, and reflect the changes to the standard rate and in the various thresholds effected by sub-clause (1) and Schedule 7.

Sub-clause (3), with Schedule 9, declares the rates of tax payable by those taxpayers deriving a notional income as specified by section 59AB (depreciation recouped), section 86 (lease premium) or section 158D (abnormal income of authors or inventors) of the Assessment Act for the 1983-84 and subsequent financial years. These notional rates will reflect the changes effected by sub-clause (1) and Schedule 7.

Sub-clause (4) of clause 13, which is subject to clauses (14) and (16), declares the rates of tax payable by a trustee in pursuance of section 98 or 99 of the Assessment Act for the 1983-84 and subsequent financial years. The rates declared by the sub-clause are set out in Schedule 10 and, to the extent specified by the references in that Schedule to Schedules 7 and 9, will reflect the changes effected by sub-clauses (1) and (3) and those Schedules.

As with sub-clause (5) of clause 7, sub-clause (5) of this clause declares the rate of further tax payable on income to which section 94 of the Assessment Act applies - "uncontrolled partnership income" - to be a rate of 50%, reduced by the average ordinary rate of tax applicable to the taxpayer's total income. Sub-clause (6) declares the rate of further tax payable in pursuance of section 94 where a trustee is liable to be assessed and pay tax under section 98 or 99 of the Assessment Act.

By sub-clause (7), the rate of tax payable for the 1983-84 and subsequent financial years by a trustee liable to tax pursuant to section 99A of the Assessment Act is to be 60% - the same rate as for 1982-83.

Division 3 - Resident taxpayers, resident beneficiaries and resident trust estates

Clause 14: Rates of tax where Division 6AA of Part III of the Assessment Act applies

Clause 14 declares the rates of tax payable for the 1983-84 and subsequent financial years by a resident taxpayer and a trustee assessed on behalf of a resident beneficiary, where Division 6AA of Part III of the Assessment Act applies. The rates are set out in Part I of Schedule 11 - resident taxpayers - and Part I of Schedule 12 - trustees on behalf of resident beneficiaries.

Except that the changes in ordinary rates of tax for 1983-84 will apply to income other than eligible income, the rates of tax declared, the income level above which they apply ($1,040) and the "shading-in" arrangements are the same as for 1982-83. See the notes in this memorandum on clause 8, which applies for 1982-83.

Clause 15: Limitation on tax payable by certain trustees

Clause 15 limits the tax otherwise payable for 1983-84 and subsequent years - as does clause 9 for the 1982-83 financial year (see notes on that clause) - by trustees of certain resident trust estates who are liable to be assessed under section 99 of the Assessment Act.

Sub-clause (1) will provide that the trustee is not liable to tax if the net income of the resident trust estate does not exceed $416 (as for 1982-83). Sub-clause (2) will apply where the net income exceeds $416 but not $1,040 ($1,076 for 1982-83) and will limit the tax otherwise payable in terms of sub-clause 13(4) and Part I of Schedule 10, to 50 per cent of the excess over $416. The lower amount of $1,040 at which "shading-in" is achieved reflects the 30 per cent standard rate applying for 1983-84 and subsequent years (a rate of 30.67 per cent is to apply for 1982-83).

Division 4 : Non-resident taxpayers, non-resident beneficiaries and non-resident trust estates

Clause 16: Rates of tax where Division 6AA of Part III of the Assessment Act applies

Clause 16 will declare the rates of tax payable for the 1983-84 and subsequent financial years by a non-resident minor taxpayer and by a trustee assessed on behalf of a non-resident minor beneficiary, where Division 6AA of Part III of the Assessment Act applies. The rates are set out in Part II of Schedule 11 - non-resident taxpayers - and Part II of Schedule 12 - trustees on behalf of non-resident beneficiaries - and, except that the changes in ordinary rates of tax for 1983-84 will apply to income other than eligible income, are effectively the same as for 1982-83 (Parts II of Schedule 5 and 6).

There is, however, to be no minimum taxable income in these cases for 1983-84 and subsequent years - the minimum taxable income of $136 available for non-residents in 1982-83 (clause 10) reflects the proposed withdrawal of the minimum taxable income of $1,040 from non-residents as from 17 August 1982 (Budget day). For 1983-84 and subsequent years the rate of tax on eligible income up to $1,040 is to be the standard rate of 30 per cent or tax at normal rates, whichever is greater, and, subject to "shading-in" arrangements, the rate of 46 per cent will apply to relevant income over $1,040 - the existing situation.

Sub-clause (1) of clause 16 declares the rates for a non-resident individual minor deriving eligible income, as set out in Part II of Schedule 11.

Sub-clause (2) limits the tax payable in terms of sub-clause (1), where the income involved does not exceed $1,040 and where it does exceed $1,040 but not $1,872. Paragraph (a) limits the tax payable on eligible income not exceeding $1,040 to 30 per cent or tax on that income, when aggregated with other income, at ordinary rates, whichever is the greater. Paragraph (b) provides "shading-in" arrangements for eligible income between $1,041 and $1,872. These arrangements are similar to those provided in paragraph (2)(c) of clause 10 for the 1982-83 year - see notes on that clause.

Sub-clause (3) declares the rates set out in Part II of Schedule 12 to be the rates of tax payable for 1983-84 and subsequent years by a trustee taxed on behalf of a non-resident minor beneficiary. The rates are the same as for non-resident individuals (Part II of Schedule 11).

Sub-clause (4), which is subject to sub-clause (5), limits the tax otherwise payable by a trustee in terms of sub-clause (3) in the same way as sub-clause (2) does for individuals.

Sub-clauses (5) to (7) are to the same effect as sub-clauses (7) to (9) of clause 10 which relate to the 1982-83 year. See the earlier notes on those sub-clauses. Sub-clauses (5) to (7) apply where a non-resident minor beneficiary, on whose behalf a trustee is assessed, is entitled to income from another trust estate to which Division 6AA of the Assessment Act also applies.

INCOME TAX (INDIVIDUALS) BILL 1982

This Bill will formally impose the tax payable in respect of income derived by individuals, and by trustees generally, during the 1982-83 income year. As is customary in such a Bill, it will also formally impose 1982-83 provisional tax. It is complementary to the Income Tax (Rates) Bill 1982 which, as explained earlier, will declare the rates of tax to apply to such taxpayers.

The Bill is similar to the Income Tax (Individuals) Act 1981 and the following notes are confined to the major clauses of the Bill.

Clause 5: Imposition of income tax

Sub-clauses (1) and (2) have the effect, when read with clause 7, of formally imposing income tax payable by individuals and trustees (other than trustees of superannuation funds and corporate unit trusts in respect of whom the relevant rates of tax are to be declared and imposed by the accompanying Income Tax (Companies, Corporate Unit Trusts and Superannuation Funds) Bill 1982) for the 1982-83 financial year at the rates to be declared for that year by the Income Tax (Rates) Bill 1982. The rates of tax to be declared by that Bill for 1982-83 reflect the proposed reduction in the standard rate of tax, the proposed increase in the top of the standard rate step in the personal income tax rate scale and, for residents, the proposed increase in the zero rate step. They also reflect, for non-residents generally, the withdrawal of the zero rate step with effect from 17 August 1982 (Budget day). For further details of these measures, see the notes in this memorandum on the Income Tax (Rates) Bill 1982.

Sub-clause (3) excludes from the scope of the Bill taxes that are payable in accordance with various sections of the Assessment Act and which are imposed by separate Acts. These other taxes and the relevant sections of the Assessment Act involved are those imposed on diverted income (section 121H), interest paid on bearer debentures (section 126), withholding taxes (sections 128B, 128N and 128V), branch profits tax (section 128T), film and video tape royalties (section 136A) and the redemption of drought bonds in certain circumstances (section 159C).

Clause 7: Levy of tax

Clause 7 operates to formally levy the tax imposed by clause 5 of the Bill in respect of the 1982-83 financial year and, until the Parliament otherwise provides, for the 1983-84 financial year. This will mean that the "average" rates set out in the Income Tax (Rates) Bill 1982 for the 1982-83 financial year are to be levied and payable for that year only. The general rates set out in that Bill for the 1983-84 financial year will apply on an interim basis for the 1983-84 financial year until the Parliament enacts provisions corresponding with this Bill for that year.

Clause 8:

Clause 8 will formally impose provisional tax for the 1982-83 financial year on the basis specified in clause 28 of the Income Tax Asessment Amendment Bill (No.5) 1982. The method of calculation of 1982-83 provisional tax is described in earlier notes relating to that clause.

INCOME TAX (COMPANIES, CORPORATE UNIT TRUSTS AND SUPERANNUATION FUNDS) BILL 1982

The main purpose of this Bill is to impose income tax for the 1982-83 financial year, at the rates declared in the Bill, on the 1981-82 incomes of companies and of corporate unit trusts, and the 1982-83 incomes of superannuation funds.

Other rates of income tax payable for the 1982-83 financial year - by individuals and by trustees generally - will be declared by the Income Tax (Rates) Bill 1982 and imposed by the Income Tax (Individuals) Bill 1982; the "branch profits" tax that is payable by non-resident companies is imposed by the Income Tax (Non-Resident Companies) Act 1978; and other rates of tax payable under particular sections of the Assessment Act are imposed by the Income Tax (Dividends and Interest Withholding Tax) Act 1974, the Income Tax (Film Royalties) Act 1977, the Income Tax (Drought Bonds) Act 1969, the Income Tax (Bearer Debentures) Act 1971, the Income Tax (Withholding Tax Recoupment) Act 1971, the Income Tax (Mining Withholding Tax) Act 1979, and the Income Tax (Diverted Income) Act 1981.

The practical effect of the present Bill will be the same as the Income Tax (Companies, Corporate Unit Trusts, and Superannuation Funds) Act 1981, which declared and imposed the rates of income tax payable by companies, corporate unit trusts and superannuation funds for the 1981-82 financial year.

Clauses 6 to 8

The rates of income tax declared by clauses 6 to 8 of this Bill for the 1982-83 financial year are as follows:

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by clause 6, the general rate of tax payable on taxable income of companies is to remain at 46 per cent;

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by clause 6, the rate of additional tax payable by a private company on the amount by which dividends paid fall short of a sufficient distribution remains at 50 per cent;

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by clause 6, the general rate of tax payable by a friendly society dispensary on its taxable income is to remain at 41 per cent for the 1982-83 financial year;

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by clause 7, the rate of tax payable by a trustee on the net income of a corporate unit trust to which section 102K of the Assessment Act applies remains at 46 per cent;

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by clause 8, the rate of tax payable on investment income of a superannuation fund that does not, under the "30/20" rule, invest a sufficient proportion of its assets in public securities remains at 46 per cent;

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by clause 8, the rate of tax payable on certain taxable income of superannuation funds to which section 121CA or 121CB of the Assessment Act applies is to remain at 50 per cent; and

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by clause 8, the rate of tax payable on income of trusts qualifying as superannuation funds to which section 121DA of the Assessment Act applies is to remain at 60 per cent.

Clause 10:

Clause 10 formally levies tax imposed by clause 5 at the rates declared in clauses 6 to 8 inclusive for the 1982-83 financial year and, until the Parliament otherwise provides, for the 1983-84 financial year. For that reason, sub-clause (3) of clause 10 provides that the rate of tax to be levied for the 1983-84 financial year on the 1982-83 income of a friendly society dispensary will be the rate provided for non-profit companies generally (that is, 46 per cent). The need for this particular measure arises from the announcement in the 1981-82 Budget that, from the commencement of the 1983-84 financial year, friendly society dispensaries would be taxed on the same basis as non-profit companies generally, in lieu of the special basis of assessment presently applying to such bodies. Associated amendments to the Assessment Act were made by the Income Tax Laws Amendment Act (No. 3) 1981.

Clause 12:

Clause 12 of the Bill will authorise the collection of instalments of company tax and corporate unit trust tax in the 1983-84 financial year in accordance with the relevant provisions of the Assessment Act. Under those provisions, the first of three such instalments is due not earlier than 15 August 1983.

INCOME TAX (MINING WITHHOLDING TAX) AMENDMENT BILL 1982

This Bill will amend the Income Tax (Mining Withholding Tax) Act 1979 to reflect, in the rate of tax imposed on mining payments to Aboriginal councils, the reduction in the standard rate of tax proposed by the Income Tax (Rates) Bill 1982.

The Income Tax (Mining Withholding Tax) Act 1979 declares and imposes the rates of tax payable in respect of mining payments made on or after 1 July 1979 relating to the use of Aboriginal land for mining and exploration purposes. Such payments are presently subject to tax at the rate of 6.4 per cent of the gross amount of the payments, which is the equivalent of the present standard rate of tax of 32 per cent applied to one-fifth of the gross payments.

The amending Bill will reduce the rate of tax on the mining payments from 6.4 per cent to 6 per cent - representing the proposed new standard of 30 per cent applied to one-fifth of the gross payments. The reduced rate is to apply to mining payments made on or after 1 November 1982 - the date of effect of the standard rate reduction.