Explanatory Memorandum(Circulated by authority of the Treasurer, The Hon P.J. Keating, MP)
The main features of the Bills are as follows :
As a consequence of the proposed repeal of section 91 of the National Health Act 1953 the technical definition of "friendly society dispensary" in the income tax law is to be amended, without substantive effect.
The amendments proposed by clause 4 will extend and modify the provision of the income tax law which lists a range of specific types of income that are exempt from income tax.
The first of the amendments will give effect to the income tax aspect of the Budget announcement of an open employment incentive bonus payable under the Handicapped Persons Assistance Act 1974. Persons who, after completing at least 6 months sheltered employment, complete a further 12 months in full-time paid open employment on or after 1 October 1983 are eligible to receive a once only open employment incentive bonus of $500. The Bill will provide tax exemption for the bonus.
The clause will also modify the existing law, which exempts the whole of the pay and allowances of part-time members of the Reserve Defence Forces and the Emergency Reserve Defence Forces, to give effect to the Budget announcement that only half of payments on or after 1 December 1983 and before 1 December 1984 is to remain exempt. After that the exemption will cease altogether. The proposed amendment will also apply to the exemption of the gratuity paid to members of the Emergency Reserve Defence Forces by reason of a calling out for continuous service.
This clause amends in two respects the section of the Income Tax Assessment Act that governs the taxing of pensions, allowances and benefits under the Social Security, Repatriation and other Acts.
First, it gives effect to the Budget announcement that the additional benefit for children paid to unemployment, sickness and special beneficiaries and the supplementary allowance paid to sickness beneficiaries to assist with rent costs, both of which are paid under the Social Security Act 1947, will not be subject to tax from 1 March 1984. Under the existing law, additional benefits for children and the supplementary allowance payable to beneficiaries are assessable income but similar payments to pensioners are specifically exempt from tax. The Bill proposes that any instalments of these payments to unemployment, sickness and special beneficiaries that fall due on or after 1 March 1984 will be exempt from tax.
Secondly, as announced in the Budget, from 1 December 1983 a spouse carer's pension is to be payable under the Social Security Act 1947 and the Repatriation Act 1920 to a man who is not entitled to other pensions or allowances and who is providing constant care and attention to his severely handicapped age, invalid or service pensioner wife. The pension will be payable on the same general conditions as a wife's pension is payable to the wife of a man who is an age, invalid or service pensioner. By this clause the spouse carer's pension will be treated for taxation purposes on a similar basis to that which applies to such a wife's pension. When paid under the Social Security Act it will be exempt when paid to a man who is less than 65 years of age and whose wife is less than 60, and taxed if he is 65 years or older or if his wife is 60 years or older. When paid under the Repatriation Act these rules will apply only where the wife's service pension is paid because she is permanently unemployable. In other service pension cases the spouse carer's pension will be taxable irrespective of age.
The Bill will give effect to the income tax aspects of the proposal announced in the Budget that a non-taxable remote area allowance is to be introduced from May 1984 for persons living in Income Tax Zone A (including Special Zone A) who are income tested pensioners (other than pensioners aged 70 or over receiving the special rate of age or service pension payable from 1 November 1983), beneficiaries, blind pensioners or sheltered employment and rehabilitation allowees. To ensure that the sum of the non-taxable remote area allowance and the income tax zone rebate received by a person in an income year does not exceed the amount which that person would receive if entitled to only one of the benefits, the allowance is to be deductible from the maximum claimable value of any income tax zone rebate to which the recipient would otherwise be entitled. The amendment to the Income Tax Assessment Act proposed by paragraphs (1)(a) and (b) of clause 5 will provide tax exemption for remote area allowances paid to repatriation pensioners - such allowances paid to social security pensioners and beneficiaries will be exempt under existing provisions of that Act. The amendment proposed by clause 9 provides for the reduction of any zone rebate otherwise allowable to a taxpayer by the amount of remote area allowance received by that taxpayer.
The amendment proposed by this clause will give effect to the proposal announced in the May Economic Statement to abolish the rebate allowable at the standard rate of tax on up to $1,000 of certain dividends included in the taxable income of Australian resident individual taxpayers.
The rebate was introduced from 1 July 1982, and is, by the amendment proposed by this clause, to be abolished as from 1 July 1983.
By this clause, the Bill proposes to terminate the deduction, in equal instalments over 10 years, for capital costs incurred by a primary producer in respect of land used in a business of primary production. Examples of some of the expenditures within the scope of the concession are the initial clearing of land by the destruction and removal of timber, scrub or undergrowth indigenous to the land, the initial preparation of the land for agriculture, the ploughing and grassing of land to be used for grazing purposes and the draining of swamp land.
The termination of the deduction is to apply in respect of expenditure incurred after 23 August 1983 unless it is incurred in connection with a contract entered into on or before that date. Expenditure contracted for on or before 23 August 1983 will continue to be deductible in equal instalments over 10 years.
This clause will give effect to the proposal, announced on 19 May 1983, to terminate the deduction available in respect of a loss incurred in carrying on a business, such as gold mining, from which exempt income is derived.
The deduction will cease to be allowable for such a loss incurred in the 1983-84 year of income or any subsequent year of income.
This clause will give effect to the Budget proposal to terminate the concessional deduction in respect of amounts paid by a person for the thermal insulation of his or her first home.
Deductions will cease to be available in respect of payments made after 23 August 1983 for costs associated with the thermal insulation of a taxpayer's dwelling, unless those payments are made in pursuance of a contract entered into on or before that date.
The Bill and related "Rates Act" measures will give effect to changes to the income tax averaging system for primary producers foreshadowed in the Economic Statement of 19 May 1983. The changes will mean, in effect, that commencing with the 1983-84 income year a taxpayer will pay tax on taxable income from primary production at a rate of tax obtained by applying ordinary tax rates to average income (generally the average of the taxable incomes of the current and the 4 preceding years), regardless of whether the application of the averaging system in a particular year will be of benefit to the taxpayer in that year.
Since the 1977-78 income year the primary producer averaging provisions have applied only where the average income of a year was less than the taxable income. In other words, the averaging provisions only applied where this would reduce the tax payable. This result is achieved by means of a rebate of tax equal to the amount by which tax payable at ordinary rates on primary production taxable income exceeds tax payable at the average rate on that income. In the converse situation where average income exceeded the taxable income for the year and, consequently, the average tax rate was greater than ordinary tax rates, the primary producer has paid tax at ordinary rates.
Under the averaging system proposed by the Bill, a primary producer (unless he or she permanently opts out of tax averaging) will be required to pay tax on taxable income from primary production at the average rate in all years, including years in which the average rate is greater than the ordinary rate. The averaging rebate will continue to apply in years when a taxpayer benefits from averaging. For other years there will be an averaging adjustment which will take the form of a complementary amount of tax. The effect of the new system will be broadly the same as that which operated prior to the 1977-78 income year, subject to its being confined to primary production income.
The Bill also proposes that a taxpayer may elect to permanently withdraw from the averaging system, in which case tax will be payable at ordinary tax rates for the year in respect of which the election is made and for all subsequent years.
This clause will amend the income tax law relating to rebates of tax in respect of dependants, to restore the position that had existed before it was disturbed by the Domicile Act 1982, which came into operation on 1 July 1982.
The concessional rebates for dependants are available only to a resident taxpayer, and only where the dependant concerned is also a resident of Australia. The higher level of the spouse rebate where there are dependent children - as well as the zone rebates, to the extent that they relate to dependent children - apply only where the children are also resident. Prior to the 1982 change in the law of domicile, where a migrant preceded his wife and children to Australia and arrangements had been made for them to follow as soon as circumstances permitted, the wife and children were accepted as residents of Australia for up to 5 years after the migrant's arrival, on the basis that they had a legal domicile in Australia and no permanent place of abode outside Australia.
The Domicile Act 1982 abolished the rule that a wife's domicile is necessarily that of her husband, and also reduced to 18 years the age of capacity to have an independent domicile. As a result, a wife waiting to join her husband in Australia and their dependent children aged 18 years and over could no longer be regarded as residents of Australia for taxation purposes prior to their arrival in Australia. In these circumstances, if the income tax law were to remain unchanged, the migrant husband would not be entitled to a spouse or other relevant rebate.
The technical amendment proposed by this Bill will apply from 1 July 1982 and ensure that a migrant will continue to be eligible for relevant rebates of tax for a period of up to 5 years after his arrival in Australia, on the basis that his spouse and dependent children are also residents of Australia, provided that arrangements have been made for them to migrate to Australia as soon as possible. The amendment is also framed so that the entitlement to rebates will be the same whether the spouse who first comes to Australia is the husband or the wife.
This clause will increase, with effect from the 1983-84 income year, the threshold amount of eligible expenditure for the purposes of the general concessional rebate. By the amendment proposed by this clause a rebate of tax of 30 per cent of the excess over $2,000 of a taxpayer's total concessional expenditure will be available in assessments for the 1983-84 and later years of income. The existing threshold expenditure level is $1,590.
The amendment proposed by clause 16 will exclude from liability to provisional tax trustees who, following legislative changes in the Autumn Sittings, are liable to be assessed and to pay tax in respect of income distributed to non-resident beneficiaries.
Provisions introduced in the Income Tax Assessment Amendment Act 1983 to facilitate the collection of tax from non-resident beneficiaries made trustees primarily liable for tax, including provisional tax, in respect of trust income distributed to non-resident beneficiaries after 18 May 1983. Representations have been received from many trustees so affected to the effect that, because other existing provisions of the Income Tax Assessment Act authorize and require a trustee to retain, in effect, so much of any distribution to a non-resident beneficiary as is sufficient to pay the tax on that income, it is not appropriate and would create difficulties for the trustees, if they were to be also subject to payment of provisional tax. To meet these representations while at the same time preserving in effect the application of P.A.Y.E. principles to these distributions, trustees will be required to promptly remit to the Commissioner of Taxation amounts deducted from distributions to non-resident beneficiaries when the distributions are made.
The Bill will give effect to certain changed arrangements that were announced on 5 October 1983 in the light of recommendations contained in a report tabled in the Senate by the Standing Committee on Finance and Government Operations which examined the administration and operation of the prescribed payments system.
Basically, the changes are designed to refine certain of the administrative aspects of the prescribed payments system, reducing considerably the paperwork burdens on some taxpayers and generally facilitating taxpayer compliance with its requirements.
Under amendments proposed by the Bill the following arrangements will have effect, generally from the date of Royal Assent to the Bill -
- prescribed payments received by payees who hold deduction exemption certificates on the grounds of good tax compliance will be taken outside the prescribed payments system provided that a reporting exemption declaration is lodged by such payees with each eligible paying authority on an annual basis or as otherwise approved by the Commissioner of Taxation (clause 23);
- payees are to be able to lodge a deduction form at any time during the month (in lieu of a period of 7 days) preceding the month during which a prescribed payment is to be made to that payee (clause 20);
- where a payee has furnished a deduction form in respect of a month and payment is deferred, the deduction form will remain valid until the month when payment is actually made. If part of the payment only is made, the eligible paying authority is to be required to prepare deduction forms in relation to subsequent instalments of that payment (clauses 19 and 21);
- payees need prepare and furnish to an eligible paying authority only one (annual) deduction form where the eligible paying authority undertakes to prepare deduction forms on the payee's behalf (clauses 19 and 21).
In addition to the above changes, the Bill contains a minor amendment to the provisional tax self-assessment provisions which simplifies the calculations which a taxpayer who wishes to vary a provisional tax liability on account of prescribed payment income is required to make (clause 17).
Provisional tax for the 1983-84 year of income is to be calculated, basically, by applying 1983-84 rates of tax to 1982-83 taxable incomes, as increased by 11 per cent. Apart from the exceptions outlined below, to the extent that rebates and credits are allowed in 1982-83 income tax assessments, they generally will be taken into account in calculating the 1983-84 provisional tax.
Where a taxpayer with dependent children has been allowed in his or her 1982-83 assessment a spouse, daughter-housekeeper or housekeeper rebate, or a sole parent rebate, the relevant rebates (including zone rebates where appropriate) will be increased for provisional tax purposes to reflect the full year effect in 1983-84 of the increase in rebates allowed for part of 1982-83. The excess concessional expenditure rebate and the pensioner rebate (if applicable) will be recalculated for provisional tax purposes based on the 1983-84 amounts. The dividend rebate, the health insurance rebate and the rebate for housing loan interest in excess of 10% per annum which were all abolished from 1 July 1983 will not be allowed in the calculation.
An amount for provisional medicare levy will be added to the provisional tax otherwise payable, where it appears from the information contained in the taxpayer's 1982-83 return of income that he or she will be liable to that levy in 1983-84.
This Bill will amend the Income Tax (Rates) Act 1982, which declares the rates of tax payable for 1983-84 and subsequent years in respect of the income of individuals and trustees generally, to give effect to the May Economic Statement proposal to reduce, from $1,040 to $416, the income threshold at which special rates of tax apply to certain types of income derived by some unmarried minors. The reduction is to apply from the beginning of the 1983-84 income year. Associated changes to shading-in provisions for incomes marginally exceeding the threshold are provided for.
The Bill also proposes amendments to section 13 of the Income Tax (Rates) Act 1982 that are consequential upon the changes to the primary producer averaging system proposed by the Income Tax Assessment Amendment Bill (No. 4) 1983. By the amendments, a rate of complementary tax is declared for taxable income from primary production in a case where the tax payable by a taxpayer in an income year calculated on the basis of an average rate is greater than the tax that would be payable if ordinary tax rates were applicable. The rate of tax so declared will be applied in calculating the averaging tax adjustment that is to be applicable in such cases.
The rates of tax payable for 1983-84 and, until the Parliament otherwise provides, for 1984-85 by individuals and trustees generally, as declared by the Income Tax (Rates) Act 1982 as proposed to be amended by the accompanying Income Tax (Rates) Amendment Bill (No. 2) 1983, will be formally imposed by this Bill. It will also formally impose provisional tax for 1983-84.
The rates of tax payable for 1983-84 by companies, by trustees of corporate unit trusts and of superannuation funds and by trustees in respect of trust income of a non-resident company beneficiary will be declared and imposed by this Bill.
Apart from the increase in the rate of tax for friendly society dispensaries - from 41% to the general company tax rate of 46% as a consequence of changes announced in the 1981-82 Budget in the basis of assessment of such bodies - the rates are the same as those for 1982-83.
This Bill will amend the Income Tax (Bearer Debentures) Act 1971, which imposes tax on interest paid by a company on bearer debentures. It will increase the rate of tax payable under section 126 of the Assessment Act from 55 per cent to 60 per cent where the names and addresses of the holders of the debentures are not furnished by the company to the Commissioner of Taxation.
More detailed explanations of each of the provisions of the Bills are contained in the notes that follow.