House of Representatives

Income Tax (International Agreements) Bill 1958

Income Tax (International Agreements) Act 1958

Explanatory Notes

(Circulated by the Treasurer, the Rt. Hon. Sir Arthur Fadden.)

NOTES ON THE BILL.

Clause 1: Short Title and Citation.

This clause formally provides for the short title of the Amending Act and the Principal Act as amended.

Clause 2: Commencement.

Section 5(1A.) of the Acts Interpretation Act 1901-1957 provides that every Act shall come into operation on the twenty-eighth day after the day on which the Act receives the Royal Assent, unless the contrary intention appears in the Act.

By this clause, it is proposed that the Income Tax (International Agreements) Act 1958 shall come into operation on the day on which it receives the Royal Assent. This course is being adopted in order to avoid any possibility of undue delay in giving effect to the agreement with Canada.

In this connection, the agreement provides that it shall become effective as regards Australian tax from the commencement of the year of income in which the final action necessary to give it the force of law in both countries is completed. As already mentioned, the Canadian legislation for this purpose was assented to on 31st January, 1958. In order that the agreement may commence to operate for the current income year, it will be necessary for the Australian legislation to be enacted before 1st July, 1958.

Clause 3: Definitions.

Section 3 of the Principal Act contains definitions of a number of expressions used throughout the Act.

As in the case of the United Kingdom and United States agreements, the term "the Canadian agreement" is being defined so as to simplify references in the Act to that agreement. The term will mean the agreement relating to taxes on income signed on behalf of Australia and Canada on 1st October, 1957.

Clause 4: Agreement with Canada.

Subject to this Bill being assented to before 1st July, 1958, clause 4 will give the force of law to the Canadian agreement as regards Australian tax from the beginning of the current income year 1957-1958. As regards Canadian tax, the agreement will have effect as from 1st January, 1958.

These commencing dates follow from the terms of Article XVI of the agreement, which provides that the agreement shall become effective from the commencement of the year of income in which the final action necessary to give it the force of law in both countries is completed.

The agreement will continue to have the force of law until it ceases to be effective in accordance with a notice of termination given by either country under Article XVI.

Clause 5: Ascertainment of Australian Tax on Dividend.

Section 16 of the Principal Act, which is proposed to be amended by this clause, provides the basis for ascertaining the amount of Australian tax payable on dividends subject to the double taxation agreements and to section 45 of the Assessment Act. The provisions have application in determining the credits allowable for foreign tax on dividends received by Australian residents from ex-Australian sources and also in determining the rebates of Australian tax on dividends received from Australian companies by shareholders resident in the countries with which double taxation agreements have been concluded.

The statutory basis which has been provided for this purpose is designed primarily to allocate against dividends, in determining the tax actually borne or to be borne by the dividends, a proportion of the deductions allowable to the taxpayer which are not directly attributable to any particular class of income, e.g., concessional deductions. Since, however, the High Court has ruled that these deductions may not be allocated against interest from Commonwealth loans in applying the concessions granted in relation to such interest, it is necessary to exclude from the calculation income derived from this source.

In this connection, the existing basis of calculation has regard to two classes of Commonwealth loan interest - that subject to 1930-1931 rates of tax and that subject to the rebate of 2/- in the Pd provided by section 160AB of the Assessment Act. As the loans subject to 1930-1931 rates of tax formerly held by members of the public have now been wholly redeemed, this element of the calculation is no longer required and the amendments proposed by sub-clause (1.) of clause 5 are accordingly designed to delete from section 16 the references to interest from this class of loan.

Sub-clause (2.) will ensure that the former provisions will continue to have effect in relation to any unissued assessments for the income year 1956-1957 and prior years.

The amendments will assist towards simplifying the section, without, however, in any way adversely affecting the present entitlements of taxpayers under the section.

Clause 6: The Third Schedule.

Clause 6 of the Bill inserts as a Third Schedule to the Principal Act a copy of the agreement between Australia and Canada.


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