House of Representatives

Explanatory Memorandum

(Circulated by authority of the Acting Treasurer, the Rt. Hon. R. G. Menzies.)

Main Features

INCOME TAX AND SOCIAL SERVICES CONTRIBUTION BILL 1964.

The main purpose of this Bill is to declare the rates of income tax and social services contribution payable for the financial year 1964-65. As in previous years, the Bill also authorises the granting of an age allowance.

The explanations that follow relate principally to those aspects of the income tax rates that differ from the provisions of the rating Act of 1963.

Discontinuance of 5% Rebate to Individuals.

The rates of income tax declared in the first four schedules to the Bill apply to the taxable incomes of individuals for the current year 1964-65. The rates are the same as those levied for the preceding year 1963-64.

For the 1963-64 year, however, the law authorised a rebate equal to 5% of the tax otherwise payable. The present Bill does not include a corresponding provision.

Superannuation Funds.

A superannuation fund is required to pay income tax if it does not invest an appropriate proportion of its moneys in public securities, that is, if it does not comply with what is widely known as the "30/20" rule.

The rates of tax payable on investment income of such funds have been the same as those payable in recent years on the mutual income of life assurance companies, namely, 5/- in the Pd on the first Pd5,000 of taxable income and 7/- in the Pd on the balance of the taxable income. In consonance with the proposed increase of 6d. in the Pd in the rates of tax payable by companies, the Fifth Schedule to the Bill declares the rates of tax payable on the taxable portion of the investment income of superannuation funds not complying with the "30/20" rule to be 5/6 in the Pd on the first Pd5,000 of that income and 7/6 in the Pd on the balance.

Age Allowance.

By clause 7 of the Bill the level of incomes up to which the age allowance may apply will be increased.

The age allowance is available to an individual who, throughout the income year, has been a resident of Australia and who, at the end of that year, has attained the age of 65 years in the case of a man or 60 years in the case of a woman.

The purpose of the allowance is to exempt from tax a person who satisfies those tests and whose income does not exceed the sum of the age pension and the maximum permissible income for age pension purposes. At present, the allowance confers freedom from tax if the net income of the person does not exceed Pd481. In the case of a married taxpayer qualified by age and residence and who contributes to the maintenance of the spouse, exemption is at present authorised if the combined net incomes of husband and wife do not exceed Pd910 and the spouse is a resident of Australia throughout the year of income.

Consistent with the proposed increase of 5/- a week in the age pension, clause 7 of the Bill proposes that the existing exemption limits of Pd481 and Pd910 be increased to Pd494 and Pd936 respectively.

A measure of relief is also provided for a person who satisfies the age and residence tests but whose net income is somewhat in excess of the limits mentioned. For the 1963-64 income year, this relief was authorised if the net income was between Pd481 and Pd556 or, in the case of a married person, if the combined net incomes of the husband and wife was between Pd910 and Pd1,293. By clause 7 of the Bill, the upper limits at which the allowance may operate will be increased from Pd556 to Pd574 and, in relation to the combined net incomes of married couples, from Pd1,293 to Pd1,350.

Where the net income of an aged person exceeds the exemption limit, but is within the upper limits mentioned, the amount of tax payable will not exceed nine-twentieths of the excess of the net income over the exemption limit. For example, if the combined net incomes of a married couple total Pd1,000, the excess over the exemption limit of Pd936 is Pd64. The tax payable by the aged person will not exceed nine-twentieths of Pd64, that is, Pd28.16.0. Should the normal assessment processes result in a smaller amount of tax being payable, then only the smaller amount is charged.

The revised age allowance provisions will apply for the current income year 1964-65.

Rates of Tax Payable by Companies.

The Sixth Schedule to the Bill declares the rates of income tax payable by companies for the 1964-65 financial year, that is, in respect of incomes for the income year 1963-64. A limitation applying in relation to non-profit companies is explained later in this memorandum.

The rates of tax payable on the taxable incomes of companies will be six pence in the Pd above those applied for the preceding income year 1962-63. The proposed rates are -

Limitation of Tax Payable by Non-Profit Companies.

For the 1962-63 income year, tax was payable by a non- profit company only if the taxable income derived exceeded Pd208. Clause 5 of the present Bill proposes a similar provision for the 1963-64 year.

By sub-clause (2.) of clause 9 it is provided that the tax payable by a non-profit company deriving a taxable income for the 1963-64 income year not in excess of Pd594 shall not be greater than one-half of the excess of the taxable income over Pd208. For the 1962-63 income year, this basis of arriving at the amount of tax payable applied to taxable incomes not exceeding Pd520. The increase from Pd520 to Pd594 results from the proposed increase by 6d. in the Pd in the rates of tax payable by companies.

Without a limiting provision of this nature, a non- profit company whose taxable income exceeded Pd208 by only a moderate amount would be liable to pay tax on the 209th pound of taxable income at a rate in excess of 20s. in the Pd. A comparable position would occur over the whole range of taxable income between Pd209 and Pd594. The sub-clause will ensure a smooth rate of increase in the tax liability of non-profit companies.

Elimination of Pence.

Clause 10 proposes the continuance of a provision by which pence are eliminated from the amount of tax calculated at the rates declared in relation to the incomes of individuals.

The clause does not depart from the practice of earlier years but a provision of the 1963 Act relating to the 5% rebate has been omitted consequent on the discontinuance of that rebate.