House of Representatives

Explanatory Memorandum

(Circulated by the Treasurer, the Rt. Hon. J. B. Chifley.)

SOCIAL SERVICES CONTRIBUTION RESOLUTION 1946.

INTRODUCTORY NOTE :-

The Social Services Contribution Act 1945 imposed social services contribution at graduated rates. The maximum rate prescribed is 18d. in the Pd1. The Schedule of rates, in effect, provides that in cases where the maximum rate of 18d. did not apply, the amount of contribution payable for a complete assessment year shall equal the amount if income tax which the contributor would be liable to pay (after deducting all rebates for dependants, life assurance, medical expenses,etc.) if income tax were imposed on his taxable income at peak war-time rates of income tax reduced by 12 1/2 per cent.

For the financial year 1945-1946, however, only half rates applied as it was intended that social services contribution should be imposed as from 1st January, 1946.

If the rate of contribution is the maximum of 18d. in the Pd1, concessional rebates for dependants, life assurance premiums, medical expenses,etc., are not allowed in the social services contribution assessment. The full benefit of these concessions is allowed, however, in ascertaining the amount of income tax (if any) payable by the contributor. For income tax purposes, concessional rebates in respect of dependants,etc., were previously ascertained at the personal exertion rate appropriate to the total taxable income of the taxpayer. This rate for rebate purposes has, however, been increased by 18d.

The practical effect of the addition of 18d. to the rate for rebate purposes is that, where a person is liable to pay both income tax and social services contribution, the rebate is allowed at the combined rates of the two separate levies and the rebate so calculated is allowed in the income tax assessment.

It has been found that the practical application of the formula prescribed for the ascertainment of the rate of social services contribution has given rise to administrative difficulties which it is desirable to overcome. A new scale of rates has accordingly been devised. This scale, while simplifying the work of the Taxation Department, will also have the effect of reducing the amount of contribution payable by the contributors in the low fields of income. The maximum rate of 18d. is, however, retained. Previously, in the case of a taxpayer not entitled to any concessional allowances for income tax purposes, the maximum rate was reached at an income of Pd170. Under the new scale, the maximum does not apply until an income of Pd220 is reached.

The Resolution proposes that social services contribution be levied at a separate graduated basic rate commencing at 3d. in the Pd1 and increasing by one-eighth of one penny for every Pd1 of income in excess of Pd100, till the maximum of 18d. is reached.

Provision is made for the variation of the basic rate in order to preserve the concessions at present allowed to contributors for dependants, life assurance, superannuation, medical expenses,etc. The basic rate will also be varied in the case of primary producers coming within the averaging provisions of the Income Tax Assessment Act.

The amounts of income which may be earned by the various classes of persons without incurring liability for either social services contribution or income tax, will be the same as at present, viz.:-

It is also proposed that the amended provisions shall apply in assessments based on income derived during the year ended 30th June, 1946. In such assessments, social services contribution will be calculated at half the new rates.

PARAGRAPH 1. - SCHEDULE OF RATES OF CONTRIBUTION.

This paragraph incorporates the Schedule of rates of social services contribution that will be payable in respect of the contributable income of a contributor other than a trustee.

Paragraph (1) of the Schedule sets out the basic rate of contribution. This rate will be payable by a contributor who is not entitled, for income tax purposes, to any concessions in respect of dependants, life assurance, medical expenses,etc., or who is not a primary producer whose income would be subject to the averaging provisions of the Income Tax Assessment Act. The basic rate commences at threepence and increases by one-eighth of one penny for each Pd1 of income in excess of Pd100 until a maximum of 18d. is reached at a contributable income of Pd220.

Paragraph (2) of the Schedule sets out the concessional rate of contribution. This will be payable by a contributor who would be entitled to rebates of tax in respect of dependants,etc., if he were being assessed for income tax purposes. If, however, the contributor is a primary producer to whose income the averaging provisions of the Income Tax Assessment Act would apply, the rate payable will be the concessional average rate set out in paragraph (4) of the Schedule. In the graduation of the concessional rate to 18d. in the Pd1, the basic rate is varied according to the amount by which the contributable income exceeds the sum of the concessional or rebatable amounts as calculated for income tax purposes. The effect of the formula prescribed in paragraph (2) of the Schedule is that, in appropriate cases, the basic rate is reduced to an amount which bears the same proportion to the basic rate as the excess bears to the contributable income or Pd180, whichever is the less. If the excess is Pd180, or more, the concessional rate will be the same as the basic rate. In such cases, allowance for dependants and other income tax concessional items will be made in the contributor's income tax assessment.

It is emphasised that in no case will the concessional rate exceed 18d. in the Pd1. The maximum rate of 18d. is reached at the following amounts of contributable income:-

The following example illustrates the method of ascertainment of the concessional rate:-

Paragraph (3) of the Schedule sets out the average rate of contribution. This will be payable by a primary producer who would be subject to the averaging provisions of the Income Tax Assessment Act but who would not be entitled to any concessional allowances for dependants,etc., for income tax purposes. The average rate of contribution will be the rate that would be the basic rate, if the contributable income were equal to the average income as that would be ascertained for income tax purposes. The average rate cannot exceed the maximum basic rate, viz., 18d. in the Pd1. Where the contributor is a person subject to the averaging provisions for income tax purposes and also entitled to concessional rebates for dependants,etc., the concessional average rate set out in paragraph (4) of the Schedule will apply.

Paragraph (4) of the Schedule sets out the concessional average rate of contribution. This will be payable by a primary producer who comes within the averaging provisions of the Income Tax Assessment Act and who would also be entitled to rebates of income tax in respect of dependants,etc.

The concessional average rate will be calculated on a similar basis to the concessional rate (see the above explanation of the application of paragraph (2) of the proposed Schedule). In the calculation of the concessional average rate, however, the average rate is to be used in place of the basic rate and the average income in place of the contributable income. In addition, the rebatable amount is to be adjusted to an amount which bears the same proportion to the average income, as the rebatable amount bears to the contributable income. If, therefore, the rebatable amount were one-half of the contributable income, it would be adjusted to an amount equal to one-half of the average income.

These special provisions are necessary to avoid an increase in the amount of social services contribution payable in cases where the average income is less than the contributable income. The concessional average rate cannot exceed either the average rate or 18d. in the Pd1.

The following examples illustrate the method of ascertainment of the concessional average rate:-

PARAGRAPH 2. - RATE OF CONTRIBUTION PAYABLE.

The purpose of this paragraph is to authorize the substitution of the proposed rates of contribution for those at present specified in the Social Services Contribution Act 1945.

Sub-paragraph (a) of Paragraph 2 of the Resolution proposes that the basic rate of contribution shall be imposed in cases other than those to which sub-paragraphs (b), (c) and (d) apply. Those sub-paragraphs apply to persons entitled to concessional allowances for income tax purposes and to primary producers subject to the averaging provisions for income tax purposes and to primary producers subject to the averaging provisions of the Income Tax Assessment Act. The method of ascertainment of the basic rate is explained in the Note to Paragraph 1. of the Resolution.

Sub-paragraph (b) provides that where a person, other than a primary producer who is subject to the averaging provisions of the Income Tax Assessment Act, would be entitled to concessional rebates for income tax purposes, the rate of contribution payable shall be the concessional rate. The method of ascertainment of the concessional rate is explained in the Note to Paragraph 1. of the Resolution.

Sub-paragraph (c) provides that in the case of a primary producer who would be subject to the averaging provisions of the Income Tax Assessment Act but who would not be entitled to concessional rebates for income tax purposes, the rate of contribution payable shall be the average rate calculated in the manner set out in the Note to Paragraph 1. of the Resolution.

sub-paragraph (d) provides that the rate of contribution payable by a primary producer who would be subject to the income tax averaging provisions and who would also be entitled to concessional rebates for income tax purposes, shall be the concessional average rate. The method of ascertainment of this rate is explained in the Note to Paragraph 1. of the Resolution.

Sub-paragraph (e) provides that a trustee shall pay social service contribution at the rates prescribed in the Second Schedule to the Social Services Contribution Act. This provision, however, will operate only in isolated cases. Ordinarily, a beneficiary will be required to pay the contribution on his share of the trust income. In those cases, however, where there is no person presently entitled to the trust income, or part thereof, the trustee will be required to pay the contribution as if the share of the income to which no person is presently entitled were the income of one individual. Liability to pay the social services contribution will also rest on the trustee in respect of a beneficiary's share where the beneficiary is under some legal disability.

Sub-paragraph (f) of this paragraph repeats substantially the provisions of section 5 (3.) of the Social Services Contribution Act 1945. It applies-

(a)

where the contributor would be entitled to an income tax rebate in respect of a dependant and his income exceeds Pd156; and

(b)

where the contributor has no dependant and his income exceeds Pd104.

This provision ensures that the contribution payable shall not be greater than one-half of the excess of the contributable income over Pd156 in Class (a) nor more than one-half of the excess of the contributable income over Pd104 in Class (b).

PARAGRAPH 3.-DEFINITIONS.

This paragraph contains a number of definitions which it is proposed to insert in the Social Services Contribution Act. Such definitions are designed to facilitate the drafting of the necessary amending legislation. As most of the definitions have been referred to and explained in the Notes to previous paragraphs of this Resolution, further explanations are unnecessary. The definitions of "contribution" and "rate of contribution" are self-explanatory.

PARAGRAPH 4.-APPLICATION OF PROPOSED RATES TO 1945-1946 ASSESSMENTS.

The purpose of this paragraph is to authorize the retrospective application of the new rates of contribution. It is proposed that the amending provisions shall have the same force and effect as if they had been included in the original Social Services Contribution Act. The effect will be that the rates of contribution to be applied in assessments based on income derived during the year ended 30th June, 1946, will be one-half of the proposed rates.