Explanatory Memorandum
(Circulated by the Treasurer, the Rt. Hon. William McMahon)Notes on Clauses
INCOME TAX ASSESSMENT BILL 1969.
Clause 1: Short Title and Citation.
This clause formally provides for the short title and citation of the Amending Act and the Principal Act as amended.
Section 5(1A.) of the Acts Interpretation Act 1901-1966 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 Amending Act shall come into operation on the day it receives the Royal Assent.
Clause 3: Exemption of Certain Income from Sale of Gold.
Introductory Note.
By this clause it is proposed to extend the operation of section 23C of the Principal Act to provide exemption for -
- (a)
- income derived by certain companies from the sale of newly-mined gold for industrial use in Australia; and
- (b)
- dividends paid by those companies out of that income.
Section 23C at present exempts from tax income derived from export sales of gold produced in Australia or the Territory of Papua and New Guinea which is purchased from the Reserve Bank by a company approved for the purpose that is owned by the producers of the gold. The section also provides a tax exemption for dividends paid by such a company out of the export income. These exemptions are supplementary to those provided by section 23(o) of the Principal Act. In broad terms, section 23(o) exempts from tax income derived from the working of a mining property principally for the purpose of obtaining gold.
The provisions of section 23C were originally devised in the light of the arrangements in force prior to 18 March 1968 for the marketing of newly-mined gold produced in Australia and Papua/New Guinea. Under those arrangements, gold for industrial use in Australia was supplied to users by the Reserve Bank, at prices based on the official price, out of the newly-mined gold delivered to the Bank by members of the Gold Producers' Association - membership of which is open to all producers of gold in Australia and Papua/New Guinea. The balance of those deliveries was available for purchase from the Bank at the official price by the Association for export at market prices.
Under the gold marketing arrangements that have operated since 18 March 1968, the Gold Producers' Association is authorised to purchase from the Reserve Bank, for export and for sale to industrial users in Australia, at market prices, the newly-mined gold delivered to the Bank by Association members. The amendments proposed to section 23C of the Principal Act by clause 3 of the Bill are a consequence of these changed arrangements for the marketing of gold for industrial use in Australia.
Paragraphs (a) and (b) of subclause (1.) of clause 3 of the Bill will effect drafting amendments to paragraphs (b) and (c) of section 23C(1.) of the Principal Act which are consequential on the amendment of section 23C(1.) proposed by paragraph (c) of sub-clause (1.).
Paragraph (c) of sub-clause (1.) will omit paragraph (d) from section 23C(1.) of the Principal Act. Paragraph (d) limits the exemption of income available under section 23C(1.), and also the exemption provided under section 23C(2.) for dividends paid out of income that is exempt under section 23C(1.), to income and dividends related to export sales of gold.
The effect of omitting paragraph (d) of section 23C(1.) of the Principal Act will be that income derived by companies of the kind to which the section applies from all sales of newly-mined gold purchased from the Reserve Bank will be exempt from income tax. These will be export sales and sales to industrial users of gold in Australia.
As a consequence of the proposed amendments to section 23C(1.) of the Principal Act, the existing provisions of section 23C(2.) will provide exemption from tax for distributions made by producer-owned companies of profits earned from local and export sales of gold. Section 23C(2.) applies to dividends paid out of income which is exempt under section 23C(1.).
Sub-clause (2.) of clause 3 specifies the sales of gold to which the proposed exemption applies. These will be sales made after 17 March 1968, i.e., the day preceding the coming into force of the changed marketing arrangements for the sale of gold for industrial use in Australia.
Clause 4: Rebate for Export Market Development Expenditure.
Introductory Note.
This clause will remedy a technical defect in provisions designed to limit the amount of the income tax rebate which may be obtained for export market development expenditure.
Section 160AC of the Principal Act authorises a rebate of income tax of 42.5 cents for each dollar of eligible expenditure incurred after 30 June 1968 in promoting exports from Australia. The rebate is in addition to the tax saving resulting from any deduction allowable for the expenditure under the general provisions of the Income Tax Assessment Act.
Section 160AC(9.) limits the total tax saving that may be obtained from a deduction and a rebate related to the same amount of expenditure. The ceiling on the total tax saving is 87.5 cents for each dollar of the amount of the expenditure. Section 160AC(10.) sets out how the tax saving is to be calculated on the deduction in various cases in order to ascertain whether an adjustment has to be made to the rebate to keep the total tax saving within the limitation.
In broad terms, if a taxpayer's rate of tax is 50 cents in the dollar, his tax saving from a deduction for export market development expenditure is 50 cents for each dollar expended. Allowance of a rebate of tax of 42.5 cents for each dollar of the same expenditure would result in a total tax saving, by virtue of the deduction and the rebate, of 92.5 cents for each dollar expended.
In these circumstances, section 160AC(9.) is designed to reduce the rebate otherwise allowable to the extent necessary to ensure that the total tax saving from the rebate and the deduction does not exceed 87.5 cents for each dollar of eligible expenditure. On the basis of the example given above, subsection (9.) is intended to reduce the rebate to 37.5 cents so that the total tax saving from the rebate (37.5 cents) and the deduction (50 cents) is limited to 87.5 cents for each dollar of expenditure that qualifies for the rebate.
The purpose of sub-clause (1.) of clause 4 is to make drafting changes in section 160AC(10.). In the absence of the changes it would not be possible, in some cases, for the tax saving to be calculated on the basis described. This is because there is a technical defect in the section as at present drafted. The cases concerned are those where, in addition to a deduction for export market development expenditure incurred in the year of income, a taxpayer is also entitled in his assessment to a deduction under section 80 or 80AA of the Principal Act for business losses incurred in a previous year of income (i.e., where allowable deductions for a previous year or years of income had exceeded assessable income of the year or years).
Paragraph (a) of sub-clause (1.) will effect the necessary drafting changes in cases where a tax saving is to be calculated in respect of a year of income for which a taxpayer -
- (a)
- has incurred the export market development expenditure for which the tax saving is being calculated; and
- (b)
- is entitled to a deduction for a prior year loss or losses.
In these cases the part of the tax saving for the year caused by the allowance of a deduction for the export market development expenditure will be the difference between -
- (a)
- the tax notionally payable if neither the export market development expenditure nor the prior year losses had been deductible; and
- (b)
- the tax notionally payable if, of those two deductible items, only the export market development expenditure had been deductible.
This formula will produce the amount of tax saved for the year that is attributable to the deduction allowed for the export market development expenditure.
Paragraph (b) of sub-clause (1.) will serve a corresponding purpose to paragraph (a) in a more complicated type of case where a taxpayer is entitled to a deduction for losses of more than one previous year and there is interposed, between the current year and a year in which a loss was in part attributable to a deduction for the export market development expenditure in respect of which the tax saving is being calculated, another year of loss.
In these cases the part of the tax saving in the current year caused by the allowance of the deduction of that part of the prior year loss attributable to export market development expenditure will be the difference between -
- (a)
- the tax notionally payable if the part of the prior year loss attributable to the export market development expenditure and the loss of the other prior year had not been deductible; and
- (b)
- the tax notionally payable if, of those two deductible items, only the part of the loss attributable to the export market development expenditure had been deductible.
Sub-clause (2.) of clause 4 will deem the amendments proposed by clause 4(1.) to have had effect from and including 21 November 1968. This is the date on which the Amending Act which inserted section 160AC in the Principal Act came into operation.
The effect of sub-clause (2.) will be that the tax saving in respect of any export market development expenditure to which section 160AC applies will be calculated in accordance with the provisions of that section as amended by clause 4 of this Bill.
PAY-ROLL TAX ASSESSMENT BILL 1969
Clause 1: Short Title and Citation.
This clause formally provides for the short title and citation of the Amending Act and the Principal Act as amended.
Section 5(1A.) of the Acts Interpretation Act 1901-1966 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 Amending Act shall come into operation on the day it receives the Royal Assent.
By this clause it is proposed to amend section 16X of the Principal Act which prescribes the basis on which gold producers may qualify for the pay-roll tax export rebate in respect of the gold they produce. The clause will re-enact section 16X in a form that will, in effect, exclude from the calculation of a gold producer's rebate entitlement amounts attributable to newly-mined gold that is sold for industrial use in Australia.
In broad terms, the amount of a rebate of pay-roll tax is 10.5 per cent of the amount by which the value of export sales for the rebate year (very broadly, the year of export) exceeds the average annual value of export sales for the relevant base period years.
Under the present section 16X, the total gold production of a gold producer is, on delivery to the Reserve Bank, treated as an export sale when calculating the producer's entitlement to rebate. This is so even though some part of the gold he delivers may be used for industrial purposes in Australia.
Section 16X also treats as the proceeds of export sales for rebate purposes, dividends received by a gold producer which are of the kind for which exemption from tax is provided by section 23C of the Income Tax Assessment Act. These are dividends arising from export sales of gold. The provisions of section 23C are explained at pages 2 to 3 of this memorandum which also outline recent changes in gold marketing arrangements. The amendments proposed arise from these changes.
By the amendments to section 16X of the Principal Act, it is proposed that a gold producer's deliveries of newly-mined gold to the Reserve Bank that would otherwise qualify as export sales for rebate purposes are to be reduced by the proportion of newly-mined gold produced in Australia and Papua and New Guinea that is sold for industrial use in Australia. Dividends received by a gold producer that are exempt from tax by reason of section 23C of the Income Tax Assessment Act are to be reduced by the same proportion.
The effect of the proposed amendments to section 16X will be that the export rebate will continue to be available in relation to -
- (a)
- deliveries to the Reserve Bank of newly-mined gold that is exported from Australia; and
- (b)
- dividends that arise from export sales of newly mined gold and are exempt from income tax under section 23C of the Income Tax Assessment Act.
The amendments proposed by the Bill will apply to the calculation of rebate entitlements of gold producers for the financial year 1968-69 and subsequent financial years.
Explanations of each provision of the proposed new section 16X are provided below.
Paragraph (a) of sub-section (1.) of the new section 16X deems gold to have been exported from Australia at the time of delivery in accordance with the banking laws.
Paragraph (b) of sub-section (1.) formally deems the person who mined the gold to be the producer for export of the gold. That person will, in consequence, have a right to claim a rebate in relation to increases in export sales of gold.
Paragraph (c) will apply to those gold producers who are not members of a producer-owned company authorised to sell gold, i.e., of a "prescribed company" as defined in section 16X(5.).
Paragraph (c) specifies the amount that is to be deemed to be included for rebate purposes in the value of export sales of such a gold producer for the year in which his gold is delivered to the authorities under the appropriate banking legislation. This amount will be the consideration received on delivery of the gold.
Paragraph (d) is complementary to paragraph (c). It will apply to gold producers who, during a year in which their gold was delivered to the authorities under the banking laws, were members of a prescribed company.
Sub-paragraphs (i) and (ii) of paragraph (d) will specify the amounts deemed to be included in the value of export sales of such a gold producer.
Under sub-paragraph (i), the value of export sales for a year in which the gold was delivered will include the consideration received on delivery of the gold, less a proportion of it designed to represent the part of the deliveries that subsequently is sold for industrial use in Australia. This proportion is measured by the "prescribed ratio" for the year as that term is defined in the proposed sub-section (5.).
Sub-paragraph (ii) of paragraph (d) will include in the gold producer's value of export sales for the year, dividends received during the year that are of the kind referred to in section 23C(2.) of the Income Tax Assessment Act, less the same proportion as that used under sub-paragraph (i) for the particular year.
Paragraph (e) of sub-section (1.) is a drafting measure which, subject to sub-section (2.), ensures that gold treated as an export for rebate purposes when it is delivered to the authorities is not again taken into account as an export when it actually leaves Australia.
Sub-section (2.) of section 16X will apply in circumstances where gold to which sub-section (1.) applies is sold by a prescribed company for industrial use in Australia and, after processing by the purchaser (for example, into pure gold granules), is exported.
As gold which has been sold for industrial use in Australia, it will have been excluded by sub-section (1.) from the calculation of the rebate entitlement of the person who produced it and paragraph (e) of the sub-section would operate so that no other person would be entitled to a rebate in respect of this gold when it is exported.
The purpose of sub-section (2.) is to enable the person who processes the gold to be treated as the producer for export of it if he otherwise qualifies under the general provisions governing the eligibility of exporters to the rebate for increases in exports.
Sub-section (3.) of section 16X is a drafting provision that deems gold to have been delivered in accordance with the banking laws at the time the Reserve Bank, for the purposes of payment of the consideration for the gold, treated that gold as having been delivered.
Sub-section (4.) is a further drafting measure under which a reference in section 16X to the banking legislation relating to gold is to be read as a reference to that law as in force at the relevant time.
Sub-section (5.) is designed to facilitate drafting. It defines certain terms used in the proposed section 16X.
"prescribed company".
This term means a company approved by the Treasurer for purposes of the exemption available under section 23C of the Income Tax Assessment Act in relation to sales of gold purchased from the Reserve Bank. A company qualifies under that section if it is wholly owned by producers of gold in Australia or the Territory of Papua and New Guinea.
"the prescribed ratio".
This term is used in section 16X(1.)(d) as the basis for excluding from the value of export sales of gold producers amounts representing sales of newly-mined gold that are for industrial use in Australia.
Paragraph (a) of the definition will apply in respect of base period years under the pay-roll tax rebate provisions (1960-61 to 1967-68). The proportion of the consideration received for a gold producer's deliveries of gold and of the tax exempt dividends he receives which is not to be included in the value of his export sales for those years will be based on -
(Sales for industrial use in Australia of newly-mined gold during the year preceding the base period year by the Bank.)/(Deliveries to the authorities of newly-mined gold during the year preceding the base period year.)
The amounts from which these proportions are to be calculated are set out in the Schedule to the Bill.
Paragraph (b) of the definition will apply in respect of rebate years under the pay-roll tax rebate provisions (1968-69 and subsequent financial years). The proportion of the consideration received for a gold producer's deliveries of gold and of the tax exempt dividends he receives which is not to be included in the value of his export sales for those years will be -
(The quantity of newly-mined gold purchased from the Reserve Bank that was sold during the year preceding the rebate year by prescribed companies for industrial use in Australia.)/(The total quantity of newly-mined gold purchased from the Reserve Bank that was sold during the year preceding the rebate year by prescribed companies (this will be gold exported from Australia and gold sold for industrial use in Australia).)
"the Reserve Bank".
This term is defined to facilitate drafting. It means the Reserve Bank of Australia.
Clause 4: Provision for Payment of Tax by Executors or Administrators.
This clause will effect a drafting amendment to section 33 of the Principal Act which is consequent upon the insertion in that Act of the Schedule set out in Clause 5 of the Bill.
This clause will insert a new schedule in the Principal Act for the purposes of paragraph (a) of the definition of "the prescribed ratio". For example, where the amount of consideration received by a gold producer for his deliveries of gold to the Reserve Bank during the financial year ended 30 June 1961 is to be reduced under section 16X(1.)(d)(i), the proportionate reduction will be measured by the formula -
(The amount of the consideration) * ((23,476) / (1,122,800))
This clause will effect a drafting amendment to the heading of The Schedule to the Principal Act which is consequent upon the insertion in that Act of the new schedule set out in Clause 5 of the Bill.
Clause 7: Application of Amendments.
Under this clause the amendments proposed by the Bill will apply in relation to rebate claims for the 1968-69 financial year and later years.