House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)

Notes on Clauses

PART I - PRELIMINARY

Clause 1: Short title

This clause provides formally for the citation of the amending Act as the Income Tax (Assessment and Rates) Amendment Act 1981. This title is explained by the fact that the amendments proposed by Part II of the amending Bill are amendments of the Income Tax Assessment Act 1936, while those proposed by Part III relate to the Income Tax (Rates) Act 1976.

Clause 2: Commencement

Under this clause the amending Act will come into operation on the day on which it receives the Royal Assent. But for this clause the amending Act would, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent. Some provisions in the Bill will affect the preparation of income tax returns to be lodged for the year ending on 30 June next.

PART II - AMENDMENTS OF THE INCOME TAX ASSESSMENT ACT 1936

Clause 3: Principal Act

This clause provides formally for the Income Tax Assessment Act 1936 to be referred to as "the Principal Act", in Part II of the amending Act.

Clauses 4 to 6: Current year losses.

Introductory note

Clauses 4 to 6 propose amendments to Subdivision B of Division 2A of Part III - the "current year loss" provisions - of the Principal Act. The amendments are consequential upon amendments proposed, by clauses 10 to 23, to the provisions of Divisions 10 and 10AA of Part III of the Principal Act which authorise deductions in relation to certain capital expenditures incurred in general mining and petroleum mining operations.

The amendments proposed by clauses 10 to 23 will have the effect that deductions will be allowed under new sections 122DD and 124ADD, in respect of eligible capital expenditure incurred after 30 April 1981 by a mining enterprise in connection with the development of a mining property or oil or gas field in Australia, in corresponding circumstances to those in which deductions are allowable under section 122DB or 124ADB in respect of expenditure incurred after 17 August 1976. Under the new arrangements, however, deductions will be calculated by reference to the lesser of the estimated life of the mine or field or 6 years instead of the present formula of the lesser of the estimated life of the mine or field or 5 years.

Accordingly, clauses 4 to 6 propose that deductions allowable under sections 122DD and 124ADD are to be treated in the same way for purposes of the current year loss provisions as the deductions that are allowable at present under sections 122DB and 124ADB.

Clause 4: Calculation of taxable income

This clause will insert a reference to new sections 122DD and 124ADD in sub-paragraph 50C(3)(d)(v) of the Principal Act. The effect of this amendment will be to bring deductions allowed under the new sections into place within the specified order of deductibility for certain classes of full-year deductions set out in sub-section 50C(3). Deductions under sections 122DD and 124ADD will thus be taken into account for purposes of the current year loss provisions in the order in which the deductions would have been taken into account if they had continued to be allowed under the arrangements that are being varied.

Clause 5: Full-year deductions and partnership deductions

The amendment proposed by clause 5 is complementary to that being effected by clause 4.

This clause will include references to new section 122DD in section 50F of the Principal Act which identifies the deductions that are to be treated as "full-year" deductions or, as the case requires, as full-year partnership deductions, for the purposes of the current year loss provisions.

By paragraph (a) of clause 5, a reference to new section 122DD will be included in sub-section 50F(2) . This amendment will have the effect that a deduction allowable to a company under section 122DD will not be treated as a full-year deduction if the company had made an election under sub-section 122DD(4) that the deduction is not to be limited to the amount of remaining assessable income for the year of income. This is consistent with the position in relation to an election under comparable provisions of sections 122D and 122DB.

Paragraph (b) of clause 5 will insert a reference to section 122DD in sub-section 50F(5). This amendment will have an effect, in relation to partnerships and the specification of full-year partnership deductions, identical to that which the amendment proposed by paragraph (a) will have in relation to companies.

Clause 6: Divisible deductions

This clause will amend section 50G of the Principal Act. Section 50G identifies certain deductions that are to be treated as "divisible" deductions for the purposes of the current year loss provisions, and specifies the manner in which those divisible deductions are to be taken into account under those provisions.

Included in the category of divisible deductions, by virtue of paragraph 50G(1)(b), are those deductions allowable under sections 122D and 122DB that do not qualify as full-year deductions under section 50F by reason that the taxpayer has made an election that the deductions not be limited in accordance with section 122D or 122DB, as the case may be, to the assessable income of the income year. By paragraph (a) of clause 6 any deductions allowable under new section 122DD in respect of which a taxpayer has made a corresponding election will similarly be treated as divisible deductions.

Paragraph (b) of clause 6 will insert a reference to new section 122DD in paragraph 50G(2)(q) of the Principal Act which specifies the manner in which those deductions under sections 122D and 122DB that fall to be treated as divisible deductions for purposes of the current year loss provisions are to be taken into account for the purposes of those provisions. The amendment will have the effect that any deduction under new section 122DD that qualifies as a divisible deduction for purposes of the current year loss provisions will be treated in the same manner as deductions under sections 122D and 122DB.

Clause 7: Deduction for cost of converting oil-fired plant

This clause will amend section 53H of the Principal Act, which authorises an income tax deduction in the year of expenditure for expenditure incurred on or after 22 August 1979 and before 1 July 1984 in converting or adapting oil-fired plant to operate on alternative energy sources. Section 53H also authorises a deduction for expenditure incurred in converting or adapting plant to support the operation of converted oil-fired plant or of plant that qualifies for the special 40 per cent conversion allowance for non-oil-fired plant provided under Subdivision BB of Division 3 of Part III of the Principal Act.

The effect of the amendments proposed by clause 7 is to change the basis of deduction under section 53H so that, in respect of eligible conversion costs incurred after 30 April 1981, the deduction will be allowable in equal instalments over 2 income years instead of being wholly allowable in the year in which the expenditure is incurred. However, eligible conversion costs incurred after 30 April 1981 under a contract entered into on or before 30 April 1981 or incurred in connection with a conversion that the tax-payer commenced to carry out on or before 30 April 1981 will continue to be immediately deductible in the year in which the expenditure is incurred.

A detailed explanation of the proposed amendments to section 53H is provided in the following notes.

Paragraph (a) of clause 7 will insert two new sub-sections - sub-sections (1) and (1A) - in section 53H in place of existing sub-section 53H(1) which is the substantive provision that authorises a deduction for conversion costs incurred on or after 22 August 1979 and before 1 July 1984.

By new sub-section (1) the existing basis of deduction will continue to apply to conversion costs incurred on or before 30 April 1981, and to conversion costs incurred after that date under a contract entered into by the taxpayer on or before 30 April 1981 or where, if the taxpayer carried out the conversion or adaptation, the conversion or adaptation was commenced on or before 30 April 1981.

New sub-section (1A) applies to conversion costs that sub-section (1) does not apply to - those incurred after 30 April 1981, and before 1 July 1984, in respect of conversions commenced or contracted for after the earlier of those dates. It specifies that 50 per cent of those conversion costs will be deductible in the income year in which they are incurred and that the remaining 50 per cent will be deductible in the succeeding year of income.

By paragraph (b) of clause 7 a new sub-section (13) is to be inserted in section 53H in place of existing sub-section 53H(13). Existing sub-section 53H(13) applies for the purposes of various safeguarding provisions in section 53H which may deny a conversion costs deduction if the converted plant is disposed of under certain specified conditions. For those purposes, a taxpayer acquiring by hire purchase,plant in respect of which he has incurred conversion costs is deemed by sub-section 53H(13) to have disposed of that plant if it is repossessed. The disposal is deemed to have occurred at the time possession reverts to the owner. New sub-section (13) applies in the same way as existing sub-section 53H(13), but is expressed to apply as well for the purposes of new sub-sections 53H(22D) and (22E) which are being inserted by paragraph (c) of clause 7. Sub-sections 53H(22D) and (22E) contain new safeguarding provisions - which have been made necessary by the change from an immediate deduction to deductions over 2 years - relating to the disposal of converted plant by a partnership.

As a consequence of the change from immediate deduction of conversion costs to deductions over 2 years, paragraph (c) of clause 7 proposes the inclusion of 5 new sub- sections in section 53H to govern the eligibility of partners to obtain deductions in respect of conversion costs of partnership plant and to provide safeguards against the disposal or ineligible use of converted plant in cases where a deduction for conversion costs has been allowed to a partner.

New sub-section (22A) of section 53H will apply in a case where, after 30 April 1981, a partnership incurs conversion costs - which by reason of new sub-section 53H(1A) would otherwise be deductible by the partnership in equal instalments over 2 years - in respect of property that is not leased by the partnership to another person. In these circumstances, conversion costs deductions are not to be allowable to the partnership in calculating the partnership's net income (or the partnership loss), but each partner is to be deemed to have incurred so much of the conversion costs incurred by the partnership as, by agreement between the partners, has been borne by each partner. Where the partners have not agreed as to the amounts of the expenditure to be borne by the partners, the costs are to be deemed to have been incurred by each partner in proportion to the individual interest of each in the net income (or the loss) of the partnership of the year of income in which the conversion costs were incurred.

Sub-section (22A) is in similar terms to the existing sub-section (17) which applies to converted plant that is leased by a partnership to another person.

Broadly, new sub-sections (22B) to (22E) of section 53H may cause a partner to not be entitled to a conversion costs deduction if he or she disposes of the whole or a part of his or her interest in converted partnership plant or in the partnership itself, or if the partnership disposes of the converted plant or uses it for ineligible purposes.

New sub-section (22B) of section 53H provides safeguards against the disposal of the whole or a part of a partner's interest in a partnership or in converted partnership property within 12 months of the converted property being first used or installed ready for use after conversion. If a partner disposes of the whole of his or her interest in the partnership or in the property, the sub-section will withdraw the partner's entitlement to a deduction in respect of conversion costs incurred, after 30 April 1981, by the partnership. Where only part of an interest is disposed of, only so much of the conversion costs deduction as the Commissioner of Taxation considers appropriate may be withdrawn. Any exercise of this power by the Commissioner will be open to review in the usual way by a Taxation Board of Review.

New sub-section (22C) of section 53H will operate in a similar manner to sub-section 53H(22B) in a case where a partner disposes of an interest in a partnership or in converted partnership property after the expiration of 12 months after the converted property was first used or installed ready for use after conversion. Before any deduction may be withdrawn under sub-section 53H(22C), however, the Commissioner must be satisfied that, at the time the converted property was first used or installed ready for use after conversion, the partner intended to dispose of the whole or a part of his or her interest after becoming entitled to a conversion costs deduction.

New sub-section (22D) of section 53H provides for the withdrawal of a conversion costs deduction that would otherwise be allowable to a partner in respect of conversion costs incurred after 30 April 1981 by a partnership if any of the following events occurs within 12 months of the converted property being used or installed ready for use after conversion -

•

the property is disposed of by the partnership or is lost or destroyed;

•

the property is leased or used by another person as a result of a right granted by the partnership, or is let under a hire purchase agreement;

•

the property is used by the partnership outside Australia or for a purpose other than the purpose of producing assessable income.

New sub-section (22E) of section 53H will operate in a similar manner to sub-section 53H(22D) where any of the events enumerated in that sub-section occurs after the expiration of 12 months after the converted property was first used or installed ready for use after conversion. However, before any deduction may be withdrawn under sub-section 53H(22E), the Commissioner must be satisfied that, at the time the converted property was first used or installed ready for use, the partner intended that the partnership would dispose of the property, use it for ineligible purposes or grant rights to others to use it after the partner became entitled to a conversion costs deduction.

Paragraph (d) of clause 7 proposes to insert a new sub-section (36) in section 53H in place of existing sub-section (36). Existing sub-section 53H(36) stipulates that, wherever there is a reference in the section to converted property being first used or installed ready for use, that is to be taken as meaning the first use or installation ready for use of the property after the completion of the conversion or adaptation in respect of which the conversion costs were incurred. The sub-section is relevant to the various safeguarding measures relating to the disposal or ineligible use of converted plant and, by the amendments proposed by paragraph (d), will now contain an appropriate reference to first use or installation ready for use of converted property by a partnership in which the taxpayer is a partner. The reference is necessary to reflect the wording of the new safeguarding provisions, sub-sections 53H(22B) to (22E), being inserted by paragraph (c) of clause 7 in respect of conversion costs incurred by partnerships after 30 April 1981.

Clause 8: Special depreciation on plant

This clause will amend section 57AG of the Principal Act to reduce from 20 per cent to 18 per cent the loading on plant depreciation rates. By the loading, higher depreciation allowances apply in respect of most plant acquired after 19 August 1980 and used by the taxpayer in the production of assessable income or installed ready for use for that purpose and held in reserve.

Sub-section 53AG(3) is the operative provision and provides that the amount of the deduction for depreciation of eligible plant is to be 20 per cent greater than the amount that would otherwise have been deductible under the depreciation provisions of the income tax law.

The amendment proposed by this clause will substitute a new sub-section (3) with the effect that, in respect of eligible plant acquired after 30 April 1981, the depreciation loading will be reduced to 18 per cent.

Paragraph (a) of new sub-section (3) will continue the existing depreciation loading of 20 per cent for eligible plant that was acquired by the taxpayer under a contract entered into on or before 30 April 1981 or that was constructed by the taxpayer if the construction commenced on or before 30 April 1981.

Paragraph (b) specifies that the reduced loading of 18 per cent is to apply to eligible plant acquired by the taxpayer under a contract entered into after 30 April 1981 and to plant constructed by the taxpayer if the construction commenced after 30 April 1981.

Clause 9: Deduction in respect of new plant installed on or after 1 January 1976

By clause 9, a new sub-section - sub-section (9) - will be added to section 82AB of the Principal Act and will have the effect of reducing the investment allowance deduction that is available in respect of certain new plant from 20 per cent of the cost of the plant to 18 per cent of that cost.

The reduction in the amount of the investment allowance deduction will be achieved by specifying in sub-section (9) that the amount of the deduction allowable in respect of expenditure incurred after 30 April 1981 on new plant is to be 90 per cent of the amount that would otherwise be allowable. The 20 per cent rate of investment allowance will continue to be available in relation to plant acquired under a contract entered into on or before 30 April 1981 or the construction of which, if the plant was constructed by the taxpayer, commenced on or before that date.

Clauses 10 to 23 : Deductions in respect of capital expenditure incurred in the development of a mining property or oil field

Introductory note

Deductions in relation to eligible capital expenditures incurred in connection with the development of a mining property or an oil or natural gas field in Australia and in carrying on general mining or petroleum mining operations are available under Divisions 10 and 10AA of the Principal Act.

The amendments to be made to Divisions 10 and 10AA will not disturb the classes of capital expenditure which may qualify for deduction. Their purpose is to provide for reduced rates of deductions in respect of eligible expenditures that, broadly, are incurred after 30 April 1981 and which are currently deductible by reference to the life of the mine or field to which they relate. The maximum life of a mine or field for this purpose is to be increased from 5 to 6 years with deductions continuing to be calculated on the reducing balance of undeducted amounts.

The amendments proposed by clauses 10 to 15 relate to Division 10 which is concerned with mining operations other than for petroleum and the amendments proposed by clauses 16 to 23 relate to Division 10AA which is concerned with petroleum mining operations.

Clause 10: Deduction of residual previous capital expenditure

This clause will amend sub-section 122D(3) of the Principal Act in consequence of the insertion of new section 122DD by clause 13.

Sub-section 122D(3) provides that, unless the taxpayer elects otherwise, a deduction under section 122D is limited to the amount of assessable income remaining after taking into account all other deductions except the deductions under sections 122DB and 122J and those under section 122D. Briefly, section 122D provides for deductions in respect of eligible capital expenditures incurred on or before 17 August 1976; section 122DB provides for deductions in respect of eligible capital expenditures incurred after 17 August 1976 and section 122J in respect of prospecting and exploration expenditure.

The purpose of sub-section 122D(3) is to ensure that a taxpayer is not deprived of an effective deduction for allowable capital expenditure by reason of section 80 of the Principal Act which limits the carry-forward of losses to 7 years. In the absence of the sub-section this could happen if the taxpayer did not derive income, within the next 7 years after incurring the expenditure, sufficient to absorb the full amount of the expenditure.

By clause 10 deductions under new section 122DD will be grouped with the deductions under sections 122D, 122DB and 122J that are excluded from the calculation of the amount available for deduction in the absence of a contrary election by the taxpayer. Another effect of the clause will be that amounts deductible under section 122D (i.e., those in respect of earlier-incurred expenditure) will be deducted before amounts deductible under section 122DD.

Clause 11: Residual capital expenditure

This clause proposes the repeal of section 122DA and the substitution of a new section 122DA.

Existing section 122DA provides the basis for determining the amount of residual capital expenditure of a taxpayer as at the end of a year of income. In broad terms, the residual capital expenditure is so much of the allowable capital expenditure incurred by a taxpayer after 17 August 1976 and before the end of the year of income as has not been allowed as a deduction in a previous year of income. The amount so determined is deductible on the basis provided in section 122DB.

Sub-section (1) of the new section 122DA is substantially a restatement of the existing sub-section 122DA(7) except that expenditure incurred after 30 April 1980 is to be excluded from the scope of residual capital expenditure unless the expenditure was incurred under a contract entered into on or before that date or, in relation to the construction of property by the taxpayer, the construction was commenced on or before that date. In all other respects the calculation of residual capital expenditure under sub-section 122DA(1) is to be identical with that of the existing sub-section (1). (See also the notes on clause 13.)

Existing sub-section 122DA(2) applies in a situation where expenditure on property has been excluded from residual capital expenditure, because the property has ceased to be used by the taxpayer for prescribed purposes, and the property commences to be used again for purposes for which allowable capital expenditure may be incurred. In these circumstances, so much of the expenditure incurred after 17 August 1976 and before the termination of use as the Commissioner of Taxation determines is deemed, for the purposes of section 122DA, to have been incurred by the taxpayer for the relevant purposes in the year in which its use for those purposes recommenced.

New sub-section (2) will operate in a similar fashion to the existing sub-section in relation to expenditure incurred on property after 17 August 1976, the use of which by the taxpayer for prescribed purposes has ceased, but will be confined to cases where the recommencement of use for eligible purposes occurred on or before 30 April 1981. In such a case, so much of the expenditure incurred after 17 August 1976 and before the termination of use as the Commissioner determines is deemed, for the purposes of section 122DA, to have been incurred by the taxpayer for the relevant purposes on the day on which its use for those purposes recommenced.

Clause 12: Deduction of residual capital expenditure

The amendment proposed by clause 12, by which a reference to new section 122DD will be inserted in sub-section 122DB(3), has a purpose similar to the amendment proposed by clause 10.

Sub-section (3) is designed to ensure that mining enterprises are not denied effective deductions for allowable capital expenditure through the operation of the loss provisions of section 80 of the Principal Act. This is achieved, unless the taxpayer elects otherwise, by limiting the amount of the deduction allowable under section 122DB to the amount of assessable income remaining after taking into account all deductions except the deductions under sections 122DB and 122J.

As amended, sub-section (3) will require that deductions allowable under new section 122DD correspondingly be excluded from the calculation of the amount of assessable income available to absorb deductions under section 122DB.

Clause 13: Residual (post 30 April 1981) capital expenditure

By this clause two new sections - sections 122DC and 122DD - are to be inserted into the Principal Act. The new sections will have application in respect of allowable capital expenditure incurred after 30 April 1981, unless the expenditure is incurred under a contract entered into on or before 30 April 1981 or is incurred in respect of the construction of property by the taxpayer where the construction commenced on or before that date. In the latter cases the provisions of section 122DA will continue to apply (see clause 11).

Section 122DC : Residual (post 30 April 1981) capital expenditure

New section 122DC will provide the basis for determining the amount of "residual (post 30 April 1981) capital expenditure" of a taxpayer as at the end of a year of income. The amount so determined as at the end of an income year will be deductible on the basis of new section 122DD.

In broad terms, the residual (post 30 April 1981) capital expenditure is so much of the allowable capital expenditure incurred by a taxpayer after 30 April 1981 and before the end of the year of income as has not been allowed as a deduction in a previous year of income.

Sub-section (1) prescribes the amounts to be taken into account in ascertaining the residual (post 30 April 1981) capital expenditure as at the end of a year of income.

The scheme of the sub-section is to deduct from the amount of allowable capital expenditure, incurred after 30 April 1981 and before the end of the year of income (other than allowable capital expenditure incurred under a contract entered into on or before 30 April 1981 or incurred in respect of the construction of property by the taxpayer where the construction commenced on or before that date), certain amounts referred to in paragraphs (c) and (d) of the sub-section that are specifically excluded from the residual (post 30 April 1981) capital expenditure. These amounts are any part of the allowable capital expenditure that -

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has been allowed or is allowable as a deduction in a prior year of income under proposed section 122DD, i.e., as an annual deduction in respect of residual (post 30 April 1981) capital expenditure;

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was incurred on property (not being property in respect of which a notice under section 122B has been given) which has been disposed of, lost or destroyed, or the use of which for prescribed purposes has been terminated and has not been allowed, and is not allowable, as a deduction for a year of income prior to that in which the disposal, etc., takes place;

•

represents so much of any amounts specified in notices given under section 122B, in respect of which the entitlement to deductions has been transferred to the purchaser of a mining or prospecting right or information, which would otherwise be included in the residual (post 30 April 1981) capital expenditure of the taxpayer vendor as at the end of the year of income.

Sub-section DC(2) applies in a situation where after expenditure on property has been excluded from residual (post 30 April 1981) capital expenditure - because the property has ceased to be used by the taxpayer for prescribed purposes - the property commences to be used again after 30 April 1981 for purposes for which allowable capital expenditure may be incurred.

In these circumstances, so much of the expenditure incurred after 17 August 1976 and before the termination of use as the Commissioner of Taxation determines is to be deemed, for the purposes of section 122DC, to have been incurred by the taxpayer for the relevant purposes on the day on which its use for those purposes recommenced.

Section 122DD : Deduction of residual (post 30 April 1981) capital expenditure

New section 122DD is the operative provision establishing the basis for allowing annual deductions in respect of residual (post 30 April 1981) capital expenditure.

Sub-section (1) applies to authorise the allowance of a deduction where a taxpayer has an amount of residual (post 30 April 1981) capital expenditure as at the end of a year of income.

Under sub-section (2), the deduction allowable for a year of income is found by dividing the amount of the residual (post 30 April 1981) capital expenditure as at the end of the year by the lesser of 6 and the number of years in the estimated life of the mine as at the end of the year of income.

The sub-section effectively places a statutory upper limit of 6 years on the estimated life of a mine, as at the end of the year, for the purposes of calculating the annual deduction.

This means that where the estimated life of the mine at the end of a year is 6 years or more the allowable deduction will be equal to one-sixth of the residual (post 30 April 1981) capital expenditure as at the end of the year in question. Where the number of whole years in the estimated life of the mine is between 1 and 5 years the allowable deduction is to be found by dividing the residual (post 30 April 1981) capital expenditure by that number.

Sub-sections (3), (4) and (5) of the proposed section 122DD follow the principles of their counterparts in sections 122D and 122DB in all material respects.

Sub-section (3), like sub-section 122D(3) discussed in connection with clause 10, is to ensure that mining enterprises are not denied effective deductions for allowable capital expenditure through the operation of the loss provisions of section 80.

The sub-section provides that where the net income of the enterprise from mining and other activities (before the deduction of exploration and prospecting expenditure under section 122J) is insufficient to absorb the amount to be deducted under the section, the deduction is limited to the amount of the net income. The excess amount is to be retained in the residual (post 30 April 1981) capital expenditure for deduction in subsequent years.

Sub-section (4) is complementary to sub-section (3) and allows an enterprise to elect that the limitation not apply. In that event, any loss arising from the deduction in respect of residual (post 30 April 1981) capital expenditure will be carried forward for deduction under the general loss provisions of section 80 for up to 7 years.

Sub-section (5) restates the rule in sub-section 122D(5) which permits the Commissioner of Taxation to substitute his own estimate of the life of a mine or proposed mine if he is not satisfied that the estimate made by the taxpayer is realistic and soundly based.

Clause 14: Elections

This clause effects a formal drafting change to section 122M of the Principal Act to insert a reference to new section 122DD. Section 122M sets out formal requirements for the making of the elections which a taxpayer is entitled to make under various provisions of Division 10.

Clause 15: Deduction not allowable under other provisions

Section 122N of the Principal Act prevents the allowance of more than one deduction in respect of capital expenditure which has been or may become deductible under Division 10. The section stipulates that such expenditure is not to be deductible or to be taken into account in determining a deduction under any other provision of the Principal Act.

Sub-section 122N(3) is a drafting measure which ensures that amounts which, by virtue of the operation of the limits placed on deductions by sub-sections 122D(3), 122DB(3), and 122J(2), are not allowable in the year of income (i.e., because a taxpayer derived insufficient income to absorb the deductions in full), but are carried forward for deduction under Division 10 in subsequent years, are not to be deductible under any other provisions of the income tax law.

Clause 15 will amend sub-section 122N(3) to make clear that the same principle is to be applied to excess amounts carried forward as residual (post 30 April 1981) capital expenditure by the application of the corresponding limitation imposed by new sub-section 122DD(3).

Clause 16: Deduction of residual previous capital expenditure

Clauses 16 to 23 propose amendments to Division 10AA relating to deductions for eligible capital expenditure incurred by a taxpayer in the development and operation of an oil or natural gas field. The amendments correspond with those being made by clauses 10 to 15 in relation to Division 10 .

Clause 16 will amend sub-sections 124AD(3) and (4) of the Principal Act in consequence of the insertion of new section 124ADD by clause 19.

Sub-section 124AD(3) limits the deduction allowable under the section in a year of income to the amount of assessable income from petroleum that remains after allowing all other deductions other than deductions under section 124AD or 124ADB, or under section 124AH in respect of petroleum exploration expenditure. This provision is directed at ensuring that a taxpayer will not be deprived of an effective deduction for allowable capital expenditure through the operation of section 80 of the Principal Act, which limits the carry-forward of losses to 7 years.

Paragraph (a) of clause 16 will have the effect of excluding the deduction allowable under new section 124ADD in calculating the deduction allowable under section 124AD in respect of residual previous capital expenditure. The result will be that the deduction allowable under section 124AD will be allowable before any deduction allowable under section 124ADB in respect of residual capital expenditure, under section 124ADD in respect of residual (post 30 April 1981) capital expenditure or under section 124AH in respect of exploration expenditure.

Paragraph (b) effects a consequential amendment as a result of the proposed insertion of section 124ADD by clause 19. It will insert in sub-section 124AD(4) references to the new section 124ADD.

Clause 17: Residual capital expenditure

This clause, which is complementary to clause 19, proposes amendments to section 124ADA which provides the basis for determining the amount of residual capital expenditure of a taxpayer as at the end of a year of income. Broadly, this is so much of the allowable capital expenditure incurred by a taxpayer after 17 August 1976 and before the end of the year of income as has not been allowed as a deduction in a previous year of income. Under section 124ADB deductions for residual capital expenditure are calculated by reference to the lesser of the estimated life of the field or 5 years.

The amendment proposed by paragraph (a) of clause 17 will substitute two new paragraphs - paragraphs (a) and (b) - in sub-section 124ADA(1). The effect of the new paragraphs will be that the residual capital expenditure of a taxpayer will not include allowable capital expenditure incurred after 30 April 1981, unless it was incurred under a contract entered into on or before that date or incurred in respect of the construction of property by the taxpayer where the construction commenced on or before that date.

Paragraph (b) will replace the present sub-section 124ADA(2) with a new sub-section.

New sub-section (2) applies where, on or before 30 April 1981, a taxpayer has brought into use for petroleum mining operations property on which the taxpayer had incurred capital expenditure after 17 August 1976 but which had previously ceased to be used for such operations or which had previously been used for non-petroleum mining operations. The new sub-section mirrors the sub-section it replaces except that its application is confined to expenditure incurred on or before 30 April 1981 or contracted for on or before that date.

In these cases, the sub-section will provide authority for so much of the expenditure as the Commissioner of Taxation determines to be treated as allowable capital expenditure incurred on the day on which the property reverted to use for eligible purposes. This will effectively increase the amount of residual capital expenditure by the amount so determined.

Clause 18: Deduction of residual capital expenditure

By this clause, sub-section 124ADB(3) will be amended to insert a reference to new section 122ADD.

Sub-section 124ADB(3), like its counterpart sub-section 124AD(3), the operation of which has been explained in the notes on clause 16, is designed to ensure that a deduction allowable under section 124ADB is not lost to a taxpayer by reason of the 7 year limit on the carry-forward of losses under section 80.

The amendment will have the effect of excluding a deduction allowable under the new section 124ADD in calculating the deduction to be allowed under section 124ADB in respect of residual capital expenditure. The result will be that the deduction under section 124ADB will be set off against the available assessable income of an income year before determining any deduction under section 124ADD in respect of residual (post 30 April 1981) capital expenditure.

Clause 19: Residual (post 30 April 1981) capital expenditure

This clause will insert two new sections in Division 10AA of the Principal Act. These sections will provide the basis for determining the amount of the residual (post 30 April 1981) capital expenditure of a taxpayer and the basis for calculating deductions in respect of that expenditure.

Section 124ADC : Residual (post 30 April 1981) capital expenditure

In broad terms, under new section 124ADC the residual (post 30 April 1981) capital expenditure will be so much of the allowable capital expenditure incurred after 30 April 1981 and up to the end of the year of income (other than allowable capital expenditure that was incurred under a contract entered into on or before 30 April 1981 or incurred in respect of the construction of property by the taxpayer where the construction commenced on or before that date) as has not been allowed as a deduction in a previous year of income.

Sub-section (1) prescribes the amounts to be taken into account in ascertaining the residual (post 30 April 1981) capital expenditure as at the end of a year of income. Paragraphs (a) and (b) of the sub-section identify the relevant amounts of allowable capital expenditure from which are to be deducted the amounts specified in paragraphs (c) and (d).

Paragraph (a) will include in residual (post 30 April 1981) capital expenditure allowable capital expenditure incurred by the taxpayer after 30 April 1981 and before the end of the year of income, other than amounts that were incurred under a contract entered into on or before 30 April 1981 or incurred in respect of the construction of property by the taxpayer where the construction commenced on or before that date.

Paragraph (b) will include in residual (post 30 April 1981) capital expenditure amounts of allowable capital expenditure incurred after 17 August 1976 and which are deemed by sub-section 124ADC(2) to have been incurred after 30 April 1981. These will be amounts in respect of property that is brought into use after 30 April 1981 for petroleum mining operations where such use had previously been terminated or where the property had previously been used for non-petroleum mining operations.

Sub-paragraph (c)(i) requires that there be deducted from the sum of the amounts determined under paragraphs (a) and (b) any part of the expenditure included in that sum that has been allowed or is allowable as a deduction under section 124ADD from the assessable income of a preceding year of income.

Sub-paragraph (c)(ii) further requires the deduction from the sum of paragraphs (a) and (b) of any part of the expenditure included in that sum that represents the undeducted amount of expenditure on property that has been disposed of, lost or destroyed or the use of which for carrying on prescribed petroleum operations has been terminated.

By paragraph (d) there is also to be deducted any amounts specified in notices under section 124AB that would, but for the paragraph, be included in the residual (post 30 April 1981) capital expenditure as at the end of the year of income.

Sub-section 124ADC(2) will apply where, after 30 April 1981, a taxpayer brings into use for petroleum mining operations property on which the taxpayer has incurred capital expenditure after 17 August 1976 and which between those dates had ceased to be used for such operations or which had been used for non-petroleum mining operations.

In these cases, so much of the expenditure as the Commissioner of Taxation determines is to be treated as allowable capital expenditure incurred on the day on which the property commences or recommences to be used for petroleum mining operations. This will increase the residual (post 30 April 1981) capital expenditure by the amount so determined.

Sub-section (3) is to the effect that sub-section (2) is to operate notwithstanding section 122N.

Section 122N has the purpose of preventing double deductions in respect of an amount of capital expenditure that qualifies for deduction under the general mining provisions of Division 10. Under it expenditure that is deductible under Division 10 is not to be deductible under any other provision of the Principal Act.

While this is a necessary safeguard generally, there can be cases where expenditure is incurred on an item of plant that qualifies under Division 10 but which ceases to be used for general mining and commences to be used for petroleum mining. Sub-section (3) will permit deductions to be allowed under Division 10AA in such a case.

Section 124ADD : Deduction of residual (post 30 April 1981) capital expenditure

New section 124ADD is the operative section that will authorise deductions for residual (post 30 April 1981) capital expenditure over the life of the petroleum field, but with a maximum statutory life of 6 years.

Sub-section (1) applies where a taxpayer has an amount of residual (post 30 April 1981) capital expenditure as at the end of a year of income, and authorises the allowance of a deduction.

Sub-section (2) specifies, subject to sub-section (3), that the deduction is to be ascertained by dividing the amount of the residual (post 30 April 1981) capital expenditure as at the end of the year of income by the lesser of the number of years in the estimated life of the petroleum field as at the end of the year of income or 6. Where a taxpayer has more than one petroleum field, a separate deduction will be calculated for each field.

Sub-section (3) limits the deduction allowable under section 124ADD in respect of a year of income to the amount of assessable income that remains after allowing all other deductions other than a deduction under section 124ADD or under section 124AH in respect of exploration expenditure.

Provision is also made for the case where a taxpayer is carrying on mining operations on more than one petroleum field. In such a case, the total of deductions in respect of all fields is correspondingly, and proportionately, limited to the net income after allowance of other deductions, excluding deductions under this section and section 124AH.

An excess amount that is excluded from deduction for a particular income year under this sub-section will remain as part of the pool of residual (post 30 April 1981) capital expenditure to be deducted in future years.

Sub-section (4) is in conformity with sub-section 124AD(5) which applies in a case where the Commissioner is not satisfied that a taxpayer's estimate of the life of a petroleum field is reasonable. In such circumstances, sub-section (4), like sub-section 124AD(5), will give the Commissioner power to substitute a reasonable estimate of his own.

Clause 20: Deductions of unrecouped previous capital expenditure

This clause proposes an amendment to section 124AF consequential on the insertion by clause 19 of new section 124ADD relating to deductions for residual (post 30 April 1981) capital expenditure.

Section 124AF authorises deductions in respect of unrecouped previous capital expenditure which, broadly speaking, is capital expenditure on petroleum mining operations incurred on or before 17 September 1974.

The deduction under section 124AF is limited to the net amount of assessable income from petroleum remaining after deducting from that income all deductions allowable otherwise than under sections 124AD, 124ADB, 124AF and 124AH. Clause 20, by inserting references to new section 124ADD in sub-sections 124AF(1) and (2), proposes that the deductions to be available under section 124ADD also be excluded in calculating the net assessable income from petroleum under this section. This will have the effect of allowing deductions under section 124AF ahead of those other four deductions where the taxpayer is in receipt of assessable income from petroleum.

Clause 21: Exploration and prospecting expenditure

This clause proposes an amendment to sub-section 124AH(3) to insert a reference to new section 124ADD.

Sub-section 124AH(3) specifies the allowable deductions to be taken into account in arriving at the net assessable income from petroleum for the purpose of calculating the deduction allowable under sub-section 124AH(2). Specifically included are deductions allowable under sections 124AD, 124ADB, 124AF and 124AM. This amendment will also include deductions allowable under section 124ADD in respect of residual (post 30 April 1981) capital expenditure. In this way, the entitlement to immediate deductions for petroleum exploration expenditure will arise after the deductions allowable under the specified provisions.

Clause 22: Double deductions

This clause proposes an amendment to sub-section 124AN(3) consequential upon the insertion of new section 124ADD.

Section 124N is a general safeguarding provision, the purpose of which is to prevent more than one deduction being allowed for the one amount of expenditure. It provides that where expenditure is deductible under the special petroleum mining provisions of Division 10AA, it is not to be deductible under any other provision of the income tax law.

Sub-section 124AN(3) has the effect of deeming amounts that would have been allowable as deductions, but for the limitations imposed on deductions by sub-sections 124AD(3), 124ADB(3), 124AF(1), 124AH(2) or (4A) or 124AM(4), to have been allowed as deductions and therefore not deductible under other provisions of the income tax law.

By clause 22, a reference to new sub-section 124ADD(3) will be included in sub-section 124AN(3) to apply the same principle to excess amounts carried forward as residual (post 30 April 1981) capital expenditure by reason of the limitation imposed by new sub-section 122ADD(3).

Clause 23: Reduction of allowable deductions where certain declarations lodged

Clause 23 proposes amendments to section 124AR of the Principal Act that are consequential upon the insertion of the new section 124ADD relating to the deduction for residual (post 30 April 1981) capital expenditure.

Section 124AR authorises reductions in deductions otherwise allowable under Division 10AA where a company has made appropriate declarations to forgo those deductions under the various shareholder deduction or rebate schemes that are or have been in force at particular times.

The deductions that may be reduced consequent upon a declaration made under the petroleum shareholder rebate scheme of section 160ACA of the Principal Act are, by the amendments proposed, to also include deductions under new section 124ADD relating to residual (post 30 April 1981) capital expenditure.

Clause 24: Rebates for dependants

This clause proposes the amendment of section 159J of the Principal Act to increase by 1.038, being the relevant half-indexation factor to apply for 1981-82, the maximum amounts of concessional rebates which may be allowed to taxpayers who maintain dependants.

Paragraphs (a) to (d) of sub-clause (1) will insert the proposed maximum amounts of concessional rebates in respect of the classes of dependants specified in the table in sub-section 159J(2) of the Principal Act. A comparison of the existing amounts with those proposed for the 1981-82 year of income, is as follows:

Paragraph (e) of sub-clause (1) will increase the level of separate net income that may be derived by a dependant of a taxpayer before any reduction is made in the amount of the rebate that would otherwise be allowable in respect of the dependant. At present, the rebate otherwise allowable in respect of a dependant is not reduced unless the dependant's separate net income exceeds $272. Where the dependant's separate net income exceeds $272 the rebate is reduced by $1 for each $4 by which the dependant's income exceeds that amount. The "free" level of separate net income is to be increased to $282. This increase is equivalent to the percentage increase that is being proposed for the rebates themselves.

The new separate net income level will also apply in determining the "notional" rebates for children for the purposes of the zone and allied rebates and the rebates for sole parents and a housekeeper, as well as in relation to a taxpayer's entitlement to certain concessional expenditure such as medical and education expenses incurred on behalf of dependants.

By sub-clause (2) the increased values proposed by sub-clause (1) will apply in assessments in respect of the 1981-82 year of income and all subsequent income years.

Clause 25: Sole parent rebate

Section 159K of the Principal Act, which will be amended by this clause, provides, subject to conditions, for the allowance of a maximum rebate of $559 for a taxpayer who has the sole care of a dependent child under 16 years of age, or a dependent full-time student (who is less than 25 years of age).

By sub-clause (1) of clause 25 the maximum amount of the sole parent rebate will be increased to $580. This is an equivalent percentage increase to that which is proposed by clause 24 for rebates for dependants.

To qualify as a dependent student, or dependent child under 16 years not being a student, for the purposes of this rebate, the separate net income of that student or child must be below a particular amount. For 1980-81 the amount is $1,720, but in consequence of the amendments that are being proposed by paragraphs (b) and (e) of sub-clause (1) of clause 24, the amount will be $1,786 for 1981-82.

By sub-clause (2), the increased maximum amount of the sole parent rebate of $580 will apply for assessments in respect of the 1981-82 year of income, and all subsequent years of income.

Clause 26: Housekeeper

Sub-clause (1) of this clause will amend section 159L of the Principal Act to increase by the half-indexation factor of 1.038 - from $800 to $830 - the maximum rebate allowable for a housekeeper.

By sub-clause (2), the amendments made by sub-clause (1) will apply to assessments in respect of the 1981-82 year of income and all subsequent years of income.

Clause 27: Premiums paid for basic health insurance

Clause 27 proposes the insertion of a new section - section 159XA - in the Principal Act which will authorise an income tax rebate of 32 per cent (equivalent to the standard rate of tax) in respect of contributions for basic health insurance. The rebate is to be available in respect of amounts paid by a taxpayer on or after 1 July 1981 to a registered health insurance fund for the purpose of obtaining either or both basic medical and basic hospital insurance cover on or after that date in respect of the taxpayer, his or her spouse or any children of the taxpayer of spouse.

The rebate will be separate from and in addition to any general concessional rebate that is allowable under sub-section 159N(2) for certain classes of private expenditure. These include payments for medical and hospital expenses.

Sub-section (1) of section 159XA sets out the circumstances in which, subject to other requirements of the new section, a rebate is to be allowed, in the assessment of a taxpayer, for eligible health insurance contributions. The rebate will be allowable in respect of amounts paid by the taxpayer during the year of income to a registered health insurance fund for the purpose of obtaining an entitlement to basic hospital benefits or basic medical benefits in relation to the taxpayer, his or her spouse or any children of the taxpayer or of his or her spouse. "Child" is defined, in sub-section 6(1) of the Principal Act to include a person's adopted child, step-child or ex-nuptial child.

By reason of section 160AD of the Principal Act the total amount of rebates of tax allowable to a taxpayer cannot exceed the tax otherwise payable.

Sub-section (2) establishes 1 July 1981 as the commencing date for the new arrangements and confines the concession to payments that are made on or after that date and are for basic levels of insurance.

By paragraph (a), a taxpayer will not be entitled to a rebate in respect of an amount paid by the taxpayer on or after 1 July 1981 to the extent that the payment is made for the purpose of obtaining -

•

basic hospital insurance or basic medical insurance coverage in respect of any period before 1 July 1981; or

•

an entitlement to benefits other than, or in addition to, the range of benefits specified as basic hospital benefits or basic medical benefits.

Sub-section (3) contains three definitions relevant to the operation of the new section:

`basic hospital benefits' is to mean benefits of the kind referred to in the definition of "basic hospital benefits table" or "basic table" in sub-section 4(1) of the National Health Act 1953. Broadly, these benefits are benefits at the level of charges payable by persons with health insurance cover for shared ward accommodation in public hospitals, and for out-patient services at public hospitals;

`basic medical benefits' is to mean benefits of the kind referred to in the definition of "basic medical benefits table" or "basic table" in sub-section 4(1) of the National Health Act 1953. Broadly, those benefits are benefits at 85 per cent (75 per cent up to 1 September 1981) of the schedule fee with a maximum patient payment of up to $10 for a medical service where the schedule fee is charged.

`registered organisation' is to mean a body that is registered under Part VI of the National Health Act 1953 to operate as a health insurance fund for the purposes of the National Health Act 1953.

Clause 28: Indexation

This clause, in association with clause 35, will terminate the present system of personal income tax indexation.

Sub-clause (1) of this clause will repeal the section of the Principal Act - section 159Z - by which concessional rebates for dependants, to a sole parent, and for a housekeeper may be indexed.

By sub-clause (2), section 159Z will cease to apply to assessments in respect of the 1981-82 year of income and later years. For the 1981-82 year the relevant indexation adjustments will be made directly in the relevant provisions of the Principal Act (see notes on clauses 24 to 26).

Clause 29: Rebate in respect of payments received in lieu of annual leave or long service leave

This clause will amend section 160AA of the Principal Act which provides for a rebate of tax where tax at more than the standard rate would otherwise be payable on any amount included in assessable income under section 26AC of the Principal Act (payments in respect of unused annual leave) or sub-sections (2), (3) or (4) of section 26AD (payments in respect of unused long service leave attributable to eligible service after 15 August 1978).

For this purpose section 160AA contains references to the 32 per cent standard rate of tax and to the income levels of $3,893 and $16,608 above, and up to which, respectively, the standard rate applied in 1979-80. Existing sub-section 160AA(3) provides for these amounts to be adjusted in line with indexation adjustments so that the levels which actually applied for the 1980-81 income year - $4,041 and $17,239 - were derived by applying the 1980-81 indexation adjustment to the 1979-80 levels.

The amendments to be effected by this clause will substitute the relevant 1981-82 income levels (taking into account the half-indexation adjustment for 1981-82) for the existing references to the 1979-80 amounts, and will repeal the provisions by which these amounts are indexed.

Paragraph (a) of sub-clause (1) will increase to $17,894 the amount which the taxable income of a taxpayer must exceed before there will be any entitlement to a rebate under section 160AA. $17,894 is the amount of taxable income above which a surcharge of 14 per cent above the 32 per cent standard rate will begin to apply in 1981-82.

Paragraph (b) of sub-clause (1) will substitute in the definition of "relevant income amount" in sub-section 160AA(2) a reference to the new income level above which the standard rate of tax (rather than the "zero rate") applies.

Paragraph (c) will omit sub-sections (3), (3A), (3B), (4) and (5) of section 160AA, which provide for the indexation of relevant amounts in section 160AA.

By sub-clause (2), the increased amounts of $17,894 and $4,195 inserted into sub-section 160AA(1) and sub-section 160AA(2) will apply to assessments in respect of the 1981-82 year of income, and all subsequent years of income.

Sub-clauses (3) and (4) are drafting provisions. Sub-clause (4) will specify directly for the purpose of section 160AA, the indexed 1980-81 income levels - $4,041 and $17,239 - above and up to which standard rate of tax applies for that year, avoiding the need for these to be calculated by application of the 1980-81 indexation factor to the 1979-80 levels, references to which are being omitted by sub-clause (1). Accordingly, the indexation adjustment provisions of sub-sections (3), (3A), (3B), (4) and (5) will not be required for the purposes of section 160AA for the 1980-81 income year, and by sub-clause (3), the omission of those sub-sections will be effective for the 1980-81 and subsequent years of income.

Clause 30: Rebate for moneys paid on shares for the purpose of petroleum exploration, prospecting or mining

Clause 30 will effect amendments to section 160ACA of the Principal Act for the purpose of reducing the rebate available to petroleum company shareholders, in respect of moneys paid on shares after 30 April 1981, from 30 per cent to 27 per cent of those moneys.

Section 160ACA presently authorises a rebate of 30 cents for each dollar of share capital subscribed to a company exploring or mining for petroleum in Australia (including off-shore areas) where the company has declared that those capital subscriptions will be spent on eligible petroleum operations. A rebate of 30 cents for each dollar subscribed is also available in respect of capital subscribed to an interposed mining investment company where the company has declared that those capital subscriptions will in turn be paid to an operating petroleum mining or exploration company for the purpose of enabling that company to expend the moneys so paid on eligible petroleum operations.

By paragraph (a) of clause 30, sub-section 160ACA(5A) will be replaced by a new sub-section. New sub-section (5A) will provide for a rebate in respect of moneys paid on shares to a company that has, in accordance with sub-section 160ACA(3A), declared that the moneys received will be spent on eligible petroleum operations. The amount of the rebate is to be -

(a)

30 per cent of moneys paid by a taxpayer on or before 30 April 1981 or moneys paid after that date in respect of calls made on or before 30 April 1981 on shares owned by the taxpayer on or before 30 April 1981; and

(b)

27 per cent of moneys paid by a taxpayer after 30 April 1981 unless the moneys paid are, on the above basis, eligible for the higher rebate of 30 per cent.

Paragraph (b) of clause 30 will substitute a new sub-section 160ACA(15A) which will govern the rebate available to shareholders of an interposed mining investment company in respect of moneys paid on shares in the interposed company and in respect of which the company has made the appropriate declaration under sub-section 160ACA(7A).

The rebate available will be either 30 per cent or 27 per cent, according to rules corresponding with those described in relation to paragraph (a) of clause 30.

PART III - AMENDMENTS OF THE INCOME TAX (RATES) ACT 1976

Clause 31: Principal Act

This clause provides for the Income Tax (Rates) Act 1976 to be referred to in Part III of the amending Act as the Principal Act.

Clause 32: Heading to Part IVB

Clause 33: Application of Part IVB

Clause 32 will amend the heading to Part IVB of the Principal Act as a consequence of the amendment proposed by clause 33 of the Bill. Clause 33 proposes that section 6K of the Principal Act - under which the rates of tax declared by Part IVB of that Act apply for the 1980-81 financial year and all subsequent financial years - be amended so that the rates declared by that Part will apply for the 1980-81 financial year only.

Clause 34: Rates of tax for 1981-82 and subsequent financial years

This clause will insert a new Part, Part IVC, in the Principal Act (comprising new sections 6N, 6P, 6Q and 6R) which, in conjunction with Schedules 23 to 28, will formally declare the rates of tax, and the notional rates for the purposes of the primary producer averaging provisions of the Assessment Act, for the 1981-82 financial year and subsequent financial years.

Proposed section 6N states formally that the rates of tax and the notional rates declared by Part IVC are to apply for the 1981-82 financial year and all subsequent financial years.

Section 6P declares the rates of tax payable by individuals and trustees (but not trustees of superannuation funds), and the notional rates for purposes of the primary producer averaging provisions, for the 1981-82 financial year and all subsequent financial years, subject to section 6Q. The rates declared by section 6P are set out in Schedules 23 to 26, which are to be inserted in the Principal Act by clause 47 of the Bill. The rates are to apply to resident and non-resident taxpayers.

While the rates of tax are formally declared in section 6P, it is an annual Income Tax (Individuals) Act that formally imposes tax at those rates. The present Act of that kind is the Income Tax (Individuals) Act 1980.

The general rates of tax applicable to individuals generally for 1981-82 and subsequent years are those declared by proposed sub-section 6P(1) and set out in Schedule 23. These rates vary from those of the 1980-81 year in that the income ranges have been increased from the 1980-81 amounts by the half-indexation factor of 1.038. The effective rates specified in Schedule 23 are as follows:

Sub-sections (2) to (7) of section 6P correspond in relation to 1981-82 and subsequent years with sub-sections (2) to (7) of existing section 6L (now to apply for 1980-81 only), and new sections 6Q and 6R similarly correspond with existing sections 6LA and 6M.

Clause 35: Indexation

This clause will repeal section 9 of the Principal Act, which provides machinery for indexation of the general rates scale set out in Schedule 17 (and of certain amounts set out in Schedules 18, 20, 21 and 22). The repeal will be effective for the 1980-81 and subsequent years of income (clause 48). A related clause, clause 28, correspondingly terminates the existing system of indexation of rebates for dependants.

Adjustments to the relevant income amounts for 1981-82, resulting from the application of the 1.038 half-indexation factor for 1981-82, are incorporated directly in proposed Schedules 23 to 28. Clauses 37, 39, 42, 44 and 46 will amend 1980-81 schedules to substitute explicitly the 1980-81 indexed amounts for the existing amounts which have, by the operation of section 9, been indexed to these 1980-81 levels. Accordingly, section 9 will have no application in respect of 1980-81 and subsequent years.

Clause 36: Heading to Schedule 17

This clause will amend the heading to Schedule 17 by omitting from that heading the words "AND SUBSEQUENT FINANCIAL YEARS". Amendments explained earlier will have the effect that Schedule 17 will now apply for the 1980-81 financial year only.

Clause 37: Schedule 17

This clause will amend Schedule 17 of the Principal Act, which sets out the 1980-81 general rates of tax applicable to individuals generally. The income ranges in the existing schedule correspond with those that applied for 1979-80 and, in order to ascertain the income ranges applicable for 1980-81 it is necessary, under existing indexation arrangements, to apply the 1980-81 indexation adjustment to the 1979-80 income ranges. To provide a simple direct reference, clause 37 will substitute the income ranges that apply for 1980-81, incorporating the 1980-81 indexation adjustment, for the unindexed ranges set out in existing Schedule 17. The effective rates applicable for 1980-81, as they would appear in the amended schedule, are:

Clause 38: Heading to Schedule 18

Clause 40: Heading to Schedule 19

Clause 41: Heading to Schedule 20

Clause 43: Heading to Schedule 21

Clause 45: Heading to Schedule 22

These clauses will amend the headings to the respective Schedules by omitting from those headings the words "AND SUBSEQUENT FINANCIAL YEARS". As explained in notes on clauses 32 and 33, the proposed amendments will have the effect that these Schedules will apply for the 1980-81 financial year only.

Clause 39: Schedule 18

Clause 42: Schedule 20

Clause 44: Schedule 21

Clause 46: Schedule 22

These clauses have a similar purpose to that already explained in relation to clause 37, namely, to simplify reference to the Principal Act and its schedules for 1980-81. Accordingly, these clauses propose to amend the respective schedules to substitute for the unindexed amounts in the existing schedules the relevant indexed amounts of taxable income for the 1980-81 financial year as specified in the table contained in the notes on clause 37. The amounts of $4,041, $17,239 and $34,478, being the indexed amounts for 1980-81, are substituted for $3,893, $16,608 and $33,216 where specified in the existing schedules.

Clause 47: Addition of Schedules

This clause will add at the end of the Principal Act, Schedules 23 to 28 (inclusive), which declare the rates of tax for the financial year 1981-82 and subsequent financial years.

The general rates of tax applicable to most individuals for 1981-82 will be those declared by proposed sub-section 6P(1) and set out in proposed Schedule 23. The rates table is set out earlier in the notes explaining clause 34.

Schedule 24 will set out the notional rates of tax declared by proposed sub-section 6P(2) for the purposes of calculating any averaging benefit under section 156 of the Assessment Act. Notional rates are used to determine the averaging benefit of a primary producer whose taxable income exceeds his or her average income.

Apart from two differences, Schedule 24 is the same as Schedule 18 which applies for 1980-81. One change is that, for reasons explained below, provisions equivalent to those contained in Part II of Schedule 18 are not necessary in relation to 1981-82 and subsequent years and are not included in Schedule 24. The second is that the unindexed amounts of $3,893 and $16,608 referred to in Part III of existing Schedule 18 have been replaced by the indexed amounts of $4,195 and $17,894 applicable for 1981-82.

Part II of existing Schedule 18 for 1980-81, and corresponding provisions for the preceding three years, were transitional measures introduced in 1977-78 when the limitation on the averaging calculation to the first $16,000 of taxable income in each of the average years was removed. In isolated cases a primary producer whose taxable income had exceeded $16,000 in one of the four years preceding 1977-78 could have obtained a greater averaging benefit under the earlier limited averaging system since under the earlier system only $16,000 of that taxable income would have been taken into account in calculating average income. Part II of Schedule 18 and the corresponding provisions for earlier years provided for the earlier limited averaging arrangements to continue to apply where they would confer a greater benefit, until such time as a greater benefit was obtained under the new unlimited averaging arrangements. Since the earliest year that can be taken into the averaging calculation for 1981-82 income year is 1977-78, the transitional provisions dealing with the effects of income years preceding 1977-78 are no longer necessary and consequently provisions corresponding to Part II of Schedule 18 are not included in proposed Schedule 24.

Schedule 25 will set out the rates of tax payable by those taxpayers deriving a notional income as specified by section 59AB (depreciation recouped), section 86 (lease premium) or section 158D (abnormal income of authors or inventors) of the Assessment Act. In these cases the rate of tax payable is ascertained under Schedule 25 by dividing by the notional income, an amount equal to the tax that would be payable at the general rates specified in Schedule 23 on a taxable income equal to the notional income. Accordingly, the change in the income ranges provided for in Schedule 23 will be reflected in the tax payable by these taxpayers in accordance with Schedule 25.

Schedule 26 will set out the rates of tax payable by a trustee in pursuance of section 98 or 99 of the Assessment Act for the financial year 1981-82 and subsequent financial years, unless proposed Schedule 28 applies. The effect of the changed income ranges in the general rates scale for 1981-82 and subsequent financial years is reflected in Schedule 26 through references to the rates of tax payable under Schedule 23 or 25.

Schedule 27 will specify the rates of tax that are to be payable for the 1981-82 financial year by a minor whose taxable income includes income that is eligible taxable income for the purposes of Division 6AA of Part III of the Assessment Act of more than $1,040. The Schedule has no application if the eligible income is $1,040 or less and the general rates of tax will in that case apply to the whole of the taxable income.

Schedule 27 is the same as corresponding Schedule 21 of the Principal Act except that in the proposed Schedule 27 the 1981-82 indexed amount of $35,788 - the level of taxable income above which the rate of 60 per cent applies - replaces the reference to $33,216 in existing Schedule 21.

Schedule 28 will specify the rates of tax that are to be payable for the 1981-82 financial year by a trustee of a trust estate who is liable to be assessed and to pay tax under section 98 of the Assessment Act in respect of a share of the net income of a trust estate to which a minor is presently entitled, where the provisions of Division 6AA of Part III of the Assessment Act are applicable to a part of that share or to parts of two or more such shares, if the part, or sum of the parts, is greater than $1,040. The change in income ranges for 1980-81 will be reflected through reference in Schedules 27 and 28 to Schedules 23 or 25.

Clause 48: Application of amendments

By this clause, the amendments to be made by clauses 32, 33 and 35 to 46 inclusive, will apply to assessments in respect of income of the 1980-81 and subsequent years of income .