Explanatory Notes(Amendments to be moved by the Treasurer, the Honourable J. B. Chifley.)
Amendments to existing clauses
It has been suggested that the new Section 23A as drafted is open to the construction that its operation would be confined to those cases where the principal and predominant business of a taxpayer was mining for the prescribed base metals and rare minerals. It is intended that the proposed exemption should apply in all cases where the taxpayer carries on mining operations for the prescribed metals or minerals, whether such operations comprise his principal business or form only a subsidiary part of his main business.
The first amendment to the clause will remove any doubt as to the scope of the proposed exemption.
The second amendment to clause 6 is a drafting amendment which is designed to ensure that the full benefit of the proposed exemption shall be enjoyed by a company carrying on the specified mining operations and also by the shareholders in respect of any dividend paid out of the income which is exempt from income tax under the clause.
This also is a drafting amendment expressing more clearly the intention of the Government to exempt from income tax any dividends paid wholly and exclusively out of the amount of income exempted under the proposed new section 23A.
In providing for the allowance to be given in respect of losses sustained on buildings constructed or acquired for war purposes "building" has been defined to include any alteration, addition or extension to any existing building.
It has been stated that in some cases the taxpayer, instead of extending his existing building, has removed to new premises as the old premises were unsuitable for war production purposes. In these cases the taxpayer may have suffered a loss through vacating the old building.
The proposed amendment provides that in calculating the net cost of the new building any loss which the taxpayer may have suffered in vacating the old building is to be included.
The question regarding the amount of the loss to be so included is left to the determination of the Board of Referees.
The other amendment is consequent upon the amendment proposed to be made to clause 12 of the Bill. As is stated in the Explanatory Note to that amendment, it is proposed that a Board of Referees constituted under the War-time (Company) Tax Assessment Act shall determine cases where the taxpayer is dissatisfied with the decision of the Commissioner in disallowing the whole or part of his claim for enemy raids precaution expenditure on the ground that an asset of enduring value has been created by the expenditure.
Clause 12 of the Bill provides for the allowance of deductions to taxpayers of expenditure incurred in precautionary measures against enemy raids.
Where, however, the expenditure creates an enduring benefit, other than the benefit of protection from enemy raids, that expenditure shall not be allowed as a deduction.
Cases may arise of differences of opinion between the Taxation Authority and the taxpayer on the question whether the expenditure has resulted in any asset of enduring post-war value to the taxpayer and on the value of any assets so created.
Under the present provisions of the Act, a taxpayer who is dissatisfied with the decision of the Commissioner of Taxation on matters affecting his assessment has a right of reference to the Income Tax Board of Review.
By the amending clause, it is proposed to divert from the Income Tax Board of Review to the Board of Referees constituted under the War-time (Company) Tax Assessment Act, cases where the taxpayer is dissatisfied with the decision of the Commissioner in disallowing the whole or part of his claim for deduction of the enemy raids precautions expenditure on the ground that an asset of enduring post-war value has been created by the expenditure.
The functions of the War-time (Company) Tax Board of Referees are being enlarged to determine, in those cases which may be referred to the Board, whether the special deductions for depreciation of plant and buildings used in connexion with the present war should be allowed.
The Board of Referees is considered to be the appropriate authority to determine questions of a similar nature arising in claims for deduction of enemy raids precautions expenditure.
Under sub-section (1) of Section 103 of the Principal Act, a private company, in arriving at its distributable income for the purposes of private company tax, is entitled to deduct Commonwealth income tax and State income taxes which have not been allowed, or are not allowable as a deduction in arriving at its taxable income and which are paid during the year of income. State income tax paid in respect of the financial year 1941-1942 is not an allowable deduction, and is accordingly allowed as a deduction in the year in which it is paid in arriving at the private company's distributable income.
Under sub-section (3) of Section 103, a private company is given the right to elect that in lieu of deducting Commonwealth ordinary income tax paid during the year of income, it may deduct Commonwealth ordinary income tax payable in respect of income of the year of income.
Under the uniform income tax plan the Commonwealth rate of ordinary income tax payable by companies was increased to 6s. in the Pd. This rate of 6s. represented, in effect, the existing Commonwealth rate of 4s. plus an average rate of 2s. to replace the State income tax formerly payable by companies.
In the great majority of cases the State income tax assessed for the financial year 1941-1942 would be paid by the companies during the year ended 30th June, 1942, or the accounting period substituted for that year, and would thus, under Section 103(1) of the Principal Act, be deductible in arriving at the private company's distributable income of the year ended 30th June, 1942, or its substituted accounting period.
As mentioned above, however, the private company is entitled to elect that in lieu of Commonwealth ordinary income tax paid during the year of income, it may deduct Commonwealth ordinary income tax payable in respect of the income of the year of income.
The effect of this provision therefore is that in arriving at the private company's distributable income for the year ended 30th June, 1942, or the substituted accounting period, the private company which elects to adopt Commonwealth ordinary income tax payable in respect of the income of the year of income in lieu of Commonwealth ordinary income tax paid during that year, is entitled to receive the following deductions:--
- State income tax paid during the year; and
- Commonwealth ordinary income tax payable in respect of the income of the year calculated at the rate of 6s. in the Pd.
In effect the present law gives to a private company a double deduction in respect of State income tax; firstly, the State income tax paid during the year of income, and secondly, the equivalent of the State income tax payable in respect of the income of that year.
This is an unjustifiable concession to those private companies which elect, or have elected to deduct "Commonwealth ordinary income tax payable" in lieu of "Commonwealth ordinary income tax paid".
It is accordingly proposed by this amendment that the calculation of the Commonwealth ordinary income tax payable shall be based on a rate of 4s. in the Pd instead of 6s. in the Pd, thus excluding the equivalent of the State income tax payable in respect of the income of the year ended 30th June, 1942.
The reduction of the rate of tax for the purpose of the calculation of the Commonwealth ordinary income tax payable is limited to the ascertainment of the private company's distributable income for the year ended 30th June, 1942, or the accounting period substituted for that year, as, in the great majority of cases, the double allowance will arise only in that year.
In view of the proposed amendment some private companies which have exercised the election given to them under Section 103(3) of the Principal Act may wish to revoke that election and revert to the allowance for Commonwealth ordinary income tax paid, in lieu of Commonwealth ordinary income tax payable.
The Act already authorises the Commissioner to permit a company to revoke the election which it has exercised and any application for revocation made by a company will be granted by the Commissioner.
Section 103, as it stands at present, does not specify the time within which a private company which desires to exercise the option provided in sub-section (3.) must give notice of its intention to the Commissioner.
As it is considered not unreasonable to specify a time for the lodging of notices of such election it is proposed by sub-clause (b) to insert a new sub-section, (5.), requiring a private company to furnish notice of its election on or before the date of the furnishing of the first return to which the election applies.
Sub-section (5.) further provides, however, that if a private company has already lodged its return of income of the year ended 30th June, 1942, or substituted accounting period it shall be allowed until 31st December, 1942, in which to exercise its option. It is also proposed that the Commissioner shall be given a discretionary power to extend the time for lodging of notice of such election in any case he considers warranted by the circumstances.
It has been represented that the amendment made by Clause 16 of the Bill will result in anomalies between the companies concerned, and also in the taxation of amounts which have already been paid to the Government in the form of duty or taxation under other Acts.
The clause as it stands provides that 10 per cent. of the gross income derived by the non-resident film company from Australia shall be included in its taxable income. There is a heavy duty upon the importation of films into Australia which has been increased since the war began. There is also a duty upon the importation of unexposed sensitised film upon which copies of the film are made for the purpose of exhibition in Australia. This sensitised film was, until last year, imported duty free. There is also a sales tax of 25 per cent. (increased progressively from 5 per cent. in 1930) upon the prints so made in Australia.
In some cases, the contract between the overseas company and the local distributor company provides for the payment of these duties and sales tax by the local company which is then entitled to a deduction thereof in its assessment. In other cases, the contract between the overseas company and the local company provides for the payment of these duties and sales tax out of the overseas company's share of the gross income arising under the contract. In these cases, no deduction is received by the local company, and the overseas company would be assessed, under the amendment as it now reads, upon 10 per cent. of its share of the gross income before its reduction by these duties and sales tax.
It has, therefore, been decided that where the duties and sales tax are paid by the overseas company out of its share of the gross income arising under the contract, such share shall be reduced by the duties and sales tax, and the 10 per cent. calculated upon the net amount. The amendment ensures that this will be done.
This amendment proposes to give to public companies the same right of election as is given to private companies to deduct, in arriving at undistributed income, Commonwealth ordinary income tax payable in respect of the income of the year of income, instead of Commonwealth ordinary income tax paid during that year. It is proposed also that the right of election should be extended to war-time (company) tax payable in respect of the company's income of the year of income, instead of the war-time (company) tax paid during that year. Private companies are not liable to pay war-time (company) tax.
When this right of election was given to private companies last year, the right was not extended to public companies largely because there was no evidence that at that time the deduction of Commonwealth taxes paid in lieu of Commonwealth taxes payable operated inequitably as in the case of private companies.
Since last year, however, evidence has accumulated that there are some cases of public companies with rising profits and correspondingly increased taxes, mainly war-time (company) tax, which are adversely affected by being denied the right to deduct Commonwealth taxes payable in lieu of Commonwealth taxes paid.
It is proposed, therefore, to insert in the provisions of Part IIIA. of the Principal Act (which imposes the tax on the undistributed income of public companies) a similar right of election to that given to private companies last year.
For the reasons which have been set out in the explanatory note to the proposed amendment to clause 15 of the Bill, the Commonwealth ordinary income tax payable in respect of the income of the year ended 30th June, 1942, or the company's substituted accounting period, will be calculated at the rate of 4s. in the Pd in lieu of 6s. in the Pd.
The right of election in respect of a company's assessment for the financial year 1942-1943 must be exercised before the 31st December, 1942, or the date of the lodgment of the company's return for the financial year 1942-1943, or within such further time as the Commissioner allows. If the right of election is not exercised in respect of the assessment for the current financial year the election must be exercised before the date of lodgment of the first return to which the election applies. The Commissioner is, however, authorized to extend the period within which the election should be made. The election once made is to apply to all subsequent years unless the Commissioner permits the company to revoke its election, in which event Commonwealth income taxes paid during the year of income would be deducted in arriving at the company's distributable income in all future years.
This is a drafting amendment consequent upon the insertion in the Bill of the proposed new clauses 12A and 17A.
The purpose of this amendment is to allow to companies, both public and private, deductions of gifts to the institutions and funds mentioned in the amending clause. The deduction will replace the rebate of tax which is allowable under section 160 of the Principal Act. The effect of the amendment will be to place the concessional allowances for gifts made by companies on the basis that applied before the introduction of the system of allowing concessional rebates of tax.
The amendments effected by the Income Tax Assessment Act of June, 1942, provided, inter alia, that there should be substituted for the concessional deduction from assessable income previously allowed in respect of gifts, a rebate of tax calculated, in the case of individuals, at the taxpayer's personal exertion rate and, in the case of companies, at the rate of ordinary tax payable by the taxpayer.
By clause 31 of the Bill, it is proposed that the rebate provisions, so far as they relate to gifts, shall not apply until the financial year 1943-1944, and that gifts shall be allowed to all taxpayers as deductions from assessable income in assessments for the financial year 1942-1943, i.e., from assessable income derived during the year ended the 30th June, 1942.
It is now proposed that, in the case of companies, the principle of the deduction of gifts from assessable income instead of the rebate of tax should continue to apply for the financial year 1943-1944 and subsequent years.
Companies, unlike individual taxpayers, are liable to pay taxes on income additional to the ordinary income tax at the rate of 6s. in the Pd. Both public and private companies pay taxes on undistributed income and public companies are liable to pay super tax and war-time (company) tax.
All these additional taxes are based on the taxable incomes of the companies as calculated for ordinary income tax purposes. If a deduction for gifts is not allowed in computing the taxable income of a company, no relief from the additional taxes is granted to the company in respect of the gifts. The amending clause will remove this inequity.
This amending clause is complementary to the amendment which is being made by the insertion of a new clause, viz., Clause 12A in the Bill. The effect of the amending clause is to withdraw the rebate of tax allowable to a company in respect of gifts, as the amounts of those gifts are being allowed as deductions from assessable income.