House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Frank Crean, M.P.)

Introductory Note

The provisions of this Bill are designed to amend the Income Tax Assessment Act (the "Principal Act") in several respects. Briefly stated, the proposals contained in the amending Bill are as follows -

Main Features

Capital subscribed to mining or exploration companies (Clauses 5 to 8)

Under the Principal Act, deductions are available to shareholders for calls or other share moneys paid to companies engaged in mining, or prospecting for, minerals (including oil and natural gas) in Australia or Papua New Guinea. An outright deduction for moneys paid on shares by resident share-holders is allowable under section 77D of the Act where the company concerned lodges a declaration with the Commissioner of Taxation to the effect that the moneys will be expended on eligible mining or prospecting activities. The declaring company in turn forgoes entitlement to deductions against its own income for the expenditure of declared moneys. The section also makes provision for the subscription of moneys to "interposed" companies (often these are parent or holding companies) which will subscribe the moneys as share capital of companies actively employed in mining or prospecting. Under somewhat similar procedures, moneys paid as calls to mining or exploration companies, for expenditure on prospecting activities, confer a deduction under section 77C on shareholders for one-third of the calls paid. The prospecting company is not required to forgo entitlement to deductions for expenditure on prospecting.

It is proposed by the Bill that these deductions will not be available for moneys paid after 7 May 1973 to companies engaged in mining or prospecting unless the payment is for a call made by that date. A special transitional provision will, however, enable a public listed company playing the role of an "interposed company" to subscribe for further shares in an associated mining or prospecting company out of moneys raised by that date so as to enable it to lodge a valid declaration under section 77D in favour of its resident shareholders.

The provisions are also to be amended to provide for the reduction or disallowance of deductions where -

(a)

after 16 July 1972 shares in a mining or prospecting company are sold to another mining company before capital that has been included in a section 77C or section 77D declaration of the first-mentioned company has been expended in accordance with the declaration; or

(b)

a mining or prospecting company fails to expend, in accordance with a section 77D declaration, moneys received by it after 16 July 1972 from an interposed company.

A further amendment will withdraw deductions that could become allowable to an "interposed company" in respect of expenditure by it of moneys it has received from shareholders since 16 July 1972 and included in a declaration under section 77D. In addition, it will be made clear that expenditure made by a company during the year of income ending 30 June 1973 and later years on mining development or prospecting will be regarded as having been paid firstly out of any moneys available to the company that have been specified by it in declarations under section 77D.

Remuneration of Visiting Experts (Clauses 4 and 12)

The relief from Australian tax, allowed in the form of an exemption from tax or of a rebate of tax, given to visiting experts from overseas will be withdrawn. The withdrawal will affect the special allowances for visiting industrial experts under section 23(c)(vii) and section 160ABA of the Principal Act and for visiting government experts under section 23(c)(vi). The withdrawal will be subject to transitional arrangements under which the allowances will continue to apply in relation to a visit that commences on or before 30 June 1973 or that commences after then pursuant to a contract to make the visit entered into on or before the date of announcement of the decision to withdraw the allowances.

Isolated Children (Clauses 3 and 11)

It is proposed to exempt from tax allowances payable under the Commonwealth scheme for assistance in connection with the education of isolated children and, at the same time, to make it clear that reimbursements of education expenditures under the scheme are taken into account in determining the amount allowable to a taxpayer as a concessional deduction for education expenses incurred in respect of a dependant.

Domiciliary Nursing Care Benefits (Clauses 3, 9 and 10)

It is proposed to provide an exemption from tax for benefits payable by the Commonwealth as domiciliary nursing care benefit and to ensure that the benefits are not treated as separate net income of a dependant or applied to reduce the concessional deduction for medical expenses incurred by a taxpayer in respect of a dependant.

More detailed explanations of the proposals are given in the following notes relating to the clauses of the Bill.

Notes on Clauses

Clause 1: Short title and citation.

This clause provides for the short title and citation of the amending Act and of the Principal Act as amended.

Clause 2: Commencement.

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 as several clauses of the Bill are expressed to take effect as from the time the particular proposals were publicly announced.

Clause 3: Exemptions.

Section 23 of the Principal Act provides for the exemption from tax of specified categories of income.

Paragraph (ka) of the section exempts amounts paid under the Social Services Consolidation Act and the Tuberculosis Act. This provision is to be amended by paragraphs (a) and (b) of clause 3. The first amendment will bring up to date the reference to the first-mentioned Act which is now the Social Services Act 1947-1972. The second amendment will insert a new sub-paragraph to exempt from tax payments made by way of domiciliary nursing care benefit under the National Health Act 1953-1972.

Paragraph (c) of clause 3 proposes an amendment to section 23(zaa) which at present provides for the exemption from tax of payments made under the Commonwealth secondary and technical scholarship schemes. By this paragraph, it is proposed to include within this exemption payments made by way of Commonwealth assistance in connection with the education of isolated children.

The amendments to section 23 are to apply in assessments based on income derived during the 1972-73 year of income and subsequent years.

Clause 4: Income of visiting experts.

This clause, by the insertion of new section 24AA in the Principal Act, will withdraw the income tax allowances now available in respect of remuneration of certain visiting experts from overseas. The withdrawal will be subject to transitional arrangements.

The allowances that will be affected by the withdrawal are those conferred by the three provisions outlined below:-

Section 23(c)(vi): This provision authorises an exemption from income tax of income derived by a visitor from an occupation carried on in Australia if the Treasurer considers that the visit and occupation are mainly directed to assisting the Commonwealth or a State Government in the settlement or development of Australia or Papua New Guinea.

Section 23(c)(vii): This provision relates to a visiting industrial expert who comes to Australia as a director, manager, administrative officer, consultant, technician or operative. It confers exemption from income tax on the visitor's remuneration for the first year of his visit and, if certification is given by the Department of Secondary Industry, and the Treasurer accepts, that his stay beyond the first year assists in the development of Australian industry, remuneration for the second year of the visit is also exempt. Exemption is conditional on the remuneration being taxable in the country in which the visitor is ordinarily resident.

Section 160ABA is a complementary provision to section 23(c)(vii) covering the same class of visiting industrial expert. It confers a rebate of Australian tax rather than an exemption from tax. Section 160ABA can apply during the first four years of a visit although, if section 23(c)(vii) exempts remuneration for the first two years of a visit, the question of applying section 160ABA does not arise. When the two provisions are read together, section 160ABA is applicable to the first two years of a visit if the visitor is not taxable in his home country on the remuneration, and to remuneration of the next two years whether or not it is taxable in the home country. Application of section 160ABA for the second, third and fourth years of a visit is dependent on certification being given, by the Department of Secondary Industry, and the Treasurer being satisfied, that the visitor's stay in Australia for the relevant year assists in the development of Australian industry.

Where the tests for application of section 160ABA are met, a rebate of tax is given sufficient to reduce the visitor's Australian tax on the remuneration to the level of the tax that is, or would be, payable on it in the country in which he is ordinarily resident.

The proposed new section 24AA will mean that these allowances will not apply in future to a visit to Australia that commences after 30 June 1973 and is not made in pursuance of a contract entered into on or before the date of announcement of the decision to withdraw the concessions. By specifying that the relevant provisions may apply up to and including the income year 1977-78, section 24AA will allow the application of section 160ABA for a full four-year period in relation to a visit that commences, pursuant to a pre-announcement date contract, during 1973-74.

Clause 5: Calls paid on shares for the purposes of exploration or prospecting for minerals or of afforestation.

Section 77C of the Principal Act provides for a deduction of one-third of amounts paid as calls on shares in afforestation companies or mining or prospecting companies. The deduction under the section does not apply where the shares on which the calls are paid were issued on or before 9 May 1968 or were issued after that date pursuant to an issue announced or an agreement made before that date. A similar deduction is available under paragraph (1)(b) of section 78 in respect of calls paid on shares issued by, or in pursuance of an announcement or agreement made by, 9 May 1968.

Under section 77C, a mining or prospecting company is required to lodge a declaration with the Commissioner of Taxation to the effect that the call moneys in respect of which a deduction is to be conferred on shareholders has been or will be expended on mineral exploration or prospecting. The declaration procedures do not have to be observed as regards calls which qualify for deduction in terms of paragraph (1)(b) of section 78.

It is proposed by clause 5 to withdraw the deduction under the section for calls made after 7 May 1973. Amendments consequential on the enactment of new section 77E (see notes on clause 7), which is designed to prevent certain misuses of the deduction, are also to be made by the clause.

The amendments will not affect deductions for calls paid to afforestation companies. These will be continued under an amendment to paragraph (1)(b) of section 78 of the Principal Act proposed by clause 8 of the Bill.

Paragraph (a) of clause 5 provides for a minor drafting amendment to sub-section 77C(1) consequential upon the insertion of further paragraphs in the sub-section by paragraph (b).

Paragraph (b) provides in effect for the withdrawal of the deduction by amending the definition in sub-section 77C(1) of "calls paid on shares". The amendment proposed will exclude from the operation of the section -

(i)

moneys paid in respect of calls made after 7 May 1973 (being the date of announcement of the withdrawal of the deduction); and

(ii)

moneys paid to the company in respect of calls made on or before 7 May 1973, where the shares were acquired and the moneys paid after that date.

Paragraphs (c) and (d) of clause 5 provide for drafting amendments to sub-sections (3) and (6) of section 77C consequential upon the proposed insertion in the Principal Act of the new section 77E. The effect of the proposed new section is explained in the notes relating to clause 7.

The proposed amendment of sub-section (3) will mean that deductions under section 77C up to the time of termination of the provision will be subject to the operation of proposed new section 77E.

The amendment of sub-section (6) of section 77C will mean that determinations of the way in which declared moneys have been dealt with by a company will be used not only for the purposes of section 77C but also for the purposes of proposed section 77E.

Clause 6: Moneys paid on shares for the purposes of certain exploration, prospecting or mining.

As mentioned above, section 77D of the Principal Act provides a means by which companies engaged in mining or prospecting for petroleum, natural gas or other minerals in Australia or Papua New Guinea are able to confer deductions on their Australian resident shareholders for moneys subscribed on shares in the companies. The deduction under the section is allowable where the company to whom the capital is subscribed lodges with the Commissioner of Taxation a declaration that the capital will be spent on eligible mining or prospecting activities. The company then forgoes its own entitlement to any deductions that would otherwise be allowable when the money was expended on these activities. The section also provides machinery whereby a company that does not itself engage in mining or exploration activities may act as a conduit for the subscription of capital by its shareholders to mining or prospecting companies. The declaration procedures enable deductions to be allowed to shareholders for capital subscribed to interposed companies for payment on to companies engaged in mining or prospecting.

The amendments proposed by clause 6 are designed to withdraw as from 8 May 1973, but subject to certain transitional arrangements, the deductions allowable under the section. It is also proposed to amend the section to curtail misuses of the provision from 16 July 1972 until the deduction has ceased to be available. Another amendment will clarify the manner in which moneys declared under the section are to be regarded as having been used to defray expenditure on mining or prospecting activities.

Paragraph (a) of sub-clause (1) of clause 6 provides for a minor drafting amendment of the definition of "moneys paid on shares" consequential upon the insertion of a further paragraph in that definition.

Paragraph (b) of sub-clause (1) of clause 6 proposes an amendment of the definition of "moneys paid on shares" to exclude moneys paid to a company after 7 May 1973, other than moneys paid in respect of calls made on or before that date in respect of shares of which the ownership or beneficial ownership was acquired on or before that date. The effect of this amendment will be to exclude moneys paid after the termination date, 7 May 1973, from the scope of the concession, unless paid in respect of a call made before the termination date by a person who was at that date the owner of the relevant shares. A saving amendment proposed by sub-clause 6(2) will meet the case of certain interposed companies that had not subscribed all their declared capital to mining or prospecting companies by the termination date.

Paragraph (c) of sub-clause (1) proposes a technical amendment to sub-section (3) of section 77D relating to the time at which a declaration may be lodged for the purposes of the section. Under the present sub-section (3) a declaration is required to be lodged within one month of the end of the relevant year of income or within such further time as the Commissioner allows. The amendment proposed will permit declarations to be lodged at any time before the expiration of one month after the end of the relevant year of income. This will permit companies to lodge declarations before the end of the relevant year of income if they so wish. The amendment will apply as from the date of the amending Act.

Paragraph (d) of sub-clause (1) proposes an amendment to sub-section (4) of section 77D consequential upon the proposed insertion of the new section 77E by clause 7. Sub-section (4) of section 77D provides for the deduction to subscribers of share capital where the company lodges the appropriate declaration. By this amendment the deduction under sub-section (4) will be made subject to the provisions of the new section 77E dealing with misuses of section 77D. This amendment will apply in relation to schemes involving the sale after 16 July 1972 of shares in mining or prospecting companies.

Paragraph (e) of sub-clause (1) proposes a technical amendment to sub-section (5) of section 77D. That provision authorises the disallowance of deductions under the section where the Commissioner is not satisfied that the moneys declared by the company will be spent in accordance with the declaration. The amendment proposed will make it clear that deductions may be disallowed whether they have been allowed in past assessments or are allowable in assessments not yet made.

Paragraph (f) of sub-clause (1) proposes a technical amendment to sub-section (6) of section 77D which will have the same effect as the amendment to sub-section (3) proposed by paragraph (c). In the case of sub-section (6), the amendment will affect the period for declarations by companies interposed between shareholders and a mining or exploration company. This amendment will apply from the date on which the amending Act is assented to.

Paragraph (g) of sub-clause 6(1) proposes to amend sub-section (9) of section 77D for the same purpose as the amendments proposed by paragraphs (c) and (f). Sub-section (g) is concerned with the case where moneys are subscribed to an interposed company which intends to use those moneys to subscribe for shares in mining or exploration companies. Sub-section (9) provides that the Commissioner shall not approve the payment of moneys by an interposed company to a mining company unless he is satisfied, inter alia, that the mining company will lodge a declaration under sub-section (3) in respect of those moneys.

The amendment proposed will permit a mining company to lodge a sub-section (3) declaration at any time before the expiration of one month after the end of the relevant year of income. This amendment will apply as from the date of Royal Assent to the amending Act.

Paragraph (h) of sub-clause (1) proposes an amendment to sub-section (10) of section 77D to make the deduction allowable to subscribers of capital to an interposed company subject to the provisions of the proposed new section 77E to be inserted by clause 7. This amendment will apply in respect of sales of shares after 16 July 1972.

Paragraph (i) of sub-clause (1) of clause 6 proposes to replace sub-section (11) of section 77D with a new sub-section to prevent the misuse of the section in a way that can effectively confer two income tax deductions on taxpayers for moneys subscribed on mining shares acquired for resale at a profit.

The present sub-section (11) provides that where an interposed company confers a deduction under the section on its shareholders by lodging the appropriate declaration, a deduction in respect of those moneys is not allowable to the company under sub-section (4) of section 77D or under sections 77C or 78 (relating to calls paid on shares).

The new sub-section (11) proposed by this amendment will provide for the same prohibition of double deductions as the present section and also deny a deduction to the company in respect of expenditure incurred by it in making payments on shares in mining companies. This further deduction would be allowable only where the expenditure on mining company shares is made in circumstances that any profit on sale made by the interposed company would be subject to tax.

This amendment will apply in relation to moneys subscribed to an interposed company after 16 July 1972, the date on which the proposal was announced.

Paragraph (j) of sub-clause (1) provides for a minor drafting amendment to sub-section (13) of section 77D as a result of the insertion of a new paragraph in that sub-section as proposed by paragraph (k) of this clause.

Paragraph (k) of sub-clause (1) of clause 6 proposes the insertion of a new paragraph - paragraph (ab) in sub-section (13) of section 77D. Under sub-section (13) a deduction provided to its shareholders by an interposed company may be disallowed where the Commissioner is not satisfied that the company has spent or will spend the declared moneys in accordance with the declaration. There is, however, no specific provision for disallowing deductions to shareholders of an interposed company where that company has used those moneys to subscribe for shares in a mining or exploration company and the latter company fails to expend the moneys in accordance with its declaration. The proposed amendment will supply such a provision.

Paragraph (l) of sub-clause 6(1) proposes an amendment to sub-section (13) of section 77D which is complementary to the amendment proposed by paragraph (k). The amendment proposed by this paragraph will provide for the Commissioner to inform both the interposed company and the mining company in cases where he considers that the proposed new paragraph (ab) applies.

The amendments proposed by paragraphs (j), (k) and (l) of sub-clause (1) apply in respect of moneys paid on shares after 16 July 1972.

Paragraph (m) of sub-clause (1) proposes an amendment of paragraph (c) of sub-section (13) of section 77D to make it clear that deductions may be disallowed whether they have been allowed in past assessments or are allowable in assessments yet to be made.

By paragraph (n) of sub-clause (1), sub-section (15) of section 77D is to be amended to make the operation of the sub-section subject to the proposed new section 77E to be inserted in the Principal Act by clause 7.

Sub-section (15) provides that in cases where it is not clear from the records of a company how declared moneys have been dealt with by the company, the Commissioner may, for the purposes of the section, determine the manner in which the moneys are to be regarded as having been dealt with. By the proposed amendment that determination will also have effect for the purposes of the proposed new section 77E. The amendment will apply in respect of shares sold after 16 July 1972.

Paragraph (o) of sub-clause (1) of clause 6 proposes to replace paragraphs (a) and (b) of sub-section (20) of section 77D with new paragraphs.

Sub-section (20) of section 77D has effect for the purposes of the adjustments to be made in the deductions to which a company would otherwise be entitled for capital expenditure under Division 10 or Division 10AA. As already explained, by lodging a declaration under section 77D a company elects to forgo any deductions for capital expenditure on exploration and mining it might become entitled to.

Paragraphs (a) and (b) of sub-section (20) are necessary to determine whether general mining deductions (under Division 10 of the Principal Act) or petroleum mining deductions (under Division 10AA of the Act) are to be forgone as a result of a declaration made under section 77D. This dissection between the two Divisions is made in accordance with the actual expenditures made by the company.

The proposed amendment will make it clear that expenditure on mining exploration and development is to be regarded as having been paid initially out of any moneys that have been declared by the company under section 77D.

This amendment will apply to assessments in respect of income of the year of income ending on 30 June 1973 and subsequent years.

Sub-clause (2) of clause 6 proposes a special transitional provision in respect of interposed companies which is complementary to the proposed withdrawal of the deduction by paragraph (b) of sub-clause (1) of clause 6.

Sub-clause (2) proposes that the withdrawal of the deductions available under section 77D, as proposed by paragraph (b) of sub-clause (1), will not prevent a mining company from lodging a declaration under sub-section (3) of section 77D in respect of moneys paid to it after 7 May 1973 by an interposed company in accordance with section 77D(6)(e) provided -

(i)

the moneys paid to the mining company were received by the interposed company as moneys paid on shares on or before 7 May 1973 (or in respect of calls made by that date); and

(ii)

at 7 May 1973, shares in the interposed company were listed on an Australian stock exchange and the interposed company owned a substantial interest in the capital of the mining company.

Clause 7: Sale of shares in mining companies.

This clause of the Bill proposes the insertion in the Principal Act of a new section - section 77E - which will have the effect of withdrawing deductions allowed or allowable to a person under section 77C or 77D of that Act for capital subscribed to a mining company or to a company associated with a mining company, should those shares be sold or otherwise disposed of to a prescribed company before the moneys subscribed have been expended on mining or prospecting outgoings.

Where shares are sold in these circumstances, the objective is that the subscribing shareholders receive deductions for the full amount of the capital subscribed by them, despite the facts that the major part of their outlay is received back on the sale of the shares and the only new money supplied for mining or prospecting is the excess of the amount of capital subscribed on the shares over the price for which the shares are sold. The amendment is designed to limit shareholders to deductions related to the amount of new money actually supplied for mining or prospecting and, for all relevant purposes, treat that amount as the amount declared by the company.

As previously explained, section 77D authorises the allowance of income tax deductions to residents of Australia who subscribe share capital - either directly or through an interposed company - to a company engaged in prospecting for or extracting minerals including oil and natural gas. To confer deductions to its shareholders, a mining company lodges a declaration with the Commissioner of Taxation that it has expended or will expend the share moneys on mining or prospecting. Shareholders in an interposed company that lodges a declaration that it has expended, or will expend their capital contributions directly in mining or exploration activities or indirectly by passing it on as payments on shares in an associated mining company may also become eligible for deductions.

Where a mining company lodges a declaration under section 77D the declaration has the effect of reducing the deductions otherwise available to the company for capital expenditure on prospecting or mining. These deductions are available under Division 10AA for petroleum exploration and development and Division 10 for searching for or mining other minerals.

Section 77C authorises deductions for one-third of the amount of calls paid by residents or non-residents on shares to a company carrying on as its principal business mining or searching for minerals obtainable by mining where the company lodges with the Commissioner of Taxation a declaration that call moneys have been, or will be, expended on exploration or prospecting for minerals. A company lodging a declaration under section 77C does not forgo any entitlement to deductions under Divisions 10 or 10AA.

The principal effect of section 77E will, in broad terms, be to authorise disallowance of some or all of the deductions to which a person may otherwise be entitled under section 77C or 77D for share capital paid to a mining or exploration company if the person sells the shares to a mining company or to a mining investment company before the moneys contributed have been expended on mining or exploration activities in accordance with a declaration lodged under section 77C or 77D.

Section 77E will apply in respect of shares sold after 16 July 1972 but, generally speaking, will not apply to the sale of shares in a company that are listed for quotation on the official list of a stock exchange in Australia.

Notes on each of the sub-sections of the proposed section 77E follow.

Sub-section (1) defines certain expressions used in the section.

"Australia" will include Papua New Guinea. The practical effect of the definition is that a company carrying on mining or prospecting operations in Papua New Guinea will be treated as carrying on those operations in Australia.

"Eligible operations" is defined to have the same meaning as in section 77D where it means operations of any one or more of the kinds specified, namely exploration, prospecting and mining for minerals.

"Mining or prospecting outgoings". This term is also given the meaning it has in section 77D. It means outgoings of a company in carrying on mining, prospecting or exploring in Australia (including Papua New Guinea) for minerals, and includes all expenditure of the company that is -

•

allowable capital expenditure incurred in mining for minerals other than gold or petroleum and the costs of searching for such minerals - sections 122A and 122J of the Principal Act; or

•

allowable capital expenditure incurred in prospecting and mining for petroleum - section 124DD of the Principal Act.

"Prescribed company". This definition is designed to facilitate references for the purposes of the new section 77E to a company that acquires shares in another company that has lodged a declaration under section 77C or 77D. It means a company that carries on a business of mining, prospecting or exploring in Australia for minerals. The term also includes a company that the Commissioner of Taxation is satisfied intends to carry on such activities. The term similarly extends to a company engaging in a business of investing in shares in a company that carries on, or the Commissioner is satisfied intends to carry on, such activities in Australia as its principal business.

"Share" is defined as including a beneficial interest in a share. This definition is designed to facilitate references to the sale or disposal of a beneficial interest in shares by a beneficial owner who has qualified for a deduction under section 77C or 77D for moneys paid on the shares.

Sub-section (2) is the principal operative provision under which deductions under section 77C or 77D may not be allowable to a shareholder who sells shares under circumstances falling within the scope of section 77E.

Where deductions under section 77C or 77D have been allowed or are allowable to a person for moneys paid on shares in a mining or interposed company, sub-section (2) will provide for whole or partial disallowance of the deductions if, in a year of income, the person sells those shares to a prescribed company and the Commissioner is not satisfied that, before the shares were sold, the mining or interposed company had fully expended on mining or prospecting outgoings all moneys received on shares from the person or its other shareholders in that year of income or a preceding year. (For this purpose, an interposed company will be treated, by virtue of sub-section (6) of section 77E as itself having expended on mining or prospecting outgoings moneys it has passed on to an associated mining company, in accordance with the provisions of section 77D, if its associate company has expended the moneys passed on on such outgoings.)

Where the sub-section applies and a deduction has been allowed or is allowable to the person under section 77D in respect of shares sold, the amount of the deduction will, in the generality of cases, be reduced by the proceeds received from sale of the shares to the prescribed company.

Where a deduction has been allowed or is allowable under section 77C for one-third of an amount paid by the person as calls on the shares sold, the effect of applying sub-section (2) will generally be to reduce the amount of that deduction by an amount equal to one-third of the sale price of the shares.

The sub-section also provides that a corresponding reduction is to be made in the amount of moneys specified in any declaration lodged under section 77C or 77D which included moneys subscribed by that person. This is achieved by deeming such a declaration as not having included so much of the moneys paid by that person as is equal to the moneys recovered on the sale of the shares. This is designed to ensure that a company that lodged a section 77D declaration will have restored its deduction entitlements under Division 10 or 10AA for an equivalent amount and, for declarations lodged under either section 77C or 77D, the company will not be restricted to expending that amount on mining or prospecting outgoings in the terms of its declaration.

The operation of sub-section (2) will, however, be subject to the other provisions of section 77E.

Sub-section (3) will apply where a company that has sold shares in a mining company to a prescribed company is itself an interposed company that has lodged a declaration under sub-section (6) of section 77D specifying moneys that, in the opinion of the Commissioner of Taxation, includes moneys that have been passed on as moneys paid on shares in the capital of the mining company. Where this is so, and the mining company has, in turn, lodged a declaration under sub-section (3) of section 77D or paragraph (a) of sub-section (8) of section 77D which, by the application of sub-section (2) of section 77E, is deemed not to have specified an amount received from the interposed company, sub-section (3) will operate so as to treat the declaration of the interposed company under sub-section (6) of section 77D as not having specified an equivalent amount.

The effect of sub-section (3) will be to reduce correspondingly the amount of deductions otherwise allowed or allowable under sub-section (10) of section 77D to the shareholders of the interposed company for moneys they had paid on shares that had, in turn been passed on to the mining company but not expended on eligible outgoings before shares owned in the mining company by the interposed company were sold.

For sub-section (3) to apply, it is necessary for the Commissioner of Taxation to inform the interposed company that he is of the opinion that the moneys specified in the declaration under sub-section (6) of section 77D include moneys that have been paid to the mining company.

Sub-section (4) is directed at special classes of arrangements which might otherwise be availed of to circumvent the provisions of section 77E by an indirect acquisition of shares by a prescribed company.

The sub-section has effect where a person sells or otherwise disposes (e.g. by gift) of shares in a mining company or an interposed company to another person under a contract, agreement, arrangement or understanding to which a prescribed company is a party and which concerns the management or control of the mining or interposed company or the use of moneys belonging to that company or which otherwise contains provisions that would enable the prescribed company to acquire the shares subject to the contract or other arrangement.

Where there is such an arrangement concerned with a sale of shares, sub-section (4) provides for the prescribed company to be treated as having been the buyer of the shares. The effect of this is to bring sub-section (2) into operation.

Sub-section (5) is another safeguarding provision designed to overcome arrangements under which shares in a mining or interposed company may be sold or otherwise disposed of for a consideration that does not fairly reflect the real value of the shares. Because the sale price of shares is the yardstick by which sub-section (2) determines the amount of section 77C or 77D deductions that are to be disallowed where that sub-section applies it is necessary that the sale price should be a fair reflection of the value of the shares.

Where the Commissioner of Taxation is satisfied that the parties to a sale of shares were not dealing with each other at arm's length and that, as a consequence, the consideration given for the shares was less than their value at the relevant time, sub-section (5) has the effect of substituting the valuation of the Commissioner as the measure of the consideration to be taken into account in the application of sub-section (2).

In forming his opinion on these matters the Commissioner may have regard to any connection that exists between the parties and to any other relevant circumstances.

Sub-section (6) is a machinery provision that enables certain amounts expended on mining or prospecting outgoings by a mining company to be regarded as having been expended by an associated interposed company in determining whether, for the purposes of sub-section (2), all moneys included in declarations lodged under section 77D by the interposed company for years of income up to and including the year of sale had been expended on eligible outgoings before a person had sold shares in that interposed company.

The sub-section applies where moneys paid on shares by a person are specified in a declaration under sub-section (6) of section 77D by an interposed company and those moneys are passed on as moneys paid on shares to a mining company. If the Commissioner of Taxation is satisfied that an amount of the moneys so passed on has been expended by the mining company on mining or prospecting outgoings, that amount will be treated, for the purposes of sub-section (2), as having been expended on those outgoings by the interposed company.

Sub-section (7) provides protection, in the generality of cases, from the operation of section 77E for moneys paid on shares by a person who has sold those shares to a prescribed company where the shares were included in shares listed for quotation on the official list of a stock exchange at the date of making the payment or if they became listed within three months after that date. However, the sub-section does not afford protection in cases where, broadly stated, arrangements had been made between the vendor of the shares and a prescribed company that in any way affected or depended upon the right of the vendor to sell or otherwise dispose of his beneficial interest in those shares - for example, where listed shares were sold to a prescribed company under an agreement made with the vendor before the shares were allotted to him.

As previously mentioned, the amendments made by clause 6 will apply in relation to shares sold after 16 July 1972. Matters which, under the proposed section 77E, are to be determined by the formation of an opinion by the Commissioner will be subject to the usual rights of objection and reference to a Board of Review.

Clause 8: Gifts, calls on mining shares, pensions, etc.

Clause 8 proposes amendments to paragraph (b) of sub-section (1) of section 78 of the Principal Act which, as already explained, authorises a deduction for one-third of calls paid on shares in a company whose principal business is mining or prospecting or afforestation. The deduction under this section is available only in respect of shares issued on or before 9 May 1968 or after that date on terms announced on or before that date or in pursuance of an agreement entered into on or before that date and are not redeemable shares.

The amendment proposed by sub-clause (1) of clause 8 provides for the omission of the present section 78(1)(b) and its replacement by a new section 78(1)(b) which will provide for a one-third deduction in respect of calls on shares (other than redeemable shares) in afforestation companies, provided that the call moneys are for use in an afforestation business.

This amendment is complementary to the amendments to sections 77C and 77D to withdraw the concession for moneys subscribed to mining or exploration companies.

Sub-clause (2) is a special application clause relating to the amendment to section 78(1)(b). It provides that the amendment applies to calls made by a company after 7 May 1973, or calls made on or before that date where the shares were acquired and the moneys paid after that date. This provides for the withdrawal of the deduction under section 78 for calls made by mining and exploration companies on the same terms as are to be provided under the amendments to sections 77C and 77D.

Clause 9: Deductions for dependants.

Clause 9 proposes to amend section 82B of the Principal Act which authorises the allowance of concessional deductions in respect of the maintenance of dependants. The deduction allowable under this section is reduced by the amount by which the separate net income of a dependant exceeds $130 in the relevant year of income.

The amendment proposed by this clause will ensure that the domiciliary nursing care benefit paid under the National Health Act 1953-72 will not be regarded as separate net income of a person who is a dependant of a taxpayer for the purposes of the concessional deduction under section 82B. The payment of this benefit will, therefore, not affect the deduction otherwise allowable to the taxpayer concerned in respect of the maintenance of the dependant.

This amendment will apply in assessments in respect of income of the year of income ending 30 June 1973 and subsequent years.

Clause 10: Medical expenses.

By clause 10 it is proposed to amend section 82F of the Principal Act which provides for a concessional deduction in respect of medical expenses paid by a taxpayer in respect of himself or a dependant. A deduction is allowable under the section for amounts paid as medical expenses (as defined), reduced by any amount which the taxpayer or any other person is paid or entitled to be paid in respect of those expenses by a government, public authority, society, association or fund.

This clause proposes the insertion of a new sub-section - sub-section (1A) - in section 82F to qualify the present recoupment provision. Under the amended provision domiciliary nursing care benefits will not be offset against medical expenses paid in respect of a dependant in calculating the concessional deduction allowable.

This amendment is to apply in assessments in respect of income of the year of income ending 30 June 1973 and subsequent years.

Clause 11: Education expenses.

This clause proposes an amendment to section 82J of the Principal Act under which a concessional deduction is allowable for education expenses paid by a taxpayer in respect of a person less than 25 years of age who is a child of the taxpayer or a person in respect of whom the taxpayer is entitled to a dependant's deduction.

Section 82J provides for a deduction in respect of the education expenses paid less the amount of any scholarship benefits (other than living allowances) payable in respect of the student under the Commonwealth secondary or technical scholarship scheme.

The proposed amendment will treat assistance given under the scheme for assistance in connection with the education of isolated children in the same way as the scholarship benefits are treated. Thus any reimbursement of educational expenses payable under the isolated children scheme will be deducted from education expenses paid in respect of a child coming within the scheme in determining the amount of the deduction allowable under section 82J in respect of the education expenses of that child.

This amendment is to apply in assessments in respect of income of the year of income ending 30 June 1973 and subsequent years.

Clause 12: Rebate of tax payable by visiting industrial experts.

This clause is associated with the proposed insertion of new section 24AA in the Principal Act by clause 4 of this Bill. It will specify that the availability of the rebate of tax under section 160ABA is subject to the provisions of section 24AA. As already explained in the notes on clause 4, section 24AA will, subject to transitional arrangements, withdraw the rebate provided by section 160ABA.

Clause 13: Amendment of assessments.

This clause will amend section 170 of the Principal Act which governs the power of the Commissioner of Taxation to amend income tax assessments. Sub-section (10) of section 170 provides that nothing in the section is to prevent the amendment of an assessment at any time for the purpose of giving effect to specified provisions of the Principal Act.

By this clause it is proposed to insert in sub-section (10) of section 170 a reference to the proposed new section 77E. The proposed amendment is necessary because section 77E may qualify the operation of sections 77C and 77D which are already referred to in sub-section (10) of section 170. As amended, the section will provide the necessary authority for the Commissioner to amend the assessments of shareholders where it is ascertained, after the relevant deductions have been allowed, that shares have been sold in circumstances which call for the application of section 77E.

Clause 14: Application of amendments.

This clause specifies the commencing dates for the application of the proposed amendments affecting assessments. These dates have been referred to in the notes on the relevant clauses.