House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Rt. Hon. William McMahon)

Introductory Note

The purpose of this memorandum is to explain the provisions of three Bills amending the taxation laws.

Each of the Bills proposes amendments relating to diplomatic, consular or other representatives in Australia of the governments of other countries. The changes flow from the Vienna Convention on Diplomatic Relations, which is to be given the force of law in Australia by the Diplomatic Privileges and Immunities Bill 1967.

So far as income tax, pay-roll tax and sales tax are concerned, ratification of the Vienna Convention by the Diplomatic Privileges and Immunities Bill 1967 will, in broad terms, have the following effects :-

Income Tax

•

The head of a foreign diplomatic mission in Australia, a member of his staff with diplomatic rank, and a member of the administrative and technical staff of the mission will, if not an Australian citizen or permanently resident here, be exempt from Australian tax on official remuneration and income from ex-Australian sources. (Articles 34 and 38 of the Convention.)

•

A person in the domestic service of a foreign diplomatic mission in Australia, and a person in the private service of the head of such a mission or of a member of its staff will, if not an Australian citizen or permanently resident here, be exempt from Australian tax on remuneration for such service. (Article 37.)

•

A member of the immediate family of a member of the diplomatic staff of a foreign diplomatic mission in Australia, and a member of the immediate family of a member of the administrative and technical staff of the mission, will, if not an Australian citizen or permanently resident here, be exempt from Australian tax on any official remuneration from the mission and income from ex-Australian sources. (Article 37.)

•

These exemptions will operate for the purposes of assessments on income derived during the 1967-68 income year and subsequent years of income. (Clause 7(4.) of Bill.)

Pay-roll Tax

•

Salaries and wages paid to his staff by the head of a foreign diplomatic mission in Australia will be exempt from pay-roll tax. (Article 34.)

Sales Tax

•

A foreign diplomatic mission in Australia and members of its staff together with members of their families will be entitled to the following exemptions from sales tax -

(a)

the mission - exemption of goods imported, and excisable goods purchased in Australia, for its official use; (Article 36.)

(b)

a member of the diplomatic mission with diplomatic rank and members of his immediate family - exemption of goods imported, and excisable goods purchased in Australia, for their personal use; (Article 36.)

(c)

a member of the administrative and technical staff of the diplomatic mission and members of his immediate family - exemption of goods for their personal use imported at the time of first entry to take up duty. (Article 37.)

The exemptions specified in (b) and (c) are not available to persons who are Australian citizens or permanently resident in Australia.

Quantitative restrictions may be imposed by Ministerial direction in any particular case where it is considered that exemption is claimed for goods in excess of the claimant's requirements.

The first taxation Bill - the Income Tax Assessment Bill 1967 - proposes the repeal of existing provisions in the Principal Act that exempt from tax certain income of diplomatic, consular and other representatives in Australia of foreign governments and of members of their staffs, and the insertion of new provisions according exemption to income of consular and other representatives, their staffs and, in some circumstances, their families. Diplomats and their staffs and families will, in future, be exempt from income tax to the extent provided for by the Diplomatic Privileges and Immunities Bill 1967.

The clauses of the Bill are explained at pages 4 to 6 of this memorandum.

The second taxation Bill - the Pay-roll Tax Assessment Bill 1967 - makes a formal amendment consequential upon the provision by the proposed Diplomatic Privileges and Immunities Bill of an exemption from pay-roll tax for salaries and wages paid to his official staff by the head of a diplomatic mission. The exemption is now provided by the pay-roll tax law and, on adoption of the Diplomatic Privileges and Immunities Bill, this will no longer be necessary.

The clauses of the Bill are explained at page 7 of this memorandum.

The third taxation Bill - the Sales Tax (Exemptions and Classifications) Bill 1967 - modifies the exemptions from sales tax allowed to diplomatic, consular and other representatives of foreign governments.

The clauses of the Bill are explained at pages 8 to 12 of this memorandum.

Notes on Clauses

INCOME TAX ASSESSMENT BILL 1967

The main purposes of this Bill have been explained in the introductory notes.

Clause 1: Short Title and Citation

This clause formally declares the short title and the 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 will come into operation on the day on which it receives the Royal Assent. It is to be noted, however, that clause 5 proposes that the Amending Act will first apply to assessments in respect of income of the year of income commencing on 1st July 1967.

Clause 3: Exemptions

This clause proposes amendments to section 23 of the Principal Act which declares certain categories of income to be exempt from income tax. In broad terms, the purposes of the amendments are to repeal provisions relating to diplomats which will no longer be necessary on adoption of the Diplomatic Privileges and Immunities Bill, and to make changes in provisions relating to the taxation privileges of consuls and other representatives of foreign Governments that are appropriate in the light of the privileges proposed for diplomats.

Sub-paragraphs (ii) to (v) of paragraph (a) of section 23 at present exempt from income tax the official salary and income derived from sources out of Australia by a person who is the representative in Australia of the government of another country, a foreign consul or a trade commissioner from a British Commonwealth country. The provisions authorise a similar exemption for a member of the staff of these representatives if the member is domiciled in the country represented, is temporarily resident here for the purpose of performing his official duties and a reciprocal exemption is granted by the overseas country in relation to Australia.

By clause 3 these provisions will be repealed and a new sub-paragraph - sub-paragraph (ii) - inserted in paragraph (a) of section 23. The new sub-paragraph (ii) of section 23(a) of the Principal Act will apply to a representative in Australia of the government of another country who is not a diplomatic or consular representative, i.e., a representative who does not fall within the scope of the Diplomatic Privileges and Immunities Bill 1967 or the proposed new section 23AAA of the Principal Act which is explained below. It will also apply to a member of the official staff of such a representative.

If the representative or staff member is not an Australian citizen, and is not ordinarily resident here, the sub-paragraph will exempt from income tax his official salary and income from sources outside Australia, provided that the country that is represented grants reciprocal exemptions in relation to Australia.

By reason of clause 5 of the Bill the amendments to paragraph (a) of section 23 will apply to assessments in respect of income of the 1967-68 income year and subsequent years.

Clause 4: Income of Consular Representatives and of their Staffs and Families

This clause proposes the insertion into the Principal Act of a new section - section 23AAA - which will provide for the exemption from Australian income tax of certain income derived by consular representatives, their staffs and families. It is to be noted at this point that none of the proposed exemptions will be available where the person concerned is either an Australian citizen or ordinarily resident here.

By the proposed sub-section (1.) of section 23AAA, exemption will be accorded to the official salary and ex-Australian income derived by the head of a consular post in Australia of another country or by a consular officer who exercises consular functions at such a post. This sub-section will not apply to honorary consular officers.

Sub-section (2.) will provide a more limited exemption for honorary consular officers in Australia of other countries. Such a person will be exempted from Australian income tax upon remuneration received by him in respect of the exercise of his consular functions. Other income will fall to be taxed in accordance with the general principles of the Australian income tax law.

By sub-section (3.) a person employed in the administrative or technical service of a consular post in Australia of another country will be exempted from tax upon his official salary and ex-Australian income. The exemption will only be available to a person who is not otherwise engaged in any profession, business or occupation in Australia.

Sub-section (4.) will exempt from Australian tax the official salary of a person employed in the domestic service of a consular post in Australia of another country. This exemption will also operate only if the domestic employee is not otherwise engaged in a profession, business or occupation in Australia.

The purpose of sub-section (5.) is to exempt income derived outside Australia by a person who is a member of the family - and part of the household - of certain members of a consular post of another country in Australia, if the person is not engaged in a profession, business or occupation in Australia. The exemption applies to members of the family of a consular officer (including the head of the post) but is not available to members of the family of an honorary consular officer. The exemption is also applicable to members of the family of a person employed in the administrative or technical service of a post (other than one headed by an honorary consular officer) if the employee is not otherwise engaged in a profession, business or occupation in Australia.

Sub-section (6.) proposes an important qualification of the exemptions to be authorised by section 23AAA. As already mentioned, it is not proposed to extend these exemptions to a person who is an Australian citizen or is ordinarily resident in Australia. Sub-section (6.) effects this qualification. It also provides that the exemption under sub-section (5.) will not be available to a member of the family of a consular officer or of an administrative or technical employee of a consular post, if the officer or employee is an Australian citizen or ordinarily resident here.

Sub-section (7.) provides a means of ensuring that exemptions from Australian tax under the proposed new section are allowed only where reciprocal exemptions are granted by the other country concerned. The sub-section has its counterpart in relation to diplomatic personnel in the proposed section 12 of the Diplomatic Privileges and Immunities Bill. In relation to consular members, sub-section (7.) will authorise the Treasurer by instrument in writing published in the Gazette to direct that the new section will not apply to a specified extent in relation to any country that does not grant reciprocal exemption to Australian consular staff in that country.

Sub-section (8.) defines the term "honorary consular officer" for the purposes of the section by providing that it has the same meaning as it has in the Vienna Convention on Consular Relations. Broadly stated, an honorary consular officer is an officer who is not a career consular officer.

The new section 23AAA will apply in assessments based on income of the 1967-68 income year and subsequent years.

Clause 5: Application of Amendments

This clause specifies the commencing date for the application of the amendments proposed by this Bill. The date has been stated in the notes on the relevant clauses.

PAY-ROLL TAX ASSESSMENT BILL 1967

This Bill proposes an amendment to the Pay-roll Tax Assessment Act 1941-1966 which is consequential on the proposal to give the Vienna Convention on Diplomatic Relations the force of law in Australia by the Diplomatic Privileges and Immunities Bill 1967.

Clause 1: Short Title and Citation

This clause formally provides 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. It is proposed by this clause that the Amending Act shall come into operation on the day on which it receives the Royal Assent.

Clause 3: Exemption from Tax

By this clause it is proposed to amend section 15 of the Pay-roll Tax Assessment Act 1941-1966. That section exempts from pay-roll tax the salaries and wages paid to members of his official staff by a diplomatic, consular or other representative in Australia of another country.

It is proposed that an exemption from the tax for salaries and wages paid by the head of a diplomatic mission in Australia of another country to his staff will be provided under the Diplomatic Privileges and Immunities Bill 1967. In consequence the exemption now contained in section 15 for salaries and wages paid by a diplomatic representative will not be necessary. Clause 3 therefore proposes the omission of this exemption from that section which will however, preserve, the existing exemption for salaries and wages paid by consular and other representatives in Australia of other countries to their staff.

SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) BILL 1967

This Bill repeals provisions in the Principal Act which are no longer necessary because of the proposed privileges to be accorded to diplomatic personnel in the Diplomatic Privileges and Immunities Bill 1967 and makes certain changes in relation to the sales tax privileges for consuls and other representatives of other countries that are appropriate in the light of the privileges proposed for diplomats.

Clause 1: Short Title and Citation.

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

Clause 2: Commencement.

By this clause it is proposed that the amending Act shall come into operation on the day on which it receives the Royal Assent.

Clause 3: Limitations on Exemption.

The purpose of this clause is to insert in the Principal Act two new sections - sections 5A and 5B - which will -

(a)

enable quantitative limitations to be applied in certain circumstances to the exemptions from sales tax which will be authorised by items 71 and 72 proposed to be inserted in the First Schedule to the Principal Act by clause 4 of this Bill; and

(b)

make those exemptions conditional on the person claiming exemption entering into an agreement to the effect that he will pay the sales tax involved if the goods are sold or otherwise disposed of within two years.

Section 5A

By sub-section (1.) the exemption to be accorded by new item 71 in respect of imported goods for use by consular posts, trade commissioners, consular personnel and members of families will not apply in respect of any goods intended for the use of such a consular post or person where the Treasurer is of the opinion that the reasonable requirements of the post or person concerned have adequately been met by other importations of goods of the same or a similar kind, and declares in writing to that effect.

Sub-section (2.) will make the application of exemption under new item 71 conditional on compliance with certain requirements.

Under paragraph (a), exemption will be conditional on the person for whose use the goods are intended or, in the case of a consular post, the head of the post entering into an agreement that, in the event of the goods being sold or otherwise disposed of in Australia within two years of the date of entry for home consumption, he will pay an amount equal to the sales tax that would have been payable but for the exemption. The paragraph also provides that the Treasurer may grant relief from this payment.

Paragraph (b) will apply where a person commits a breach of an agreement entered into under paragraph (a). In this event, any subsequent agreement under paragraph (a) in relation to a later importation may be subject to compliance with such conditions as the Treasurer determines in writing. The determination by the Treasurer may include a condition that the person give satisfactory security that he will comply with the conditions of the agreement.

Section 5B will operate in a similar manner to section 5A, but it will have application in relation to excisable goods to which exemption from sales tax may apply under new item 72 to be inserted by clause 4 in the First Schedule to the Principal Act. The exemptions to be provided by new item 72 are dealt with in detail later in this explanatory memorandum.

Clause 4: First Schedule.

This clause will repeal items 71, 71A, 72 and 72A in the First Schedule to the Principal Act and substitute new items 71, 72 and 72A in their stead.

The First Schedule to the Principal Act sets out the various categories of goods that are exempt from sales tax.

In their present form items 71, 71A and 72 exempt certain goods for use by specified classes of diplomatic and consular personnel and other representatives of governments of other countries. As was mentioned earlier in this memorandum, the exemptions applicable to diplomatic personnel will be specified in the Diplomatic Privileges and Immunities Bill 1967. The new items 71 and 72 will now specify the sales tax privileges applicable to consular posts, consular personnel and representatives other than those to be accorded privileges under the Diplomatic Privileges and Immunities Bill 1967.

Item 71

Subject to specified conditions, including those referred to previously under Clause 3, this item will exempt from sales tax imported goods -

(a)

for the official use of consular posts and trade commissioners; and

(b)

for the personal use of consular officers and their immediate families and other consular employees.

The exemptions from sales tax proposed by the new item 71 are linked, by the expression of the item, to related provisions to be inserted in the Customs Tariff by the proposed Customs Tariff (No. 2) Bill 1967. Exemption from sales tax will only apply where dutiable goods are admitted free of customs duty under the provisions in that Bill or, if the goods are of a class which are not otherwise subject to customs duty, they would have been admitted duty-free under the provisions of that Bill had they been of a class subject to duty.

Under the combined effect of the Customs and Sales Tax Bills, exemption from sales tax under item 71 will apply to goods that are imported and, at the time they are entered for home consumption under the law relating to duties of customs, are intended for the use, as specified in paragraphs (a), (b) and (c) of that item, of a consular post or person referred to in those paragraphs.

Paragraph (a) will apply to goods for the official use of a consular post in Australia of any country.

Paragraph (b) will apply to goods for the official use of a trade commissioner in Australia of any country.

By virtue of the conditions prescribed in the complementary Customs Tariff provisions, full exemption from sales tax under paragraph (a) or (b) will be conditional on the head of the consular post or the trade commissioner, as the case may be, being a person who is not an Australian citizen, is not ordinarily resident in Australia or its Territories and is not otherwise engaged in a profession, business or occupation.

Where the head of the consular post or the trade commissioner is a person who does not meet these nationality, residential or occupational requirements, exemption from sales tax will be limited by the operation of the related Customs Tariff provisions to an approved class of goods imported for the official use of the consular post or trade commissioner.

Paragraph (c) will apply to goods for the personal use of -

(i)

the head of a consular post in Australia of any country;

(ii)

a person, not being the head of a consular post, who is entrusted in the capacity of a consular officer with the exercise of consular functions at such a post;

(iii)

a person who is employed in the administrative or technical service of a consular post, but is limited by the related Customs Tariff provisions to goods imported at the time when the person first takes up duty at a consular post in Australia; and

(iv)

a member of the immediate family of the head of a consular post referred to in paragraph (c)(i) or of a consular officer referred to in paragraph (c)(ii).

By the conditions prescribed in the complementary Customs Tariff provisions, exemption under paragraph (c) will be available only to persons who are not Australian citizens, not ordinarily resident in Australia or its Territories and not otherwise engaged in a profession, business or occupation.

Exemption under this paragraph does not apply to goods imported for use by members of the families of persons employed in the administrative or technical service of consular posts.

Paragraphs (d) and (e) are the formal provisions which link the sales tax exemption in item 71 with the complementary provisions in the Customs Tariff. As was explained earlier, exemption from sales tax is conditional on the goods qualifying for duty-free admission under those complementary provisions.

Item 72

Under this proposed new item, exemption from sales tax will be allowable for goods which are of a kind normally subject to excise duty but which are free of excise duty by reason of their being intended for the official use of a consular post or trade commissioner or for the personal use of a consular officer or member of his family. The exemption is subject to the conditions referred to under clause 3 above.

This item is linked with complementary provisions proposed to be inserted in the Excise Tariff by the Excise Tariff Bill 1967.

Exemption under item 72 will apply to excisable goods that are free of excise duty by reason of their being, at the time when they are entered for home consumption, intended for the use, as specified in paragraphs (a), (b) and (c), of a consular post or person referred to in those paragraphs.

Paragraph (a) will exempt excisable goods that are for the official use of a consular post in Australia of any country.

Paragraph (b) will apply to excisable goods that are for the official use of a trade commissioner in Australia of any country.

By virtue of conditions expressed in the complementary Excise Tariff provisions, full exemption from sales tax under paragraph (a) or (b) will be conditional on the head of the consular post or the trade commissioner, as the case may be, being a person who is not an Australian citizen, is not ordinarily resident in Australia or its Territories and is not otherwise engaged in a profession, business or occupation.

Where the head of the consular post or the trade commissioner does not meet the nationality, residential and occupational requirements, freedom from excise duty and, consequentially, exemption from sales tax will be limited to an approved class of goods.

Paragraph (c) will, by sub-paragraph (i), exempt excisable goods that are for the personal use of the head of a consular post in Australia or a person who is entrusted in the capacity of a consular officer with the exercise of consular functions at such a post. Sub-paragraph (ii) will apply to exempt excisable goods for the personal use of a member of the immediate family of a consular head or consular officer entitled to exemption under this paragraph.

Exemption under this paragraph will be conditional on the person satisfying the tests of nationality, residence and occupation specified in the complementary Excise Tariff provisions. Eligibility under these provisions is dependent on the person not being an Australian citizen, not being ordinarily resident in Australia or its Territories and not being otherwise engaged in a profession, business or occupation.

Item 72A

This item will continue the current exemption for goods intended for official use by the Government of any country. The item has been re-expressed to avoid duplication by excluding from its scope goods for the official use of a diplomatic mission, consular post or trade commissioner. Provisions relating to the exemption from sales tax of goods for use by diplomatic missions, consular posts and trade commissioners are included in the Diplomatic Privileges and Immunities Bill 1967 and in new items 71 and 72 which have already been explained.