Explanatory Memorandum(Circulated by the Minister Assisting the Treasurer, the Hon. Phillip Lynch).
The purpose of this memorandum is to explain the provisions of two income tax Bills.
The first Bill - the Income Tax Bill 1970 - will declare the ordinary rates of income tax payable by individuals and companies for the current financial year, 1970-71. Features of the Bill are:-
- Rates of tax, individuals (Clauses 6 and 8). The rates of tax are to be revised for the 1970-71 financial year so that reduced tax will be payable by individuals with taxable incomes of less than $32,000. On taxable incomes of $32,000 and above the tax payable will be the same as for the preceding year, 1969-70.
- Rates of tax, companies (Clause 10). The primary rates of tax payable by companies for the 1970-71 financial year (in assessments based on income derived during the 1969-70 income year) to be increased by 2.5 cents in the dollar.
- Age allowance (Clause 9). The exemption level for persons qualified by age - 65 years for men and 60 years for women - will be increased from $1,300 to $1,326 and, for taxpayers assessed under the married couple provisions, from $2,262 to $2,314.
- Further relief is to be given by adjustments to the "shading-in" provisions which limit the tax payable by an aged person whose taxable income is somewhat above the exemption level.
The second Bill - the Income Tax (Partnerships and Trusts) Bill 1970 - will declare the special rates of tax payable by certain trustees, superannuation funds and partners for the 1970-71 financial year. These rates are unchanged from those that applied for the 1969-70 financial year.
The following notes are restricted to the provisions of the Bills that differ from those enacted in 1969. Otherwise, the Bills have the same practical effects as the measures declaring the rates of tax for the 1969-70 financial year.
NOTES ON CLAUSES
This clause declares the rates of tax payable by persons other than companies for the 1970-71 financial year. The rates of tax are set out in the schedules to the Bill.
The general rates of tax, applicable to most individuals, are declared by sub-clause (1.) and are set out in the First Schedule to the Bill. On taxable incomes of up to $10,000 the tax payable is approximately 10 per cent less than that payable for 1969-70. Above that level the tax reductions are tapered-out to 4.4 per cent less than 1969-70 for a taxable income of $20,000 and reaching at a taxable income of $32,000 the point beyond which there is no reduction below tax payable for 1969-70.
The Second, Third and Fourth Schedules to the Bill reflect the new rates in the cases to which each applies. Primary producers to whom the averaging provisions of the Assessment Act apply are liable for tax at the rates declared by sub-clause (2.), as set out in the Second Schedule. In consequence of the reductions in the general rates, the Second Schedule differs from that for 1969-70 in two respects. The average rate of tax applicable to an income of $16,000 has been reduced to 39.565625 (formerly 42.615625) while the tax at general rates on a taxable income of $16,000 has been reduced to $6,330.50 (formerly $6,818.50).
Sub-clause (3.) declares the rate of tax applicable to a taxpayer deriving a notional income as specified by sections 59AB, 86 or 158D of the Assessment Act. This is set out in the Third Schedule to the Bill. The reductions in the general rates will automatically apply in these cases.
Sub-clause (4.) declares that the rate of tax payable by a trustee in pursuance of section 98 or section 99 of the Assessment Act is as set out in the Fourth Schedule. Although the latter has not been varied, the proposed reductions in tax under earlier schedules to the Bill will flow through to these cases.
Sub-clause (5.) declares the rates of tax payable by a trustee on the investment income of a superannuation fund that does not invest a sufficient proportion of its assets in public securities. In accordance with the Fifth Schedule, these rates will be increased by 2.5 cents in the dollar to 32 1/2 per cent on the first $10,000 of investment income and 42 1/2 per cent on the remainder of the investment income. The increased rates will apply to income of the 1970-71 income year.
Clause 7 imposes a limit on the amount of tax payable by a person, other than a company, whose income does not exceed $428. The purpose is to "shade-in", from complete exemption from tax on income under $417, to tax at ordinary rates. In 1969-70 the tax was limited to one- half of the amount by which the income exceeded $416. In line with the reduction in general rates of tax for 1970- 71, this clause provides for the "shading-in" rate to be reduced by 10 per cent to nine-twentieths. The upper limit of the "shading-in" range remains at $428.
Clause 8, which has not been varied from the preceding year, continues for the 1970-71 financial year the additional levy of 2 1/2 per cent of the tax otherwise payable by certain individuals. However the reductions in tax payable in accordance with clauses 6 and 7 will result in proportionate reductions in the amount of the additional levy.
Clause 9 authorises special concessions for aged persons, and is commonly known as the age allowance.
These concessions are available to persons who have been residents of Australia throughout the year of income and who, at the end of the year, have attained the age of 65 years, if men, or, if women, the age of 60 years.
In 1969-70 this allowance exempted from tax an aged person whose taxable income did not exceed $1,300. A married aged person contributing to the maintenance of his or her spouse who also met the residential qualification was exempt if the combined taxable income of husband and wife did not exceed $2,262. These exemption levels are to be raised for 1970-71 to $1,326 and $2,314 respectively.
For aged persons whose incomes are somewhat above these exemption levels, clause 9 imposes a limit on the amount of tax that otherwise would be payable. The purpose of these limiting provisions is to cushion the transition from complete exemption to taxation at ordinary rates of tax. In 1969-70 these provisions conferred benefits on aged persons whose taxable incomes did not exceed $2,275 and on married aged persons where the combined taxable income of the couple did not exceed $4,121. For 1970-71 these limiting provisions will apply to a taxpayer whose own taxable income is from $1,327 to $2,273 or, where the taxpayer is assessed under the married couple provisions, if the combined taxable income of the couple is from $2,315 to $4,102. (By clause 7 of the Income Tax (Partnerships and Trusts) Bill 1970 aged taxpayers whose taxable incomes do not exceed the upper limits of these ranges will not be called upon to pay further tax, in respect of certain partnership income, under section 94 of the Income Tax Assessment Act.)
The tax payable by an aged person whose taxable income falls within these ranges is limited to an amount calculated by applying to the amount by which the taxable income exceeds the relevant exemption level the appropriate rates prescribed for this purpose by the Sixth and Seventh Schedules to this Bill. These rates have been adjusted so that the tax payable by aged persons to whom these provisions apply will be reduced broadly in proportion to the reduction granted to other taxpayers. The adjusted rates (which will not be increased by the 2 1/2 per cent additional levy) are summarised in the following tables:
|Taxable Income||Tax Limited to:||From||To||$||$|
|1,327||1,532||16-2/3% of taxable income over $1,326 (so that at $1,532 tax is limited to $34.33).|
|1,533||2,080||$34.33 (the limit at $1,532) plus 18% of taxable income over $1,532 (so that at $2,080 tax is limited to $132.97).|
|2,081||2,132||$132.97 (the limit at $2,080) plus 45% of taxable income over $2,080 (so that at $2,132 tax is limited to $156.37).|
|2,133||+ above||$156.37 (the limit at $2,132) plus 66-2/3% of taxable income over $2,132 (so that at $2,273 tax is limited to $250.37).|
|Combined Taxable Income||Tax Limited to:||From||To||$||$|
|2,315||2,500||16-2/3% of combined taxable income over $2,314 (so that at $2,500 tax is limited to $31.00).|
|2,501||3,000||$31.00 (the limit at $2,500) plus 31% of combined taxable income over $2,500 (so that at $3,000 tax is limited to $186.00).|
|3,001||3,640||$186.00 (the limit at $3,000) plus 40% of combined taxable income over $3,000 (so that at $3,640 tax is limited to $442.00).|
|3,641||3,744||$442.00 (the limit at $3,640) plus 45% of combined taxable income over $3,640 (so that at $3,744 tax is limited to $488.80).|
|3,745||+ above||$488.80 (the limit at $3,744) plus 66-2/3% of combined taxable income over $3,744 (so that at $4,102 tax is limited to $727.46).|
Sub-clause (1.) declares the rates of tax payable by companies for the 1970-71 financial year, in respect of income of the 1969-70 income year, to be as set out in the Eighth Schedule. Each of the rates specified in that Schedule has been increased by 2.5 cents in the dollar, except in relation to paragraph 3(c), which provides a 50 per cent rate for private companies liable to pay additional tax on an undistributed amount. This has not been varied. The rates of tax proposed are-
|Taxable Income||Type of company||First $10,000-||Balance-||Rate per cent||Rate per cent|
|Life Assurance -|
|Other Life Assurance -|
|Other Income||42.5 f||47.5|
|Dividend Income||37.5 f||47.5|
|Other Income||42.5 z||47.5|
|Friendly Society Dispensary||37.5 //||37.5|
|Other Income||42.5 S||47.5|
|+ Additional tax at rate of 50 per cent payable on undistributed amount. f Maximum income subject to this rate is $10,000 less mutual income. z Maximum income subject to this rate is $10,000 less the sum of the mutual income and dividend income included in the taxable income. // A non-profit company is not liable to tax unless the taxable income exceeds $416, and where the taxable income does not exceed $1,664, the maximum amount of tax payable is one-half of the excess of the taxable income over $416 less any rebate or credit to which the company is entitled. Other companies are assessed to tax if the taxable income is $1 or more. S Maximum income subject to this rate is $10,000 less dividend income.|
Sub-clause (2.) of clause 10 is a "shading-in" provision for non-profit companies, comparable to clause 7. No tax is payable by a non-profit company the taxable income of which does not exceed $416. This clause provides for tax at normal rates to be "shaded-in" over a range of taxable incomes above this level by limiting tax to one-half of the excess of taxable income over $416. In 1969-70 normal tax was reached at a taxable income of $1,387. In consequence of the increase in the rates of company tax, the upper limit of the shading-in range has been increased to $1,664, being the level at which tax at normal rates will now be reached.
Clause 11: Adjustment where amount to be paid by, or refunded to, taxpayer would not exceed twenty cents.
Clause 11 is a new provision relating to small balances of 20 cents or less - whether owing to or by the taxpayer - that remain after all other adjustments have been made. It will apply to companies as well as other persons.
The clause will authorise an adjustment to reduce any such balance to nil, so avoiding the necessity to collect or refund amounts of 20 cents or less. It replaces two provisions dealing with small balances that have appeared in previous Acts declaring rates of tax, one of which imposed a minimum tax of 50 cents if normal tax was less than 50 cents while the other eliminated any balance of 20 cents or less between normal tax and the amount of credit for tax instalments deducted from salary or wages. The minimum tax concept which, in the small number of cases in which it applied, operated only to increase the tax otherwise payable, is not continued in clause 11. The clause will provide for the elimination of small balances in a much wider range of cases than those covered by the previous provision, e.g., those where items such as provisional tax, arrears for tax on other years, and payments in advance lead to an overall balance of 20 cents or less.
Sub-clause (1.) provides that the clause will apply where, but for Clause 11, there would be a balance of 20 cents or less payable by or to the taxpayer after all other adjustments have been made.
Paragraph (a) of sub-clause (2.) operates to eliminate a balance of 20 cents or less otherwise payable to the taxpayer by imposing additional tax equal to the amount of the small balance.
Paragraph (b) of sub-clause (2.) operates where a balance of 20 cents or less would otherwise be payable by the taxpayer. In this case the tax otherwise imposed by this Bill is, in broad effect, to be reduced by the amount of the small balance.
Sub-clause (3.) is designed to ensure that liabilities notified to the taxpayer, for example by a notice of assessment, are included in the calculation of the small balance even if the amounts are not due and payable at the time.
Sub-clause (4.) provides that the adjustment under clause 11 shall be disregarded in any calculations based on the amount of tax payable or assessed, since amounts based on any such calculations will have been taken into account in calculating the amount of the adjustment.