Explanatory Notes(Amendments to be moved by the Assistant Treasurer, the Honourable H.P. Lazzarini.)
Amendments to Clauses
(a) Section 5 enumerates the Parts and Divisions into which the Act is divided. The insertion in Section 5 of the Principal Act of 'Division 6A-Husband and Wife.' is complementary to Clause 17 of the Bill which provides for the assessment of a taxpayer where his or her spouse derives a taxable income.
(b) Division 17 of Part III. of the Principal Act provides for rebates on income taxed abroad and on business income. It is proposed by Clause 22 of the Bill to repeal Section 160 of the Principal Act which provides for a rebate of tax on business income.
It is also proposed to include in Division 17 a new section 160 which will provide for a rebate of tax where the aggregate Commonwealth and State taxes on income exceed ninety per centum of the taxable income.
The heading to Division 17 will be "Rebates".
(c) As explained in the memorandum issued in connexion with the Bill, income derived by a resident of Australia from ex-Australian sources is assessable, if that income is exempt from income tax in the country where it is derived.
The amendment to section 23 (q) proposed by Clause 4 of the Bill was designed to cause Commonwealth income tax to be payable by a resident of Australia in any case where the ex-Australian income tax was not paid or would not be paid on the ex-Australian income, although, technically, that income was not exempt from income tax in the country where it was derived.
Conversely, it was intended that where, in one or more years, ex-Australian income was taxed by the Commonwealth under the new provision, any losses in subsequent years would be allowed as deductions.
The amendment proposed by the Bill is open to the construction that ex-Australian losses made by Australian residents shall be allowable deductions irrespective of whether ex-Australian income is exempt or taxable for Commonwealth income tax purposes. The amendment now moved is designed to indicate more clearly the ex-Australian losses that shall be allowed as deductions.
(d) Section 23 (s), which it is proposed shall be repealed, provides for the exemption from income tax of the pay and allowances earned by certain members of the Naval, Military and Air Forces of the Commonwealth since the 3rd September, 1939.
The exemption in its present form applies to the pay and allowances earned by members enlisted in or appointed to the Forces for service outside Australia.
Before the exemption becomes operative, however-
- military and air force personnel must embark for service outside Australia after the commencement of the present war; and
- naval personnel must serve in a sea-going ship after the commencement of the present war.
When a member of the Forces qualifies for the exemption, the pay and allowances earned by him during the income year preceding embarkation, or service in a sea-going ship, and subsequent pay and allowances are exempted. Once the exemption becomes operative, it continues until the discharge of the member from, or the termination of his appointment with, the Forces.
Experience has shown that the exemption, as now expressed, has created several anomalies, due substantially to:-
- The provision in the law that once the exemption begins to operate it continues, irrespective of whether the member returns to Australia or remains on service outside Australia.
- The requirement that naval personnel shall actually serve in a sea-going ship after the 3rd September, 1939.
- The requirement that members of the Military and Air Forces shall actually embark for service outside Australia after 3rd September, 1939.
- Differences in the terms of enlistment, or appointment, of members of the respective arms of the services.
Under the terms of their appointment, permanent naval and air force personnel are required to serve anywhere at home or abroad, whereas the terms of appointment of permanent military personnel require them to serve only in Australia and the Territories. Therefore, all members of the Naval and Air Force, and all members of the A.I.F. automatically satisfy the first condition of the present exemption, viz., enlistment or appointment for service outside Australia.
Consequently, the only requirement of naval personnel to secure immunity from income tax on service pay and allowances for the duration of the war is to serve in a sea-going ship after the outbreak of war. The period of such service is quite immaterial--a few days is sufficient for the purpose.
Similarly, members of the A.I.F. and Air Force personnel need only to embark, some time after 3rd September, 1939, for service outside Australia in order to obtain the exemption for the duration of the war.
With regard to members of the permanent Military Forces, however, the position is entirely different. They cannot fulfil the first condition of the exemption unless and until they enlist in, or are appointed to, the A.I.F.
The real extent of these anomalies is more easily seen when the terms of the present exemption are applied to members of special missions. Representatives of each arm of the Forces may be sent abroad on a particular mission. They may be absent only for a few weeks. The effect of the present provisions of the law in such cases is that the pay and allowances of members of the Air Force and the Naval Forces would be exempt for the duration of the war whilst the members of the permanent Military Forces would receive no exemption whatever.
Some of the other anomalies which have arisen are:--
- Some Naval liaison officers in London and elsewhere do not receive the exemption because they have not served in a sea-going ship since the outbreak of war. They arrived in London before the war.
- Air Force personnel in London and elsewhere, who left Australia before the outbreak of war, do not come within the scope of the exemption, although other personnel who embarked from Australia after 3rd September, 1939, are exempt.
- Liaison officers of the Permanent Military Forces in London and elsewhere are excluded from the exemption.
It is proposed to re-express section 23 (s) with the object of removing the anomalies in the present provision.
Under the proposed provision the pay and allowances earned out of Australia by all members of the Defence Force will be exempt from income tax. Pay and allowances earned by members of the Forces stationed in Territories under the authority of the Commonwealth be included in this exemption.
Pay and allowances earned in Australia by members of the Forces will be exempt on the following conditions, viz.:--
- The member shall, within twelve months after the close of the year of income, embark for service out of Australia or serve in a sea-going ship.
- The member shall, during the period of twelve months immediately following embarkation or service in a sea-going ship, be on service out of Australia or "be borne in a sea-going ship" for a period of six months or for periods aggregating six months.
It is also proposed that the exemption shall cease three months after the member resumes duty in Australia. A member of the Forces who returns to Australia, or is discharged from his ship on account of injury or illness will, however, continue to receive the exemption during the period of his injury or illness.
By paragraph (a) of the proviso to the proposed paragraph (s) it is proposed that the exemption of pay and allowances earned in Australia shall not apply in any case where a member of the Forces leaves Australia on a special mission of a temporary character. Pay and allowances earned outside Australia by these members of the Forces will, however, be exempt.
By paragraph (b) of the proviso, it is proposed that the pay and allowances earned in Australia by a member of the Citizen or Permanent Military Forces prior to enlistment for service outside Australia shall not be exempt.
"Australia" is being defined not to include any Territory of the Commonwealth which is not part of Australia. The object of this definition is to extend the exemption to be provided by paragraph (s) to personnel of the Forces serving in those Territories.
The definition of "Commonwealth" to include any Territory of the Commonwealth accords with Section 49 of the Defence Act 1903-1941 which provides that members of the Defence Force who are members of the Military Forces shall not be required, unless they voluntarily agree to do so, to serve beyond the limits of the Commonwealth and those of any Territory under the authority of the Commonwealth. The exemption under sub-paragraph (ii) of paragraphs (s) will therefore apply to pay and allowances earned in Australia by a member of the Forces who has voluntarily agreed to serve beyond the territorial limits specified in section 49 of the Defence Act 1903-1941.
The purpose of the definition of "sea-going ship" is to exclude from the exemption the pay and allowances of personnel engaged on depot ships and ships principally employed on or in connexion with port or harbour defence.
These amendments will modify the proposal for the ascertainment of the rates of tax to be applied to the taxable incomes of husbands and wives.
Under the modified proposal, the taxable incomes of husbands and wives will not be amalgamated unless the separate taxable incomes of both the husband and the wife are in excess of Pd200. If the taxable income of either the husband or the wife is Pd200 or under and the taxable income of the other spouse is greater than Pd200, the proposed amalgamation will not apply and each spouse will be assessed at the rate of tax appropriate to his or her own taxable income.
Where, however, the taxable incomes of the husband and the wife are both in excess of Pd200 the taxpayer will be required to pay income tax at the rate appropriate to the aggregation of the taxable income of the taxpayer and the excess over Pd200 of the taxable income of his or her spouse.
For example where a husband derives a taxable income of Pd800 and his wife derives a taxable income of Pd600, the husband will pay tax on Pd800 at the rate appropriate to Pd1,200 and the wife will pay tax on Pd600 at the rate appropriate to Pd1,200.
(a) As explained in the memorandum issued in connexion with the Bill, the effect of sections 103 and 104, in conjunction with other sections in Division 7 of the Principal Act, is that a private company which does not, within six months after the close of the year of income, distribute the whole of its distributable income shall be liable to pay the additional tax which the shareholders would have had to pay, if the amount of the insufficient distribution had been distributed to the shareholders.
It is proposed that in the case of a non-resident private company, the period of six months shall be extended to nine months.
(b) For Private Company Tax purposes the distributable income of a Private Company is its taxable income less certain allowances including Commonwealth income taxes paid by the company during the income year. State income taxes paid during that year are allowed in arriving at the taxable income.
In a year in which there is a substantial increase in profits or a steep rise in the rate of company taxation, the deduction of State and Commonwealth taxes paid is inappropriate for determining the true quantum of the company's income which is distributable to its shareholders.
Before the real distributable income may be determined, it is necessary that an allowance be made of the amount by which the company's profits are diminished by the taxes payable on those profits.
The effect of deducting relatively low taxation paid on profits of a preceding year from increased profits of a succeeding year on which high taxation is payable is to arrive at a figure of distributable income in excess of the amount which is actually available for distribution to shareholders. Consequently, the company's liability for payment of additional income tax is disproportionate to its true profits. This position is accentuated by the withdrawal last year of the exemption formerly allowed to private companies of one-third of its distributable income free from the liability to additional tax payable on undistributed income.
The proposed amendment is designed to remedy this position by permitting private companies to exercise an option to deduct ordinary Commonwealth income taxes payable in respect of the income of the year of income in lieu of taxes paid during the year of income.
It is proposed that an option in favour of taxes payable should be irrevocable, unless there are circumstances in any particular case which, in the opinion of the Commissioner of Taxation, justify reversion by the company to the allowance of taxes paid.
It is not proposed that private companies shall be permitted to deduct State income taxes payable on income of the year of income in lieu of taxes paid during the year of income.
Such an extension of the option would involve serious administrative difficulties, including delays in the collection of revenue. Moreover, the steep rise in company rates of tax over the pre-war level is confined almost exclusively to Commonwealth taxes.
The insertion of the new section 160 in the Principal Act is designed to provide an abatement of income tax in any case where the effective combined rates of Commonwealth and State taxes, including Commonwealth War-time (Company) Tax, exceed 18s. in the Pd.
In any such case, it is proposed that relief shall be given by the Commonwealth to the taxpayers concerned according to the proportionate weight of tax imposed respectively by the Commonwealth and the States.
For example, if the combined weight of the tax on each Pd of income is 21s., composed of 14s. Commonwealth Tax and 7s. State Tax, the relief to be given by the Commonwealth will be 2s. on each Pd.
It is left to the States to contribute their portion of the tax abatement so that the combined Commonwealth and State taxes on income will not exceed 18s. in the Pd.
The proposed rebate will be applicable to companies as well as to individuals.
(a) and (b) The object of this amendment is to bring members of the Citizen Forces within the plan for the collection of income tax by instalments. The amendment is necessary because the relationship of employer and employee does not exist between the Commonwealth and these members of the Forces.
(c) This amendment has been explained in the memorandum issued in connection with the Bill.