Explanatory Memorandum(Circulated by the Treasurer, the Honourable J. B. Chifley.)
Notes on Clauses
Section 5 enumerates the Parts and Divisions into which the Principal Act is divided. The omission from Section 5 of "Part IIIB.--War Tax" is complementary to Clause 28 of the Bill by which it is proposed that Part IIIB, of the Principal Act shall be repealed.
Under the proposed amendment, income tax will not be payable by any person whose income, after deducting allowable deductions, does not exceed Pd156. If, however, the taxable income exceeds Pd156, the rates of tax are applicable to the whole of the taxable income, including the amount of Pd156.
In cases of taxable incomes of Pd157 to Pd167 from personal exertion and Pd157 to Pd170 from property, a provision in the rating resolution will ensure that the tax payable will not be greater than one-half of the excess of the taxable income over Pd156.
The proposed amendment to section 17 will replace the statutory exemption of Pd200 at present allowed by section 81 of the Principal Act and will continue the general exemption from War Tax now allowed.
By the first of these amendments, it is proposed to exempt from income tax the remuneration earned in Australia by persons who visit this country for the purpose primarily and principally of assisting the Commonwealth Government in the defence of Australia. The exemption will apply principally to the remuneration derived by visiting civilian personnel of British and American and other allied nations from occupations carried on by them in Australia in connexion with the defence of Australia.
The proposed paragraph (u) will exempt from income tax the pay and allowances earned in Australia by members of the Forces of the allied nations who are serving in this country, if the pay and allowances are not paid, given or granted by the Commonwealth.
The amendment proposed to be made to section 46.--(1.) is consequential on the proposal in the rating resolution that the rate of tax payable by mutual life assurance companies shall be sixty pence in the Pd1 as compared with seventy-two pence in the Pd1 payable by other companies. By the proposed amendment a resident mutual life assurance company will be entitled to a rebate of tax on dividends included in its taxable income at the rate of tax payable on that taxable income.
By the proposed amendment to sub-section (2a.) the rebate of super-tax will not be allowed in respect of dividends received by mutual and partly mutual life assurance companies. Mutual life assurance companies will not be liable to pay super-tax and partly mutual life assurance companies will be free from super-tax to an extent determined by the amount of mutual income, i.e., the profits divided amongst policy-holders. The proportion of dividends received by partly mutual life assurance companies allocated to the non-mutual business of the companies will be a relatively small percentage of the total income of such companies. The elimination of the rebate will obviate involved calculations in arriving at what would be a negligible amount allowable as a rebate in respect of dividends included in the non-mutual income of these companies.
This amendment is being made in conformity with clause 12 of the Bill by which it is proposed that section 81 which allows the statutory exemption shall be repealed.
The deductions provided by section 72(1)(a) and (b) for municipal and water rates and land tax are allowable irrespective of whether the property is held by the taxpayer for the purpose of producing assessable income or otherwise.
The general principle upon which the deduction of expenses from income is based is that the expenses should be incurred in the production of assessable income or in carrying on a business for the purpose of producing assessable income. Applying this principle, the deduction is being limited to rates and land tax charged or levied on property held by the taxpayer for the purpose of producing assessable income.
The municipal and water rates and land tax that will now be non-allowable deductions will be mainly those rates and land taxes paid by taxpayers on their private residences. In respect of these expenses, it is proposed by clause 23 (section 160.--(2.) (h)) that there shall be allowed to the taxpayer a concessional rebate of tax calculated by applying to the amount of non-allowable rates and land tax the rate of tax appropriate to a taxable income from personal exertion equal to the total taxable income of the taxpayer. For example--
|Rate of Tax||61.43d.||76.787d.|
|Tax||Pd204 15s. 3d.||Pd63 19d. 9d.||Pd268 15s.|
|Non-allowable rates and land tax Pd50. --Rebate of tax Pd50 at 61.43d. in Pd1||Pd12 16s.|
|Tax Payable||Pd255 19s.|
It is proposed also that, by the repeal of section 72(1)(c), deductions shall not be allowed for State and Territorial income taxes paid by taxpayers. State and Territorial income taxes paid by taxpayers in the year ending 30th June, 1942, will not be allowed as deductions from income derived by them during that year.
In practically all cases, taxpayers will have been allowed in their assessments based on income of the year ended 30th June, 1941, and prior years deductions of the amounts of State and Territorial income taxes paid by them before 1st July, 1941, on income of the year ended 30th June, 1940, and prior years.
There are some cases, however, where the liability for these taxes was not determined by the Taxation Departments before 1st July, 1941, and provision is necessary to accord equitable treatment to these taxpayers as compared with those taxpayers who have received deductions of the amounts of State and Territorial income taxes paid before 1st July, 1941.
It is accordingly proposed by the addition of sub-section (1A) to section 72 that amounts of State and Territorial income taxes paid after 30th June, 1941, and before 1st July, 1944, on incomes derived by taxpayers during the years ended 30th June, 1938, 1939 and 1940, shall be allowable deductions from income of the year ended 30th June, 1941.
The omission from section 78(1) of the words "and of the statutory exemption" conforms with the withdrawal of the statutory exemption proposed by clause 12 of the Bill.
By the repeal of paragraph (a) the principle is adopted that gifts to the institutions and funds mentioned in the paragraph and other concessional allowances should not be allowed as deductions from assessable income but that the concessional allowance in respect of these gifts should be made by way of an abatement of tax in the assessment of the donor. The rebate of tax to which the taxpayer will be entitled is provided by clause 23 of the Bill and explained in the note to that clause.
The repeal of sub-section (2) of section 78 is consequential on the repeal of paragraph (a) of section 78(1).
For the same reasons as those stated in the note to the preceding clause, section 79 is being repealed. The concessional deductions in respect of the spouse, children and dependent mother of the taxpayer, life insurance premiums, friendly society dues, medical and funeral expenses, etc., will be replaced by the rebates of tax proposed to be allowed by clause 23 of the Bill.
This amendment is consequential on the repeal of section 79 proposed by clause 10.
By this amendment, it is proposed that the statutory exemption shall be withdrawn. As explained in the note to clause 4, an amendment to section 17 of the Principal Act will remove any liability to income tax from incomes of taxpayers (other than companies) which do not exceed Pd156. This exemption from tax corresponds to the general exemption from war tax at present allowed.
These amendments are consequential on the repeal of sections 79 and 81 which respectively allow the concessional deductions and the statutory exemption.
This provision is designed to allow to partners a rebate of tax in respect of gifts made and calls paid by the partnership.
A partnership is not liable to pay income tax but each of the partners is assessable upon his individual share of the partnership income. As tax is not payable by the partnership it is necessary to provide for the allowance of the rebate of tax in the individual assessments of the partners.
The effect of this amendment is to exclude paragraph (a) of the definition of "net income of the trust estate". This exclusion is consequential upon the repeal of the sections under which the concessional deductions and the statutory exemption were allowed.
This amendment is being made for the same reasons as those stated in the note on clause 15 regarding the withdrawal of the statutory exemption.
As a general rule the trustee of a trust estate is not liable to pay tax but each beneficiary who is not under a legal disability and who is presently entitled to his share of the income of the trust estate is assessable on that share.
As, ordinarily, tax is not payable by the trust estate, it is necessary to provide for the allowance of the concessional rebates of tax in respect of gifts made and calls paid by the trustee to be allowed in the individual assessments of the beneficiaries.
In those isolated cases where the trustee is liable to pay tax a proportionate part of the rebate will be allowed from that tax.
It is proposed by the rating resolution that tax shall be payable by Mutual Life Assurance Companies at the rate of sixty pence in the Pd1 as compared with the rate of seventy-two pence in the Pd1 payable by companies generally.
For this purpose a definition is being given to "Mutual Life Assurance Company".
Section 115 allows to life assurance companies a special deduction of four per centum of a portion of calculated liabilities. The Bill proposes to reduce this concession by one per centum.
The sub-paragraphs proposed to be repealed will not be necessary in view of the withdrawal of the allowance of the statutory exemption. The enactment of the proviso will ensure that tax will not be payable by a non-resident (other than a company) unless the total amount of the interest paid or credited to him exceeds Pd156.
The introduction of the system of rebates of tax in lieu of concessional deductions necessitates this provision that the rate of Commonwealth tax shall be determined upon the amount of tax actually payable by the taxpayer after the deduction of concessional rebates.
By this clause, it is proposed to repeal the existing section which allows a rebate in those cases where the combined Commonwealth and State income taxes exceed 18s. in the Pd1.
It is also proposed by this clause that the concessions at present allowable by way of deductions from assessable income shall be replaced by rebates of tax calculated at the personal exertion rate appropriate to the taxable income of the taxpayer. The rebates will be allowable in respect of the following outgoings:--
- Rates and Land Taxes in respect of non-income producing property.
- Medical Expenses (amount limited to Pd50).
- Funeral Expenses (amount limited to Pd20).
- Life Insurance and Superannuation (amount limited to Pd100).
|Spouse or female relative||100|
|Children in excess of one||30|
Provision is made that in those cases where the taxable income falls between Pd200 and Pd251 the allowance for a spouse or female relative shall be half the taxable income, and that where the taxable income falls between Pd250 and Pd300 the allowance for a spouse or female relative shall be the sum of Pd100 plus half the amount by which Pd300 exceeds the taxable income.
For example, if the taxable income is Pd240 the rebatable amount is half that amount, viz., Pd120, and if the taxable income is Pd280 the rebatable amount is--
(100 + (300-280)/(2)) = Pd110
It is also proposed that the rebate of tax to be allowed for dependants shall not be greater than the following amounts--
|Spouse or female relative||45|
|Children in excess of one||5|
By this amendment it is proposed to make a minor variation in the concessional allowance in respect of calls paid to mining and afforestation companies by providing that the rebate shall be calculated at one-third of the personal exertion rate appropriate to the total taxable income of the taxpayer. The adoption of the personal exertion rate as the basis of the rebate of tax conforms to the principle applied to the other concessional allowances.
By section 160AB. it is proposed to make a concession to taxpayers in respect of interest on Commonwealth loans that are not subject to the concessional rate of tax provided by section 20 of the Commonwealth Debt Conversion Act 1931 or section 52B. of the Commonwealth Inscribed Stock Act 1911-1940. The proposed concession will extend also to interest on State Government loans and loans issued by certain public bodies in the States under conditions that guaranteed exemption from State income tax.
The rebate will be allowable also on future loans issued by the Commonwealth and loans issued by the States and local bodies if, in regard to the last-mentioned loans, the prospectus or conditions of the loan provide that the interest shall be exempt from State income tax.
The rebate is allowable in those cases only where the interest is exempt from State income tax irrespective of whether the recipient of the interest is resident or not resident in the State.
By section 160AC. it is proposed that the aggregate of the amounts subject to the rebates of tax in respect of gifts made or calls paid by the taxpayer shall not exceed his taxable income. This provision preserves the principle in the present law that the deduction for gifts and contributions shall be allowable to the extent only of the net income of the taxpayer and that the amount on which the rebate of tax in respect of calls paid to mining and afforestation companies is allowable shall be limited to the amount of the taxable income of the taxpayer.
By section 160AD.(a), it is proposed that the total amount of the rebates of tax allowable to a taxpayer shall not exceed the amount of tax ascertained before the rebates are deducted. The rebates of tax will be allowed to the extent only that is necessary to cause no tax to be payable and any excess of the rebates over the tax calculated before the rebates are deducted will not be paid to the taxpayer.
It is proposed by paragraph (b) in section 160AD. that the pence should be eliminated from the amount of tax payable and that that amount should be calculated to the nearer shilling.
By paragraph (a) of section 160AE. it is proposed to define the rate of tax to be taken into the calculations of the rebates of tax to be allowed to the taxpayer. As a general rule, the rate will be calculated by dividing the amount of the gross tax before the allowance of the rebates by the taxable income.
By paragraph (b) of section 160AE. it is proposed, for rebate purposes, that the rate of tax payable by companies shall be the rate of ordinary income tax and shall not include super-tax or the tax on undistributed profits of the company.
Paragraph (c) of section 160AE. repeats in effect sub-section (2) of section 78 which it is proposed by clause 9 to repeal.
By the inclusion of paragraph (iv) in section 160C.(1.), it is proposed that the tax on the undistributed incomes of companies shall not be applied to the "mutual income" of partly mutual life assurance companies, i.e., the income which is divided amongst the policy holders.
For the purposes of the amending provisions relating to mutual and partly mutual life assurance companies, it is necessary that the terms "life assurance company" "mutual income" and "mutual life assurance company" be defined.
By this clause it is proposed that the tax on the undistributed incomes of companies shall not be applied to the undistributed incomes of mutual life assurance companies.
This clause proposes to repeal the heading "Part IIIB.-War Tax", and sections 160F, 160G, 160H and 160J, which constitute that Part.
As explained in the note to clause 8, deductions will be allowed from assessable income of the year ended 30th June, 1941, of certain amounts of State and Territorial income taxes paid after 30th June, 1941, and before 1st July, 1944. The inclusion of sub-section (10) in section 170 will enable the assessments to be amended by the allowance of the deductions even although the period of three years specified in sub-section (4) has expired.
By this clause, it is proposed that Commonwealth income tax shall be paid in priority to any State income tax assessed during the present war and for one financial year thereafter. All taxpayers, including trustees of bankrupt estates and liquidators, will be obliged to observe this priority.
The amendments effected by this Act, other than that effected by section thirty, shall apply to all assessments for the financial year beginning on the first day of July, One thousand nine hundred and forty-two and all subsequent years.
The amendments made by the Act (except section 30) will commence to apply in the first financial year in which the single uniform income tax will come into operation, i.e., in assessments based on income derived during the year ending 30th June, 1942.