Explanatory Memorandum(Circulated by the Treasurer, the Honorable J.B. Chifley.)
Notes on Clauses
It is proposed by sub-clause (1.) of this clause that the provisions of the Bill other than those excepted by sub- clauses (2.) and (3.), shall come into operation when the Bill receives the Royal Assent. This course is being adopted in order that the new provisions, immediately upon their enactment, may be applied in assessments. The application of amendments proposed to be made by the Bill is set out in clause 27.
Sub-clause (2.) provides that the amendments making it an offence for a person other than a registered tax agent to charge fees for the preparation of income tax returns or to describe himself as a tax agent shall come into operation on a date to be proclaimed. Under the proposed provisions, a separate Tax Agents' Board will be set up in each State and no person will be permitted to charge a fee for making up an income tax return unless he is registered, or granted an exemption, by a Board.
As a considerable amount of preparatory work is necessary before all the Boards may be effectively established, postponement of the operation of these sections is proposed until the necessary arrangements for the setting up and proper functioning of the Boards have been completed.
Sections 18 to 24 referred to in sub-clause (3.) relate to the collection of income tax by instalments. These sections will come into operation on 1st April, 1943, on which date instalment deductions on the proposed new scale will commence.
Section 5 of the Principal Act enumerates the Parts and Divisions into which the Act is divided.
The insertion of "Part VIIA--Registration of Tax Agents" is complementary to clause 25 of the Bill by which it is proposed to insert in the Principal Act a new Part, Part VIIA, consisting of a number of sections relating to the registration of tax agents.
This amendment is necessary to enable the Commissioner of Taxation to furnish information to the proposed Tax Agents' Boards concerning tax agents.
It is essential for the proper working of the new Part requiring registration of tax agents that this power be given the Commissioner to furnish information to the Boards in the same manner as he is now authorized to furnish information to the Board of Review and other Authorities.
Accordingly paragraph (b) of section 16 (4) has been re- expressed to achieve this purpose.
The proposed amendment will have the effect of reducing the minimum amount of taxable income which is to be subject to income tax from Pd156 to Pd104.
The general effect of section 23 (s) as far as military personnel are concerned, is to exempt the pay and allowances earned by members of the Defence Force--
- out of Australia;
- in Australia, if within twelve months after the close of the year of income the member of the Defence Force embarks for service out of Australia, and during the period of twelve months after embarkation he is for a period of six months or periods aggregating six months on service out of Australia;
- in Australia for three months immediately following his resumption of duty in Australia.
Service in Papua or New Guinea is service out of Australia for the purposes of the exemption.
Under the law as it stands at present, the exemptions apply in full to members of the military forces serving in Papua or New Guinea who-
- join the forces by enlistment or appointment for service beyond the limits of the Commonwealth, i.e., the Australian Imperial Force; or
- are members of the Militia Force or Permanent Military Force and who have not transferred to the Australian Imperial Force.
In the case of members of the Militia Force and the Permanent Military Force who have transferred to the Australian Imperial Force the effect of paragraph (b) of the proviso to paragraph (s) of the section, which is being omitted by the amendment, is to deny them the exemption of their pay and allowances earned in Australia prior to their transfer.
The amendment will remove this anomaly and all members of the military forces will be on a common footing in regard to the exemption of their pay and allowances earned both in and out of Australia.
The portion of the proviso which is being retained relates to service personnel who may leave Australia on special missions of brief duration. In these cases there is no exemption of the pay and allowances earned in Australia.
Section 23A was inserted in the Principal Act to give to companies and persons engaged in mining a partial exemption from income tax in respect of profits derived from the production and sale of base metals and rare minerals essential to the manufacture of materials of war, and of which there is a shortage or a danger of shortage in Australia. The purpose of the exemption is to encourage the fullest possible production of these metals and minerals and the particular base metals and rare minerals to which the exemption relates are prescribed in the Income Tax Regulations.
In a number of instances however, the mining operations carried on produce, in addition to metals and minerals which are so specified, metals and minerals of which there is no shortage in Australia and which accordingly are not specified in the Regulations.
In these cases the section is open to the construction that the exemption is not limited to that part of the profit which is derived from the production and sale of the prescribed metals or minerals. The proposed amendment is designed to ensure that the exemption will be so limited and will exclude profits not intended to be within the exempt class.
The new sub-section (1A.) applies where the prescribed metal or mineral is not sold by the taxpayer who produced it but is used by him in the manufacture of other goods. The exemption provided by sub-section (1.) is extended to those cases by treating the metal or mineral as having been sold for an amount equal to its market value at the time it is so used.
Up to the time of the amendment of the Principal Act by Act No. 22 of 1942, a taxpayer was entitled to a deduction of his contributions to a pension or superannuation fund, or of premiums paid to an insurance company for a deferred annuity or similar provision for his wife and family. For the purposes of paragraph (c) of the section, these contributions or premiums were regarded as the purchase price of the pension or annuity.
When the pension or annuity is assessed, the taxpayer is entitled to a deduction from the pension or annuity of that portion of it which represents the purchase price. However, in those cases where he had already received a deduction against his income for the contribution or premium at the time it was paid, the law excludes such payments from the deduction against the annuity.
Under the uniform income tax plan the deduction for the contributions or premiums referred to was discontinued and instead the taxpayer now receives a rebate of tax.
It is therefore necessary to ensure that such contributions or premiums in respect of which the taxpayer has received a rebate of tax, shall be excluded from the deduction of the purchase price against the annuity. The proposed amendment will achieve this purpose. It is consequential upon the amendment made to the law in 1942.
It is proposed by this amendment to extend the concessional deduction allowed in respect of gifts so as to include gifts made to a State Government for purposes of defence, e.g. gifts made to a State towards its National Emergency Services.
Under the repealed provision the special deduction of Pd250 allowed to members of the Defence Force was gradually diminished until it vanished at an income of Pd355. The new provision extends the range of incomes to which the special deduction applies to incomes under Pd587. The increased concession substantially preserves the existing margins in pay and allowances of the various ranks after taxation has been deducted.
The amendment also extends the concession to members of the mercantile marine serving on seagoing ships.
With regard to the latter exemption, provision is made so that in those cases where the member of the mercantile marine also earns income from other sources, the amount of the deduction is not to exceed the amount of the income earned by him on a seagoing ship.
The effect of sections 103 and 104 in conjunction with other sections in Division 7 of Part III. of the Principal Act is that a resident private company which does not, within six months (non-resident company within nine 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 its shareholders.
A case arose in which an overseas company's premises had been damaged by enemy bombs. This destroyed valuable records and disorganized the operations of the company thus preventing it making a distribution to its shareholders within nine months of the close of the income year. The present law does not permit of a distribution made outside the prescribed period being considered for the purposes of section 103 no matter what the cause of the delay.
The amendment will enable the Commissioner of Taxation to extend the period within which dividends may be paid and taken into account in ascertaining whether a sufficient distribution has been made in those cases where he is satisfied that the delay in making the distribution is due to enemy action.
This amendment is consequential upon the amendment to section 103 made by Clause 11 of the Bill.
The amendment is consequential upon the proposed amendment to Section 17 which reduces the minimum amount of taxable income upon which tax is imposed from Pd156 to Pd104. A similar reduction is proposed in the amount allowed as a deduction under paragraph (ii) of sub- section (1) of this section. The result of the proposal will be to maintain the tax liabilities of the resident and the absentee who are in receipt of interest income upon relatively the same plane as they occupy under the present law.
The amendment extends the concessional allowances to include an allowance in respect of a dependent daughter keeping house for her widowed father or mother.
The rebate of tax to be allowed is to be based on an amount of One hundred pounds diminishing as the parent's income increases until it ceases to apply where the income amounts to Five hundred pounds or more.
In regard to dependent children under the age of sixteen years the present maximum rebate of tax for each child in excess of one is Five pounds. This maximum rebate operates for taxable incomes in excess of Pd487. The amendment increases the maximum amount to Pd8 to ensure that the maximum rebate will be reached at approximately the same income as under the present law.
The amendment extends the concessional allowances to include an allowance in respect of an invalid child of the taxpayer of the age of sixteen years and over.
The rebate of tax to be allowed is to be based on an amount of Pd75 subject to a maximum rebate of tax of Pd45. The amount of Pd75 on which the rebate is based will be reduced by the amount of any invalid pension paid by the Commonwealth in respect of the child. Where an invalid pension is not paid in respect of the child the test of invalidity is to be the same as that under the Invalid and Old-age Pensions Act. The allowance of the concession will be dependent on the production to the Commissioner of a certificate of a medical officer of the Commonwealth Department of Health or of a Commonwealth Medical Referee that the child is permanently incapacitated for work within the meaning of the Invalid and Old-age Pensions Act.
The amendment which is similar to that made by clause 9 of the Bill to section 78 (1) (a) (ix) provides for the extension of the concessional allowances to include gifts made to a State Government for defence purposes in the same way as gifts to the Commonwealth Government for similar purposes.
The proviso that is being inserted in section 160C.-(1.) (iii) is similar to that proposed by clauses 11 and 12 of the Bill to be inserted in sections 103 and 104 (vide the explanatory note on those clauses.)
The amendment to sub-section (2) of section 160C is simply a drafting correction.
The amendment to section 165 of the Principal Act is consequential upon the insertion of the proposed Part VIIA. in the Principal Act.
Section 165 provides that any person who charges, directly or indirectly, a fee for preparing or assisting in the preparation of an income tax return shall sign the agent's certificate endorsed on the return form. The agent's certificate requires the person charging the fee to furnish particulars regarding the books and records from which the return is compiled and to state whether the return is in accordance with those books and records.
This amendment of section 165 is designed to ensure that when an income tax return is prepared for any person by a registered tax agent who or which is a company or a partnership the agent's certificate shall be signed in the name of the company or the partnership by a person who is a registered nominee of that company or partnership.
Under the present law, if the Chairman of the Board of Review is unable to continue his duties owing to sudden illness while the Board is engaged in hearing cases in say, Perth, it is possible that the hearings would have to be abandoned and the cases heard at a later date.
The amendment will enable the Board to continue to function during the period between the commencement of the Chairman's absence and the appointment of an Acting Chairman by the Governor-General. By this means delay in hearing the cases, and additional expenses to both the taxpayer and the Commonwealth, will be avoided.
This clause is inserted in the Bill for the purpose of defining the Certificate of Credit which is referred to in clauses 21 and 22.
The amendment proposed by paragraph (a) of this clause is necessary to provide for instalment deductions to be made from salaries or wages in excess of Pd104 per annum instead of Pd156 per annum as at present. It will conform with the proposal that the minimum amount subject to tax should be reduced from Pd156 to Pd104.
The purpose of paragraph (b) of this clause is to ensure that instalment deductions will be made from all salary or wages which exceed Pd2 per week whether the salary or wages are paid for a week or a longer period of time. It will clarify the intention of the existing provisions of the law under which the deductions are being made from salary or wages whether paid in respect of a week or any longer period of time.
Paragraph (c) of this clause is a drafting alteration which follows the amendment proposed by paragraph (b).
By this clause it is proposed to widen the power of the Commissioner to vary instalment deductions so that in any case where an employee is entitled to concessional rebates of tax which are not allowed for in the prescribed scale of instalment deductions the instalments may be reduced to prevent any excess arising. The new provision proposed will cover also the existing provision whereby the Commissioner may vary instalment deductions to meet cases of hardship.
Paragraph (a) of the clause :
The existing law provides that if an employee produces to the Commissioner instalment deductions which are more than sufficient to meet the tax payable by him, the excess instalments will be refunded by the Commissioner in cash. The object of this amending clause is to provide that the Commissioner will hold from any such excess an amount sufficient to meet the tax which will be payable by the employee in the following year. The adoption of the clause would mean that refunds of excess instalments will be made by the Commissioner in the following cases :
- where the amount of excess is less than Pd1;
- where excess instalments had been accumulated by the employee on 31st March, 1943, the excess held on that date will be refunded;
- where the excess instalments are greater than the amount of tax payable by the employee in the following year, the amount refunded will be the amount by which the excess instalments exceed that tax.
It is proposed that the Commissioner will issue to the employee a certificate of credit showing the amount of excess instalments which the Commissioner is holding on his behalf.
Paragraph (b) of the clause :
The amendment proposed to be made by this paragraph is a drafting amendment made desirable by the insertion of the provisions of paragraph (a) of the clause.
By this clause it is proposed to insert a new section, sub-section (1.) of which a provision is made for interest at the rate of 2 per cent. per annum to be paid on the value of each certificate of credit. The interest will be calculated for the period during which the certificate is in force. Sub-section (2.) of the section provides that a certificate of credit and the accrued interest shall be treated as though it represented tax stamps. Sub-section (3.) of the section states that the certificate will not be liable to stamp duty imposed by any law. Sub-section (4.) makes it an offence for any person to sell or purchase a certificate of credit.
Paragraph (a) of this clause is purely a drafting amendment made necessary by the insertion in 1942 of sub- section (2A.) in section 221K of the Act. By paragraph (b) of the clause, sub-section (4.) will be omitted from section 221K. The provisions of that sub-section will be replaced by paragraph (d) of the clause. The amendment proposed by paragraph (c) is a drafting amendment which follows the insertion of sub-section (2A.) in section 221K.
By paragraph (d) it is proposed to insert a new sub- section in section 221K. Under the existing law an employer who makes instalment deductions from the salary or wages of his employee is required to give the employee tax stamps to the value of the amount deducted. The employee is required to produce the tax stamps to the Commissioner with his notice of assessment for the purpose of paying his tax. Some employers, by arrangement with the Commissioner under section 221K, do not use tax stamps at the time of making payment of the salary or wages. The amounts deducted by them are remitted periodically to the Commissioner. The employee from whose salary or wages deductions are made under this arrangement obtains a certificate from his employer showing the total of the instalments deducted from his salary or wages during the year. This certificate is accepted by the Commissioner from that employee in the same manner as tax stamps are accepted from other employees. It has been found in practice that many employees who hold certificates from their employers do not present the certificates to the Taxation Department with the result that the Department is obliged to undertake considerable additional work in setting off the instalment deductions against the employees' tax. The object of this clause is to require employees who hold certificates from their employers to produce those certificates to the Taxation Department in the same manner as other employees are required to produce any tax stamps held by them.
The amendments proposed by this clause are consequential upon the amendment of section 221H which is sought by clause 21 of this Bill. The effect of the amendment will be that tax stamps which are voluntarily purchased by taxpayers who are not covered by the instalment provisions of the Act will not be brought under the provisions which relate to certificates of credit.
It is proposed to insert in the Principal Act a new Part, viz., Part VIIA. consisting of a number of new sections, i.e., sections 251A to 251P, governing the registration of tax agents.
The substantial effect of these provisions is that no person, partnership or company shall charge a fee for making up income tax returns, or for transacting any business relating to income tax matters, unless he is registered as a tax agent or granted an exemption by a Board constituted under Part VIIA. of the Income Tax Assessment Act.
It is proposed that a Board consisting of two Government officials not directly attached to the Taxation Department and a third member, who shall be appointed by the Governor-General, shall be set up in each State and that each Board shall be authorized to register as tax agents those persons whom it considers fit and proper persons to prepare income tax returns, lodge objections against assessments and generally deal with income tax matters on behalf of clients.
Each application for registration by a Board must be accompanied by a lodgment fee of One pound. Annual renewal of registration, however, is not proposed, and a tax agent who is registered by a Board will remain so registered by the Board unless his registration is cancelled and no further fee will be payable by him.
A partnership or a company may be registered as a tax agent if the Board is satisfied that a partner or, in the case of a company, an employee nominated by the company, is a fit and proper person to act as a registered tax agent. The partner or employee referred to will be registered as a nominee of the registered tax agent.
A partnership or a company may also register as additional nominees any other members of the partnership or employees of the company, as the case may be, who, in the opinion of the Board, are competent to act as tax agents. However, the lodgment fee of One pound must be paid in respect of each person it is desired to register as an additional nominee, and all income tax work done by the partnership or the company must be done under the supervision or control of a registered nominee or additional nominee. However, as already mentioned in the Explanatory Note to clause 16, agents' certificates on returns prepared by partnerships or companies which are registered as tax agents must be signed by a person who is registered as a nominee or an additional nominee of that partnership or company.
The State income tax laws of New South Wales, Queensland, South Australia and Tasmania already require the registration of tax agents for State income tax purposes. In New South Wales, Queensland and Tasmania, Tax Agents' Boards have been constituted for this purpose, but in South Australia control is vested in the Registrar of Companies.
As it is desired to utilize the services of the members of these Boards and gain the benefit of their knowledge and experience, and also as it is desirable that any duplication of work be avoided, it is proposed that these State Boards act as Commonwealth Boards in their respective States.
Section 251H, therefore, provides that the Governor- General may make an arrangement with the Governor-in- Council of a State for a State Board to act as a Board constituted under the Commonwealth Income Tax Assessment Act. Where such an arrangement is made the State Board will be deemed to be a Board constituted under the Commonwealth Act and will have the same powers and functions and be entitled to the same privileges as if it were constituted under the proposed sections 251C and 251D. Such Boards will be required to observe the rules to be followed by the Commonwealth Boards in regard to the conduct of meetings, hearing of applications, taking of evidence, & c., excepting that the Chairman and Acting Chairman shall be appointed according to existing State practice. This exception is made because the Chairman of a State Board may not be appointed in the same manner as the officer appointed under the proposed new section 251D.
It is also provided that a tax agent who is registered under any State income tax law shall, upon application, be automatically registered by a Commonwealth Board without payment of the prescribed lodgment fee of One pound. If, however, the tax agent is a partnership or a company, the exemption from payment of the lodgment fee shall apply in respect of only one nominee. A fee must be paid in respect of every additional nominee it is desired to register.
A partnership or a company shall remain registered as a tax agent only if it has a nominee or an additional nominee registered who is actually a member of the partnership or an employee of the company.
Each Tax Agents' Board is also to be given power to cancel registration in any case where it is satisfied that the registered tax agent has prepared an income tax return which is false in a material particular or that he is guilty of negligence or improper conduct or has become bankrupt. The Agent, however, will have a right of appeal to a Court against any such cancellation.
The effect of the proposed section 251L is that under penalty of fine no person (including a solicitor), partnership or company shall, directly or indirectly, charge a fee for preparing any income tax return or for transacting business in income tax matters unless he is registered as a tax agent or granted a certificate of exemption by a Commonwealth Board.
This provision, however, will not prevent any solicitor from acting, in the course of his profession, in any litigation or proceedings before a Board of Review or Board of Referees or in an advisory capacity in connexion with the preparation of any income tax return.
Under sub-section (2.), however, a Board may grant exemption from the provisions of this section in any case where--
- the total income derived as a tax agent by the applicant during the preceding twelve months did not exceed Pd20; and
- there is no registered tax agent within a reasonable distance of the place where the applicant resides or carries on business.
This certificate will have a currency of one year, but a Board is empowered to withdraw it at any time.
The Bill also contains a number of machinery provisions essential for the effective working of the scheme. Penalties for breaches of the Act are also provided.
The new section requires taxpayers carrying on a business to keep sufficient records in the English language to enable their assessable income and allowable deductions to be readily ascertained.
It also requires that such records should be retained by the taxpayer for a period of ten years. The records need not, however, be preserved in the case of a company which has gone into liquidation and has been finally dissolved, or in those cases where the Commissioner gives notice to the taxpayer that the preservation of his records is no longer required.
The amendments proposed to be made by the Bill will commence to apply to assessments for financial years as indicated in this clause.
Section 6 referred to in sub-clause (1.) relates to the exemption of pay and allowances of members of the Defence Force. This section is being applied retrospectively to assessments based on income derived during the year ended 30th June, 1941, in order that the anomaly explained under clause 6 may be removed from assessments of the members of the Defence Force affected.
The amendments referred to in sub-clause (2.) will commence to apply in assessments based on income of the year ended 30th June, 1942, or the substituted accounting period.
The amendments enumerated in sub-clause (3.) will commence to apply in assessments based on income of the year ending 30th June, 1943, or the substituted accounting period.