Explanatory Memorandum(Circulated by authority of the Treasurer, the Rt. Hon. Harold Holt.)
The principal purpose of these Bills is to correlate the Australian income tax laws with the system of income tax that has been imposed in the Territory of Papua and New Guinea as from 1st July, 1959.
With the introduction of income tax in the Territory, it has been found necessary to review the operation of the Australian income tax system both as regards the taxing, under the Australian system, of income from Territory sources, and as regards the position of Territory residents who derive income from Australian sources.
The present legislation is designed to give effect to three broad principles:-
- Residents of mainland Australia should not be called upon to pay a combined Australian tax and Territorial tax greater than the Australian tax that would be payable if there were no liability for Territorial tax.
- Territory residents should not be required to pay a greater measure of Australian tax than heretofore.
- Discriminations in the Australian income tax law between the Territory of Papua and the Territory of New Guinea should be removed.
These changes in the law will apply to assessments based on the 1959-1960 income year and subsequent years. In this way, the commencement of the new provisions will be co-ordinated with the commencement of income taxation in the Territory of Papua and New Guinea.
So far as is material, the amendments affecting Australian residents arise from the imposition of both Territorial and Australian tax on income derived by residents of Australia from sources in the Territory. The double taxation will, however, be relieved by granting against the Australian tax on the income a credit for the Territorial tax. In consequence, the Australian resident required to pay Australian tax on his Territorial income will pay no more in total than his liability would have been if Territory tax had not been imposed.
Amendments to give effect to this principle will be found in clauses 6 and 7 of the Income Tax and Social Services Contribution Assessment Bill. Explanations relating to those clauses are provided in a later part of this memorandum.
A Territory resident deriving income from sources in Australia is liable for Australian tax on that income in addition to his liability for Territorial tax. Provisions in the Territorial Ordinance relieve the double taxation by means of a credit corresponding with the credit it is proposed to allow to Australian residents with Territorial income.
In the past, Territory residents have been entitled to concessional deductions in respect of dependants residing in Australia or in the Territory of Papua. Amendments of the law are proposed to ensure the continuance of these deductions and also to extend the deductions to cases in which the dependants reside in the Territory of New Guinea, Norfolk Island, Cocos (Keeling) Islands, Christmas Island or Nauru.
Territory residents will remain entitled to other deductions at present available to them under the Australian law and the Assessment Bill contains provisions, where necessary, to ensure that result.
For reasons that are largely historical, the term "Australia" has been defined in the Income Tax Assessment Acts as including the Territory of Papua. On the other hand, the Territory of New Guinea is not defined to be part of Australia for income tax purposes.
The different treatment accorded the two Territories is of limited practical significance because of other provisions in the Australian law which grant to residents of both Territories exemption from Australian tax on Territory income, and deem them to be Australian residents for the purposes of assessment and payment of tax on Australian income.
The effect of the latter provision is that Territory residents with income from Australia are entitled to concessional deductions for dependants etc. and various other allowances which the Assessment Act provides only for those taxpayers who are treated as residents of Australia.
One important effect of the inclusion of the Territory of Papua within the definition of "Australia", however, is that an overseas resident with income from Papua would be liable to both Australian and Territory tax on that income, in addition to any liability he may incur in his own country. With the introduction of Territory tax, it is considered appropriate for Australia to withdraw from this field of taxation.
The definition of "Australia" will accordingly be repealed but provision is being made to ensure that this will not deprive Papuan residents, and other taxpayers carrying on business in Papua, of certain allowances they have hitherto been accorded by reason of Papua being treated as part of Australia. At the same time, it is proposed to make these allowances available in relation to the Territory of New Guinea as well as the Territory of Papua.
Provisions that were previously limited in their operation to Australia and Papua (but will now extend to the whole of the Territory of Papua and New Guinea) include -
- the rights granted to primary producers to have their tax rates ascertained by reference to the averaging provisions, to bring certain abnormal income to account by instalments over a period of five years, and to obtain deductions for certain types of capital expenditure incurred in improving their rural properties;
- the partial exemption of income obtained from mining for certain metals or minerals;
- the exemption from income tax granted to certain persons who visit Australia to assist the Government in the settlement or development of the country and to non- profit associations established to promote the development of Australian resources.
Minor changes, designed to eliminate possible anomalies, are proposed in the sections dealing with the allowance of concessional deductions and in a provision which governs the allowance of deductions for capital expenditure incurred in mining or prospecting for petroleum. It is also proposed to amend the secrecy provisions to empower the Commissioner of Taxation to disclose information to the Chief Collector of Taxes of the Territory of Papua and New Guinea. Reciprocal provision is already contained in the Territorial Ordinance.
Most of the provisions that will be affected by these changes are contained in the Income Tax and Social Services Contribution Assessment Act 1936-1959, but consequential changes are also needed in the Income Tax and Social Services Contribution Acts 1959 (i.e., the Rates Act) and the Income Tax (International Agreements) Act 1953-1959. The proposed amendments to the various Acts are discussed in detail below.