Explanatory Memorandum(Circulated by authority of the Treasurer, the Rt. Hon. Harold Holt.)
The purpose of this memorandum is to explain the provisions of four Bills concerning income tax.
The first Bill - the Income Tax Bill 1965 - declares the rates of income tax payable by individuals and companies for the current financial year 1965-66. Features of the Bill are :
- The name of the tax on incomes is being changed from "income tax and social services contribution" to "income tax".
- The rates of tax payable by individuals for the 1965-66 financial year will be the same as those for the 1964-65 financial year except for some very minor changes to facilitate conversion to decimal currency.
- The rates of tax applicable for the 1965-66 financial year in relation to companies are to be the same as those that applied for the 1964-65 financial year.
- An additional levy of 2 1/2% of the income tax otherwise payable by individuals for the 1965-66 financial year is to be imposed.
- A rate of 10/- in the Pd1 is to be levied in relation to income of a trust estate to which no person is presently entitled and which is taxed under section 99A of the Income Tax Assessment Act.
- A further tax is to be imposed in relation to a share of net income of a partnership over which a partner lacks, or is deemed to lack, real and effective control and which is taxed under section 94 of the Income Tax Assessment Act.
- A rate of tax of 10/- in the Pd1 is to be levied in relation to incomes of superannuation funds taxable under section 121CA, 121CB or section 121DA of the Income Tax Assessment Act.
More detailed explanations will be found at pages 6 to 14 of this memorandum.
The second Bill - the Income Tax Assessment Bill 1965 - is designed to give effect to various proposals amending the basis upon which tax is assessed. In broad terms, the main points of this Bill are :
- The words "and Social Services Contribution" are being deleted from the title of the income tax legislation and, for the 1965-66 and subsequent financial years, the levy on incomes is to be called "income tax" instead of "income tax and social services contribution".
- The service pay and allowances of members of the Defence Forces serving in Vietnam and Borneo are to be exempt from income tax.
- The pay and allowances for part-time duty, including bounty and call- up gratuity, of members of the Defence Forces Emergency Reserve are also to be exempt.
- A woolgrower whose assessable income of the 1964-65 income year includes the proceeds of two wool clips may, where the inclusion of the proceeds of the additional clip was due to an advanced shearing by reason of the drought, elect to transfer the proceeds of the additional clip, less shearing and other direct expenses, to the 1965-66 income year.
- The provisions relating to the deduction by companies of losses of prior years are being modified. In broad terms, a company in which more than 60% of the shares have changed hands will be entitled to a deduction for a loss incurred prior to the year of income if it is carrying on in that year only the same business as it carried on prior to the change in its shareholdings. Provision is also being made to ensure that deductions continue to be available where there have been changes in direct beneficial shareholdings sufficient to preclude the deduction, but such changes have not occurred in the indirect beneficial interests.
- A director of a company may qualify for membership of a fund established to provide benefits for employees of the company.
- For the purposes of section 23F or section 79 of the Principal Act, a trustee of a superannuation fund may give to the Commissioner of Taxation an undertaking that benefits forgone by employees on ceasing to be members of the fund will be applied as required by the sections within a reasonable time.
- For the purpose of calculating the special deduction based on the net cost of assets of a superannuation fund to which section 79 of the Principal Act applies, money owing in respect of an asset, the cost of which is not taken into account in the calculation of the deduction, will not reduce the net cost of assets that are so taken into account.
- The Commissioner of Taxation will be authorised to approve a scheme for the application of benefits forgone by employees on ceasing to be members of a superannuation fund. Where an approved scheme operates, the deductions available to the employer for contributions to provide benefits for employees will not be disturbed by reason of the benefits forgone.
- The procedures to be followed in respect of benefits forgone where an approved scheme is not in operation in respect of a fund are to be modified.
- Where Treasury Notes (or associated Inscribed Stock) are sold, redeemed, or otherwise disposed of, the excess of the value of the Notes or Stock over the cost price is not to be treated as interest on Government loans to which the rebate of tax of 2/- in the Pd1 applies.
- The exemption for dividends paid out of certain capital profits and satisfied by the issue of bonus shares is not to be available if the shares issued are redeemable or if the issue is made for the purpose of enabling a shareholder to receive from the company money or property other than shares in the company.
- Dividends paid by companies incorporated in the Territory of Papua and New Guinea to Australian resident shareholders, and which are exempt from income tax in the Territory under the Industrial Development (Incentives to Pioneer Industries) Ordinance of the Territory, are to be exempt from Australian income tax.
- The deduction for subscriptions in excess of Pd21 to certain kinds of business or trade associations is to be determined in relation to the particular association's expenditure on activities which, if carried out by a member, would be an allowable deduction to him.
- Compensation received for converting a machine that is trading stock is to be included in assessable income.
- The depreciated value of a machine used as plant in producing assessable income is to be adjusted by the net cost of conversion (i.e., actual cost less any compensation received) and depreciation allowances determined in relation to the depreciated value as so adjusted.
- Expenditure incurred in converting a machine used in mining operations will be treated as deductible capital expenditure incurred in respect of the machine and compensation payments will be set off against the deductions allowable in respect of capital expenditure incurred in relation to those operations.
The clauses of the Bill are explained at pages 15 to 89 of this memorandum.
The third Bill - the Income Tax (International Agreements) Bill 1965 - proposes a minor drafting amendment to the Income Tax (International Agreements) Act 1953-1964 that is consequential on the change in the name of the tax on incomes.
Further notes on this Bill are at page 90 of this memorandum.
The fourth Bill - the Income Tax (Non-resident Dividends) Bill 1965 - is consequential on the change in the name of the tax on incomes. The existing Act that imposes "income tax and social services contribution" on dividends derived by non-residents is being repealed. The new Act will impose "income tax" on these dividends. The rate of tax is not being altered.
Explanations will be found at pages 90 and 91 of this memorandum.