Explanatory Memorandum(Circulated by the Treasurer, the Rt. Hon. A. W. Fadden.)
The provisions contained in the Resolution and the Bill are directed principally towards the simplification of the income tax law and practice.
This simplification is being effected by three major reforms, viz.:-
- The merging of the present two separate levies of income tax and social services contribution into a single levy on taxable income.
- The introduction of stepped rates of tax and contribution that increase for every Pd50, or multiple of Pd50, of taxable income. This system of stepped rates will replace the present system of rates which increase by fractions of one penny for every Pd1 of increase in the taxable income.
- The allowance of concessions for dependants, medical expenses, life assurance premiums, superannuation contributions, friendly society dues and other concessions by way of deductions from income. These concessional deductions will replace the concessions that are allowed at present either by way of rebates of income tax or by way of concessional rates of social services contribution.
In 1945, the levy of taxation on the incomes of individuals was divided into two charges-income tax and social services contribution.
Although complementary to income tax, the contribution operates as a separate levy, being separately imposed and separately assessed. The contribution is notified to the contributor as a liability separate from income tax but is shown on a combined income tax and social services contribution assessment. In the Treasury accounts, the contributions payable are recorded separately from income tax for the purpose of appropriation to the National Welfare Fund.
The contribution is imposed at graduated rates commencing at slightly more than 1d. in the Pd at an income of Pd105 in the case of a contributor without dependants and rising to a maximum of 18d. in the Pd at an income of Pd500. Income tax, as such, does not become payable until an income from personal exertion exceeds Pd500 or from property Pd350.
Where the income recipient maintains dependants, the income level at which the contribution commences to be payable and the income level at which the contribution reaches the maximum rate of 18d. in the Pd1 depend on the number of his dependants. Concessional allowances such as medical expenses, friendly society dues and life assurance premiums also affect the level at which the contribution commences and at which it reaches the maximum of 18d. in the Pd1.
Income tax, in addition to social services contribution, becomes payable at approximately the income levels at which the contribution reaches the maximum rate of 18d. in the Pd1. The rates of income tax are so designed, however, as to blend gradually with the contribution rates so that there is no abrupt increase in the combined liability to tax and contribution.
In those cases where social services contribution only is payable, very little complication enters into the assessments, but where both contribution and tax are payable, serious complications arise.
The merging of the contribution and the tax into a single levy, the introduction of the system of stepped rates and the allowance of concessional deductions instead of rebates of tax, will simplify the processes of assessment and the annual notices to the extent that taxpayers will be enabled to check their liabilities to income tax and social services contribution.
As a further step towards simplification, it is proposed that the present method of differentiation with regard to property income be replaced by a further tax and contribution to be imposed on property income only. The further tax will be imposed at rates of 4d., 8d. and 1s. 4d. in the Pd1 applied to broad steps.
The proposals for stepped rates of tax and contribution and a further levy on income from property are based on recommendations of the Commonwealth Committee on Taxation.
Statements are appended to this memorandum comparing-
- the proposed basic tax and contribution;
- the present total tax and contribution; and
- income tax at war-time rates,
The following are notes on the paragraphs of the Resolution and the Clauses of the Bill.