Explanatory Memorandum(Circulated by authority of the Acting Treasurer, the Rt. Hon. R. G. Menzies.)
RESOLUTION TO DECLARE RATES OF TAX
The main purpose of this Resolution is to declare the rates of income tax and social services contribution payable by both individuals and companies for the current financial year 1959-60. The Resolution also provides for the imposition of provisional tax in respect of the income of individuals for the income year that commenced on 1st July, 1959.
The principal differences between proposals in the Resolution and the existing law declaring rates of income tax and social services contribution are -
- The allowance of a rebate to reduce by 5 per cent. the income tax payable by individuals;
- The raising of the level of the age allowance available to men over 65 years and women over 60 years of age.
The allowance of a rebate to reduce the tax payable by individuals will not involve a revision of the Schedules setting out the present rates of tax. The major part of the Resolution is accordingly similar to the Income Tax and Social Services Contribution Act 1958 that declared the rates of tax payable for the financial year 1958-59. Paragraphs of the Resolution that are, in substance, the same as the existing law are not examined in this memorandum. However, explanatory notes dealing with the proposed reduction in tax and the revised age allowance are provided below.
Paragraph 6 of the Resolution provides for the allowance of a rebate to reduce by 5 per cent. the income tax and social services contribution otherwise payable by individuals for the 1959-60 financial year.
The rebate will be available to persons liable to tax under paragraph 4 or 5 of the Resolution. Those paragraphs relate to the tax liability of individuals and do not apply to companies, other than a company paying tax in the capacity of a trustee. The reference to paragraphs 4 and 5 nevertheless ensures that the rebate will be provided where the age allowance has reduced the tax payable and also where rates of tax are determined under special provisions for example, in the case of primary producers to whom the averaging provisions have application.
The amount of the rebate will be one-twentieth of the tax payable before the allowance of any other rebates or credits.
A number of rebates and credits are already provided under the income tax law. These include the rebate of 2/-in the Pd that applies to interest on Commonwealth and certain other securities and the credits allowed to relieve double taxation where dividends arising and taxed outside Australia are also subjected to Australian tax. In order that these rebates and credits may be allowed in full, the new rebate to effect the 5 per cent. reduction in tax will be calculated before those other rebates and credits are allowed.
The following example illustrates the procedure -
|Taxable income (comprising Pd1,100 personal exertion income and Pd100 Commonwealth Loan Interest)||Pd1,200|
|Gross tax on Pd1,200 taxable income||Pd149.12. 0.|
|Rebate of one-twentieth (5%) of gross tax||7.10. 0.|
|Pd142. 2. 0.|
|Rebate of 2/- in the Pd on Commonwealth Loan Interest of Pd100||10. 0. 0.|
|Net tax||Pd132. 2. 0.|
In the example above, the amount of gross tax and the amount of the 5 per cent. rebate have been taken to the nearest shilling as proposed in paragraph 9 of the Resolution. The practice of eliminating pence from assessments has applied for many years and is being continued in the interests of simplicity.
Paragraph 5 of the Resolution proposes an increase in the level of incomes to which the age allowance may apply.
The main purpose of the allowance is to exempt aged persons in the lower income groups from tax on their incomes.
The allowance is available to persons who have been residents of Australia throughout the year of income and who, at the end of the income year, have attained the age of 65 years in the case of men or 60 years in the case of women.
The objective of the allowance is to provide freedom from tax for persons satisfying these tests and whose income does not exceed the sum of the full age pension and the maximum permissible income for pension purposes. At present, the allowance confers freedom from tax on net incomes not exceeding Pd410. In the case of married couples, combined net incomes of up to Pd819 are exempt from tax if both husband and wife satisfy the tests mentioned and one of them contributes to the maintenance of the other.
Consistent with the proposed increase of 7s. 6d. a week in the age pension, paragraph 5 of the Resolution proposes that the present exemption limits of Pd410 and Pd819 be increased to Pd429 and Pd858.
In addition to the exemptions outlined, the age allowance may also provide a measure of relief where the net income is somewhat in excess of the amounts mentioned. This relief may at present be effective where the net income of an aged person is between Pd411 and Pd460. In the case of married couples, this relief may apply where the net income of the taxpayer does not exceed Pd1,106. Paragraph 5 will increase the upper limit at which the allowance may operate from Pd460 to Pd485 and, in the case of a married taxpayer, from Pd1,106 to Pd1,181.
Where the net income of an aged person exceeds the exemption point, but is within the upper limits referred to, the amount of tax payable is limited to nine-twentieths of the excess over the exemption point. For example, if the combined net incomes of a married couple total Pd900 the excess over the exemption point of Pd858 is Pd42. In these circumstances the tax payable by the aged person is limited to nine-twentieths of Pd42, that is, Pd18.18. 0, from which there will be deducted the 5 per cent. rebate amounting to 19/-. The net liability will accordingly be Pd17.19. 0. If, however, there should be circumstances in which the normal assessment processes result in a smaller amount of tax being payable, then only that smaller amount is charged.
The revised age allowance will apply for the current year of income, 1959-60.