House of Representatives

Income Tax and Social Services Contribution Assessment Bill 1951

Income Tax and Social Services Contribution Assessment Act 1951

Explanatory Memorandum

Proposed to be Moved by the Treasurer, the Rt. Hon. Sir Arthur Fadden.
Notes Explaining Amendment to Clause 40 of The Bill. And Insertion Of New Clauses 14A, 14B, 14C, 14D AND 15A.

MINING (OTHER THAN GOLD MINING) REBATE OF TAX TO PRIMARY PRODUCER

INTRODUCTORY NOTE

The main proposals contained in these amendments are -

1.
That capital expenditure on coal-mining plant and development shall be subject to the deductions allowed in the case of other mining plant and development;
2.
That the deductions shall be extended to include capital expenditure on housing and welfare provided by mine owners for employees and their dependants, if the facilities are provided on or adjacent to the mining field;
3.
That a rebate of income tax and social services contribution shall be allowed to a taxpayer (other than a company) where the whole of the assets of a business of primary production are disposed of for the purpose of putting an end to that business and those assets include live-stock which is disposed of at a profit.

TAXATION OF THE MINING INDUSTRIES.

This subject has been examined by the Commonwealth Committee on Taxation. The Committee's reports were tabled in Parliament on 20th November, 1951.

Coal Mining Industry

The Committee has recommended that the coal-mining industry should be brought within the scope of the special provisions of Division 10 of the Income Tax and Social Services Contribution Assessment Act. This Division authorises the deduction of capital expenditure on necessary plant and development of mining properties.

Capital expenditure is not ordinarily deductible for income tax purposes but, in the case of mining enterprises, it is recognised that, as a general rule, the capital invested in the mining property is lost when the mineral deposit is exhausted.

Under Division 10, capital expenditure may be deducted, at the choice of the mine owner, under either one or the other of two methods, viz.-

(a)
in annual deductions ascertained by dividing the expenditure not previously allowed by the number of years remaining in the estimated life of the mine; or
(b)
by deducting the expenditure from income of the year in which the expenditure is incurred.

In addition to the second alternative, mine owners may deduct amounts appropriated from income of any year for development of the mining property or the purchase of new plant in the next succeeding year.

The broad principle on which this deduction system is based is that, in the ultimate, mining profits which are to be taxed are those profits only which are left after capital expenditure has been recouped.

Since the inception of Commonwealth income tax in 1915 up to the present time, the coal-mining industry has been excluded from the operation of the special provisions for the taxation of the mining industries. The reason for the exclusion has not, however, been recorded.

It is proposed to adopt a recommendation of the Committee that the coal-mining industry should be brought within the scope of Division 10. In conformity with the Committee's recommendation, it is proposed that the deduction should not have retrospective effect, but should apply only in respect of capital expenditure incurred during and after the current year of income.

Expenditure on Housing and Welfare Buildings and Other Improvements for Employees and their Dependants.

The Committee has also recommended that a deduction should be allowed for expenditure on housing and welfare buildings and other improvements provided for persons employed in, or in connection with, the mining property, and for their dependants.

A comparable deduction is not allowed to other industries, but it is material that houses and amenities erected on or adjacent to a mining field may become valueless should the mining operations cease. The circumstances surrounding expenditure on housing and amenities for use in the mining industry can accordingly be distinguished from the position applying in industry generally.

In making this recommendation, the Committee has recognised that adequate, efficient and permanent labour for mining operations is more readily available where houses and amenities are provided for mine employees and their dependants. Expenditure for these purposes has a definite relationship to the practicability of conducting successful mining operations, particularly in isolated areas.

It is proposed to adopt the Committee's recommendation that certain expenditure for these purposes shall be allowed as deductions over the estimated life of the mine.

Review of Deductions for Capital Expenditure.

The Commonwealth Committee on Taxation has recommended the amendment of the law in order to render more effective the provisions of Division 10 relating to the deductibility of capital expenditure on necessary plant and development of mining properties.

While the existing law provides alternative bases upon which deductions may be claimed, mine proprietors are not permitted to make a separate choice as to the basis of deduction in respect of each item of expenditure. The whole of the capital expenditure of any one year must be dealt with on one basis or the other.

The Committee has recommended that the choice of deductions be permitted in respect of expenditure on development, e.g., expenditure on a mining shaft may be deducted either wholly or in part on one basis or the other. A similar choice is recommended for expenditure on each item of plant. The choice does not extend, however, to expenditure on housing and welfare. The Committee has also recommended that mine owners be permitted, if they so choose, to claim the normal deductions for depreciation of plant in lieu of the special deductions provided by Division 10.

A further proposal advanced by the Committee is that, for the purpose of allowing deductions over the estimated life of a mine, a fixed period be adopted as the maximum life of a mine.

The Committee has recommended that the estimated life of the mine be employed in ascertaining deductions allowable where that estimated life does not exceed 25 years, and that a maximum life of 25 years be applied in other cases. The adoption of this proposal is unlikely to give rise to circumstances in which the fixed period would be prejudicial to any mine owner.

A further recommendation for the amendment of Division 10 will apply where a mine owner, who has been allowed a deduction for capital expenditure, recovers the whole or a part of that expenditure by disposing of the asset on which the expenditure was incurred. The Committee has recommended that amounts so recovered be included in assessable income to the extent that they have previously been deductible.

This recommendation accords with the existing provision under which the excess of amounts recovered on the sale of plant over the depreciable value are treated as assessable income to the extent that depreciation of the plant has been allowed as a deduction.

The same principle is recommended by the Committee in respect of the value of assets which cease to be used for the purpose of mining operations, e.g, on the termination of a mining lease.

The provision contemplated by the Committee would eliminate the loss of revenue which can now arise when mine owners dispose of plant.

In some instances, improvements, in respect of which deductions are allowable, may be sold by a mining enterprise to a related undertaking. In order to prevent an abuse of the provisions allowing deductions for capital expenditure, it is proposed to provide that the purchaser shall not be allowed a greater deduction in respect of property sold than would have been allowed to the vendor if he had retained the property. This principle is already expressed in the depreciation provisions of the income tax law. These recommendations made by the Committee are also being adopted.

By Clauses 14A and 14D it is proposed to repeal sections 122, 123 and 124 of the Principal Act. These sections provide the present bases for the deduction of capital expenditure on plant and development of mining properties.

In place of the repealed sections, new sections are being enacted to give effect to the proposals outlined in this note.

CLAUSE 14A

The following are notes on the new sections incorporated in Clause 14A.

Section 122 - Deductions for Expenditure.

The proposed sub-section (1.) will apply where a person carries on mining operations in Australia, which includes the Territory of Papua, or in New Guinea.

If expenditure of a capital nature has been incurred on necessary plant or development of the mining property or on housing or welfare, that expenditure shall be allowed as deductions in conformity with subsequent sub-sections of section 122.

The proposed sub-section differs from the present sub-section in so far as the deductions are extended -

(a)
to capital expenditure on housing and welfare;
(b)
to capital expenditure on a coal-mining property; and
(c)
to capital expenditure incurred in mining operations in New Guinea for the purpose of gaining or producing income which is assessable for Commonwealth income tax purposes.

Sub-section (2.) will provide that the deduction shall be the residual capital expenditure, which is later defined, divided by the number of years in the estimated remaining life of the mine.

For the purpose of these deductions, the maximum life of a mine is being regarded as twenty-five years. This provision will enable mine owners to obtain the deduction of capital expenditure within a reasonable period.

Sub-section (3.) is substantially a re-enactment of the present Section 122(3.).

Under sub-section (3.), unless the taxpayer otherwise elects, the maximum deduction in any year of income shall be such amount as to cause the total of the allowable deductions to be equal to the assessable income.

A provision of this nature is necessary as, in certain circumstances, the allowance of the full annual deduction in a year when income is insufficient to absorb all deductions may deprive the mine owner of an effective deduction for the total amount of capital expenditure.

To the extent to which the annual deduction is not allowed under this provision, the amount remains in the residual capital expenditure to be deducted in future years of the estimated life of the mine.

The mine owner may elect, however, under sub-section (4.) that sub-section (3.) should not apply. In that event, the excess of deductions over assessable income will be carried forward under section 80 of the Principal Act for deduction from the income of succeeding years. Section 80 provides, broadly, that losses incurred in any of the seven years preceding the year of income shall be allowable deductions. For this purpose, a loss is the excess of allowable deductions over assessable income.

Under sub-section (5.) the basis for ascertainment of the residual capital expenditure is re-defined.

Briefly stated, the residual capital expenditure will be the total capital expenditure made prior to and after 30th June, 1951, less the amount of that expenditure previously deductible. Expenditure allowed under an alternative provision or in respect of assets which have ceased to be used in the mining operations (e.g. assets which have been sold) is excluded from the residual capital expenditure.

The procedure proposed is to ascertain first, under paragraph (a), the amount of expenditure incurred before 1st July, 1951, which would have been allowable as deductions in future assessments under the repealed section 122 - that is, the capital expenditure to 30th June, 1951, less the allowable deductions under the repealed section to that date.

To this amount there is added, under paragraph (b), capital expenditure which is incurred after 30th June, 1951, and which comes within the new provisions.

Paragraphs (c), (d) and (e) provide for the exclusion of certain amounts from the sum of the amounts ascertained under paragraphs (a) and (b).

The amount to be excluded under paragraph (c) is any part of the capital expenditure which has been allowed as a deduction under the repealed section 123 or which will be allowable as a deduction under the proposed section 122A. The repealed section 123 provided for an alternative deduction to that authorised by section 122. The alternative deduction was so much of the assessable income of a year of income as was expended in that year or appropriated for development of the mining property or for new plant. A comparable alternative deduction is being re-enacted in the proposed section 122A.

Under paragraph (d), the deduction which will be allowed under section 122 from assessable income of the current year and future years will be progressively excluded in ascertaining the residual capital expenditure.

Paragraph (e) provides that expenditure on any property disposed of, lost or destroyed after 30th June, 1951, shall be excluded in ascertaining the residual capital expenditure. It is further provided that any expenditure on property which has ceased to be used for the purpose of mining operations will be similarly excluded. The amounts to be excluded, however, will be those amounts only which have not previously been allowable as deductions from assessable income.

Sub-section (6.) applies where expenditure on property has been excluded under paragraph (e) of sub-section (5.) by reason of the cessation of use of the property for the purposes of mining operations. In the event of that property again being used for the purposes of mining operations, the appropriate amount of expenditure on that property will be restored to the residual capital expenditure.

Sub-section (7.) substantially re-enacts the provisions of sub-section (6.) of section 122 which is being repealed. The sub-section is complementary to sections 123AA and 23(p) of the Principal Act.

Section 123AA authorises a deduction in the year of expenditure of the cost of exploration and prospecting on mining tenures. The deduction is limited to the amount of mining profits derived by the taxpayer during that year. If the expenditure exceeds the amount of profits, the excess is regarded as expenditure to which section 122 applies and is taken into account in ascertaining the amount of the residual capital expenditure.

Section 23(p) exempts income derived by a bona fide prospector from the sale by him of his rights to mine in a particular area for a prescribed metal or mineral. The amount of income otherwise exempted by section 23(p) is reduced by the amount of exploration or prospecting expenditure which was incurred in connection with that area and which is allowable as a deduction under section 123AA.

In some cases, however, the whole or part of the exploration and prospecting expenditure has been taken into account in ascertaining residual capital expenditure for the purposes of section 122, as explained above. The purpose of sub-section (7.) is to exclude that whole or part from the residual capital expenditure if the rights to mine in the particular area on which the exploration and prospecting activities were carried on are sold and any part of the profits on sale is exempted by section 23(p). The sub-section provides further that the amount so excluded from the residual capital expenditure shall not exceed the amount of income exempted by section 23(p).

Sub-section (8.) defines the meaning of housing and welfare for the purposes of deduction under proposed section 122.

In addition to residential accommodation for employees and their dependants, the deduction will extend to expenditure on buildings and other improvements providing health, educational, recreational and other facilities for the welfare of employees and their dependants. Expenditure which will come within the compass of the definition will include expenditure on hospitals, medical and dental clinics, child welfare centres, libraries, technical colleges, sports arenas, swimming pools, children's play centres etc.

The expenditure will qualify for deduction if the buildings or other improvements are erected on or adjacent to the mining property.

Expenditure on buildings or other improvements for use in commercial operations, such as shops, cinemas, hotels etc. will not be deductible.

Section 122A - Alternative Deductions.

The proposed section 122A re-enacts, in principle, provisions at present contained in section 123 which is being repealed.

Section 122A confers on mine owners a right of election in favour of a deduction alternative to that provided under section 122. The alternative is the deduction of expenditure in the year in which it is incurred in lieu of annual deductions over the estimated life of the mine.

This election may be exercised in relation to expenditure on any unit or units of plant or the whole, or any part, of expenditure on development.

The election is not permitted to extend, however, to expenditure on housing or welfare for employees and their dependants.

So far as expenditure on plant and development is concerned, the proposed section 122A widens the choice which the mine owner may exercise as to the basis on which the deduction shall be allowed.

Under the existing section 123, an election in favour of the alternative basis applied to the whole of the expenditure incurred in the income year on necessary plant and development.

Under the proposed section 122A, the mine owner may continue to exercise an election in favour of deducting the whole of the expenditure from assessable income of the year in which it is incurred. The mine owner may, however, elect in favour of deducting the whole of the expenditure on a unit or units of plant in the year of expenditure leaving the balance of expenditure on other units of plant to fall into the residual capital expenditure to be amortised over the estimated remaining life of the mine.

An election on a similar basis may be made in respect of the whole or any part of expenditure on development of a mining property.

Section 122B - Deductions of Appropriations.

The proposed section 122B also re-enacts, in principle, provisions contained in section 123 which is being repealed.

Section 122B will apply where assessable income of any year is appropriated for capital expenditure on necessary plant or on development of a mining property.

Under sub-sections (1.) and (2.), the mine owner may elect to deduct from assessable income of the year of appropriation so much of the amount appropriated which has not been expended in that year.

Sub-section (2.) includes a safeguard to revenue against excessive appropriations. To qualify for deduction, it will be necessary to satisfy the Commissioner that the amount appropriated will be or is likely to be expended by the end of the next income year after the year from the assessable income of which the appropriation is made.

In any event, sub-section (3.) provides that any unexpended part of an appropriation for which a deduction has been allowed shall be included in the assessable income of the next income year. The proposed sub-section will re-enact, in effect, the provisions of section 123(2.) which is being repealed.

Sub-section (4.) applies to appropriations which have been deducted to 30th June, 1951 under the repealed section 123 and to subsequent appropriations which may be deducted under the proposed section 122B. The effect of the sub-section is that double deductions shall not be allowed, firstly, for amounts appropriated and, secondly, for amounts expended out of the appropriations. It will ensure also that adjustments under the proposed section 124, later discussed, will be authorised where assets acquired out of appropriated profits are disposed of.

Section 123 - Election That Division Shall Not Apply To Plant.

Sub-section (1.) of the proposed section 123 will authorise an election that Division 10 shall not apply to plant.

The purpose of this provision is to enable mine owners, if they so desire, to deduct depreciation on plant at the normal depreciation rates under section 54 of the Principal Act.

Sub-section (2.) provides that, in the proposed section 123, plant has the same meaning as in section 54 of the Principal Act. So far as material, plant is defined to include -

(a)
animals used as beasts of burden or working beasts in a business other than a business of primary production, and machinery, implements, utensils and rolling stock;
(b)
............
(c)
plumbing fixtures and fittings, including wall and floor tiling, in premises acquired after the thirtieth day of June, One thousand nine hundred and thirty eight, or installed in premises after that date, by a person carrying on a business for the purpose of producing assessable income, where those fixtures and fittings are provided principally for the use, for personal purposes, of persons employed by him in that business.

Saving Clause.

Clause 14A(2.) is a saving provision which relates to amounts of appropriations allowed as deductions from the assessable income of the year 1950-51 and not expended before the end of the current year 1951-52. The saving clause is to the effect that these unexpended amounts shall be assessable income of the income year 1951-52, notwithstanding the repeal of section 123 of the Principal Act.

CLAUSES 14B, 14C AND 14D.

Clause 14B - Exploration and Prospecting Expenditure.

This clause will effect amendments to section 123AA of the Principal Act, which provides for the deduction of expenditure incurred on exploration or prospecting on mining tenures.

At present, the deduction is not allowable for expenditure on exploration or prospecting for coal, gold or petroleum.

It is now proposed to bring expenditure on exploration or prospecting for coal within the compass of the deduction.

The deduction is not extended to gold or oil, as profits from gold-mining are exempt from income tax and mining for oil is subject to a special concessional basis of taxation.

The deduction under section 123AA extends to expenditure on exploration or prospecting on mining tenements in New Guinea, as well as in Australia and Papua.

A drafting adjustment is also being made by substituting section 122A for section 123 in section 123AA(3.)(b) of the Principal Act.

Clause 14C - Deduction of Unrecouped Capital Expenditure on Prospecting or Mining for Petroleum.

This clause will effect drafting adjustments necessitated by the re-arrangement of the sections comprised in Division 10 of the Principal Act.

Clause 14D - Disposal, Loss, Destruction or Termination of Use of Property.

By this clause, it is proposed to repeal section 124 of the Principal Act which provides that no deduction for depreciation shall be allowed on plant to which Division 10 applies.

As already explained, it is now proposed to grant to mine owners a right of election to deduct depreciation at normal rates under section 54 of the Principal Act.

The proposed section 124 will apply where deductions have been allowed under Division 10 in respect of expenditure incurred on a mining property and where the property on which the expenditure was incurred has been disposed of, lost or destroyed or its use for mining operations has been terminated. Provision to this effect is contained in sub-section (1.) of the proposed section 124.

Under sub-section (2.) it is provided that, where any amount received on the sale of an asset or any insurance recovered on the loss or destruction of an asset is greater than the unrecouped expenditure on that asset, the excess shall be assessable income to the extent that the expenditure has been allowable as deductions. This provision will not apply to recoveries of expenditure on coal-mining prior to 1st July, 1951, as that expenditure was not deductible.

Sub-section (3.), on the other hand, provides that, if the expenditure which has not been allowable as deductions exceeds the sale price of or the insurance recovery on the asset, the excess shall be an allowable deduction. This provision will ensure that the mine owner is allowed deductions totalling the full amount of the difference between the cost price of the asset and the amount received on its sale, loss or destruction.

Sub-section (4.) contains a provision which has the effect of limiting the deduction for losses on coal-mining assets to those assets which have been acquired by expenditure after 30th June, 1951.

Provision is made in section 124 to ensure that in the case of the sale of leasehold properties, any amount which is included in assessable income as a lease premium under Division 4 of Part III of the Principal Act shall not be included also in assessable income under the proposed section 124.

Section 124A - Acquisition of Property.

The proposed section 124A will apply where a mine owner has been allowed deductions under Division 10 for capital expenditure on an asset and that asset has subsequently been sold.

There could be circumstances in which it would not be appropriate to allow to the purchaser deductions based on an amount in excess of the amount on which deductions would have been allowed to the vendor, for example, where an asset is sold by one company to another company and both companies are comprised of substantially the same shareholders.

At the same time, it is recognised that independent parties may enter in a contract for the purchase and sale of an asset at a price in excess of its cost to the original owner. Where the Commissioner is of the opinion that deductions should be based on the full contract price, he will be authorised not to apply the section.

The principle of the provision is to be found in section 60 of the Assessment Act which is a comparable provision relating to plant sold.

Section 124B. - Elections.

This section will provide that an election under Division 10 shall be made in writing signed by or on behalf of the taxpayer.

The section also specifies the time within which an election shall be delivered to the Commissioner of Taxation.

Section 124C. - Deductions Not Allowable Under Other Provisions.

This section will provide, in effect, that expenditure which is deductible under Division 10 or comparable provisions of previous Acts shall not be an allowable deduction under any other provision of the Principal Act.

CLAUSE 15A.

Section 160 - Rebate in Case of Disposal of Assets of a Business of Primary Production.

INTRODUCTORY NOTE

By this clause, it is proposed to incorporate section 160 in the Principal Act.

Section 160 will provide for the allowance of a rebate of tax where the whole of the assets of a business of primary production is disposed of for the purpose of putting an end to that business, and the assets include livestock which is disposed of at a profit.

In such cases the primary producer is liable to tax, not only on his normal income of the year of disposal, but also on the income arising from the abnormal sale of his live stock in consequence of the disposal. Because of the inflated income of the year of disposal, the taxpayer's rate of tax is higher than the rate which would have been payable on his normal income of the year.

Under the present law, the averaging provisions (which are explained in detail on page 8 of the printed memorandum circulated in connection with the current legislation) have tended to lessen the taxation burden of a primary producer who disposes of his business. However, under the modified averaging provisions contained in the Income Tax and Social Services Contribution Bill 1951, the benefits derived by some primary producers from the averaging system will be wholly or partly withdrawn. In the present amendment, it is proposed to preserve those benefits insofar as income from abnormal disposal sales of live stock is concerned.

The relief proposed in section 160 takes the form of a rebate of tax, equal in amount to the difference between the tax calculated on a concessional basis and the tax which would otherwise be payable.

In effect, the net tax payable by the primary producer will be the sum of the following amounts :-

(i)
Tax on the abnormal income, calculated by applying to that income the rate ascertained by reference to the taxpayer's actual average income, according to the procedure adopted prior to the modified averaging provisions; and
(ii)
Tax on the normal income, calculated on the basis that that income is the taxpayer's only taxable income, and that the rate of tax is ascertained (subject to the modified averaging provisions) by reference to his actual average income.

With regard to the general application of the new provision, the practical effect of the amendment is to allow a rebate in cases only where the primary producer is affected by the current modification of the averaging provisions. Where the primary producer is not so affected, the rate of tax upon both his normal income and his abnormal income of the year of disposal is ascertained by reference to his average income. There is accordingly no necessity, in such cases, to grant any special concessional basis of taxation in the event of the taxpayer disposing of his live stock for the purpose of putting an end to his business of primary production.

The amendment effected by this clause will apply concurrently with the modification of the averaging provisions. The rebate of tax under section 160 will be allowable in respect of profits arising from disposals made during the year ended 30th June, 1951 and subsequent years of income.

NOTES ON CLAUSE

The following are notes on the clause: -

Sub-section (1.) of the proposed section 160 specifies the conditions precedent to the allowance of the rebate. These conditions are as follows :-

(a)
The taxpayer must have disposed, by sale or otherwise, of the whole of the assets of a business of primary production carried on by him, for the purpose of putting an end to that business;
(b)
Those assets must include live stock which is disposed of at a profit; and
(c)
The averaging provisions must be applicable to the taxpayer for the purposes of calculating the tax on his income of the year of disposal. Thus, the rebate would not be allowed if the taxpayer had previously elected to withdraw permanently from the averaging system, as explained in the note on the new section 158A - page 62 of the previous memorandum.

Besides cases where a taxpayer carrying on his own individual business of primary production disposes of live stock, the new section provides for a rebate where such a disposal is made by a partnership in which the taxpayer is a partner or by a trust estate in which he is a beneficiary.

As the averaging provisions have no application to the assessment of companies, that class of taxpayer will not be entitled to a rebate under section 160. An exception is made, however, in the case of a company which is assessed in the capacity of trustee.

There are, however, already provisions in the Principal Act - section 36, sub-sections (3.) to (8.) - which permit a concessional basis of assessment in regard to the profit on live stock which is disposed of in consequence of the compulsory acquisition or resumption of land by a government. In such circumstances, the primary producer has a right to elect that the profit shall be spread over a period of five years for the purposes of his income tax assessments.

It is provided in sub-section (1.) that, where a taxpayer makes such an election under section 36, he will not be entitled to a further benefit by way of rebate under the new provision. In effect, where, in consequence of a compulsory acquisition or resumption, a taxpayer disposes of live stock for the purpose of putting an end to his business of primary production, he will have the choice of being assessed on the profit over a period of five years or of being allowed a rebate of part of the tax payable on the income of the year of disposal.

Sub-section (2.) of the proposed section 16 authorises the allowance of the rebate. Taken in conjunction with sub-section (3.), the rebate will be ascertained by a method illustrated by the following example.

For the purposes of this example, it is assumed that the primary producer's taxable income of the year ended 30th June, 1951 was £20,000 (consisting of normal income £12,000 and income from the abnormal sale of live stock £8,000), and that his taxable income of the four last preceding years was respectively, £1,000, £2,000, £3,000 and £6,000.

His average income would be calculated thus:-

Year ended - Taxable income (£)
30th June, 1947 1,000
30th June, 1948 2,000
30th June, 1949 3,000
30th June, 1950 6,000
30th June, 1951 20,000
Total £32,000
Divide £32,000 by 5, to obtain an average income of £6,400.

In accordance with the modified averaging provisions (as explained on page 9 of the previous memorandum) the tax ordinarily payable on the primary producer's income of the year ending 30th June, 1951, would be ascertained as follows:-

  £. s. d.
Tax on first £4,000 of taxable income (at 88.1d. in £) 1468. 6. 8.
Tax on balance:-
Tax on £20,000 at basic rates £13121. 13. 4.
Less tax on £4,000 at basic rates 1468. 6. 8. 11653. 6. 8.
Tax assessed (to nearest shilling) £13121. 13. 0.

The notional tax for the purposes of calculating the rebate under the new section 160 would be ascertained as follows:-

  £. s. d.
Tax on abnormal income
£8,000 at 113.8125d. in £ (rate applicable to average income of £6400) 3793. 15. 0.
Tax on normal income
Tax on first £4,000 (at 88.1d. in £) 1468. 6. 8.
Tax on balance :-
Tax on £12,000 at basic rates £7121. 13. 4.
Less tax on £4,000 at basic rates 1468. 6. 8. 5653. 6. 8.
Notional tax (to nearest shilling) £10915. 8. 0.

The rebate allowable under section 160 will be the difference between the tax assessed (£13121.13.0) and the notional tax calculated as above (£10915.8.0) - viz. £2206.5.0. The effect of allowing this rebate is that the net tax payable by the primary producer will be £10915.8.0.

The tax payable on the above income, if calculated according to the procedure adopted prior to the modified averaging system, would have been £9484.7.0.

In addition to the basic tax, the taxpayer will be required to pay tax at the further rates imposed on any part of his taxable income which is derived from property, and also to pay any special levy imposed at a rate per centum of the tax otherwise payable. For example, if the disposal takes place during the current year ending 30th June 1952, the special levy of ten per centum will be payable in addition to any tax otherwise payable.

Under sub-section (4.), in the case of a partner, the rebate will be calculated by reference to the proportion of the profit on disposal which is included in his individual share of the partnership income. In the case of a beneficiary, the rebate will be calculated by reference to the proportion of that profit which is included in the share of the trust income to which he is presently entitled.

In the case of trust income to which no beneficiary is presently entitled, the trustee himself is liable to be assessed and to pay tax thereon. A similar liability to tax arises in respect of the share of a beneficiary who is presently entitled but is under a legal disability. In such cases, section 160 provides for the allowance of an appropriate rebate in the assessments issued against the trustee.

For the purposes of section 160, sub-section (5.) provides that the abnormal income, that is the profit on the disposal of live stock, will be calculated in the same manner as the profit on the disposal of live stock in the case of a compulsory acquisition or resumption. The relevant provision is section 36(8.)(b) of the Principal Act.

In accordance with section 36(8.)(b), the profit is ascertained by deducting from the sale price of the live stock -

(a)
in the case of live stock which was on hand at the beginning of the year in which the sale took place - the opening value at which that stock was taken into account in making the taxpayer's assessment in respect of that year;
(b)
in the case of live stock which was purchased during the year - the purchase price of that stock;
(c)
in the case of live stock which was acquired otherwise than by purchase during the year (e.g. by way of gift) - the amount which in such circumstances is deemed by the law to be the purchase price of that stock.

No deduction is made from the sale price in respect of any natural increase bred by the taxpayer during the year of sale.

No part of the working expenses incurred by the taxpayer during the relevant year up to the date of the walk-in-walk-out or clearing sale will be deducted in ascertaining the amount of profit on the disposal of the live stock. It is considered that those expenses relate to the income derived from the normal operations carried on by the taxpayer prior to that sale.