Second Reading SpeechMr. Chifley (Macquarie-Treasurer and Minister for Post-war Reconstruction) (2.2).-by leave-I move-
That the bill be now read a second time.
This bill seeks to effect a radical change in the basis of the income tax liability. Up to the present, taxation for the financial year has been levied on the taxable income derived during the preceding year. Now it is proposed to advance by twelve months the income year on which the tax is based, so that taxation for a financial year shall be based on the income derived in that year. This accords with the recommendation of the joint parliamentary committee appointed to examine this subject. The recommendations of the parliamentary committee have been adopted by the Government. Since the report of the committee was tabled in this House, honorable members have no doubt familiarized themselves with the proposed plan, and accordingly it is unnecessary for me to speak at any great length on the provisions of this bill. The circumstances which have prompted the alteration of taxation are that taxpayers whose incomes decline or cease are faced with a heavy liability to tax at high war-time rates when, in most cases, their financial resources are inadequate to meet their liability. This bill will afford relief particularly in these cases, and also to the general body of taxpayers who are concerned with the ever-present liability to tax on income of the past year. The Government proposes that the plan shall be put into operation as from the 1st July next. Broadly, the plan may be divided into two parts, one relating to the taxation of the salary and wages of employees, and the other relating to the taxation of business and investment income derived by non-employees.
With regard to employees, there will be little disturbance of the present system of collecting tax by means of deductions made from salary or wages. Tax deductions made from current earnings will be applied in payment of tax on the earnings of the same year. It is not proposed to depart from the present system of annual returns and annual assessments. After the close of each year an assessment will be made on the employee's income of that year. Should the tax deductions exceed the tax assessed, the employee will receive a refund; should the tax deductions be less than the tax assessed, the employee will be required to make a cash payment.
It is essential to the success of the new basis of taxation that tax deductions made in the year shall be applied in payment of tax assessed on the income of that year. Whereas, at present, tax stamps are issued to the majority of employees, difficulty would be encountered when the assessment is being paid in determining whether the stamps presented in payment of that assessment related to tax deductions of the current year or of the previous year. If, however, the employer, instead of issuing tax stamps, pays the amounts deducted into revenue, there will be by the 30th June in each year a clear record of the tax deductions made from the employee's earnings of that year. It is accordingly proposed, for these and other reasons, to extend the system of the collection of tax deductions by means of employers' group schemes. Employers of more than ten persons will be required to form a group and pay the group deductions into revenue at regular intervals.
Under the plan proposed for taxpayers in the non-employee class, tax for the current year will be based on the income of that year, and will be collected during the income year by means of provisional tax. The amount of the provisional tax will be calculated upon the same taxable income as that assessed for the preceding year. After the close of the year in which the provisional tax is paid, an assessment based on the actual income derived in that year will be made, and provisional tax paid will be applied in payment of the amount of tax assessed, with any necessary adjustments. In those cases where the income consists partly of salary and wages and partly of investment or other income, provisional tax will be payable on the income not subject to tax deductions. Where income other than salary and wages is small, the taxpayer will not be required to pay provisional tax. Income tax on such other income will be payable on final assessment. The reasons that have led to the change in the basis of assessment of individuals do not, in the main, apply in respect of companies. Companies will continue to be assessed as at present for the financial year on the income of the preceding year.
Under the new method of taxation, tax will be payable for the next financial year, 1944-1945, on the income of that year ending on the 30th June, 1945. For the present financial year, 1943-44, tax is payable on income of the year ended the 30th June, 1943. The Government has decided to give effect to the parliamentary committee's recommendation that tax on the income of the year ended the 30th June, 1944, shall be payable to the extent only of one-quarter of the amount of tax assessable at current rates. Three-quarters of the tax assessable will be cancelled. Deductions made from the salary and wages of employees up to the 31st March, 1944, will have been applied to pay the tax payable on income of the year ended the 30th June, 1943. The liability of employees to tax on income of the year ended the 30th June, 1944, will be, as a general rule, discharged by the tax deductions which will be made in the months from April to June, 1944.
With regard to non-employees, it is proposed that the uncancelled 25 per cent. tax on income of the year ended the 30th June, 1944, will be collected in three equal instalments over the next three years.
Special provisions in the bill are designed to avoid cancellation of unduly high tax where income of the year ended the 30th June, 1944, is abnormally high, owing to such causes as unusual receipts of income, the manipulation of stock values, deferment of expenditure, &c. It is necessary in these cases that revenue shall be safeguarded, and, accordingly, the amount of the cancellation in such cases will depend on the taxable income of the year ended the 30th June, 1943. It is recognized that the application of a rigid formula to these cases might create inequities, and for this reason the Commissioner of Taxation is being given a discretionary power to meet the special circumstances of any case. The decision of the commissioner is subject to review by the Board of Referees constituted under the War-time (Company) Tax Assessment Act.
I do not propose to describe at any great length the other amendments contained in the bill as they are explained in a memorandum that will be circulated amongst honorable members. Ample time will be available for the study of the memorandum as the second-reading debate will not be resumed until next week. I may mention, however, that the bill restates the provisions of the Income Tax Assessment Act which permit h the deduction of contributions made by employers to funds to provide pensions, retiring allowances, and other benefits for their employees and their dependants. The Government supports the principle expressed in the legislation that employers should be encouraged to establish and maintain these funds to provide some measure of financial security for employees who are unable to make adequate provision for the days of their retirement from active employment. Recent examination has disclosed, however, that the directorates of some large public companies are taking an undue advantage of the liberal nature of the income tax allowance. These companies have established funds from which the general body of employees are excluded, the moneys in the funds being allocated for the benefit of a small number of selected senior executive officers of the companies. In one case a public company has recently paid Pd50,000 to a fund to provide retiring allowances of Pd20,000 for its managing director, Pd10,000 for its general manager, and sums ranging from Pd1,000 to Pd4,000 for its departmental managers. The saving to the company in taxation is over Pd20,000, so that the cost to the company of establishing the fund would not be Pd50,000 but something less than Pd30,000. This is not the type of fund that was in contemplation when the income tax allowance was provided, and, in the view of the Government, the law should be amended to limit the deduction in this case, and in comparable cases, to fair and reasonable amounts. The annual deduction limit proposed by the bill is Pd100 in respect of each beneficiary employee, or 5 per cent. of the employee's annual remuneration, whichever deduction is the greater. An allowance on this basis will preserve the present deduction in the great majority of cases. Should, however, any case arise where special circumstances warrant a deduction to the employer on a scale higher than Pd100 in respect of each employee, the Commissioner of Taxation is empowered to increase the deduction.
Further amendments liberalize the exemption granted in respect of the pay and allowances of Navy personnel and members of the Army and Air Forces serving overseas. The income tax provisions exempting the pay and allowances of members of the forces were enacted when the war was remote from Australia, and a review of the basis of that exemption b has now been made in the light of the altered circumstances following the outbreak of the Pacific war. The exemption of pay and allowances earned in Australia depends, in general, on service for a period of six months outside Australia. This was a reasonable test when the war was being waged mainly in Europe and northern Africa, and when units of the Australian forces which embarked for overseas service did not return to this country within six months. Australian forces engaged in the New Guinea campaign are frequently returned to Australia before completing six months' service outside Australia, and it is desired to continue the exemption for the members of those forces. It is accordingly proposed in the bill that the period of six months' service overseas qualifying for the exemption should be reduced to three months' continuous service outside Australia.
The exemption is being extended to members of air crew of squadrons stationed in Australia which are regularly engaged in operational flights outside Australia. This will remove the anomaly of taxing air crew stationed at Darwin and other places along the Australian coast, whilst exempting air crew stationed in Papua and New Guinea and elsewhere out of Australia. If the squadron stationed in Australia is regularly engaged in ex-Australian operational flights, continuous service for three months as a member of air crew of the squadron will qualify for the same exemption as that granted in respect of overseas service.
Provision has also been made in the bill for the release of trustees from the payment of any outstanding income tax owing in respect of pay and allowances included in assessments of deceased members of the forces.
A concession is also being provided for representatives of philanthropic organizations and other civilian personnel associated with the forces in Papua, New Guinea and elsewhere outside Australia. The personnel who will receive this concession include official correspondents s and photographers, and representatives of the Australian Red Cross, the Australian Comforts Fund and kindred organizations. The concession takes the form of the special deduction of Pd250 allowed to members of the forces. Another provision of the bill exempts the earnings of seamen of British and allied nations employed on vessels operating in Australian waters who pay income tax in the country of which they are nationals. The exemption to be granted by the Commonwealth will avoid double taxation on these earnings.
I commend the bill to honorable members.