House of Representatives

Income Tax Assessment Bill 1945

Income Tax Assessment Act 1945

Second Reading Speech

Mr Chifley (Macquarie-Treasurer) (4.5).-by leave-I move-

That the Bill be now read a second time.

Since the Income Tax Assessment Act was last amended, the Government has given consideration to the weight of taxation on the various sections of the community. It is, I believe, generally accepted that the national financial needs, and the preservation of Australia's economic structure, do not permit of any general reduction of taxation. Such relief from income tax as May be afforded at present, must be restricted to those cases in which the burden of the tax is unduly heavy. The provisions of the Bill accord with this principle; they will grant income tax concessions in those cases in which urgent relief is justified. The reduction of revenue from income tax that will result from these concessions is estimated at approximately Pd2,000,000.

It has been considered in many quarters that the payment of tax on an income of Pd156 or less imposes hardship upon a taxpayer who is maintaining a dependant. It is true that, at present, a taxpayer with a wife and one dependant child does not pay tax if his income is Pd175 or less. However, there are persons without a dependent wife, but with three dependent children, who are called upon to pay tax. A person with a dependent wife only, whose income is less than Pd156, is required to pay tax under the existing law. Commencing with the next financial year, income tax will not be payable in such cases; no person with a dependant of any kind-wife, child, dependent mother or Housekeeper-will be required to pay tax if his income does not exceed Pd156.

Mr. MENZIES.-Can the honorable gentleman say what loss of revenue will be caused by the granting of that concession?

Mr. Chifley.-I should imagine that it would be not more than from Pd100,000 to Pd150,000. I shall furnish the exact amount to the right honorable gentleman before the resumption of the debate.

The Bill also contains special concessions for taxpayers who live in the remote parts of Australia. Honorable members will recall the discussion last session regarding the taxation of district and regional allowances. These allowances are paid to employees as compensation for the disabilities of uncongenial climatic conditions, isolation, or relatively high living costs. They are taxable in full; consequently, the absorption by taxation of a substantial portion largely defeats the purpose for which they are paid. If complete exemption were granted, serious anomalies would arise as between taxpayers living in the same district. However, it is considered that some measure of relief should be granted not only to employees but also to all other taxpayers who live in the remote parts of the Commonwealth. The relief proposed takes the form of a special deduction. In order to determine which taxpayers shall be entitled to this special deduction, it has been found necessary to divide the continent into zones. Zone A embraces the northern parts of Queensland, Western Australia, and the Northern Territory. The territories of Papua, Norfolk Island, and New Guinea also are included. Taxpayers living in Zone A will be allowed a deduction of Pd40. Zone B consists broadly of the central and southern parts of Western Australia, the north and west of South Australia, the southern portion of the Northern Territory, central, east-central and south-western Queensland, and the western part of New South Wales. A Pd20 deduction will be allowed to taxpayers who live in Zone B.

In prescribing the areas of the respective zones, the factors taken into consideration in determining "climatic conditions, isolation and high cost of living" were rainfall, latitude, distance from centres of population, density of population, predominant industries, rail and road service, and cost of food and groceries. These factors gave a general picture of the areas in respect of which the allowance should be granted.

Mr. FADDEN.-Is this proposal Constitutional?

Mr. Chifley.-That point has been examined, and I have been assured that the proposal is Constitutionally sound. I have generally found that any financial relief is regarded as Constitutionally sound. The soundness of the decisions made was checked by comparison with similar decisions made by industrial authorities and, in particular, with the party allowances in Queensland, basic wage variations and district allowances in Western Australia, and public service and railways district allowances for Australia as a whole. I would emphasize, however, that allowances of this nature granted by other bodies are of value only as a check or guide, since they are based on many factors, including usage, which are not relevant in deciding the amount, if any, of an income tax deduction. In general, the zones contain only those areas for which the justice of the allowance can be demonstrated. Some areas of doubt occur along the boundary lines, but, looked at broadly, I think it will be acknowledged that a genuine attempt has been made to provide a reasonable concession for residents of the more remote areas of the Commonwealth. The boundaries of the zones have been boldly marked on a large scale map of Australia, and this map will be displayed for the assistance of honorable members.

It is also proposed that some concession should be granted to employees in receipt of living-away-from-home allowances. Various wage-fixing tribunals have granted living-away-from-home allowances to employees whose places of employment are located at distances from their usual place of abode. The allowance is paid to compensate the employee for the additional expenditure he is obliged to incur by reason of his absence from home. Members of the Civil Constructional Corps, and carpenters, bricklayers and railway employees engaged on jobs in the country are some of the classes of employees who receive such allowances. Under the present law, the allowance is assessable income, but no deduction is allowable in receipt of the expenditure incurred by the employee in providing food and accommodation for himself at the place of his employment. This is regarded as imposing an undue hardship on the employees concerned. The view taken is that the only part of the living-away-from-home allowance that should be taxed is an amount equivalent to the saving in living expenses effected by the taxpayer through not living at his home. This might fairly be reckoned at 15s. a week. On this account, therefore, it is proposed to insert in the principal act, a special provision allowing taxpayers in receipt of such allowances a deduction equal to the difference between the weekly amount of the allowance and 15s. a week. In order to safeguard the revenue, however, it is proposed that if the allowance exceeds 50s. a week, or if it is paid otherwise than under an award of an industrial tribunal, the deduction shall be such amount as the Commissioner of Taxation considers reasonable.

Income tax concessions are also being provided for taxpayers who incur optical expenses. These are being regarded as medical expenses subject to rebate of tax. The concession is allowable in respect of optical expenses incurred by the taxpayer on his own behalf, and on behalf of his wife and children under the age of 21 years. The concession will afford considerable relief to taxpayers, principally those with family responsibilities.

Taxpayers afflicted with blindness or total invalidity will also benefit under the Bill. Where these unfortunate citizens are obliged to engage the services of a personal attendant to care for them, the payments made to the attendant will be treated as medical expenses, and a rebate of tax allowed accordingly. The maximum amount in respect of which a rebate May be allowed for medical, dental and optical expenses and payments to a personal attendant will remain at Pd50 for the taxpayer and each member of his family.

Taxpayers suffering from the affliction of deafness are also brought within the concessional allowances. These taxpayers will be entitled to a rebate on the amounts paid by them for the purchase and maintenance of hearing aids. As in the case of expenditure on artificial limbs, no limit will be placed on the amount of the rebate allowable under this provision. This allowance will be made independently of any allowance for medical expenses.

Honorable members will recollect the debate that occurred last session regarding the treatment of profit on live-stock sold by taxpayers in consequence of the resumption of their pastoral properties by the Crown for soldier settlement. The debate centred on an amendment moved by the Leader of the Opposition. In effect, the amendment proposed that the profit on these live-stock sales should be spread over five assessment years. The Government recognizes that the inclusion of the profit in the assessment of the year of sale would operate unfairly. The effect of this, from an income tax point of view, is that the pastoralists affected would in one year be taxed on the proceeds of live-stock sales, whereas, in ordinary circumstances, the sales would be spread over a number of years. As the rate of income tax rises with every increase of taxable income, it will be realized that it is quite possible that a very substantial portion of the proceeds of sale of the stock would thus be absorbed in meeting the tax. The taxpayers might, therefore, be left with relatively little for subsequent replacement of live-stock or investment in other assets. It is accordingly, proposed to give to the pastoralists concerned a right to elect to spread the profit on such sales of live-stock over a period of five years. Where such election is made, only one-fifth of the profit will be taxed in the year of sale. However, one-fifth of the profit will also be included in the assessments for each of the four next succeeding years. The concession will extend to partnership and trust estates, but every partner or beneficiary will be given the right to make a separate election regarding the part of the profit in respect of which he is assessable.

There is one further provision in the Bill to which I shall briefly refer. At present, there is an anomaly in section 160, which permits a rebate of tax to be allowed to a taxpayer who maintains a dependent wife. The section regards a wife as being wholly maintained if her separate net income for the year does not exceed Pd50. If, however, the wife's separate net income is in excess of Pd50, no rebate of tax is allowable. Consequently, the receipt by the wife of an income slightly in excess of Pd50 May have the effect of depriving the taxpayer of a very substantial rebate of tax. It is accordingly being provided that where the income of the wife is between Pd50 and Pd100 a year, a reduced rebate of tax will be allowed. The rebate will be diminished proportionately to the excess of the wife's income over Pd50. No rebate will be allowable if the income of the wife is Pd100 or more.

The Bill also contains some other amendments of a relatively minor character, which May best be considered in the committee stage of the Bill.

Debate (on motion by Mr. MENZIES) adjourned.