House of Representatives

Income Tax Assessment Bill 1946

Income Tax Assessment Act 1946

Second Reading Speech

Mr. Chifley (Macquarie-Prime Minister and Treasurer) (4.57).-by leave-I move-

That the bill be now read a second time.

The bill which I now bring before honorable members does not propose any radical changes in the law relating to income tax. Its principal provisions are designed simply to allow, within the existing structure of the Income Tax Assessment Act, certain concessions to taxpayers which the Government believes to be a practical contribution to the solution of the post-war problems confronting industry. These amendments are designed to help in the building up and improving of Australian industry, and to encourage the bettering of industrial conditions.

Mr. ABBOTT.-Does that include primary industries?

Mr. Chifley.-Yes, all industries. The most important of the concessions to which I refer-taking them in the order in which they appear in the bill- are the allowance of an additional depreciation deduction in respect of expenditure on amenities provided for employees; the allowance of a special depreciation deduction in respect of property such as plant and machinery acquired during the post-war period; the allowance of a deduction or rebate of tax in respect of expenditure on research; and, the allowance of a tax credit in relation to expenditure incurred in reconverting businesses from war-time to peace-time production.

During 1945, representations were made to the Government by the Associated Chambers of Manufactures for certain modifications of the income tax law. The Government was anxious to explore the possibility of adopting any useful suggestions. Accordingly, a conference was arranged between Government representatives and representatives of the Associated Chambers of Manufactures. The proposals put forward by the manufacturers were weighed and examined with the utmost care. Whilst it was not possible to accept all the suggestions which were made, the amendments to which I have referred above are founded on the recommendations of the Government's representatives at the conference and represent a contribution towards reconstruction and a practical form of encouragement to the business community.

I turn now to a consideration of the proposals in more specific terms. In clauses 7 and 8 provision is made for the allowance of depreciation on certain amenities provided for employees by taxpayers who are engaged in business. In respect of some fixtures and fittings not at present subject to depreciation, normal rates of depreciation will be allowed. Other amenities for employees will be depreciated at a rate of 33 1/3 per cent. These provisions are a recognition of the important part which good conditions for employees play in the conduct of a business, and are intended to encourage employers to provide modern and hygienic facilities for their staffs.

Clause 9 proposes an amendment that is designed to assist in the expansion and establishment of businesses in the immediate post-war period. The Government proposes to provide a special initial depreciation deduction of 20 per cent. of cost in respect of plant and machinery acquired during the period from the 1st July, 1945, to the 30th June, 1950, for the benefit, at their option, of all taxpayers in business, including primary producers. Depreciation at ordinary rates will also be allowed, in the year in which the plant is acquired or installed, but will, of course, be calculated on cost less the special allowance. I may add that the United Kingdom, New Zealand, and South Africa have also found it desirable to allow a similar concession. Their deduction rates range from 10 per cent. to 20 per cent. of cost.

The Government also proposes an amendment to provide for an additional deduction in respect of amounts expended on scientific research for business purposes. The importance of scientific research in its bearing on industry can hardly be overstated. It is of the utmost importance in the development of the nation's resources, and the allowance of an income tax deduction is being granted in the hope that research for business purposes will be encouraged and that Australian industry will be enabled to take fuller advantage of the opportunities which modern scientific discoveries offer. Under these proposals, certain research expenditure of a capital nature will be allowed as a deduction. In addition, payments to an approved research institute will be allowed as a deduction provided the research is related to the business of the taxpayer. Within certain necessary limits, expenditure incurred on buildings for research purposes will be allowed over three years, and depreciation will be allowable in respect of plant used for research at a rate of 33 1/3 per cent. Provision is made elsewhere in the bill for concessions in respect of gifts made by companies and individuals to the same research institutions.

Clause 19 embodies another proposal that is designed to assist in the re-establishment of industry. It refers particularly to those businesses which were converted during the war to purposes primarily connected with the prosecution of the war and are now under the necessity of reconverting to peace-time production. Under the present law, business expenditure which is allowable as a deduction is deductible from the income of the year in which the expenditure is incurred. Allowable expenditure which is incurred in reconverting a business from war-time to peace-time production is accordingly deductible from post-war income. The Government takes the view that where a business has engaged in war production, the cost of converting that business to peace-time production should fairly be charged against war-time income. In this way, the deduction would be allowed at war-time instead of peace-time rates of tax. Therefore, provision will be made for an allowance in respect of expenditure incurred before the 1st July, 1947, in reconverting plant and machinery, and losses sustained before that date as a result of selling or scrapping plant which had been subjected to excessive wear and tear during the war years. The allowance will take the form of a credit of tax in post-war assessments, and will be equal to the reduction of income tax which the taxpayer would obtain if the reconversion expenditure and losses ad been deducted from income of the year ended on the 30th June, 1945, instead of from income of the later year in which they were incurred. The Government proposes to supplement these measures by providing a concession for the benefit of visiting industrial experts, technicians and others from overseas. This, it is hoped, will enable Australian industry to obtain the best possible advice and assistance from overseas in the task of development.

So far, I have been dealing with those clauses which have a particular bearing on the problems of reconstruction. The post-war period, however, has raised other problems which impinge upon the sphere of taxation. The cessation of hostilities and subsequent events have made it necessary for the Government to review those income tax provisions which relate particularly to members of the Defence Force. As honorable members are aware, the special sacrifices of those who served with the forces during the war have been recognized in some degree by means of income tax concessions. At present, all members of the forces enjoy exemption in respect of pay and allowances earned out of Australia, and those members who serve outside Australia for a specified period also enjoy retrospective exemption of pay and allowances earned in Australia for periods of up to two years prior to their departure. Personnel who qualify for the retrospective exemption are also entitled to exemption of pay and allowances earned in Australia during the three months following their return to duty here. Dependants' allowances and deferred pay are also exempt. The Government considers that there is no longer warrant for extending exemption to members who go abroad in respect of pay and allowances which have been or will be earned in Australia, or for providing exemption in respect of pay and allowances at peace-time rates, and it proposes that in future-(a) exemption shall apply only to pay and allowances, whether earned in or out of Australia, which are at the special war-time rates; (b) exemption shall apply to pay and allowances earned in Australia by members of the occupation and interim forces who volunteered for service with those forces on or before the date of the announcement of the Government's decision to modify the taxation concessions provided for members of the forces -that is, the 13th February, 1946-but shall not apply to members who volunteer to serve with that force after that date; (c) that exemptions shall cease on and after the 1st July, 1947; (d) that the exemption in respect of deferred pay shall belimited in the same manner, and (e) that the special diminishing deduction of Pd250 allowed to members of the Defence Force in Australia and certain civilian personnel attached to the forces, as well as to the merchant marine, will continue to apply up to the 30th June, 1947. I emphasize that the new provisions will not operate so as to deprive members of the forces of any concessions under the existing law for which they have already qualified. Dependants' allowances paid by the Government will continue to be exempt as hitherto.

Benefits for ex-servicement are proposed by clauses 5 and 21. Under the first provision, exemption will be granted to ex-service personnel in respect of certain allowances which are payable while they are awaiting re-employment. Ex-servicemen who are vocational trainees will benefit in two ways; they will be brought under the scheme of payment of tax by instalments, and they will be allowed, in respect of living-away-from-home allowances, the same deduction as employees who receive such allowances; that is to say, they will be assessed on living-away-from-home allowances only to the amount of 15s. a week.

Clause 20 relates to the priority of the Commonwealth over the States in the matter of the payment of income tax. This amendment is a part of the Government's plan to make uniform income tax permanent.

The few remaining clauses do not call for comment at this stage. Apart from those clauses which deal with purely technical matters, or amendments consequent on alterations which I have already discussed, provision is made for the exempting of unemployment and sickness benefits, and of premiums paid in respect of Crown leases that are used for residential purposes only. Another amendment relates to the collection of income tax on bearer debenture interest in certain instances.

The technical aspects of the proposed amendments are more fully explained in the explanatory memorandum which is being circulated to honorable members. I commend the bill to honorable members.

Debate (on motion by Mr. MENZIES) adjourned.