House of Representatives

Income Tax Assessment Bill 1947

Income Tax Assessment Act 1947

Second Reading Speech

Mr. Chifley (Macquarie-Prime Minister and Treasurer) (4.18).-by leave-I move-

That the bill be now read a second time.

Many important amendments of the Income Tax Assessment Act are proposed by this bill, including the provisions necessary to give effect to the agreement made last year between the Governments of the United Kingdom and Australia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. That agreement was made on the 29th October, 1946, but, as I indicated in a statement to the House in November last, it will not come into operation until such time as it has received the endorsement of the Commonwealth Parliament and the House of Commons. The necessary endorsement by Australia is proposed in this bill. For some time it has been recognized, in both the United Kingdom and Australia, that the weight of taxation on income which is subjected to tax by the two countries has presented a serious obstacle to the investment of United Kingdom capital in Australia, and an impediment to the establishment and development of Australian industry. The agreement has been negotiated to overcome these disabilities.

Double taxation has arisen by the levying of tax, first, by the country in which the income has its origin and, secondly, by the other country in which the recipient of the income is resident. The agreement applies to all income which is taxed by both the United Kingdom and Australia, and its application to taxpayers in the two countries will have the effect of removing the taxation barriers that have adversely affected commercial and industrial relations between the United Kingdom and Australia. The removal of these barriers provides an incentive to British industrialists either to extend their businesses to Australia or to expand businesses already established in this country. The relief from double taxation should result in an increased flow of capital to Australia and lead to a consequential development and expansion of Australian secondary industries, thereby increasing the field of employment and the national income. The agreement will replace provisions in the taxation laws of the United Kingdom and the Commonwealth which, since 1921, have afforded some measure of relief from double taxation. These provisions have proved to be complicated, cumbersome and productive oflong delays before finality is reached in determining the degree of relief to which the taxpayer is entitled. The agreement will also provide a more satisfactory method of relief from double taxation in respect of all classes of income. From a revenue viewpoint, Australia may gain a slight advantage owing to the fact that the Commonwealth will no longer be required to provide a tax rebate in respect of trading profits derived from Australian sources by a resident of the United Kingdom. These, broadly, are the advantages to Australia arising from the agreement, the articles of which are explained in detail in a memorandum which is being circulated.

After making a careful survey of the nation's financial position, the Government proposes substantial reductions of the rates of social services contribution and income tax. It will be generally agreed that in any reduction of this nature the weight of taxation should be lifted as far as possible from taxpayers with domestic responsibilities. With this object in view, the amounts upon which rebates for dependants are calculated will be increased as follows:-

Spouse; female relative or housekeeper of a widow or widower; mother-From Pd100 to Pd150.

First child under sixteen; student child; invalid child-From Pd75 to Pd100.

Other children under sixteen-From Pd30 to Pd50.

The maximum rebate for each dependent child other than the first will be raised from Pd8 to Pd15, but the maximum rebate of Pd45 for spouse, first child, &c., is not being altered. The rebate for dependent children receiving full-time education will be expanded to include children between sixteen and nineteen years; at present it applies to children between sixteen and eighteen years.

Additional rebates will be provided in respect of a dependent father, or invalid brother or sister. The rebate for housekeeper will also be extended to cover further cases in which the housekeeper has the care of children under the age of sixteen years who are maintained by the taxpayer. The cost of diathermy treatment will be treated as medical expenses for rebate purposes.

Special deductions will be allowed to primary producers in respect of capital expenditure incurred in combating soil erosion and the conservation of water. Expenses incurred in the protection of the banks of waterways, the planting of wind-breaks, terracing, the prevention of gullying and the expenses of a like nature will be deductible from the assessable income of the primary producer. It will not include the cost of fencing, because appropriate allowances have already been provided, by way of depreciation, for fencing on land used for primary production. The deductions in respect of water conservation will include expenditure on the construction of dams, earth tanks, bores, wells, underground tanks, levee banks, irrigation channels and expenses of a similar nature. The concessions will commence to apply in respect of expenditure made during the year ending the 30th June, 1947. A further concession which will benefit primary producers mainly is being provided by the extension of the period in which losses may be recouped. At present the deduction of accumulated losses is limited to those losses incurred during the four years preceding the year of income. In future, the deduction will be allowed in respect of losses incurred during the seven years preceding the year of income. This expansion of the deduction for losses will assist particularly the primary producers of the northern parts of Australia. The concession will apply to assessments based on income for the year ending the 30th June, 1947.

Provision is also being made for the continuance of the exemption from income tax in respect of income derived up to the 30th June, 1947, by a resident of the Northern Territory from primary production, mining or fisheries in the Territory. The exemption was first granted in 1923, and extended from time to time, the last occasion being in 1938. Its purpose is to assist in the development of the Territory and to encourage reinvestment of profits in the Territory's primary industries. The exemption will be continued for a further five years terminating on the 30th June, 1952. Existing taxation laws allow a special deduction of Pd40 to individuals resident in Zone A of Australia-north-western and extreme north-eastern Queensland, northern Northern Territory and northern Western Australia. Reports which have been received in regard to those areas indicate that the disabilities under which residents of those areas labour warrant some increase in this concession. It is proposed that the deduction for the zone be increased from Pd40 to Pd120.

The effects of taxation on the mining industry have also been examined by the Government. The law already provides certain concessions to the industry, owing to its nature and, with the object of fostering production, it is proposed that these concessions be extended. The deduction at present allowed in respect of capital expended on plant and development of a mining property will be enlarged so as to give mining concerns an effective allowance, from mining profits, life of the mine. The cost of exploration and prospecting on mining tenures will also be made deductible from income from mining operations, but this concession will not extend to expenditure on exploration or prospecting for gold and petroleum, or in locating coal deposits. Gold-mining profits are already exempt from income tax, and provision has already been made in the income tax law in regard to expenditure incurred in the search for petroleum in Australia and New Guinea. The location of coal deposits is not regarded as justifying any special taxation allowance in respect of the cost incurred. At present, concessions are granted in respect of calls paid to mining companies or syndicates carrying on mining operations in Australia for gold, silver, base metals, rare minerals or oil. These concessions are being extended to include calls on shares owned by the taxpayer in a company or syndicate engaged in prospecting for these metals or minerals. At present an exemption from income tax is allowed in respect of income derived by a bona fide prospector from the sale of his rights to mine for gold in Australia and New Guinea. This exemption will be extended to profits derived by bona fide prospectors from the sale of rights to mine for such other metals and minerals as may be prescribed. Safeguarding provisions will be inserted in the law to prevent exploitation of this concession where relationship exists between prospector and purchaser. The amendments will apply in assessments based on income derived during the year ending the 30th June, 1947.

The bill also corrects a technical defect in the act relating to the assessment of Australian residents on dividends received from ex-Australian companies. Since 1941, these dividends have been included in the assessable income of the Australian resident shareholder who has been entitled to a deduction of the ex-Australian tax paid on the dividend. A decision delivered last week by the High Court is to the effect that dividends from ex-Australian companies which are subject to ex-Australian tax are exempt from Commonwealth tax. While remedying the defect disclosed by the court's decision, it is proposed to modify the basis of assessment. Instead of allowing to the Australian resident a deduction of the ex-Australian tax from his assessable income, the taxpayer will be entitled to offset the ex-Australian tax against the Commonwealth tax on the dividend. As from the 1st July, 1946, the Australian resident will be required to pay to the Commonwealth only the excess, if any, of the Commonwealth tax over the ex-Australian tax on the dividend. Taxation on this basis will place the Australian resident shareholder in an ex-Australian company in the same relative position as an Australian resident shareholder in an Australian company.

In the light of experience, it has been found necessary to amend the special provisions of the act relating to the registration of tax agents. Annual review of registration by the Tax Agents Boards is considered to be vital to the effective operation of the scheme of registration. Accordingly, it is proposed that tax agents shall renew registration annually. A fee will not, however, be charged on renewal of registration. It is also proposed that the tribunals to which appeals may be taken on the cancellation of a tax agent's registration shall be extended to include the Supreme Courts of the States.

The bill also contains a number of machinery provisions as well as some other amendments designed to correct defects that have been revealed in the application of the act. These are fully explained in the memorandum which is being circulated, and may best be considered at the committee stage. I regret that, owing to printing difficulties, it has not been practicable to obtain black type copies of the memorandum for circulation to honorable members this afternoon. These will be obtained as early as possible and will be forwarded to all honorable members.

Debate (on motion by Mr. MENZIES) adjourned.