House of Representatives

Income Tax and Social Services Contribution Assessment Bill 1950

Income Tax and Social Services Contribution Assessment Act 1950

Second Reading Speech

Mr. Fadden (McPherson-Treasurer) (3.19).-by leave-I move-

That the bill be now read a second time.

The provisions of this bill to amend the Income Tax Assessment Act represent an instalment of the Government's scheme for the progressive simplification of the Commonwealth taxation laws. It has been a matter of concern to the Government that the laws, particularly those relating to income tax and social services contribution, have been permitted to fall into a serious state of complexity. The two factors that contribute most forcefully to this state of complexity are the separate levying of social services contribution and income tax, and the system whereby the concessions for dependants, medical expenses, life insurance, &c., are allowed by way of rebates of tax instead of deductions from income. In this bill it is proposed, in the interests of simplification, to merge the two separate levies into one levy of income tax and social services contribution and to revert to the system of concessional deductions in operation prior to 1942.

With regard to the merging of the two levies, the bill provides for the repeal of the Social Services Contribution Assessment Acts, which lay down the basis of assessment of social services contribution, and the Social Services Contribution Acts, which impose the contribution. The Social Services Contribution Regulations will also cease to have effect. The elimination of these three sets of statutory provisions will remove many of the present compexities of law and practice, and may indeed be regarded as the necessary preliminary to any effective scheme of simplification. The repeal of social services contribution legislation will take effect from the 1st July, 1950, but it will be necessary to provide for the legislation to have continuing force in regard to social services contribution assessed on income derived during the years ended the 30th June, 1946, to 1950, inclusive.

The single levy which is proposed to be substituted for the former two separate levies will be known as "income tax and social services contribution". This title will serve as a constant reminder to taxpayers that a substantial proportion of their payments will be devoted to Commonwealth social services. Provision will be made in a separate bill for special appropriations from the single levy, to ensure that the element of social services contribution in each person's payment shall be appropriated to the National Welfare Fund, and that that fund will have an assured income to meet its purposes.

Turning to the second of the major reforms proposed in this bill, namely, the reversion to a system of concessional deductions, it has been the objective of the Government to allow deductions of amounts which, when coupled with slight reductions of the rates at certain income ranges, will slightly favour taxpayers in the amount to be paid and, at the same time, simplify the calculations.

The following table compares the present rebatable amounts with the proposed deductions for dependants:-

Dependent. Rebatable Amount. Proposed Deduction.
Pd Pd
Spouse or housekeeper having care of taxpayer's children or step-children, widower's or widow's daughter-housekeeper, dependent parent 150 104
First child under the age of sixteen years 100 78
Each additional child under the age of sixteen years 50 52
Each dependent child between sixteen and nineteen years receiving full-time education, each dependent invalid child, step-child, brother or sister over sixteen years 100 78

I repeat that the allowance of the deductions on the basis proposed will not be of less value to any taxpayer than is the present concessional rebate. On the contrary, that value will be increased, particularly where the taxpayer maintains two or more dependants. The proposed system of concessional deductions will accordingly afford the largest measure of relief to those taxpayers with family responsibilities. Besides providing for the substitution of concessional deductions for concessional rebates of tax, the bill will give effect to recommendations of the Commonwealth Committee on Taxation in regard to the allowances.

Honorable members will recall that the Government, shortly after assuming office, appointed an expert committee to examine all aspects of taxation by the Commonwealth. This committee, which is composed of six members, including representatives of the legal and accountancy professions, commenced its activities early this year, and already it has submitted several valuable reports to the Government. With regard to concessional allowances, the Government has accepted a number of the committee's recommendations which are designed to remove present anomalies, to clarify statutory provisiose and to simplify administrative procedure. These reforms, particularly those which will remove anomalous limitations in the present allowances, cannot be achieved without some loss of revenue. This is estimated to be about Pd1,750,000 in a full year.

One proposed extension of the concessional allowances is the raising of the age limit in regard to student children. The present concessional allowance for children receiving full-time education at a school or university applies to children over sixteen but under nineteen years of age. The age limit is to be extended to 21 years. This extension will give welcome relief to many parents in the lower and middle income ranges who make very great sacrifices to give their children secondary and higher education. The annual cost to revenue of this extension of the concession is estimated at Pd150,000. The committee has directed attention to anomalies which arise from the limitation of the concessional allowance for parents to cases where the parent is wholly maintained by one taxpayer. Under the terms of the present law a taxpayer is denied the allowance if the parent is in receipt of any income at all.

In this bill it is proposed to extend the concession to cases where the parent is in receipt of a net income of less than Pd104. In those cases, the deduction will be Pd104 less the amount of the parent's net income. In other cases of partial maintenance of a parent by one child, or by each of two or more children, the deduction is to be apportioned on such a basis as the Commissioner of Taxation considers reasonable. The annual cost to revenue of the extension of the concession is estimated at Pd300,000. Recommendations of the committee have been adopted by the Government in regard to the tests of maintenance of other dependants also. The present concessions for dependants are allowable if the dependant is maintained by the taxpayer. The question of whether a dependant is maintained by the taxpayer is determined according to statutory tests, which are ts present different for the spouse, children, parents and invalid relatives.

In the interests of simplification, the allowance of the concessions for dependants other than a parent will be subject to a test of maintenance the same as for a spouse; that is, the deduction is not to be diminished if the separate net income of the dependant is less than Pd52 in the year and where the separate net income exceeds Pd52, the deduction is to be decreased by Pd2 for every Pd1 of the amount of such excess. The annual cost to revenue of these amendments is estimated at Pd250,000.

The principle of substituting deductions for rebates will extend to concessional allowances other than for dependants, as, for example, medical and funeral expenses, life insurance premiums, superannuation fund contributions and the like.

In addition, it is proposed to liberalize these concessional allowances as follows:-

By raising from Pd50 to Pd100 the limit on the concessional allowance for medical expenses-- Annual cost to revenue, Pd230,000.
By raising from Pd10 to Pd20 the limit on the concessional allowance for dental expenses-Annual cost to revenue, Pd200,000.
By extending the deduction for medical expenses beyond the present specified limits of the family group so as to include the medical expenses paid by the taxpayer on behalf of any dependant for whom the taxpayer is entitled to a concessional deduction-Annual cost to revenue, Pd100,000.
By extending the allowance for medical expenses to cover therapeutic treatment administered by direction of, and surgical appliances prescribed by, a legally qualified medical practitioner-Annual cost to revenue, Pd150,000.
By allowing deductions for payments to medical and hospital benefit funds-Annual cost to revenue, Pd200,000.
By extending the concession for funeral and cremation expenses to amounts-subject to a maximum of Pd30 for each bereavement-paid in respect of the death of any person who, prior to his death, was regarded as a dependant for income tax purposes-Annual cost to revenue, Pd10,000.
By raising from Pd150 to Pd200 the present maximum allowance for life insurance premiums, superannuation contributions and like payments-Annual cost to revenue, Pd35,000.
By extending the concession to premiums or sums paid for insurance against sickness or accident of the taxpayer or of his spouse or children-Annual cost to revenue, Pd100,000.

Another rebate concession which will be converted to a deduction basis is that in respect of calls on shares in mining, prospecting and afforestation companies and syndicates. The present rebate of tax is calculated on the amount of the calls at one-third of the personal exertion rate appropriate to the total taxable income of the taxpayer. On conversion to a concessional deduction system, it is proposed that one-third of the calls be allowed as deductions. This amendment will result in an annual cost to revenue estimated at Pd25,000.

Apart from the concessions associated with the substitution of deductions for rebates, the most important concession proposed in the bill relates to the tax payable by private companies on their undistributed profits. In 1948 the law was amended to enable such companies to retain specified percentages of profits free from undistributed profits tax, so that the tax payable by a private company and its shareholders would approximate the amount of tax that partners in a comparable partnership would pay. Experience has shown these percentages to be inadequate in the light of changing conditions, and the Government accordingly proposes to increase the tax-free amounts. On the first Pd1,000 of a private company's distributable income, the proportion which is free from undistributed profits tax will be increased from 30 per cent. to 50 per cent. At the higher levels the tax-free percentages are increased to a lesser extent. If, for example, the distributable income of a private company is Pd10,000, the amount which may be retained free from undistributed profits tax will be Pd2,750, as compared with Pd2,000 under the present law. The annual cost to revenue of this amendment will be about Pd1,000,000.

Another provision in the bill is directed towards the attainment of the Government's objective of speeding up the hearing of taxation appeals before taxation boards of review. Until recently, two such boards have dealt with all appeals arising in connexion with income tax, social services contribution and other taxes. The volume of appeals, particularly in New South Wales, has been such that two boards of review have been insufficient to cope with the cases referred to them. As taxes are payable notwithstanding the lodgment of an appeal, it has happened in many instances that taxpayers' money was held for long periods while appeals were pending. To assist in remedying this deficiency the Government appointed last July a third board of review with head-quarters in Brisbane. Besides hearing cases in that city, it is intended that the new board shall hold sittings in the large country centres of Queensland and northern New South Wales. This will obviate the difficulty and expense caused to taxpayers in remote areas who are at present required to attend a capital city in order to prosecute their appeals. It is proposed also that the third board shall assist in reducing the accumulation of unheard appeals in Sydney. In order to provide for the remuneration and travelling expenses of the members of the additional board, it is proposed in this bill to increase the present appropriation for such purposes by an amount of Pd10,000 per annum.

The bill provides also for the exemption from taxation of allowances received under the Commonwealth Tuberculosis Act, and for a variation of the conditions attaching to the exemption of tee remuneration of officials of certain international organizations. These amendments, together with the others to which I have referred, are explained in more detail in a memorandum that has been prepared in connexion with the bill.

The Government proposes also to amend the income tax law so as to grant exemption in respect of the pay and allowances earned outside Australia by members of the special overseas force. Generally speaking, the conditions in regard to categories of personnel and the periods of eligibility for the exemption will be uniform with those to be prescribed in regard to the provision of war pensions and repatriation and re-establishment benefits. The appropriate amendment to the Income Tax Assessment Act will be introduced later.

I commend the bill to honorable members.

Debate (on motion by Mr. CALWELL) adjourned.