Notes for Treasurer's Second Reading Speech
In this year's Budget, the reductions in income tax are being made principally by reducing the rates of tax payable by individuals which I have just explained to Honourable Members. In the course of my Budget Speech, I outlined income tax concessions which were being provided in addition to these reductions and this Bill contains the provisions necessary to give effect to those additional proposals.
Amongst the concessions is the allowance of gifts of Pd1 and upwards to public funds for the construction and maintenance of school and college buildings owned by non-profit organizations. This concession will apply to gifts on and after 1st July, 1954, and should materially assist in the raising of funds for the purpose of building and maintaining these educational establishments including government owned schools and colleges.
This concession, considered in conjunction with the deduction of expenses incurred by parents in the education of their children, is an earnest of the Government's endeavour to assist in the advancement of learning in this country.
Encouragement is also being given to the development of the arts and sciences in Australia. Gifts to the Australian Elizabethan Theatre Trust since the Trust was established in the first half of this year will be allowable deductions. Gifts to the Australian Academy of Science on and after 1st July, 1954, will also be deductible.
All told the cost of the three concessions I have mentioned will be about Pd200,000 in a full assessment year.
In Australia, in many cases, land is leased for the purpose of carrying on mining operations. At present, a freeholder who grants a lease of his land to a lessee for that purpose is subject to tax on the premium he receives. The lessee is entitled to deduct the amount that he pays for the grant of the lease. The same principles apply where a lease is assigned.
It is thought that, at times, the taxation of the premiums has dissuaded freeholders and leaseholders from granting or assigning leases to prospective purchasers who are willing to risk the capital in mining the mineral deposits on the land.
To remove this possible impediment to the extension of mining in this country, it is proposed that mining leases shall be placed outside the compass of the lease provisions of the Assessment Act. In other words, the recipient of a premium for the grant or assignment of a mining lease will not be subject to income tax on the amount he receives. Correspondingly, the purchaser or assignee will not be entitled to deduct the amount that he has paid for his lease.
This proposal is coupled with a further proposal that the parties to these transactions may agree to continue the present system of taxing the recipient and allowing a deduction to the payer.
No doubt, the taxation consequences which will flow from the agreement under either of the alternative bases will enter into the negotiation of the purchase and sale price. However, the alternatives which are being provided should serve to remove the deterrent to mining development which I have outlined.
The amendment to give effect to these proposals will apply to transactions after the date on which the Bill receives the Royal Assent.
The cost to revenue in a full year is estimated at Pd15,000.
It is also proposed to exempt dividends paid by companies wholly and exclusively out of income which is exempt under section 23(p) of the Assessment Act. That provision exempts the income derived by a bona fide prospector from the sale, transfer or assignment of his rights to mine for gold and for certain other metals and minerals which are prescribed by regulation.
This exemption applies not only to individual prospectors but also to any company which has carried out the major part of prospecting in the particular area for which the right to mine has been granted.
However, unlike individual prospectors, the individual shareholders of the prospecting company do not receive the benefit of the exemption in the form of exempt dividends.
It is accordingly proposed that dividends paid wholly and exclusively out of the exempt income of the prospecting company shall also be exempt in the hands of the shareholders.
The new exemption will apply to dividends paid after the date on which this Bill receives the Royal Assent even although the exempt income was earned by the company prior to that date.
The exemption will extend to dividends paid by a holding company wholly and exclusively out of exempt dividends received by that company from the prospecting company.
It is also proposed to extend the list of metals and minerals to which these exemptions will apply. The Income Tax Regulations will be amended for these purposes in the near future.
Other clauses of the Bill relate to pensions and annuities.
The principle which governs the taxation of pensions and annuities is that the pensioner or annuitant shall not be taxed on any amount of purchase price which he has paid for the pension or annuity.
In the case of pensions, this result is obtained usually by way of deduction of the annual amounts contributed to superannuation funds by salary and wage earners during the years of their active employment.
There are cases, however, where the annual contribution exceeds the maximum deduction allowable - at present the maximum annual deduction is Pd200. In these cases, the amount which has not been deducted is excluded by way of annual allowances from the pension when received.
Where annuities have been purchased outright from insurance companies, there is no deduction allowed at the time of purchase. The purchase price, in these cases, is also excluded by way of annual allowances from the annuity when received.
In both types of cases, the principle is recognised that purchased pensions and annuities comprise two elements - namely, interest on the sum invested, and a return of the purchase price. To the extent that a pension or an annuity represents interest, it is taxable but, to the extent that it represents purchase price in respect of which a concession has not already been allowed, it is free from tax.
The method customarily adopted is to divide the purchase price by the number of years of life expectation when the pension or annuity commences. The annual allowance is the amount so calculated.
However, under the present law, the annual allowances cease when the pensioner or annuitant attains his life expectation actuarially calculated at the commencement of the pension or annuity. Thereafter, the whole of the pension or annuity is subject to income tax.
The increase in tax once the expectation of life has been exceeded is regarded by many pensioners and annuitants as a serious hardship, and representations for the alleviation of this tax burden have been received by the Government.
The purpose of this amendment, therefore, is to authorize the continuance of the annual allowances throughout the lifetime of the pensioner or annuitant.
Where a pensioner or an annuitant has already exceeded his life expectation and the annual allowance has ceased under existing provisions, the amendment will restore that annual allowance commencing with assessments based on 1954-55 income.
In some cases, purchasers of existing annuities have availed themselves of an option whereby the annual allowances are calculated on the basis of actuarial certificates provided by the insurance companies from which they purchased the annuities. The Bill includes a saving clause which authorises the continuance of this method of calculation, if the annuitant so desires, until the purchase price has been allowed in full. Thereafter, in the case of annuities for life, the annual allowances will be calculated in accordance with the new provision.
I now invite the attention of Honourable Members to a provision in the Bill which will have the effect of exempting, as from 1st July, 1954, pensions received from the United Kingdom Government by widows and other dependants of deceased servicemen. Pensions received by disabled United Kingdom ex-servicemen resident in Australia are already exempt, and so also are pensions paid by the Commonwealth to widows and other dependants of Australian servicemen. In response to representations from many quarters it has been decided to extend these exemptions on the lines I have indicated.
It is true that United Kingdom war widows may become liable to United Kingdom tax on these pensions but the inclusion of the pension in Australian taxable income certainly has increased the rates of tax on other Australian income received by the widow. The exemption from Australian tax which is now being provided may be found to afford an overall tax saving to these recipients of United Kingdom pensions.
The only other provision in the Bill which it is necessary to mention is a proposed amendment of Section 204 of the Assessment Act. As now enacted, that section provides that income tax assessed shall be due and payable on a date specified in the notice of assessment, but not less than thirty days after service of that notice.
By reason of credits for provisional tax paid or for tax instalments deducted from earnings, many notices of assessment show, instead of an amount payable by the taxpayer, a refund due to him. As it is inappropriate in such cases to specify in the notice a due date for payment, the proposed amendment will authorize the omission of this particular from the notice.
The omission would affect, however, the operation of those provisions of the Assessment Act which authorize the amendment of assessments within three years (or in some cases six years) from the date on which the tax became due and payable under the assessment. I refer both to amendments which have the effect of increasing the tax in the original assessment and to those which have the effect of reducing that tax. If no date were specified on the notice of assessment, there would be no commencing point for the period within which the assessment might be amended.
It is proposed, therefore, that, where no date is specified in the notice of assessment, the thirtieth day after service of the notice will be a notional due date for payment, from which the period for amendment of the assessment may be reckoned.
This amendment will effect a saving in administration without inconvenience or detriment to taxpayers.
I commend the Bill to Honourable Members.