Notes for the Minister's Second Reading Speech
It is intended by this Bill to give effect to the income tax proposals outlined in the course of presentation of the 1957-58 Budget.
Each of the proposals - the substance of which I shall indicate - are of importance and serve to evidence once again the Government's policy of taxation reduction according to prevailing economic conditions.
It is proposed under this heading to liberalize still further the scale of concessional deductions allowable in respect of dependants generally.
Honourable Senators do not need to be reminded that since taking office the present Government has taken very tangible steps to ensure that the taxpayer with family and other domestic responsibilities is called upon to bear only his fair share of the burden of income taxation.
Consistently with this policy, the Bill proposes a general increase of Pd13 throughout the scale of income tax deductions allowable for those dependants presently specified in the Income Tax Assessment Act.
By way of example, the existing deduction of Pd130 for a dependent spouse will be increased to Pd143, whilst in the case of a daughter-housekeeper, or housekeeper having the care of children under 16 years of age, the present deductions of Pd130 in each case will likewise be raised to Pd143.
As I have explained, the increased deduction of Pd13 will be general and so will apply also in respect of the different amounts of allowances for dependent student and other children, invalid relatives and parents of the taxpayer.
Opportunity is also being taken to include parents-in-law within the field of dependants in respect of whom income tax deductions are allowable. Accordingly, it is proposed that a concessional deduction of Pd143 be allowed in respect of a dependent parent-in-law as in the case of the increased allowance for dependent parense of the taxpayer.
Additionally, the Bill provides for the inclusion of adopted and other children within the class of dependants in respect of whom a taxpayer is entitled to a deduction for life insurance premiums, sick and accident insurance, payments to superannuation funds and the like. At present, these deductions are allowable only if a taxpayer makes such payments for the benefit of his own children, that is, children of his marriage.
Further important features of this Bill are the proposals relating to depreciation allowances which follow the Government's adoption of certain recommendations of the Commonwealth Committee on Rates of Depreciation.
As the income tax law stands at present, a taxpayer who owns and uses depreciable assets for the purpose of producing assessable income is entitled to an annual deduction for depreciation calculated by one or other of two methods - the diminishing value method or where he so elects, the prime cost method.
In short, the diminishing value method - after the first year's depreciation has been determined by reference to the cost of the asset - requires that annually thereafter the fixed percentage rate of depreciation be taken upon a reducing balance, that is, the depreciated value at the beginning of each year of income.
The prime cost method on the other hand, as its name implies, involves calculation of the annual depreciation allowance by fixed instalments arrived at simply by dividing the cost of the depreciable asset by the percentage rate at which depreciation is allowable.
It is generally accepted, however, that as long as the same percentage rate of depreciation is applied under both methods, as is the case at present, the diminishing value method does not give an equitable allowance over the estimated effective life of the asset as compared with the prime cost method. Indeed, the diminishing value method does not result in the cost of the asset being completely written off until it is finally scrapped or sold.
The Committee recommended that the two systems of calculation should be brought more into line for taxation purposes by the adoption of a 50% increase in the rates of depreciation where the diminishing value method is employed.
The Bill incorporates provisions to give effect to the Committee's recommendation. The increased rates are to apply to assets on hand at 1st July, 1957 as well as to assets purchased after that date.
Concurrently with the increase of 50% in the depreciation rates where the diminishing value method is used, taxpayers are being afforded several choices as to the basis on which depreciation is to be calculated. Broadly, either method may be chosen for plant on hand at 1st July, 1957, and future purchases. Alternatively, one method may be used for plant on hand at 1st July, 1957, and the other for plant subsequently acquired.
Another of the Committee's recommendations which is being adopted relates to depreciation balancing adjustments. t occurs not infrequently that plant is sold at a price higher than its written down value for income tax purposes. In such cases, the amount of excess depreciation, commonly called the balancing adjustment, is brought back into assessable income of the year in which the plant is sold. As depreciation may have been deducted in several preceding years, there may be some inequity in the taxation of the balancing adjustment as income of one year.
The Committee recommended that, in lieu of assessment in the year of receipt, the taxpayer should, if he so desires, have the right to set off the balancing adjustment against the value of other assets subject to depreciation. Honourable Senators will recognise this principle as having been introduced last year in connection with the assessment of insurance and other recoveries on the loss or destruction of depreciable assets. In effect, the taxpayer is given the choice between paying taxation on the balancing adjustment, or having his depreciation allowances reduced by an equivalent amount.
The proposals I have just mentioned are intended to apply to the income year commencing 1st July, 1957, and subsequent income years.
It is proposed that income derived on and from 1st July, 1956, by residents of Nauru from sources within the Island shall be exempt from income tax.
Residents of Nauru will thus be afforded similar exemption to that which has applied for many years to residents of the Territories of Papua, New Guinea and Norfolk Island in respect of income derived by them from sources in those Territories.
The list of specified funds and institutions gifts to which constitute allowable deductions is being enlarged to include the following:-
The National Trust in each of the States of New South Wales, Victoria and South Australia.
Public libraries, museums and art galleries.
The Sydney Opera House Appeal Fund.
The Sidney Myer Music Bowl Trust.
The Industrial Design Council of Australia.
Gifts of Pd1 and upwards made to these funds and institutions on and after 1st July, 1957, will be allowable deductions.
I have given in brief the substance of the proposals contained in this Bill. Several are necessarily of a complex nature and an explanation of these and the other provisions of the Bill will be found in greater detail in the explanatory notes already circulated.
I commend the Bill to Honourable Senators.