House of Representatives

Income Tax (International Agreements) Bill 1958

Income Tax (International Agreements) Act 1958

Notes for the Treasurer's Second Reading Speech.

The principal purpose of the Income Tax (International Agreements) Bill is to give the force of law to an agreement entered into last October by Australia and Canada for the purpose of relieving the double taxation on incomes flowing between the two countries.

A secondary and minor purpose is to delete from section 16 of the Income Tax (International Agreements) Act 1953 reference to interest on certain government loans taxable at rates not in excess of 1930-1931 rates of tax. Securities bearing this interest are not now held by the public and the reference in the existing law to the interest is redundant. In order to simplify the section amendment will not apply for past years and will not detract from the rights of taxpayers.

The agreement to which it is proposed to give the force of law follows closely the income tax convention entered into with the United States of America and approved by the Parliament in 1953. The broad purposes of the agreement are similar to those adopted in the 1946 taxation agreement with the United Kingdom.

Double taxation frequently occurs when income is derived by a resident of one country from sources in another country. Unless the burden of the taxation imposed by two countries is relieved, a serious impediment to international trade and investment may prove detrimental to both countries.

Agreements with the United Kingdom and the United States of America have facilitated the investment of capital in Australia and the development of this country has accordingly been assisted. It was in the light of the experience gained from the operation of these agreements that the Government concluded the present agreement with Canada.

In relation to some classes of income, double taxation is avoided by the country in which income arises agreeing to forego its tax, thus leaving the country in which the recipient resides to collect its tax in full. The classes of income oo which this procedure will apply are listed in the explanatory memorandum which has been circulated for the information of honourable members.

Other income, which constitutes the great bulk of the income flowing between the two countries, may be taxed in both countries. In these cases the country of origin collects its full tax. If the country in which the taxpayer resides also imposes its tax, the agreement places upon that country an obligation to allow a credit against its tax.

By this means, the total burden of tax in the two countries is limited to the higher of the taxes imposed by the two countries.

The tax on dividends paid by a company resident in one country to a shareholder in the other country is, in the generality of cases, restricted to 15% of the dividend. This levy is additional to the tax payable on the profits out of which the dividend is paid. In the case of dividends paid by Australian public companies, all but an insignificant part of the profits at present bears company tax of 7/6d in the Pd before the tax of 15% is imposed on dividends. Upon reaching the hands of individual shareholders in Canada, the dividends are also liable for Canadian tax, subject to any credit that the Canadian law may permit.

In addition to relieving undue double taxation, the agreement permits the taxation authorities of the two countries to exchange information in respect of income tax if the information is required for the operation of the agreement, the prevention of fraud or the administration of provisions against the avoidance of tax. The respective laws of the two countries enforce secrecy in relation to the information exchanged and, in any event, there is an embargo on the exchange of information relating to trade secrets or trade processes.

If the Bill receives the Royal Assent before the 1st July this year the agreement will apply in Australia to income derived in the current financial year. Correspondingly it will apply in Canada for the present taxation year which began on the 1st January, 1958.

A copy of the agreement is set out in the Schedule to the Bill and an explanation of each Article will be found in the memorandum circulated.

Enquiries received since the signing of the agreement was announced indicate considerable interest in the efforts being made to encourage trade and investment between Australia and Canada. The Government is confident that the agreement will produce results favourable to the Australian economy and to the further expansion of industry in this country.

I commend the Bill to honourable members.