House of Representatives

Income Tax and Social Services Contribution Assessment Bill 1958

Income Tax and Social Services Contribution Assessment Act 1958

Second Reading Speech

Mr. MENZIES (Kooyong - Prime Minister) (2.31).

-by leave-I move- That the bill be now read a second time.

This bill is designed to give effect to the income tax proposals outlined in the course of the Budget speech last month. For the assistance of honorable members, a memorandum has been prepared explaining in detail the technical aspects of the clauses of the bill. That memorandum is being circulated for the information of honorable members.

One of the important amendments relates to depreciation allowances in the primary industries. In 1952, this Government introduced provisions which authorized the deduction of depreciation at the annual rate of 20 per cent. on plant and structural improvements used for agricultural and pastoral purposes. That basis of depreciation is operative, under the existing law, until next year. It is proposed, however, that the period shall be extended for a further term of three years so that the 20 per cent. depreciation rate shall apply to plant acquired and improvements constructed to 30th June, 1962. The allowance will also apply to improvements in course of construction at 30th June, 1962, if construction is completed in the following year.

In conjunction with these amendments, it is proposed to extend the 20 per cent. depreciation allowance to plant used solely in the fishing and pearling industries. The allowance will also apply to structural improvements used wholly and exclusively in the pearling industry. In addition to workshops, storage accommodation and similar buildings used directly for the purposes of pearling operations, the special allowance will extend to housing provided for employees and tenants engaged in those operations. As in the case of the agricultural and pastoral industries, the maximum amount on which 20 per cent. depreciation will be allowable on housing will be Pd2,750 for each employee or tenant. Expenditure on housing in excess of Pd2,750 will, of course, remain subject to depreciation at normal rates.

The special allowance in relation to the fishing and pearling industries will apply to plant acquired for use or installed ready for use after 30th June, 1958, and before 1st July, 1962. The allowance will apply also to structural improvements used in the pearling industry which are constructed between the dates I have mentioned. Structural improvements commenced before 30th June, 1962, and completed in the following income year will also be subject to the 20 per cent. depreciation allowance.

It is also proposed that individual taxpayers carrying on the business of fishing or pearling shall be classed as primary producers for the purposes of the averagigt provisions. Under those provisions, subject to certain limitations, the rate of tax payable by the taxpayer for each year is determined by reference to the average of his taxable incomes of the current year and the preceding four years.

In the case of the fishing and pearling industries, the first income year to be taken into account in applying the averaging provisions will be the current year 1958-59. Averaging will thus commence in assessments on income derived during the year 1959-60, so long as it is not to the disadvantage of the taxpayer. As in the case of primary producers, a taxpayer engaged in fishing or pearling may elect at any time to withdraw permanently from the averaging provisions.

A further provision of the bill relates to the development of rural lands acquired as part of a profit-making undertaking. In common with other primary producers, taxpayers engaged in such undertakings are allowed deductions, in the year of expenditure, for costs of clearing, draining and otherwise preparing the land for agriculture or pasture, for combating soil erosion, water conservation and similar improvements.

Where a primary producer sells land other than as part of a profit-making plan, any capital profit he derives from the sale is free of income tax. That is describing the present position. The deductions allowed for the costs I have mentioned are not written back as assessable income, even though the improvements may, of course, have enhanced the sale price of the land.

Where, on the other hand, the land is sold as part of a profit-making plan-we have seen some spectacular examples of that for the purposes of subdivision and sale-the profit derived on the sale of the land is taxed. In calculating the taxable profit, however, the present law precludes any off-set of the development expenditure on the land, and the benefit of the deductions is, therefore, in effect, nullified.

The amendment proposed in clause 10 of this bill will remove this anomalous discriminatio.e The amendment will apply to sales of land during the current income year 1958-59 and in subsequent years. As honorable members will recall, the whole purpose of that amendment is still further to encourage the improvement of land, because it is realized that this is of very great importance in the over-all national asset.

The opportunity is also being taken to extend the allowances for developmental expenditure on rural land to expenditure incurred on land in the Territory of New Guinea. As the definition of "Australia" for income tax purposes includes the Territory of Papua, such expenditure is already deductible where incurred on land in that Territory. The deduction does not apply in relation to land in the Territory of New Guinea, and the proposed amendment will remove this discrimination. The amendment will apply to expenditure incurred during the current year 1958-59 and future years.

I turn now to proposals designed to encourage the investment of Australian capital in companies engaged in the search for oil in Australia and Papua-New Guinea. Under the present law, a deduction is allowed for one-third of calls paid on shares in such companies. It is proposed, in relation to shares allotted after this bill comes into operation, to allow a deduction for the full amount of calls, as well as application and allotment moneys, paid on the shares.

Entitlement to the increased allowance will be subject to the company to which the capital is subscribed electing to forgo, to the extent of the deductions allowable to shareholders under the new provision, the exemption of profits provided under the present law. That is, of course, so that there will not be a deduction of the same amount of money twice. In the event of the discovery of oil in commercial quantities, this exemption will apply to profits arising from the sale of petroleum mined in Australia or Papua-New Guinea and will operate until these profits restore in full the capital invested in the mining and treatment of the petroleum.

Mr. Calwell.-What are the chances?

Mr. Menzies.-I wish I knew. As indicated in the Budget speech, the new provision will not apply to capital invested by non-residents or by Australian companies controlled from abroad. In these cases, and also where no election is made under the new provision, the present allowance of one-third of calls will continue, as well as the exemption of the companies' profisp and dividends paid out of those profits.

The remaining provisions of the bill relate to the special zone deductions granted to residents of remote areas of Australia and to members of the Defence Force serving at declared localities overseas. Honorable members will recall that these allowances were last increased in 1956. It is now proposed that they be further increased. There is to be an all-round increase of 50 per cent. in the existing allowances, to which will be added an amount which will be based on the dependants' deductions allowable to the taxpayer. In the case of zone A, the total zone allowance will be increased from Pd180 to Pd270 plus an amount equal to one-half of the total deductions allowable to the taxpayer for the maintenance of dependants. That is a 50 per cent. increase in both categories. A corresponding allowance will be available to members of the Defence Force serving at declared localities overseas.

In the case of zone B, the allowance will be raised from Pd30 to Pd45, plus one-twelfth of the deductions allowable for dependants. The increased allowances will apply in assessments for the current income year, 1958-59, and subsequent years.

As I said at the beginning, a memorandum explaining in more detail the technical aspects of the clauses of the bill is being circulated for the information of honorable members.

Debate (on motion by Mr. Calwell) adjourned.