House of Representatives

Income Tax and Social Services Contribution Assessment Bill (No. 2) 1959

Income Tax and Social Services Contribution Assessment Act (No. 2) 1959

Notes for Acting Treasurer's Second Reading Speech

This Bill is designed to give effect to a number of income tax proposals outlined in the course of the Budget Speech last month.

Among the important amendments is a proposal to increase the retention allowance to which private companies are entitled for the purposes of undistributed income tax.

The plan for taxing the income of private companies involves a primary rate of tax levied on the taxable income derived. Additional tax is charged if a private company does not make a sufficient distribution of its profits as dividends.

A portion of the profits may, however, be retained free from undistributed income tax. The amount that may be so retained is the retention allowance.

Private companies, like other enterprises, need increasing amounts of capital if they are to achieve steady expansion and higher production. An increase in the retention allowance will assist private companies to re-invest in their businesses a larger proportion of profits.

It is accordingly proposed that the minimum rate of retention allowance in the case of trading profits be raised from 25% to 35%. Entitlement to the increased allowance will commence to apply for the 1958-59 income year.

It is not proposed to vary the existing 10% retention allowance provided in relation to income from property, such as rents, interest and dividends from public companies.

A further provision of the Bill relates to capital expended by mining enterprises in providing housing and welfare in the vicinity of the mine for employees and their dependants.

Under present provisions, this expenditure may be recouped over the life of the mine. By way of comparison, I mention that capital laid out on plant and development of the mining property may, if the mine-owner chooses, be recouped in the year of expenditure.

The continued expansion of our mining industries st heavily dependent on adequate housing and amenities being available to attract the required work force and this is particularly so in the more remote areas.

It is accordingly proposed that mine-owners be given an option to deduct housing and welfare expenditure in five equal annual instalments.

The alternative basis will be available to mine-owners for the 1958-59 income year and will thus be reflected in assessments to issue during the current financial year. Housing and welfare expenditure incurred during the 1955-56 and subsequent income years may, where a mine-owner so elects, be deducted under the new basis to the extent that it does not also qualify for deduction from income of years before 1958-59.

It is also proposed by the Bill to extend the scope of the deductions for capital contributed to companies for oil exploration purposes.

Under provisions enacted last year, residents of Australia who contribute capital direct to companies engaged principally in oil exploration in Australia or Papua-New Guinea may be entitled to a taxation deduction for the full amount of that capital.

The present law operates where the capital has been contributed after 30th September, 1958 on shares allotted after that date. The provisions now proposed will allow deductions for amounts contributed after that date without regard to the date of allotment of the shares.

A further extension of the deductions relates to companies incorporated in Australia but in which non-residents of Australia have a controlling interest or own more than one-half the subscribed capital. These companies are not entitled, under the 1958 legislation, to deductions for capital contributed by them for oil exploration purposes.

A review of the basis upon which taxation allowances are available outside Australia to these companies has demonstrated the need for Australia to widen its law so as to bring these companies within the ambit of the deductions permitted by the Australian law. The provisions of the Bill are designed to achieve this result. Capital contributed by non-residents will remain outside the scope of the deductions.

Entitlement to deductions is provided in some circumstances where capital is contributed to a company that is not itself engaged in oil exploration activities, but which subscribes capital received by it to a second company that is so engaged. Shareholders in the first company may, however, avail themselves of the deductions only after the money has been passed on to the operating company. If capital subscribed ot the first company in one income year is not re-invested by it until a subsequent year the operation of the present provisions is impeded. The Bill proposes procedures that will facilitate the allowance of deductions for the year in which the capital is contributed to the first company.

In conjunction with the deductions for capital contributions for the purposes of oil exploration, the Bill includes provisions ensuring that the benefit of these deductions is preserved in the case of dealers in shares. Where deductions have been allowed under the provisions I have just discussed, a share-dealer is not entitled to offset the cost of the shares in ascertaining the taxation profit or loss arising on the sale of the shares. The benefit of the deductions is, in effect, nullified.

The Bill contains a provision to overcome this unintended result and so place share dealers on a basis corresponding to that applied where a primary producer dealing in rural land has been allowed deductions for the cost of developing land sold by him.

I turn now to a proposal to assist aged persons who incur heavy medical expenses. At present, the maximum amount of medical expenses that may be deducted by a person in any one year in relation to himself, a dependant or a child under 21 years of age is Pd150 a person. This limitation is to be removed in respect of medical expenses paid by a person over 65 years of age in relation to self or spouse, if the spouse has also attained that age. The amendment will apply to medical expenses paid during the 1959-60 and subsequent years of income.

The list of funds and organizations to which gifts, subject to income tax allowances, may be made has been enlarged by the Government on a number of occasions. A further extension of the list is proposed so that deductions will in future be allowed for gifts of Pd1 and upwards to the following -

The National Trusts established in Western Australia and the Northern Territory;

Public funds providing money for approved marriage guidance organizations;

The Australian National Committee for World Refugee Year;

The Council for Jewish Education in Schools.

Gifts made to these organizations during the current financial year and subsequent years will be deductible.

An increase from Pd300 to Pd400 is also proposed in the maximum permissible deduction for life assurance premiums, superannuation contributions and other like payments. The increased maximum deduction will commence to apply for the 1959-60 income year.

A number of residents of Australia are in receipt of allowances paid by the West German Government as compensation for injuries and losses suffered as a result of Nazi persecution. These allowances are technically within the income tax field. The payments have their origin in very unhappy circumstances and the recipients may well be left to enjoy the full amount of the allowances without diminution by taxation. It is accordingly proposed by the Bill to treat allowances received on and after 1st July, 1959 as exempt from income ta.

The remaining provisions include amendments consequential upon the proposed 5% reduction in the tax payable by individuals for the current financial year. I do not, however, propose to comment on those provisions but I have arranged for a memorandum explaining technical aspects of all clauses of the Bill to be circulated for the information of Honourable Members.

I should, perhaps, add that provisions to impose a withholding tax on dividends paid to non-residents are not included in the Bill. It is the Government's intention to introduce legislation for that purpose later in the present sittings of the Parliament.