The Senate

Income Tax and Social Services Contribution Assessment Bill (No. 3) 1961

Income Tax and Social Services Contribution Assessment Act (No. 2) 1961

Notes for the Minister's Second Reading Speech

In the course of his Budget Speech delivered on 15th August last, the Treasurer outlined a number of proposals to amend the income tax law. This Bill is designed to give effect to those proposals.

At the outset I mention two proposals of particular interest to primary producers.

The first of these proposals is that income tax deductions be authorised for capital expenditure incurred by primary producers on the purchase of pipes to be placed underground for use in conveying water required in a business of primary production. The deduction, which will be available for the year in which the expenditure is incurred, will also extend to the cost of laying the pipes underground.

The other proposal relates to cases where, in order to control or eradicate disease, live stock owned by a primary producer is destroyed. The new provision will also apply if live stock dies of a disease and there is, in Australia or its Territories, a law concerning the compulsory destruction of live stock suffering from that disease.

Compensation received by the primary producer in these cases, together with proceeds of the sale of the hide or other part of the animal, is assessable income for tax purposes. If the amount of the income exceeds the cost of the live stock or its taxation value at the beginning of the income year, the difference represents a profit taxable in the year it is derived. Taxation of the whole of the profit in that year may leave the primary producer with insufficient funds for the replacement of the live stock.

The Bill will enable a primary producer to elect that profit arising in the circumstances outlined be taxed over a period of five years. Thus, where an election is made, one-fifth of the profit will be included in the assessable income of the year in which the stock die or are destroyed and a like amount will be taxed in each of the next four years. If the right of election so not exercised, the present practice of taxing the profit in the year it is derived will not be disturbed.

The new provisions will commence to apply for the 1960-61 income year and the right of election will be available in relation to animals destroyed in consequence of the recent outbreak of swine fever.

A further proposal announced in the Budget Speech relates to the income tax deduction for one-third of calls paid to companies engaged principally in mining, prospecting or afforestation in Australia or the Territory of Papua and New Guinea. The deduction does not, however, extend to capital subscribed by one company to an interposed company that, in turn, pays calls to a mining, prospecting or afforestation company.

It is proposed to amend the law to enable the interpose company entitled to a deduction for one-third of the calls to forgo that deduction so that it may be passed back to the company which provided share capital out of which the calls were paid. The application of the new provision will be conditional upon the mining prospecting or afforestation company being a wholly-owned subsidiary of the interposed company. A further test will be that the company to which the deduction is transferred owns at least 50 per cent of the paid-up capital of the interposed company.

Honourable Senators will be aware that the deduction available for medical, including dental, expenses in respect of a taxpayer and each of his dependants is, in general, limited to Pd150 for each person. Within that overall limit a ceiling of Pd30 per person has hitherto been placed on the deduction for dental expenses. It is proposed in the Bill that this latter limit be removed. The general limit of Pd150 for all medical expenses will not, however, be varied.

The Bill also gives effect to the previously announced decision to allow as income tax deductions, gifts of Pd1 and upwards to the Ian Clunies Ross Memorial Foundation.

Further proposals contained in the Bill make minor changes relating to residents of Australia who derive income from sources in the Territory of Papua and New Guinea. Under the present laws, both Australian and Territory tax is payable on that income. Double taxation is, however, relieved by allowing against the Australian tax a credit in respect of the Territory tax paid.

This procedure involves the separate lodgment of tax returns and separate payment of tax for Australian and Territory tax purposes by such taxpayers. The amendments now proposed are designed to facilitate arrangements that will remove the need for certain taxpayers to lodge returns of income in the Territory.

It is envisaged that the new arrangements will apply where Australian residents, who are not also resident in the Territory, derive from the Territory income consisting of dividends debenture interest or pensions on account of service with the Territory Administration.

In these cases, the Commissioner of Taxation will collect the full amount of Australian tax before the allowance of the credit to relieve double taxation. The amount of the credit will then be ascertained and will be applied in payment of ter Territory tax due on Territory income. The taxpayer to whose income the new procedures apply will thus be able to satisfy his Australian and Territory tax obligations by lodging one return of income in Australia and making one payment of tax to the Commissioner of Taxation.

The amendments proposed will not vary the aggregate of the Australian and Territory taxes payable.

Further explanations of the proposed amendments are contained in a memorandum which is being circulated for the information of honourable senators. In these circumstances I do not propose, at this stage, to speak at greater length on the Bill which I now commend to the Senate.