The Senate

Income Tax Assessment Bill 1966

Income Tax Assessment Act 1966

Notes for the Minister's Second Reading Speech

The principal purpose of this Bill is to amend the income tax law to give effect to proposals broadly explained in the Budget Speech.

Most of the proposed measures apply to primary producers. One of their purposes is to assist producers whose incomes have declined in recent years because of the drought.

An important amendment for this purpose will grant to primary producers who have elected to withdraw from the averaging system a right to come back into the system. As honorable members know, the averaging system operates so as to apply to the taxable income of a primary producer the rate of tax payable on the average of his taxable incomes over a period of years. The normal period is five years, consisting of the particular year of income and the preceding four years.

In 1951 the averaging system was modified in certain ways and at the same time primary producers were given a right to withdraw from it. In view of changed circumstances since 1951, but particularly because of the effects of the drought, it is now proposed to give any producer who has withdrawn from the system an opportunity to review his decision and change it if he wants to.

In broad terms, it is proposed that a primary producer who has elected, or elects, to withdraw from the averaging system for the 1965-66 income year or an earlier year will be able to come back into the system in respect of any income year up to 1969-70. He may choose any one of the four years 1966-67, 1967-68, 1968-69 or 1969-70 as his year of re-entry. In the year of re-entry, he will be treated as if he had never withdrawn from the system, but there will be no right to withdraw again.

The right of re-entry will confer an advantage on producers who have withdrawn from the system in years of declining incomes. They will now be able to re-enter in years in which, after the drought, incomes may be expected to increase.

Another amendment also relates to the average syste.t By a separate Bill the income limits up to which the system applies are being increased from $8,000 to $16,000. The new limits will apply for the first time in assessments for the 1966-67 income year. There may be cases in which the new limits would operate to the initial disadvantage of taxpayers who have not withdrawn from the average system. To avoid this, the Bill proposes that application of the new limits will be deferred in these cases until a year of income in which they confer an advantage. Once this happens, they will from then on apply in the ordinary way.

The Bill also proposes a measure to assist woolgrowers who, because of the drought, advanced shearing dates during the 1965-66 income year. In these cases, proceeds of two wool clips would be brought to account for taxation purposes in the one year. It is proposed that these woolgrowers will be able to elect to transfer the net proceeds of the second clip to the 1966-67 income year.

Primary producers who have made forced sales of livestock because of the drought may be affected by another proposal in the Bill. At present, a primary producer may make an election in respect of the profit on a forced sale of livestock in consequence of drought, fire or flood. If the proceeds of the sale are used principally to purchase replacement stock, the producer may elect to have the profit taxed over a period of five years instead of all in the one year. It is proposed to extend this right of election to cases in which the proceeds are used principally to re-stock by maintaining a breeding herd or flock.

A proposal of wider application to primary producers relates to the period for which past year losses may be carried forward for deduction. At present, the period for this purpose is limited to seven years.

It is proposed to remove this limit in respect of losses incurred in primary production. The limitation will not in future apply to a primary production loss incurred in the 1957-58 income year or a subsequent year. The removal of teh limitation will apply to assessments for the 1965-66 income year and future years.

The final proposal affecting primary producers will provide an outright deduction for the cost of fences erected to combat soil erosion by excluding live stock from the affected land. The outright deduction will be in lieu of the depreciation allowances now given over a period of five years. This amendment will apply in relation to expenditure incurred in the income year 1966-67 and subsequent years.

Some additions are proposed to the list of institutions to which gifts of $2 or more are deductible for income tax purposes. The Australian Council of National Trusts and the Australian Conservation Foundation Incorporated are being added to the list. It is also proposed to authorise deductions for gifts to prescribed colleges of advanced education where the gifts are for tertiary education activities of the college. These amendments will apply in assessments for the 1966-67 income year and subsequent years.

The only other amendment of substance relates to the priority for payment of income tax assessments by trustees in bankruptcy. When the new Bankruptcy Act comes into operation, the ranking for payment of these income tax debts will be provided by that Act. In broad terms, it is proposed to repeal provisions of the income tax law that are inconsistent with the Bankruptcy Act. The repeal will be effective as from the date on which the Bankruptcy Act 1966 comes into operation.

A memorandum giving more detailed explanations of the Bill is being made available to honorable members and I do not propose to speak on the Bill at greater length at this stage.

I commend the Bill to the House.