Second Reading Speechby the Treasurer, the Honourable Frank Crean, M.P.
This Bill will give effect to taxation proposals announced in the Budget Speech and one or two other such proposals.
The rebate of tax for low income earners entitled to concessional deductions for dependants is one feature of the Bill. It is proposed that where, because of the lower rates of tax payable by these people, their tax saving from deductions for dependants is less than 40 per cent of the amount of the deductions, a rebate will be allowed to bring the saving up to 40 per cent, or to the tax otherwise payable if that is less. By way of illustration a man supporting a wife and two children is entitled to maintenance deductions of $832. If his taxable income were $5,000 his tax saving from these deductions would ordinarily be $266.24. The rebate will increase the saving by $66.56 to $332.80. His tax for 1974-75 will be $613.44, i.e., $303.86 less than the 1973-74 tax of $917.30.
The Bill also proposes amendments to the depreciation provisions to make it clear that expenditure on facilities used in child care centres provided by employers for children of their employees are to qualify for depreciation deductions on the same basis as facilities provided for employees.
The concessional deductions available for the maintenance of dependants are to be widened by the Bill so that, for 1974-75 and subsequent years, deductions will be available for the maintenance of dependants who are not residents of Australia.
A major purpose of this Bill is to give legislative effect to the Government's undertaking to introduce a scheme of income tax deductions for interest paid on home loans. The scheme will provide worthwhile relief from interest charges for low and medium income borrowers.
The new scheme will apply to housing loan interest due and payable on and after 1 July 1974. Its basic features have already been outlined on a number of occasions and are explained in detail in the memorandum I am circulating on these and other provisions of the Bill.
The Bill also gives effect to an announcement I made last March that the Income Tax Law would be amended to exempt from tax interest derived by a credit union from loans to its members. Credit unions will continue to be taxed on income other than interest on loans to members, e.g., from rents and "outside" investment of funds not immediately required for their normal lending operations.
A further amendment in the concessional deduction area to be made by the Bill will reduce the maximum deductions for education and self-education expenses from $400 to $150. I do not have to stress the substantially increased direct expenditures that the Government is making on education.
I refer now to an amendment proposed as part of the budget which affects life assurance companies.
A life assurance company is allowed a deduction based on a proportion of "calculated liabilities". This deduction, which is in the nature of a concession, in effect, frees from tax a basic 2 per cent return on policy holders' funds, and this ultimately goes to policy holders in tax free form. If a company's holdings of public securities rise above or fall below the 30/20 investment ratio the deduction is varied upwards or downwards.
The basic allowable proportion of calculated liabilities was reduced from 3 per cent to 2 per cent in the 1973-74 Budget, and will be reduced to 1 per cent by this amendment as a further step towards ensuring that life assurance transactions, viewed as a whole, bear a fairer share of overall taxation.
New provisions are to be inserted by the Bill to reduce the difficulties I mentioned in the Budget Speech regarding taxation of the value of certain fringe benefits. Following a concept applied in Canada, one of the new provisions will, in effect, place on a fringe benefit provided by way of private use of a motor vehicle a minimum annual value equal to 12 per cent of the first $6,000 and 24 per cent of the balance of the original cost of the vehicle. Another new provision will require the value of benefits received under a stock option or share purchase scheme to be measured at the time of the exercise of the option or on the transfer of the shares rather than, as at present, when the rights are acquired. The third of the new provisions will disallow deductions for fees paid for membership of a sporting or social club. This provision will also disallow deductions for expenditure relating to leisure facilities such as boats, ski lodges, holiday cottages unless a genuine and substantial business need for the facility is established.
The Bill also proposes some technical amendments concerned with the allowance in tax assessments of our residents of a credit for Papua New Guinea tax on income derived there. The amendments, which I foreshadowed in an announcement I made last year, are consequential upon the introduction of a dividend withholding tax by Papua New Guinea in August 1972 and will ensure that appropriate credit is allowed for that tax.
Minor amendments are proposed to the relief provisions of the Income Tax Law. One will increase from $100 to $200 the amount in respect of which applications for relief can be dealt with by the Commissioner of Taxation. The other will empower the relief board to determine, without prior reference to a member of a board of review or the chairman of a land valuation board, applications for relief where the liability is $2,000 or less, instead of $1,000 or less as at present.
Several important amendments to the special provisions of the Income Tax Law relating to capital expenditures of mining enterprises are contained in the Bill. As I indicated in my Budget Speech, these provisions have resulted in many highly profitable companies paying relatively little tax over an extended period.
The Bill will withdraw - for 1974-75 and subsequent years - the 20 per cent tax exemption on income from the production of certain minerals, including copper, bauxite, nickel and beach sands.
Deductions will not in future be allowable for capital expenditure incurred on company formation and capital raising. Capital expenditure on the development of a mine or oil field, on the provision of community facilities adjacent to a mine or field, or on the purchase of mining rights or information will be deductible henceforth over the estimated life of the mine or field. Where the estimated life is longer than 25 years the allowance will be one twenty-fifth of the undeducted capital expenditure. Capital expenditure on facilities for the transport of minerals will be deductible for income tax purposes over 20 years instead of 10 years. However, in relation to any of those expenditures to be made by 30 June 1976 under contracts for the supply of goods or services already entered into, deductions will continue to be allowable under the present provisions of the law.
Exploration expenditure incurred by general mining companies in 1974-75 and subsequent income years will be allowable as immediate deductions up to the level of income derived in any year from general mining and associated activities in the same way as petroleum prospecting and mining companies are allowed immediate deductions against income from petroleum for similar expenses. Prospecting and other activities carried out by general mining companies on the Continental Shelf will be regarded as having been carried out in Australia, consistent with the taxation treatment of petroleum operations carried on at off-shore locations.
As I mentioned earlier I am circulating a comprehensive explanatory memorandum on the Bill to Honourable Members.
I commend the Bill to the House.