House of Representatives

Income Tax Assessment Amendment Bill (No. 2) 1977

Income Tax Assessment Amendment Act (No. 2) 1977

Second Reading Speech

by the Treasurer, the Rt. Hon. Phillip Lynch, M.P.

This Bill deals with a number of matters associated with the new standard rate system of personal income tax, with the budget proposal to increase the Australian tax on film royalties being paid overseas and with two of the measures announced in the general statement dealing with the North-West Shelf Natural Gas Project.

It also provides for a start to be made on our programme to counter tax avoidance schemes and arrangements.

Mr Speaker, under the pre-budget system introduced by our predecessors the practical situation, despite appearances to the contrary, was that taxpayers did not really get any rebate for certain expenditures - superannuation, municipal rates, education expenses and the like - unless their total expenditure exceeded $1,690.

The rebate, at the rate of 40 per cent, applied effectively only to the excess over $1,690.

I say, effectively, because the general concessional rebate of $676, which was allowed to taxpayers whether or not they spent anything, was so structured as, in a practical sense, to absorb the first $1,690 of rebatable expenditure.

Under the new personal tax system, we are replacing the general rebate by the more generous zero rate on the first $3,750 of taxable income.

But in doing that, the Government is, by this Bill, reducing by $100, to $1,590, the amount of rebatable expenditure that a taxpayer must incur before being eligible for rebate.

Consonant with the system of a standard tax rate of 32 per cent the rebate rate on expenditure in excess of $1,590 will be 32 per cent.

These changes have effect for the whole of 1977-78 and for subsequent years the $1,590 ceiling will not be subject to indexation.

Replacement of the general rebate by the zero rate necessitates technical adjustments in relation to superannuation contributions in excess of the $1,200 limit set by the law for rebate purposes.

At present, contributions in excess of $1,200 may be carried forward so as to reduce the taxable part of a superannuation pension when the person concerned retires and commences to draw it.

The Bill will ensure that this right of carry forward is retained.

In introducing the legislation to declare rates of personal tax I referred to our new arrangements for averaging for primary producers.

This Bill contains ancillary provisions.

These will give primary producers who have withdrawn from the averaging system the right, if they so wish, to return to the system for the current year, 1977-78.

Because the new averaging arrangements applicable under the new personal tax system will, for 1978-79 and subsequent years, always be of benefit to primary producers, the Bill also provides that all primary producers, including those who have elected to withdraw from the averaging system, will automatically have averaging applied for those years when it is to their advantage for that to be done.

Another provision of the Bill deals with the health insurance levy.

For 1977-78 and subsequent income years it is proposed to free trustees of deceased estates from the levy in respect of income to which no beneficiary is presently entitled.

The Government recently announced its decision to give taxation concessions which would be of benefit to the North-West Shelf Natural Gas Project.

The main feature is to be a rebate for shareholders in respect of capital that they subscribe to companies holding valid licences or permits under the Petroleum (Submerged Lands) Act and that is employed by those companies in off-shore petroleum exploration or development.

The extensive and complicated legislation for this rebate is in course of preparation, and will be introduced as soon as practicable.

We will also be introducing at an early date legislation to reinstate the exemption under section 23(p) of the Assessment Act for income from the sale of mining rights.

The Bill does, however, contain two of the concessions I referred to a moment ago, one of which will also have beneficial effects outside the mining industry.

This general concession extends by two years, from 30 June 1983 to 30 June 1985, the date by which plant must be ordered or construction commenced to qualify for the 20 per cent phase of the investment allowance.

The other measure includes within the range of allowable capital expenditures of a petroleum mining company the cost of a liquefaction plant for use in processing natural gas.

This measure will be of particular assistance to the North-West Shelf Project and reflects the desire of the Government to get important resource projects off the ground.

Film and video tape royalties paid abroad after Budget Day are the subject of another part of the Bill.

I announced in the Budget Speech that, in broad terms, the Government proposed to increase the Australian tax on such royalties from 4.6 per cent to 10 per cent.

The Government came to the conclusion in its Budget deliberations, and has on subsequent review confirmed, that Australia collects an unreasonably low tax on such payments.

The tax of 10 per cent, which we think to be appropriate, will be formally declared in another Bill, to be introduced shortly, according to basic conditions of liability set out in this Bill.

Other parts of the Bill deal with measures to counter tax avoidance, some of which are closely connected with the fundamental changes in the personal tax system that we are proposing.

One measure will give effect to the decision announced on 29 June 1977 to legislate against arrangements by which some private companies have been able to acquire technical public company status for income tax purposes by giving formal control of the companies on the last day of the year of income to a public hospital or other public body.

The amendment will not, however, affect the public status of any company in which a controlling interest is genuinely and effectively held by a public body.

I referred in my Budget Speech to the Government's firm resolve to crack down on tax avoidance schemes and arrangements.

Since Budget Day, Ministers have looked at a number of schemes and arrangements at present in operation and have taken decisions to introduce remedial legislation.

That legislation is in course of preparation and will be introduced at the earliest opportunity.

Our decisions in one area - trusts - are connected closely with Budget measures and they are thus contained in the legislation now being introduced.

When in 1964 the Government of the day brought in extensive anti-avoidance legislation, it introduced a special rate of tax, 50 per cent, on some trust income to which no beneficiary is presently entitled.

Under section 99A of the Income Tax Assessment Act, that tax applies where the trust is clearly for tax avoidance purposes and, under the 1964 legislation, deceased estates were excluded from it.

Unfortunately, that exclusion has given rise to tax avoidance by most unpleasant means.

Some family groups, few in number I am pleased to say, have arranged for unrelated aged people who are expected not to live for any length of time, and who have little in the way of assets of their own, to set up multiple "shell" trusts under a will for the benefit of members of the sponsor family.

On the death of the aged person, the family channels income into these trusts which, because they qualify as deceased estates, are outside the scope of the special rate of tax under section 99A.

Effective for the 1977-78 and subsequent years such trusts will be dealt with by bringing deceased estates within the scope of section 99A.

However, I emphasize that deceased estates of the ordinary and traditional kind will continue to be assessed by the Commissioner of Taxation under section 99 of the Income Tax Assessment Act.

I mentioned in my earlier speech that the rate of tax under section 99A is, in future, to be the maximum rate of personal tax, 60 per cent.

We have also decided to withdraw the advantage of one-year's deferral of tax that, through their exemption from liability to provisional tax, is now available to section 99A trusts.

For the 1978-79 and subsequent years trustees of these trusts will be liable to pay provisional tax.

Again, details of all the measures in this Bill are contained in the explanatory memorandum that is being circulated.

I commend the Bill to the House.