House of Representatives

Income Tax Assessment Amendment Bill (No. 2) 1979

Income Tax Assessment Amendment Act (No. 2) 1979

Second Reading Speech

By The Treasurer, The Hon. John Howard, M.P.

This Bill, together with another that I shall introduce shortly, contains provisions to implement the proposal that the Minister for Aboriginal Affairs and I announced on 20 July last to the effect that certain revenues derived by aboriginal communities and groups from the use of aboriginal land for exploration and mining purposes be taxed by means of a withholding tax system.

There is a clear need for certainty and simplicity in the rules governing tax on payments flowing to aboriginals from mining operations. It is important for representative bodies, such as the Aboriginal Land Councils which, on behalf of aboriginal communities, are authorised to negotiate terms and conditions on which mining may take place, to have a ready means of assessing the after-tax benefits of payments to the communities.

Under the present income tax law this would not be an easy task. Much of the mineral royalties and other payments that aboriginal communities can expect to receive as a result of agreements for mining projects in the Northern Territory and elsewhere in Australia will be received in the first instance by various aboriginal bodies having representative and administrative roles. Those bodies will form a conduit through which mining payments will pass to the benefit of aboriginal communities.

Because of the unusual nature of this structure and other related factors, application of the present law would present difficulties. It would mean that, in practice, the after-tax value of payments received for the use of aboriginal land for mining purposes would not with any assurance be determined in advance by those negotiating on behalf of the aboriginals. Perhaps more importantly, there could also be some quite inappropriate taxation effects. The new withholding tax will overcome these problems and will have a simple operation.

Broadly speaking, the tax - which will be a final tax not subject to later processes of assessment - will be collected by deduction at the earliest point at which revenues from mining activities are paid to representative distributing bodies, such as the aboriginal Land Councils, or to aboriginal persons or groups. Once a mining payment has borne withholding tax at the source in this way, subsequent distributions or applications of the after-tax proceeds - other than by way of remuneration for services rendered - will not be subject to any further income tax in the hands of the aboriginal beneficiaries or of any interposed aboriginal body. Specific tax exemption provisions in the Bill will ensure this.

Withholding tax is to be set at a flat rate of 6.4 per cent of the gross payments to which it will apply. This rate, which will be formally declared by the Second Bill, is a convenient way of giving expression to the Government's decision that a tax of 32 per cent be applied to one-fifth of the gross payments.

I stress that the rate was arrived at after most careful consideration. It takes into account that substantial amounts attributable to payments from mining operations can be expected to be expended on the provision of facilities and services for aboriginal communities and for the benefit of people whose income level is low. On balance, the Government believes that a rate calculated in this way is a reasonable revenue contribution out of mining payments of this kind.

The formal provisions contained in the Bill for calculation and collection of the withholding tax follow closely the form of the existing dividend and interest withholding taxes. While the formal legislative structure of the tax is to impose liability for the withholding tax in the first instance on the aboriginals or bodies who receive the payments, the recipients are not actually called on to make tax payments. Under the withholding tax collection provisions, mining companies, governments and others who make the payments will carry this responsibilit.h They will be required to deduct withholding tax and forward the deductions to the Taxation Office in the normal way in satisfaction of the tax liabilities of the recipients.

As announced in the statement of 20 July 1978, the withholding tax system is to apply to payments made on or after 1 July 1979.

Opportunity is also being taken in this Bill to make two purely technical amendments to replace redundant references to departments that have been abolished. Being substituted are references to the departments that, under current administrative arrangements, have assumed functions of the abolished departments.

Detailed explanations of the various provisions of the Bill are contained in a memorandum that is being circulated.

I commend the Bill to the House.