House of Representatives

Income Tax Assessment Amendment Bill 1980

Income Tax Assessment Amendment Act 1980

Second Reading Speech

by the Treasurer, the Hon. John Howard, M.P.

The major purpose of this Bill is to give effect to the 1979-80 Budget decision to extend the present scheme of tax rebates for share capital subscribed for petroleum exploration and development off-shore so that it will apply also in respect of capital subscribed for such activities on-shore.

Also included in the Bill are provisions to provide tax deductions for expenses incurred in contesting an election for the Legislative Assembly of the Northern Territory. Other parts of the Bill will amend the gift provisions and correct deficiencies relating to tax on royalties derived from Australia by residents of other countries.

With a view to providing greater encouragement to the search for petroleum resources throughout Australia, in my 1979-80 Budget speech I announced the Government's decision to extend the present off-shore rebate scheme to cover petroleum exploration and development both off-shore and on-shore.

By this Bill it is proposed that the rebate will be available to shareholders who - after 21 August 1979 - subscribe share capital to a company holding an approved interest in an off-shore or on-shore licence or permit to explore for petroleum. As is the case under the existing provisions, the availability of the rebate will depend on the company lodging a declaration with the Commissioner of Taxation that the capital subscribed will be spent on petroleum exploration or development.

The extended scheme is not different in principle from the present more restricted one. There are, however, two matters which should be noted. One of these is that the period within which capital subscribed after 21 August 1979 is required to be spent by a petroleum company to qualify for the rebate has been extended from 2 years to 4 years following the income year in which the moneys were received.

The other matter of note is that the extended scheme is to be subject to the additional safeguards against unintended exploitation that were announced by the Acting Treasurer on 2 October 1979 and which are designed to counter "rebate stripping" arrangements. Shortly stated, the safeguards will - to the extent that the existing law does not already do so - ensure that rebates are not allowed for capital subscribed for shares that are sold within 12 months of their acquisition.

Capital subscribed to petroleum companies on or before 21 August 1979 will continue to qualify for rebate under the provisions of the present law.

As mentioned earlier, the Bill will also give effect ot the Government's decision to allow income tax deductions for expenditure incurred in contesting an election for membership of the Legislative Assembly of the Northern Territory.

Deductions are, of course, already available for similar expenditures incurred by candidates for election to the Commonwealth and State Parliaments. This amendment is to apply in respect of 1979-80 and subsequent years of income.

One of the amendments to the gift provisions will give effect to the Government's decision to grant tax deductions for donations of $2 or more to the Child Accident Prevention Foundation. I announced this decision on 26 February 1980.

The other amendment to the gift provisions will extend the period in which the subject of a gift is required to be valued for the purposes of the taxation incentives for the Arts Scheme. Honourable members will recall that under this scheme a taxpayer may be eligible for a deduction of an amount equal to the market value of property donated to a public library, art gallery or museum or to the Australiana Fund. A claim for such a deduction must be supported by valuations from approved valuers. At present the period allowed for these valuations extends over 60 days but this has been found inappropriate in many cases and, to facilitate the operation of the scheme, it is proposed to increase the time allowed for the valuations to 180 days.

Turning now to the taxation of royalties derived from Australia by non-residents, it is proposed by the Bill to amend the way in which the term "royalty" is defined for this purpose. A decision of the Supreme Court of Victoria has revealed two technical deficiencies in the present definition.

The first of the deficiencies found by the Court is that, while the present definition applies to "payments" for the right to use patents, trade-marks, know-how, etc., it is not wide enough to cover amounts for such rights that, instead of being paid over, are merely credited. The proposed amendments will ensure that royalties credited are treated in the same way as amounts actually a

The other deficiency indicated by the Court's decision is that the definition does not, as it was intended it should, encompass all considerations given for what is in substance the grant of an exclusive right to use industrial property. If, instead of agreeing in the normal way to a formal grant of the exclusive right, the parties agreed that the owner would receive a consideration for not granting the rights to anyone else, then the amount of the consideration may not fall within the present definition. To guard against exploitation of this potential avenue of tax avoidance, the Bill proposes that a consideration paid for a forbearance by the owner to grant rights to use property be expressly included in the definition of royalty.

Both of the amendments relating to royalties will apply to amounts derived by overseas residents after today.

Technical explanations of the various measures contained in the Bill are provided in an explanatory memorandum that is being circulated to honourable members and I do not think that I need say more at this stage.

I commend the Bill to the House.