Second Reading SpeechBy the Treasurer, the Hon. John Howard, M.P.
The purpose of this and two associated Bills I shall introduce shortly is to give effect to all but two of the income tax proposals announced in my Budget Speech earlier this evening.
One of the proposals for which legislation has yet to be drafted will provide some relief from Australian tax on income earned by Australian residents from a foreign source by providing services overseas, where the income is not taxed in the country of source.
This matter is explained in Statement No. 4 attached to the Budget Speech and the necessary legislation will be brought forward at an early date.
The other proposal not included in the Bill is the provision of deductions for gifts to voluntary overseas aid organisations. As I said in the Budget Speech, the organisations that are to qualify for this concession will be determined by me after consultation with the Minister for Foreign Affairs. When that has been done, a further announcement will be made about this proposal.
A very significant budget proposal dealt with in the Bill concerns superannuation arrangements for people who are self-employed or employees and do not participate in superannuation benefits funded by an employer. As I said in the Budget Speech, I believe that the new deduction of up to $1,200 per annum is a significant incentive to encourage people who do not have the support of an independently funded superannuation scheme to make better provision for their retirement.
The measure will also provide such people with a taxation benefit that is broadly comparable with that enjoyed where an employer contributes to a superannuation scheme for employees. Such contributions are, of course, deductible in determining an employer's taxable income.
The major feature of the new arrangements is a special deduction of up to $1,200 a year for amounts contributed to superannuation funds which qualify under section 23(ja) or section 79 of the Income Tax Assessment Act. These are the type of funds to which self-employed people and employees not covered by an employer-sponsored scheme at present contribute. They are in fact designed for such people.
A section 23(ja) fund is one that has at least 20 members and provides benefits for self-employed persons. The income from such a fund is exempt from income tax where relevant terms and conditions of the fund have been approved by the Commissioner of Taxation.
A section 79 fund is a superannuation fund that provides benefits for either self-employed people or employees. Such a fund is entitled to a special tax deduction equal to 5 per cent of the cost of specified assets provided its terms and conditions are approved by the Commissioner on the basis of rules set out in the section.
Contributions made after today to a fund in either category will qualify for the new deduction but - reflecting its concessional nature - the deduction will not be capable of giving rise to a loss that may be carried forward for deduction in a later year.
Contributions in excess of the deduction of $1,200 per annum will continue to be treated as rebatable expenditure, up to the existing limit of $1,200 for life insurance premiums and superannuation contributions, in the same way that contributions by employees to an employer-sponsored fund are rebatable.
As part of the new arrangements it is also proposed that 5 per cent of lump sums received after today from a section 23(ja) fund or a section 79 fund will be treated as assessable income, but only to the extent that the amounts are attributable to contributions made after today and earnings derived from such contributions.
This will, of course, accord with the treatment under the present law of lump sums received on retirement by employees from employer-sponsored funds.
The 5 per cent basis will apply only where a person receives a lump sum in accordance with the terms and conditions applicable to the fund at the time of payment, and only where the recipient has been allowed a deduction under the new legislation.
Associated with this, and as a safeguard against exploitation of the new rules to obtain unintended tax benefits, it is proposed by another provision that, where a person receives or obtains a benefit from a section 23(ja) or section 79 fund after today, and the benefit is received otherwise than in accordance with the approved terms and conditions of the fund, the full amount of the benefit will be treated as assessable income.
Another budget proposal implemented in the Bill is the 20 per cent loading to existing depreciation rates applying to plant and equipment used in the production of assessable income.
As I mentioned in the Budget Speech the Government has in recent years received representations to the effect that the present depreciation provisions do not recognise the rapid technological changes that are occurring in many industries.
Because these changes vary as between industries and because they may in many cases be unpredictable, the Government has decided that the most appropriate way to give recognition to the problem is to provide a general 20 per cent loading on existing plant depreciation rates. It believes that this will encourage businesses to keep their plant and equipment up to dat.t
The 20 per cent loading will apply in respect of both new and secondhand plant ordered after today, with the exception of motor vehicles of the type now excluded from the investment allowance and plant for which special statutory rates are already available.
In the latter category are certain employees' amenities and scientific research plant that qualify for a prime cost rate of 33 1/3 per cent. Another example is structural improvements for on-farm storage of grain, hay and fodder. These already qualify for a special statutory rate of 20 per cent per annum.
The Bill provides that primary producers are to be allowed an immediate deduction for expenditure on stockyards and subdivisional fencing where the Secretary to the Department of Primary Industry certifies that it is desirable for these facilities to be constructed so as to assist in the control or eradication of brucellosis or tuberculosis in cattle. It is hoped that this incentive will give further encouragement to steps designed to stamp out these diseases.
Certificates by the Secretary to the Department of Primary Industry are to be given in relation to particular properties and may be revoked once the Secretary is no longer satisfied that construction of stockyards and fences is necessary for the purpose.
This deduction will apply until the end of the 1983-84 year.
The Bill also provides a further measure of benefit to primary producers confronted with problems of disease in live stock.
Under the existing law, a primary producer may elect to have any profit derived on a forced sale of live stock due to fire, drought or flood excluded from assessable income of the year in which it is derived, and applied instead to reduce the cost for income tax purposes of replacement stock acquired during that year or any of the five succeeding years. The Bill proposes to extend these provisions so that they will cover cases in which stock die or have to be destroyed because of a disease, the existence of which makes the stock subject to compulsory destruction.
This amendment will apply in respect of stock that die or are destroyed on or after 1 July 1980.
The Bill contains amendments to give effect to the statement in the Budget Speech that deductions are to be allowed for gifts made after tonight to institutions certified by the Minister for Education as Technical and Further Education Institutions within the meaning of the Tertiary Education Commission Act 1977, or to the Marcus Oldham Farm Management College. Deductions will be limited to gifts made for certified purposes of, or the provision of certified facilities for, the bodies concerned. Certified purposes and certified facilities are those that relate to education at the tertiary level.
The Bill also authorises a deduction for gifts to a prescribed commonwealth institution as defined in the Tertiary Education Commission Act 1977 and to a residential educational institution affiliated with such a prescribed institution. At present, the only prescribed commonwealth institution is the Australian Maritime College.
The opportunity is being taken to remove from the gift provisions the now unnecessary requirement that gifts to Colleges of Advanced Education are deductible only if made for certified purposes or facilities i.e., in practice, for purposes of tertiary education. The position is that all facilities and purposes of these colleges are now related to tertiary education and it is thus convenient to delete the certification procedures.
Provisional tax is the part of the Pay-As-You-Earn system designed to collect tax on income other than salary or wages within the year in which it is derived. Provisional tax arrangements seek to achieve reasonable consistency between the treatment of salary and wage earners and people whose income is from a business or from property.
In the absence of provisions to the contrary, 1980-81 provisional tax would be calculated by applying 1979-80 rates of tax to 1979-80 taxable income, and taking into account rebates at their 1979-80 levels. However, incomes for 1980-81 will generally be higher than for 1979-80 and, on the other hand, 1980-81 rates of tax are lower than 1979-80 rates. Moreover, dependant rebates for 1980-81 are higher than those for 1979-80.
In these circumstances, it is appropriate that a varied basis be applied for calculating provisional tax payments for 1980-81 where taxpayers do not exercise their right to have provisional tax for the year calculated on the basis of their estimate of taxable income for 1980-81. In essence, the Bill provides that provisional tax for 1980-81 will be calculated on the basis of taxable income for 1979-80 as increased by 7.5 per cent and applying to that adjusted income the lower rate scale applicable for 1980-81. Dependant rebates will be allowed in provisional tax calculations at the higher values set for 1980-81.
The notional increase of 7.5 per cent is a conservative estimate of the average rise between the two years in taxable incomes of people subject to provisional tax. Taxpayers who consider that their taxable income for 1980-81 will not increase by that much will, of course, have the option of "self-assessing" and having their provisional tax for 1980-81 recalculated on the basis of their estimate of their income for that year.
A memorandum has been prepared to explain the detailed provisions of the Bill, and is being circulated to Honourable Members.
I commend the Bill to the House.