House of Representatives

Income Tax Assessment Amendment Bill (No. 5) 1980

Income Tax Assessment Amendment Act (No. 5) 1980

Second Reading Speech

by the Minister assisting the Treasurer, the Hon. Ian Macphee, M.P.

The major purpose of this Bill is to give effect to the proposal announced in the Budget Speech to provide some relief from Australian tax in respect of certain income which Australian residents earn from their personal services rendered overseas.

Other proposals included in the Bill are the removal of the termination date for deductibility of gifts in accordance with the taxation incentives for the arts scheme and the extension of the scheme to cover gifts to Artbank. There are to be increases in the monetary limits that govern the way in which applications for relief from payment of income tax in cases of hardship are handled. Yet another feature is an amendment to make it clear that it is mandatory for the Commissioner of Taxation to allow credit to an employee for tax instalment deductions where the employer has failed to issue a group certificate or a tax stamps sheet.

Taxation Relief for Australians Working Overseas on Approved Projects

The purpose of this initiative by the Government is to enhance the ability of Australian consultants and contractors to obtain a greater share of the growing market overseas for consultancy and contracting services.

Until now, Australian firms have had to cost their tenders for overseas projects on the basis that the earnings of Australians performing services for them were subject to tax in Australia at normal rates if the overseas country did not tax them. Competitor firms from a number of other countries have, on the other hand, been able to cost their tenders on the basis that they will be able to pay their employees at lower rates because the employees' earnings have been wholly or partly free of tax in their home country.

The tax exemption proposed in this Bill will allow Australian firms to reduce their costs while maintaining the after-tax value of remuneration paid to persons working on overseas projects.

Total or partial exemption will be available to Australian resident individuals performing personal services overseas for a continuous period of three months or more on an overseas development, construction, or other eligible project that has been approved by the Minister for Trade and Resources on the basis that it is in Australia's national interest.

One of the conditions for exemption is that the services be performed for an Australian resident, the Commonwealth, a State or Territory or for the government of the country where the project is located. Services under contract with certain international organizations such as the World Bank may also qualify.

Full exemption of remuneration derived by a person from qualifying services will be available where those services are performed on a single approved project for a continuous period of 12 months or more.

Where the services are performed on a project for a continuous period of between 3 and 12 months, an exemption of a minimum of 25 per cent of the foreign source income, increasing on a time basis to a 100 per cent exemption for an assignment of 12 months, will be available.

The exemption will apply to tax-free remuneration derived by a person that is directly attributable to the performance by the person of personal services abroad on an approved project, and payments for recreation leave entitlements which accrue during the time spent on the project. The exemption from Australian tax will not be available, however, where the income is exempt from tax in the other country solely because of provisions of a double taxation agreement aimed at avoiding double taxation.

Safeguards have been included in the Bill to counter possible attempts to obtain a greater exemption than was intended, for example, by inflating the income that is paid for services rendered overseas on an approved project.

The Bill contains rules which will permit people serving on approved overseas projects to return to Australia for limited periods - not exceeding one-sixth of the time spent overseas on the project - without affecting their entitlement to exemption of foreign remuneration earned overseas on the approved project.

It also contains rules covering travel between Australia and the site, time off for sickness, and cases of hardship where due to unforeseen circumstances a person is forced to return to Australia before the completion of his or her assignment to an overseas project. Cases where the original person is replaced by another person are also covered. In these latter circumstances, the proportion of income exempted will not be reduced because the time actually spent on the project by a person is less than the time planned to be spent.

This measure will have effect in relation to approved projects which commence after Budget Day, 19 August 1980.

Taxation Incentives for the Arts

The Bill will also give effect to the Government's decision, announced by the Minister for Home Affairs on 8 August 1980, to continue the taxation incentives for the arts scheme beyond its present termination date of 31 December 1980 and to bring the Commonwealth's new art rental scheme, Artbank, within the ambit of the incentives scheme.

The taxation incentives for the arts scheme has applied since 1 January 1978 on a three year trial basis. Under the scheme, gifts of property made for inclusion in the collections of the Australiana Fund, a public library, public museum or public art gallery qualify for deduction at their current market value regardless of the amount paid by the donor for the property or the length of time the donor has held the property. This contrasts with the general position under the income tax law which restricts deductions to gifts made within twelve months of their purchase by the donor, and to the amount paid by the donor for the gifted property.

Some $2.7M worth of items have been donated under the incentives scheme and the amendments proposed by this Bill will continue it indefinitely. Further amendments will mean that gifts of property made on or after 1 July 1979 to the Artbank collection will also qualify for deduction under the incentives scheme.

Release From Tax in Cases of Hardship

Some amendments to provisions of the income tax law under which, in cases of hardship, taxpayers may be released from liability to pay tax are proposed by the Bill. The power of release is conferred on a Relief Board, but where the amount of tax is $2,000 or more the case must first be referred to a Taxation Board of Review for examination and report. Where the amount of tax does not exceed $200 the Commissioner of Taxation is empowered to exercise the powers of the Relief Board.

Changes in money values since these amounts were set have had the result that many cases of a kind that were previously dealt with expeditiously and economically by the Commissioner of Taxation now have to be dealt with by the Relief Board. An increasing number of clear-cut cases now have to be referred to a Board of Review for examination and report before being determined by the Relief Board. This all leads to delays and adds to administrative costs.

It is proposed, therefore, to raise from $2,000 to $10,000 the level below which the Relief Board may, without prior reference to a Board of Review, determine applications for relief from income tax. Correspondingly, the Bill will increase from $200 to $500 the amount up to which applications for relief may be dealt with by the Commissioner of Taxation.

Credits for Tax Instalment Deductions

Honourable members may recall that when the then Minister for Business and Consumer Affairs announced in this House on 13 September last the Government's decisions about the priority of Crown debts in cases of company insolvencies, he spoke about the special position of unremitted tax instalment deductions. Associated with that is the question of whether the employees concerned will be given credit in their assessment for tax instalment deductions made from their pay where the employer has failed to issue a group certificate or tax stamps sheet.

As foreshadowed by the Minister, the present Bill confirms the practice of the Commissioner of Taxation by making it clear that it is mandatory for credit to be given.

Finally, the Bill will also correct some minor drafting defects contained in the recently enacted Income Tax Assessment Amendment Act (No. 2) 1980. Details of these and of the major features of the Bill I have outlined are contained in an explanatory memorandum that is being circulated to Honourable Members.

I commend the Bill to the House.