Second Reading Speech
by the Treasurer, the Hon. John Howard, M.P.This Bill to amend the Income Tax Law covers a range of subjects.
It contains amendments to effect income tax exemptions for certain foreign pensions payable in consequence of persecution during the Second World War.
The proposal announced on 23 July 1982 to exempt profits from the sale or redemption of discounted securities acquired on or before 30 June 1982 is also being given statutory expression.
Exemption is being provided for income derived by the Phosphate Mining Company of Christmas Island Limited.
Some extensions of the Gift Provisions, foreshadowed in recent announcements, are being made.
Amendments foreshadowed on 9 February 1982 to deal with further tax avoidance arrangements of the "expenditure recoupment" type are included.
Other provisions of the Bill will clarify the operation of anti-avoidance provisions enacted in 1978 to deal with schemes which circumvent the sufficient distribution requirements for private companies.
Finally, a minor amendment to the secrecy provisions of the Income Tax Law concerning the supply of information to the Australian Statistician is also being made.
I turn now to the details of these measures.
Foreign Pensions Related to War-time persecution
On 3 March 1982, I announced the Government's intention to extend an existing exemption of pensions paid from the Federal Republic of Germany to Australian residents in compensation for Nazi persecution.
The Bill will extend the exemption so that it applies to payments of pensions from the Federal Republic where the entitlement arises wholly or partly because periods of Nazi persecution, or flight from such persecution, have been treated as periods during which the recipient contributed to the Republic's Pension Scheme.
Had such contributions actually been made there would have been relief from Australian tax under other provisions of our law.
As also announced on 3 March, the extended exemption will also specifically cover pensions from the Netherlands paid s compensation in respect of Second World War persecution by, or disablement from resistance to, enemy forces occupying the Netherlands or the former Dutch East Indies.
There is, however, a need to give the concepts underlying the extended exemption a general application.
For this reason, the Bill provides that the exemption will apply to other foreign pensions received by residents of Australia, which are found to relate to, or take into account, Second World War persecution or disability arising from participation in a resistance movement.
The exemption will apply to payments made to the person who suffered or to his or her dependants.
The Bill provides that payments derived on or after the date of the foreshadowing announcement - 3 March 1982 - will be within the scope of the extended exemption.
Sale or redemption of discounted securities
Earlier this year, the Commissioner of Taxation publicly affirmed the view that profits arising from the sale or redemption at par of securities issued or acquired at a discount are assessable income.
It is accepted by the Government, however, that a significant number of small investors had purchased discounted securities in the bona fide belief that the profit on sale or redemption would not be assessable.
Indeed, the Tap Stock Prospectus of May this year, which contains no indication that the discount component of the amount receivable on redemption of the stock is assessable income, may have contributed to this belief.
Accordingly, it is proposed by this Bill to amend the Income Tax Law to exempt from tax profits made on redemption or sale of any securities acquired at a discount on or before 30 June 1982, other than profits made by traders or dealers and profits to which section 26AAA, section 26C or paragraph 26(a) of the Income Tax Assessment Act applies.
The exemption will not affect the tax treatment of profits on the sale or redemption of securities purchased after 30 June 198.d
Phosphate Mining Company of Christmas Island Limited
As part of new arrangements for the mining of Christmas Island phosphate, the Phosphate Mining Company of Christmas Island Limited - an Australian Government owned and controlled company - was incorporated on 25 June 1981 to replace the British Phosphate Commissioners as managing agents for the Christmas Island Phosphate Commission.
Honourable members will recall that amendments incorporated in the Christmas Island Agreement Amendment Act 1981 made this replacement possible.
The new company has been acting as managing agents since July 1981.
That was an initial step pending the winding-up of the Christmas Island Phosphate Commission.
The next step under the proposed arrangements is to obtain the Parliament's approval of a new Christmas Island agreement between Australia and New Zealand which, together with an exchange of notes between the two Governments, will enable the Phosphate Commission to be wound-up and the company to assume responsibility for the mining operation.
Introduction of the necessary Christmas Island Agreement Amendment Bill is proposed for the current sittings of the Parliament.
Income of the Christmas Island Phosphate Commission is exempt from income tax under the Christmas Island Agreement Act 1958.
The amendment proposed in the present Bill will provide a corresponding exemption from income tax for the Phosphate Mining Company of Christmas Island Limited.
The exemption will apply to income derived by the company on or after a date to be notified in the Gazette.
The date intended to be notified is that on which the company replaces the Christmas Island Phosphate Commission as the Island's Mining Operator.
Until then, of course, the income from the operations will remain that of the Commission and will continue to be exempt under existing provisions.
The Gift Provisions of the Income Tax Law allow deductions fr gifts of the value of $2 or more to specified funds, authorities or institutions.
Details of each of the proposed extensions of this concession have been the subject of previous statements and I need mention them only briefly now.
One extension will authorise deductions for Gifts made after 31 May 1982 to the Connellan Airways Trust.
Another will authorise deductions for Gifts made after 30 June 1982 to the Queensland Cultural Centre Trust.
Further changes will authorise deductions for Gifts made in the 1981-82 financial year to Polish Relief Appeals and to Relief Appeals established in response to the cyclone disaster in Tonga.
Finally, there are provisions which will authorise deductions for Gifts made during the 1981-82 and 1982-83 financial years to appeals established for the provision of relief to Falkland Islanders, British servicemen or the families of islanders or servicement affected by the Falkland Islands dispute.
Expenditure recoupment schemes
Anti-avoidance provisions of the Income Tax Law apply to a wide range of losses and outgoings with effect from 24 September 1978.
Put broadly, the legislation denies a deduction for a designated loss or outgoing that is incurred under an arrangement whereby the taxpayer or an associate obtains a benefit the value of which, taken with the sought-for tax saving, effectively recoups the claimed loss or outgoing.
Variants of recoupment schemes with which this Bill deals are ones that attempted to exploit the Income Tax rebates and deductions for calls paid on shares in afforestation companies and the rebate for moneys paid on shares in petroleum exploration companies.
The amendments proposed by the Bill will extend the expenditure recoupment provisions so that no rebate or deduction will be allowed in these further categories of schemes.
The amendments are to apply with respect to expenditure incurred after 24 September 1978 under tax avoidance schemes entered inod after that date.
The decision to do this follows the clear warning given on that day and repeated on several subsequent occasions.
Although I think it is now generally recognised that the Government's unrelenting campaign against blatant forms of tax avoidance, culminating in the enactment of the general anti-avoidance provisions of Part IVA, has put paid to such activities, the obligation to the general body of taxpayers to prevent the success of any expenditure recoupment type of tax avoidance scheme entered into after 24 September 1978 must, however, be recognized and assumed.
I point out that any schemes which seek deductions for calls paid on shares in an afforestation company and which are entered into after 27 May 1981 will not be subject to the proposed amendments.
Such schemes would be struck down by the general anti-avoidance provisions of Part IVA which took effect on 28 May 1981.
The provisions I now introduce will also ensure that there can be no remaining incentive for proliferation of rebate schemes that are outside the scope of Part IVA.
As foreshadowed in my statement of 9 February 1982, any rebate scheme entered into after that date that comes to be covered by the expenditure recoupment provisions of the law will attract 200 per cent additional tax on the same basis as do schemes covered by Part IVA.
Dividends satisfied by share or debenture issue
A private company is liable to pay additional tax on its undistributed profits if it does not, by way of dividends, make a sufficient distribution of profits to its shareholders.
Anti-avoidance measures were introduced in 1978 to counter arrangements under which a dividend, which was not capable of being taxed in the shareholders' hands, was formally paid and that ensured that a substantial benefit flowed back to the company.
In these circumstances there was no real distribution of profits.
The 1978 measures may, however, operate too widely where dividense are satisfied by an issue of shares or debentures that legitimately have a market value appreciably less than their face value.
If such dividends are effectively taxed in the hands of the shareholders, there is no tax avoidance.
A reduced market value may legitimately exist, for example, because of factors such as lack of security, lack of ready marketability or uncertainty as to the date of redemption of the debentures or redeemable shares.
The Government is concerned that the law should clearly not compel private companies to pay cash dividends in such cases.
Appropriate relief will be provided by the Bill so that, where the Commissioner of Taxation considers it unreasonable for the anti-avoidance provisions to apply to a dividend paid after 20 January 1982 and satisfied by an issue of shares or debentures, the dividend will be taken into account in determining whether or not a sufficient distribution has been made.
Disclosure of additional taxation information to the Australian Statistician
Under the secrecy provisions of the Income Tax Law, information available to the Commissioner of Taxation about the name, address and industry classification of an employer can be provided to the Australian Statistician, but only for purposes related to employment statistics.
Consistently with its policy of seeking to reduce, wherever practicable, the burden on businesses of responding to statistical requirements, the Government has decided to amend these provisions in two respects.
Firstly, the limitation to use in employment statistics will be removed in order to enable the information supplied to be used for a number of related statistical purposes.
Secondly, the Bill will authorise the provision of additional employment information to the Statistician, namely the numbers of male and female employees of persons who are employers for PAYE purposes.
An explanatory memorandum providing fuller details of the various measures contained in the Bill is being made available to Honourable members.
I commend the Bill to the House.