House of Representatives

Income Tax Assessment Amendment Bill 1983

Income Tax Assessment Amendment Act 1983

Second Reading Speech

by the Minister for Finance, the Hon. J.S. Dawkins, M.P.

This Bill to amend the Income Tax Law will give legislative effect to a range of measures that had been announced by the former Government but which it had not implemented by the time the recent election was announced.

As mentioned in my statement of 30 March 1983, the new Government was confronted with several matters of unfinished taxation legislation, and had to move quickly to determine their future and assign a legislative priority to those that we as a Government decided should be put into place.

These questions were addressed in my statement of 30 March and this Bill represents the extent to which it has been possible, in the relatively short period that has been available to us, to have the various measures ready for introduction.

Deductions of Tax at Source from Payments for Work and Services

The major proposal which the Bill will implement is the introduction of a system of deductions of tax at source from payments for work and services.

Associated with these measures are reporting arrangements for householders who undertake larger domestic building projects and some related amendments to the pay-as-you-earn provisions of the law.

This package of amendments was announced by the former Treasurer in the 1982/83 Budget.

As I indicated when I announced on 30 March 1983 the Government's decision to proceed with them, these measures will apply from 1 September 1983.

Mr Speaker, the need for these amendments is clear.

Although there is no simple means by which the menace of tax evasion by the non-reporting of income, whether received in cash or otherwise, can be eliminated, the Government is confident that these measures will help in a most significant way to deal with the problem.

The measures involve no new taxes, but only a new system for the collection of tax which is properly payable.

Very briefly, they involve the deduction of tax by a person making a payment for contracted work or services and a remittance of amounts deducted to the Commissioner of Taxation on a monthly basis.

There will, of course, be an entitlement to a credit in annual assessments for tax deducted from payments.

As I have announced previously, the initial operation of the system will, subject to two variations, be confined to payments, to be prescribed by regulation, that are made and received by persons and firms operating within the Building and Construction, Architectural, Consultant Engineering, Surveying and other Technical Building Services, Joinery and Cabinet Making, Road Transport, Motor Vehicle Repair and Cleaning Industries.

There are to be some variations of this basic intra-industry approach.

These will be in respect of the limited categories of payments from sources outside the building and construction and road transport industries to persons and firms operating within the industries, of which I gave initial details in my statement of 2 May 1983.

While the new system will have the scope I have mentioned, the Bill is cast in terms that permit its extension by regulation to payments in other industries as soon as it is practicable to do so.

I stress that under no circumstances will householders be required to make any deduction of tax at source under the proposed measures.

However, under associated provisions, a householder who undertakes a private or domestic building project, the cost of which exceeds $10,000, will be required to register with the Commissioner of Taxation and report to him payments made in relation to that project.

I announced on 2 May 1983 the Government's decision that, except where an exemption or reduced rate certificate has been granted, all payments within the initial scope of the system will be subject to deduction at a single rate of 10 per cent of the gross payment.

I also indicated then that, in setting this rate, the Government had to balance the competing considerations of possible cash flow implications for payees if it were too high, and the enforcement benefits of the system that would be lost if it were too low.

There is also the fact that, because of the limited initial scope of the system, deduction of tax at this rate will, in many cases, be confined to only a part of a payee's total business receipts.

It is therefore expected that the rate set will in most cases be less than the tax payable on assessment.

But for those for whom it might be too high, the Bill makes provision for the Commissioner of Taxation, on the application of a payee, to approve a lesser rate where he is satisfied that that is justified in the particular circumstances.

The new system is primarily one of deduction of tax at source.

The measures will, however, permit the Commissioner to issue certificates of exemption which will allow a payee to obtain payment without deduction of tax.

Understandably, these certificates will be available only in circumstances where the person concerned has been in business for a significant period and is able to demonstrate that, among other things, a satisfactory taxation record has, in all respects, clearly been maintained.

To repeat what I have already explained, these measures are aimed at eliminating a significant form of tax evasion.

Consistently with this objective they contain substantial penalties - court-imposed and statutory - for breaches of obligations under the system.

The Bill will also make amendments to the PAYE provisions of the Income Tax Law to correct technical deficiencies in that area and to clarify the boundary between the PAYE system and the new system of deduction of tax at source.

These associated amendments will also ensure that the PAYE provisions do not apply to payments made by householders that are wholly or principally for the labour of a person who is not an employee of the householder within the ordinary meaning of that word.

I come now to a range of industry incentives announced by the former Government that are to be given statutory effect by the Bill.

Each of these changes was the subject of detailed announcements by the former Government and, with modifications outlined in my statement of 30 March 1983, the amendments contained in the Bill give effect to the former Government's announcements.

In these circumstances, and as a detailed explanatory memorandum on the provisions of the Bill is shortly to be made available to Honourable members, I propose to refer to each matter only in broad terms.

Accelerated Depreciation

The first of the changes is a new system of accelerated depreciation allowances for new and second-hand plant that is acquired by a taxpayer under a contract entered into after 19 July 1982 or that a taxpayer commences to construct after that date.

Under the new system, eligible plant will qualify for depreciation on a prime cost basis at a rate of 20 per cent except where, under existing law, eligible plant would attract a rate more than 20 per cent.

In those cases a 33 1/3 per cent rate will apply.

The accelerated rates will not apply to motor vehicles (principally cars and station wagons) of a kind at present excluded from the 18 per cent depreciation loading, to structural improvements or, as announced in my 30 March statement, to works of art.

As part of the package announced by the former Government, the special rate of depreciation applicable to certain primary production plant, including structural improvements for the storage of hay, grain or fodder, is to be increased from 20 per cent to 33 1/3 per cent.

In my statement of 30 March I said that plant that was made the subject of sale and leaseback and similar arrangements would be excluded from the benefits of the new system in circumstances where the lessee/end-user would otherwise be depreciating the plant according to previously applicable rates of depreciation.

The Bill gives effect to those exclusions.

I also said then that the Government was considering the extent to which plant that comes under new ownership by virtue of mergers and re-organisations of business operations would qualify.

It has not proved practicable to incorporate measures dealing with this matter in this Bill.

I will however, shortly be announcing details of the Government's proposals that will, as in the case of the sale and leaseback exclusion, have effect from the date of introduction of the concession.

Depreciation of Non-Residential Buildings

The proposal under this head is a system of income tax deductions for capital expenditure on the construction of new buildings used for the purpose of producing assessable income, otherwise than in providing residential accommodation, where the construction of the building commenced after 19 July 1982.

Capital expenditure on building extensions or alterations will similarly qualify.

The deduction will be available on the same general basis as the one now available for traveller accommodation buildings, so that fixed annual deductions of 2 1/2 per cent of the construction cost will be allowable over a 40 year period.

As announced by the former Government, buildings used in connection with traveller accommodation will continue to qualify for deduction under the existing depreciation arrangements provided for them.

Mining Capital Expenditure

The Bill will amend the arrangements for deducting capital expenditure incurred, after 19 July 1982, in developing a mining property or oil field.

Deductions are at present available on a diminishing balance basis calculated by reference to the lesser of 10 years or the estimated life of the mine or oil field.

In broad terms, allowable capital expenditure incurred after 19 July 1982 will be allowable by reference to the same maximum life of 10 years, but calculated instead on a straight line basis.

The general effect of the new arrangements will be that allowable capital expenditure incurred in a year of income will be deductible in 10 equal instalments in years of income beginning with the year in which the expenditure was incurred.

The Bill also corrects some technical defects in earlier provisions.

Investment in Australian Films

The Bill will modify the scheme of tax incentives for investment in the production of qualifying Australian films so that the special 150 per cent deduction that, under the present law, is not available until after the relevant film has been completed and used to produce income, will be allowable in the year in which the eligible expenditure is made.

Deduction on the new basis will be conditional on the investor becoming the first owner of an interest in the copyright in the completed film, and using that interest for the purpose of producing assessable income, within 2 years from the close of the financial year in which moneys are first expended in, or contributed toward, the production of the film.

In the event that these conditions are not satisfied any previously allowed deductions will be withdrawn.

A further requirement for deduction is that a production agreement securing funds necessary for the production of the film be entered into by the close of the financial year in which moneys are first expended in, or contributed towards, the production of the film.

In addition, moneys contributed towards an eligible production are required to be held in a non-interest bearing account opened in relation to the film in the Australian Film Industry Trust Fund.

Arrangements for the establishment of that fund, which is to be administered by the Department of Home Affairs and Environment, are currently being made.

In these circumstances, the requirement that contributions be deposited in an account in the fund opened in relation to the film will apply with respect to all contributions made on or after 1 July 1983.

The unexpended portion of contributions made before that date will be required to be transferred to the account by 1 July 1983.

Payments out of an account opened in the Trust Fund are to be made only for the purpose of expenditure in the production of the film to which the account relates, or by way of refund to contributors.

A system of withholding tax is to apply in relation to amounts withdrawn from the account otherwise than for the purpose of expenditure in the production of the film.

Amounts withheld under these arrangements will be applied against tax due on the amended assessment disallowing the 150 per cent deduction claimed by the relevant investor in respect of the amount of his or her contribution not expended in the production of the film.

Finally, eligibility for the new deduction arrangements is to be supported by a formal declaration that is required to be lodged by an appropriate person (generally the producer) within one month after the end of the financial year in which contributions towards the production of the film are first made.

With the exception of the modifications outlined above, the existing requirements of the concessions will remain unaltered.

The year of expenditure basis of deduction will apply to eligible expenditure incurred by an investor under a contract entered into on or after 13 January 1983.

Collection of Tax Payable by Non-Residents

The last of the changes that was foreshadowed by the previous Government is the introduction of special measures to facilitate the collection of tax payable by non-resident beneficiaries of trust estates.

This change is connected with steps taken last year to make non-residents ineligible for the zero rate of tax in the personal tax scales.

In order to improve Australia's capacity to collect tax payable by trust beneficiaries who do not reside in Australia, this Bill will operate so that the trustee of the relevant trust will be primarily responsible for payment of the tax on income of the trust to which a non-resident beneficiary is presently entitled.

The non-resident beneficiary may also be assessed in respect of the trust income, with credit being allowed for the tax paid by the trustee.

This change will apply to trust distributions that are made on or after today.

Finally, the Bill also contains amendments to make it clear that interest paid by the Commissioner of Taxation under the proposed taxation (interest on overpayments) Act 1983 will be taxable to the recipient in the income year in which it is paid and to make a technical change in the provisions which limit the cost for depreciation purposes of certain motor vehicles.

This latter amendment is consequential on a change made in the basis of calculation of the motor vehicle purchase sub-group of the consumer price index, on which annual changes in the limit are based.

I commend the Bill to Honourable members.