Second Reading SpeechBy the Treasurer, the Hon. P.J. Keating, M.P.
This Bill will amend the Income Tax Law in a number of respects, primarily to modify the prescribed payments system and to implement some of the Government's measures announced in the budget and the May Economic Statement.
The modifications of the Prescribed Payments System were announced on 5 October 1983 in response to a report of the Senate Standing Committee on Finance and Government operations. They will simplify the operation of the system by significantly reducing the paperwork burdens for many payers and payees and by making compliance generally easier.
Included in the Bill are measures to exempt from tax the open employment incentive bonus payable after 1 October 1983, and the remote area allowances payable from May 1984. It also exempts, from 1 March 1984, the additional benefit paid to unemployment, sickness and special beneficiaries caring for children, and the supplementary allowance paid to sickness beneficiaries to assist towards rent costs.
The Bill also provides for the remote area allowance received by a taxpayer to be deducted from any Income Tax Zone Rebate otherwise allowable to the taxpayer, and for the spouse carer's pension, which is to be introduced from 1 December 1983, to be taxed on a similar basis to a wife's pension.
Other measures being implemented include the phased withdrawal of the tax exemption for pay of part-time members of the Reserve Defence Forces and termination of the deductions for certain capital expenditure incurred in the clearing of primary production land and in respect of the cost of insulating a first home.
Other provisions abolish the rebate on up to $1,000 of dividend income of individual taxpayers and terminate the deduction for losses from tax exempt businesses. Modification of the averaging system applicable to primary producers and an increase from $1,590 to $2,000 in the expenditure threshold for the tax rebate on concessional expenditure are also included.
The Bill will also restore the position relating to rebates of tax in respect of dependants temporarily resident overseas that had existed before it was disturbed by the Domicile Act 1982, and will free certain trustees for non-resident beneficiaries from liability for provisional tax.
Finally, the Bill provides the basis for calculation of provisional tax for the 1983-84 year of income.
I will now address the provisions of the Bill in greater detail. Dealing first with the amendments of major significance concerning the prescribed payments system.
Prescribed Payments System
On 5 October 1983, the Acting Treasurer informed the House that the government had decided to introduce amendments in line with unanimous recommendations in a report of the standing committee on finance and government operations which was tabled in the Senate on 4 October 1983.
These amendments will refine certain of the system's administrative aspects so as to reduce paperwork burdens on some taxpayers and to facilitate taxpayer compliance with its requirements. They do not, however, put at risk the essential "Anti-Evasion" objectives of the system, nor will they have any effect on revenue collections.
The government is aware of some criticisms of the prescribed payments system and, while these have generally exaggerated the true position, it recognises the need to monitor the operation of this new system of tax collection. This is being done.
The present amendments evidence our willingness to meet valid concerns about the operation of the system on an on-going basis.
Put briefly, the changes proposed by the Senate Committee, and accepted by the Government, will virtually take outside the system payments to payees who hold exemption certificates on the grounds of good tax compliance. They will also allow payees to lodge a deduction form at any time during the month preceding the month of payment. This will be of particular benefit to payees operating cycle billing systems. For a payment that is deferred, other changes will relieve the payee from lodging a fresh deduction form.
Finally in this area, the amendments will ensure that a payee will not need to prepare and furnish more than an annual deduction form to a payer if the payer assumes the responsibility of completing the forms on the payee's behalf. This will particularly assist payers with computerised accounting systems incorporating high speed printers, and will also reduce the paperwork burden on payees.
A technical amendment is also to be made to the provisional tax self-assessment provisions to simplify calculations for taxpayers wishing to vary provisional tax on account of income subject to the prescribed payments system.
Unemployment, Sickness and Special Beneficiaries
A number of budget measures, together with others announced in the May Economic Statement, are directed at re-establishing priorities in favour of those in the community who are among the most disadvantaged.
One of these is an increase in the rate of payment of additional assistance for the children of pensioners and beneficiaries.
When paid to pensioners these amounts are already exempt from tax.
This Bill, by making payments of such assistance to unemployment, sickness and special beneficiaries also exempt from tax, will establish uniformity of tax treatment in this area for all pensioners and beneficiaries caring for children.
At present, payments to pensioners to assist with their rent, lodging or board and lodging costs are exempt from tax.
The Bill will ensure that payments for the same purpose to sickness beneficiaries are also exempt.
Both amendments apply to payments falling due on or after 1 March 1984.
The estimated cost of these taxation measures is $22 million in a full year.
Single unemployment, sickness and special beneficiaries with dependent children will also be eligible from 1 May 1984 for the mother's or guardian's allowance now payable to single pensioners, including supporting parent beneficiaries, with dependent children.
This allowance, which is already exempt from tax in the hands of pensioners, will be exempt when received by beneficiaries as a consequence of the amendments contained in this Bill.
Spouse Carer's Pension
A recent amendment to the Social Security Act 1947 provides for the payment of a spouse carer's pension from 1 December 1983.
This pension will assist men providing constant care and attention at home for their age or invalid pensioner wives suffering from a severe physical or mental disability.
The spouse carer's pension is proposed to be given the same taxation treatment as is now given a wife's pension paid under the Social Security Act to a woman because she is the wife of an age or invalid pensioner.
The effect of the existing Income Tax Law, together with the amendments proposed by this Bill, will be to exempt the pension from tax except where the man is 65 years or older or his wife is 60 years or older.
Accordingly, a man in receipt of a spouse carer's pension will be taxed on it only if he or his wife is of pensionable age.
Similarly, a man caring for a wife suffering a disability may qualify for a service pension under the Repatriation Act from December 1983 if his wife is a service pensioner.
This service pension will also be exempt from tax if the wife is in receipt of a service pension equivalent to a social security invalid pension and neither the man nor his wife is of pensionable age.
In other circumstances the service pension is to be taxable.
Open Employment Incentive Bonus
Assent has already been given to a Bill to amend the Handicapped Persons Assistance Act to allow for the payment of an open employment incentive bonus as an incentive for handicapped people to enter the mainstream of the work force.
This once-only payment of $500 is to be made to recipients of sheltered employment allowance of 6 month's standing or more who move to full-time paid open employment, or self-employment, and remain so employed for a continuous period of at least 12 months.
The Bill will ensure that the bonus, which is payable to persons who complete their period of open employment on or after 1 October 1983, is exempt from tax.
Remote Area Allowance
On Budget Night I announced the Government's decision to introduce from May 1984 Remote Area Allowances - which are to be exempt from tax - for persons living in income tax zone A who are in receipt of certain social security pensions or benefits or repatriation pensions and whose incomes, in most cases, are too low to enable them to benefit from the income tax zone rebate.
The existing Income Tax Law dealing with the exemption of various pensions, allowances and benefits is framed in such a way that a Remote Area Allowance to be paid to a social security pensioner or beneficiary is exempt from tax, whereas a Remote Area Allowance to be paid to a repatriation pensioner is not.
This Bill will amend the law to ensure that remote area allowances, whether paid under social security or repatriation legislation, are exempt.
To avoid doubling up of benefits under the Remote Area Allowance and the Zone Rebate, the Bill will also alter the income tax zone rebate so that any zone rebate otherwise allowable is reduced by the amount of Remote Area Allowance received.
This amendment will have negligible effect on revenue in 1983-84, and is expected to yield $2 million, as an offset to the cost of the allowances themselves, in a full year.
Part-time Members of the Reserve Defence Forces
Honourable Members will recall that in the Budget Speech I announced the Government's decision to phase out by 1 December 1984 the present exemption from tax of the pay and allowances of part-time members of the Reserve Defence Forces and the Emergency Reserve Defence Forces.
This Bill also will give effect to that decision.
One half of payments in respect of service on or after 1 December 1983 and before 1 December 1984 will remain exempt but payments for service on or after 1 December 1984 will be taxable in full.
The tax exemption available to a part-time member of the Emergency Reserve Defence Forces on a gratuity received by reason of being called out for continuous service will be phased out at the same rate.
This measure is estimated to save $5 million in the current financial year and $20 million in a full year.
Income Tax Rebates for Certain Dependants of Migrants
On 20 June 1983 the Minister for Finance announced the Government's decision to amend the Income Tax Law relating to rebates of tax in respect of dependants to restore the position that had existed before it was disturbed by the Domicile Act 1982.
One of the rules relating to tax rebates for dependants, which has special relevance to a migrant who precedes his family to Australia, is that both the taxpayer and his or her dependants must be residents of Australia.
Under the old laws of Domicile, the Domicile of a wife and dependent children followed that of the husband and, provided arrangements had been made for them to come to Australia within five years, they were accepted as residents of Australia for income tax rebate purposes.
The Domicile Act 1982 changed the situation by giving a wife and children over 18 years an independent capacity to acquire Domicile, with the result that such dependants could not be considered to be residents of Australia until such time as they had actually taken up permanent residence in this country.
The amendment to the rebate provisions to be made by this Bill will restore the earlier position of migrants awaiting the arrival of their dependants from overseas and will apply from 1 July 1982, the date on which their position was changed by the Domicile Act 1982.
I also note that the amendment is framed to ensure that the same rules apply should it be a wife who precedes her husband to Australia.
Rebate in Respect of Certain Dividends Paid to Residents
One of the measures announced in my economic statement in May was the abolition of the rebate of tax on up to $1,000 of dividend income of resident individual taxpayers which had been introduced in the previous budget.
As I indicated in May, the Government does not consider the rebate to be an appropriate or equitable response, if one were needed, to criticism of the taxation treatment of dividends resulting from the interaction of the personal and company tax systems.
Under provisions contained in this Bill, the rebate will be abolished with effect from 1 July 1983.
This is expected to increase revenue by $75 million in 1983-84 and $105 million in 1984-85.
General Concessional Rebate
The present Income Tax Law makes available a tax rebate of 30 per cent of the excess over $1590 of expenditure on certain eligible items such as superannuation contributions, life insurance premiums, net medical expenses, education expenses and private rates and taxes.
This Bill will increase the threshold amount of eligible expenditure to $2000 with effect from the beginning of the 1983-84 income year.
This measure is estimated to save $11 million in 1983-84 and $70 million in a full year.
Home Insulation Expenses
The Bill also gives effect to the budget proposal to terminate the deduction for expenditure on the thermal insulation of a first home.
The deduction will not be available for thermal insulation costs after 23 August 1983 except where they are paid under a contract entered into on or before that date.
The estimated revenue saving is $6 million in 1984-85 and $7 million in a full year.
Exempt Business Losses
Another measure announced in the May Economic Statement now being given effect by the Bill is the withdrawal of the deduction against income from other sources for a loss incurred in carrying on a gold mining business, the income from which is exempt from tax.
The rationale for this deduction is questionable and its potential use for tax minimisation purposes has become apparent.
The deduction will be withdrawn in respect of losses incurred in the 1983-84 and subsequent years of income.
In the interim, the statutory requirement that loss deductions allowed in any of the three income years preceding a year in which profits are derived from the exempt business will continue to apply, where relevant, in respect of deductions allowed in the 1982-83 and earlier income years.
The exemption from tax of profits from gold mining in Australia t is not otherwise affected by the Bill.
Expenditure on Land Clearing, Swamp Drainage, Etc.
As announced in the Budget Speech, the deduction over 10 years for capital expenditures on such things as land clearing and swamp drainage in preparing land for use in primary production is being abolished.
Expenditure incurred after Budget Night, 23 August 1983, will no longer qualify for deduction on this basis unless it is incurred under a contract entered into on or before that date.
This measure - which will not disturb the basis of deduction of capital expenditure on soil or water conservation or of revenue expenses of established primary production businesses - is estimated to save $3 million in a full year and will remove the encouragement through the tax system of environmentally and economically unsound activities.
Averaging for Primary Producers
I turn now to changes to the Primary Producer Averaging System which were foreshadowed in my Economic Statement of 19 May 1983.
The changes will mean that, commencing with the 1983-84 income year, the tax liability on primary production income will be determined every year on the basis of the tax rate on average income and not - as has been the case since the 1977-78 income year - only in years when this would reduce the tax payable.
The existing arrangements go beyond the reasonable objective of removing undue tax effects of fluctuations in incomes that typically arise in the primary production sector. They give taxpayers with access to averaging a clear advantage over other taxpayers.
The essential basis of operation of the existing system will be preserved in the new system and an averaging rebate will continue to apply in years when taxable income exceeds average income.
In years when average income is greater than taxable income there will be a complementary adjustment to bring the tax on primary production income up to that determined on the basis of averaging rules.
It is estimated that this change will yield $15 million in 1983-84 and $20 million in subsequent years.
With the re-introduction of automatic averaging year by year, the Bill also affords primary producers the right of election to withdraw permanently from the averaging system if they wish.
A similar election was available under the comparable averaging provisions in force before 1978.
Collection of Tax Payable by Non-Residents
Provisions introduced into the Income Tax Law in the autumn sittings to facilitate collection of tax from non-resident beneficiaries made trustees primarily liable for tax, including provisional tax, in respect of trust income distributed to such beneficiaries. Many trustees affected by those measures have claimed that, because other existing provisions of the Income Tax Law, in effect, authorise and require them to retain from any distribution to a non-resident beneficiary an amount sufficient to pay the tax on that income. It is not appropriate for them to be also subject to payment of provisional tax. These trustees have also claimed that these arrangements give rise to difficulties for them because they are obliged to incur additional expense in establishing separate trusts in which to accumulate the amounts retained until assessments are issued.
To meet these representations, the Government has decided to amend the Income Tax Law to free trustees from liability to provisional tax in respect of income distributed to non-resident beneficiaries.
To avoid the need for the creation of separate trusts, while preserving the application of pay-as-you-earn principles to such income, the trustees affected will be required to promptly remit the amounts deducted from distributions to non-resident beneficiaries to the Commissioner of Taxation when the distributions are made.
The amendments will have a negligible effect on revenue in 1983-84 and, since they affect the timing and not the amount of tax payments, will not have any revenue effect in the long term. e
As provisional tax is part of the broad pay-as-you-earn system and is designed to collect tax on non-salary-or-wage income within the year in which it is derived, it is generally accepted as reasonable that the amount charged should approximate as closely as practicable the amount of tax actually imposed for the year.
Incomes for 1983-84 are expected to be higher than for 1982-83 and effective rates of tax for 1983-84 will be lower than for last year.
Accordingly, as in past years, it is proposed to vary the basis of calculating provisional tax for 1983-84 to be notified in assessment notices to issue this year.
The Bill thus provides for 1983-84 provisional tax to be calculated on the basis of 1982-83 taxable income as increased by 11 per cent and applying to the adjusted amount the lower rates of tax to apply for 1983-84.
The changes to the averaging system for primary producers (as outlined earlier) will also be reflected in the calculation of 1983-84 provisional tax, if appropriate.
Generally, the amounts of the rebates allowed in 1982-83 will be taken into account in the calculation.
However, where a taxpayer with dependent children was allowed a rebate in his or her 1982-83 assessment, based on the higher maximum amount allowable for a spouse, daughter-housekeeper or housekeeper, or was allowed a sole parent rebate, the relevant rebates (including zone rebates where appropriate) will be based where a rebate for concessional expenditure in excess of the $1,590 threshold was allowed in a taxpayer's 1982-83 assessment, the amount to be allowed in calculating provisional tax will be determined on the basis of the increase in the threshold amount - from $1,590 to $2,000 - and at the 1983-84 standard tax rate of 30 per cent. Any pensioner rebate allowed in the provisional tax calculation will reflect the higher 1983-84 maximum amount.
Also, the dividend and health insurance rebates, and the rebate for home loan interest in excess of 10 per cent per annum, all of which were abolished from 1 July 1983, will not be allowed in calculating 1983-84 provisional tax.
An amount for provisional Medicare levy will be added to the provisional tax otherwise payable where it appears, from the information available in the taxpayer's 1982-83 return of income, that he or she will be liable to this levy in 1983-84.
It is, of course, open to taxpayers who consider that their taxable income for 1983-84 will increase by less than 11 per cent, or who consider that sufficient rebates have not been taken into account, to "self-assess" and have the provisional tax for 1983-84 recalculated on the basis of their own estimates.
Mr Speaker, as usual, a technical explanation of the provisions of the Bill is contained in a memorandum that has been circulated to Honourable members.
I commend the Bill to the House.