House of Representatives

Income Tax Assessment Amendment Bill (No. 4) 1984

Income Tax Assessment Amendment Act (No. 4) 1984

Second Reading Speech

by the Minister for Housing and Construction and the Minister Assisting the Treasurer, the Hon. Chris Hurford, M.P.

this Bill will amend the income tax law in various respects, primarily to give effect to the Government's budget proposals in the business and personal tax area.

I will briefly address each of the main provisions of the Bill

transfer of loss within company groups

one of the important initiatives announced by the Treasurer in his budget speech on 21 August 1984 to stimulate business activity concerns the taxation treatment of losses within a company group.

to give effect to this measure, the income tax law is to be amended to allow a resident company which incurs a loss in the 1984-85 income year, or a later income year, to transfer the right to an allowable deduction in respect of the loss to another resident company in the same company group.

the mechanism by which this will be achieved will be the giving by the respective companies of a formal notice to the Commissioner of Taxation of the amount of the loss incurred in a year which is desired to be transferred between them.

the system will be a straightforward one. A loss available for transfer by a company will be determined in accordance with established income tax principles, that is, the available loss will be the excess of allowable deductions (other than carry-forward losses) over the assessable income and any exempt income of the company.

subject to existing anti-avoidance rules in this area, the right to an allowable deduction for a loss incurred by one company in an income year May be transferred to another company for deduction in that year where there is 100 per cent common ownership between the transferor and transferee Companies in that year.

similarly the right to an allowable deduction for a company loss May be transferred in an income year after the year in which the loss was incurred if the 100 per cent common ownership test is met by the transferor and transferee companies in the loss year, the transfer year and any intervening period.

subject to these basic rules, a loss of one company in a group will be able to be transferred to other members of the company group in any of the seven years succeeding the year of the loss. Losses incurred in carrying on a business of primary production will be available for transfer without limit as to time.

the amount of the loss which May be transferred to a company in any year will be limited to the total of the net exempt income and taxable income of the transferee company.

finally Mr Speaker, I would note that this change in the taxation treatment of company groups will not affect revenue collections in the current year. From an initial estimated revenue cost of up to $200m in the 1985-86 financial year, the cost is expected to decrease over time to an eventual ongoing full-year cost estimated at about $50m.

Capital expenditure on non-residential income-producing building

The annual deduction allowable in respect of non-residential income-producing buildings, including short-term traveller accommodation, is to increase from 2.5 per cent to 4 per cent of the cost of construction.

like other budget initiatives in the area of business Taxation, this measure will encourage greater investment by the business sector. In particular, it will provide a significant boost to the construction industry.

The amendment will apply to buildings or extensions, alterations or improvements to buildings that commence to be constructed after 21 August 1984.

It is estimated that the increase in the annual deduction will cost $5m in 1985-86, with the cost to revenue growing each year over a number of decades.

Investment allowance

Under the existing law, the 18 per cent investment allowance would last apply to eligible capital expenditure incurred under a contract entered into before 1 July 1985, provided the subject property is used or installed ready for use Before 1 July 1986. That latter cut-off date is being extended by one year to 1 July 1987.

While the extension will be of particular assistance to firms undertaking large projects with lengthy lead times it will not be restricted to such projects.

This limited extension to the investment allowance concession will have no cost in the current financial year, but in total it is estimated to cost in the vicinity of $70m to $100m, of which about 40 per cent should occur in 1987-88.

Mineral exploration and prospecting expenditure

Expenditure incurred on exploration and prospecting on a mining tenement in Australia for minerals other than gold or petroleum is presently deductible only from a taxpayer's mining income and associated income.

This Bill will give effect to the Government's decision that such expenditure, where incurred after 21 August 1984, is to be deductible from income derived from any source.

This measure which will be of considerable assistance to the mining industry is estimated to cost $8m in 1985-86 and $10m in 1986-87.

Zone rebates

Amendments proposed by this Bill will increase by 25 per cent the basic component of the rebates available to taxpayers in both zones a and b, and in the special areas of those zones. The rebate for zone a will be increased from $216 to $270, for zone b from $36 to $45 and for the special areas from $750 to $938.

The basic component of the rebates available to taxpayers serving outside Australia with a united nations armed force or with an Australian defence force in a designated overseas area - which since their inception have been set at levels corresponding with the prevailing zone a rebate - also will be increased by 25 per cent from $216 to $270.

Because these increases are to apply from 1 November 1984, the basic rebate in 1984-85 for zone a and for overseas forces will be $252, for zone b it will be $42 and for the special areas of zones a and b, $875.

A further measure announced in the budget which this Bill will implement is the extension with effect from 1 July 1984 of eligibility for the special basic zone rebate to people in or near urban centres the populations of which fell below 2,500 since 1976. Those in or near urban centres where populations have increased marginally beyond 2,500 since 1976 will not lose their entitlement to rebate.

The cost to the revenue of these changes will be $5 million in 1984-85 and $11 million in a full year.

Dependent spouse rebate

The Bill will also implement the budget proposals that, with effect from 1 July 1984, entitlement to the income tax rebate for a dependent spouse will be extended to persons living in a de facto relationship.

For these purposes a de facto relationship is to be defined as a man and a woman living together as husband and wife on a bona fide domestic basis although not legally married to each other.

Recognition of a de facto relationship will benefit couples who, for some time, have been treated for Social Security purposes on the same basis as those legally married. Until now people in such circumstances have not been entitled to a rebate for a de facto spouse and have therefore been required to pay more tax than a legally married taxpayer in comparable circumstances.

Under the proposed amendments a Housekeeper rebate will not be available for a de facto spouse nor will a taxpayer with a de facto spouse be entitled to a rebate for a daughter-Housekeeper.

Recognition of de facto relationships will flow through to the variable component of zone and overseas forces rebates that takes account of dependants.

A taxpayer who contributes to the maintenance of the parent of his or her de facto spouse will similarly become eligible for the dependent parent rebate.

Finally, and subject to the threshold of $2000 which applies, eligibility for the general concessional expenditure rebate will be extended to such expenditure incurred by a taxpayer in respect of his or her de facto spouse.

These changes will involve a cost to revenue of $2 million in 1984-85 and $7 million in a full year.

Rebate for pensioners

As announced in the budget speech, the taxable income level at which the $250 tax rebate for pensioners begins to shade-out is to be increased to reflect the effect of the new personal income tax rate scale to apply from 1 November 1984.

The taxable income level at or below which the maximum rebate of $250 is available will be increased from $5,429 to $5,533 for the 1984-85 year and to $5,595 for subsequent years.

The rebate will shade-out above these income levels, resulting in some rebate being available until taxable income exceeds $7,532 in 1984-85 and $7,594 in subsequent years.

Social Security beneficiary rebates

A measure implemented by this Bill to assist low income earners is the introduction of special taxation rebates for unemployment, sickness and special benefit recipients.

the rebates will ensure that persons wholly or mainly dependent on Social Security benefits do not have to pay tax.

The maximum rebates of $50 for single beneficiaries and $75 for married beneficiaries will mean that in 1984-85 no tax will be payable on taxable incomes up to $4,783 for single beneficiaries and $7,989 for married beneficiaries.

The rebate will shade-out above these income levels, resulting in some rebate being available until the 1984-85 taxable income exceeds $5,182 for a single beneficiary and $8,588 for a married beneficiary.

Provisional tax

As provisional tax complements the pay-as-you-earn system and is designed to collect tax on income other than salary or wage income within the year in which the income is derived, it is generally accepted that the amount of provisional tax charged should approximate as closely as practicable the amount of tax actually imposed for the year.

Incomes for 1984-85 are expected to be higher than for 1983-84 and, due to the changes to the personal income tax rate scale applying from 1 November 1984, effective rates of tax for 1984-85 will be lower than for last year.

Accordingly, as in past years, it is proposed to vary the basis of calculating provisional tax for 1584-85 to be notified in assessment notices to issue this year.

This Bill thus provides for 1984-85 provisional tax to be calculated on the basis of 1983-84 taxable income increased by 10 per cent and by applying the lower rates of tax to apply for 1984-85.

Also reflected in the provisional tax calculation will be the full year medicare levy rate of one per cent. The increased low income thresholds and ceiling to apply for levy purposes in 1984-85 will be taken into account.

Generally, rebates will be allowed in the provisional tax calculation at the levels allowed in 1983-84 assessments.

Taxpayers will continue to have the right to "self-assess" and have the provisional tax for 1984-85 recalculated on the basis of their own estimates in appropriate circumstances.

Deduction of certain expenditure on fences

The scheduled termination of the immediate deduction for expenditure] incurred on fencing to help eradicate bovine brucellosis and tuberculosis in livestock will be extended by two years, to 30 June 1986.

The proposed extension of this concession will further assist primary producers in those areas, particularly the remote regions of northern Australia, which have the most difficult and continuing eradication problems.

The revenue cost of extending the concession is estimated to be $0.1m in 1984-85 and $0.5m in each of 1985-86 and 1986-87.


Mr Speaker, the Bill will also extend the gift provisions of the income tax law to give effect to proposals announced by the Treasurer in the budget speech.

One extension will authorise deductions for gifts made after 20 March 1984 to the work skill Australia foundation.

Another will authorise deductions for gifts made after 21 August 1984 to the academy of the social sciences in Australia.

A further extension will ease in two respects, the requirement that a donor of property must have purchased the property within the twelve months preceding the making of the gift.

The first of these concerns gifts to national trust bodies of property that is listed in the register of the national estate. Because of the timing and manner of its acquisition property of this kind would generally be precluded from deduction. The Government recognises the great importance of the work of the national trust in preserving properties of historical and heritage significance and this measure will assist the trust in carrying out its valuable work.

The second change concerns gifts of trading stock made to an authorised fund, authority or institution. Under the present law, gifts of trading stock that is not purchased within 12 months of the making of the gift are not deductible but the value of the trading stock is, under ordinary assessment rules, included in the assessable income of the donor. In contrast, had such a donor first sold the trading stock and then donated the proceeds, the proceeds would be taxable but the donor would be entitled to a deduction for the gifts.

The amendment will ensure that the income tax law applies neutrally as between donors of trading stock and donors of the proceeds of a sale of trading stock.

This further extension will apply to gifts made after 21 August 1984.

Australian trading ships

As announced by my colleague the Minister for transport on 2 July 1984, the Government has decided to amend the provisions of the income tax law that authorise special concessions for eligible Australian trading ships.

Members will recall that these concessions were introduced earlier this year in order to provide greater incentives for the Australian shipping industry. These concessions are intended to promote greater efficiency in the manning of Australian ships.

The amendments will modify the requirements that are imposed upon the secretary to the department of transport in determining the maximum complement of officers and crew which, in his opinion, is appropriate for the safe and efficient manning of ships eligible for the tax concessions.

Primarily the amendments are to remove any suggestion that industrial relations considerations are a dominant or overriding factor to be taken into account when determining manning levels. They will make clear that industrial relations considerations, where relevant, are but one of the factors to be ??mis-spelt considereedon hard copy??considered.

Substitution of semi-government securities

On 7 August 1984 the Treasurer announced the intention to amend the law to remove unwarranted tax effects where securities are issued by state central borrowing authorities in substitution, on a matched term basis, for semi-government securities previously on issue. The Bill will do this.

Since that time, it has come to the Government's attention that at least one state has in existence a central borrowing authority which is similarly empowered to consolidate the borrowings of local government bodies. Some other states are expected to follow this lead.

Accordingly, the amendments will extend also to substitutions of local government securities.

Under the present law such a substitution May be treated as a realisation of the original securities at their market price on the day of substitution and an acquisition of the replacement securities at the same price on that day. <

Dealers would stand to be taxed on any gains and could deduct any losses on the realisation of the securities being replaced although no effective change of investment occurs.

The Bill will ensure that tax effects of this kind do not arise as an incidence of such substitutions.

Any new securities received as a consequence of a substitution by a central borrowing authority, if on a matched term basis, will be treated for the purposes of the income tax law as if they were the original securities, and as having been purchased on the same day and at the same cost as the original securities.

The amendments will apply to substitutions that occur on or after 8 August 1984.

Mr Speaker, detailed explanations of the measures proposed in this Bill are contained in a memorandum that is to be circulated to Honourable Members.

I commend the Bill to the House.