Second Reading Speech
Mr. Chifley (Macquarie-Treasurer) (3.25).-by leave-I move-That the bill be now read a second time.
In my financial statement, I have already acquainted honorable members of the Government's proposal to obtain an additional Pd40,000,000 from income tax. After exploring the various avenues from which this additional revenue might be obtained, the Government is of opinion that the most equitable method of raising it is by imposing an all-over increase on the individual income tax rates, and by entering the income tax field below the present minimum of Pd156. The proposed new rates will commence at 6d. in the Pd1, and will reach a maximum of 18s. 6d. I shall explain these new rates in greater detail when I move the resolution for the purpose of imposing rates of tax for the financial year 1943-44.
An important feature of the bill now before the House is the proposal to modify the provisions relating to the collection of income tax by instalments.
The system of collecting tax by instalments, which was introduced on the 1st January, 1941, has proved of immeasurable assistance to employee taxpayers in meeting the burden of war taxation. As I have already explained in the financial statement, it is now proposed to extend the instalment system so that the burden of tax will be evenly distributed throughout the year. Under the present system, instalment deductions usually commence on the 1st August in each year, and continue until the tax payable for that financial year has been paid. When the tax has been paid, the employee is given a certificate exempting him from further deductions until the 1st August following. The result is that instalments are deducted throughout a period averaging approximately 40 weeks in each year. The Government proposes to spread the deductions over the whole of the 52 weeks of the year, instead of requiring the tax to be met in a period of 40 weeks. The Income Tax Assessment Act contains provisions empowering the Commissioner to issue certificates of exemption for any period, and to cancel those certificates. The Commissioner will take action to cancel all existing certificates of exemption on the 1st April, 1943, so that deductions for the new instalment year will commence on that date. By the 31st March, 1944, the tax in most instances will be due for payment, and all employees will have accumulated instalments for 52 weeks.
The establishment of new industries connected with the conduct of the war, and the volume of overtime which has had to be worked owing to the shortage of man-power, have resulted in increased incomes being received by many employees. With the termination of the war, the activities of many of these industries will return to normal, and over-time payments will decrease; in consequence, the incomes of employees will diminish. Out of their diminished incomes, employees will find it necessary to pay tax based upon the greater income of the last year of war. To assist in the payment of that tax, it is proposed s that employees shall build up credits by using any excess instalment deductions made during the war period. The scale of instalment deductions to be prescribed will take into consideration the concessional rebates allowed for dependants, which, in the average case, are allowed also for other items, such as superannuation, life assurance, and medical expenses. There is provision in the bill for the Commissioner to reduce instalment deductions in any instance in which the concessional rebates allowable are not adequately catered for in the prescribed scale. Thus, the excess instalments to be retained will, generally speaking, be confined to those that arise from increased incomes. A certificate of credit will be issued to any taxpayer whose excess instalments are held by the Commissioner. The amount of the instalments shown in the certificate will bear interest at the rate of 2 per centum per annum during the time the excess instalments are so held. It is not proposed that all excess instalments shall be held as a credit, but only so much as will be necessary to meet the following year's assessment. By a specific provision in the bill, any excess instalments accumulated by a taxpayer to the 31st March, 1943, will be refunded to him and will not be subject to the provisions which require excess instalments to be retained by the Commissioner. If, however, the taxpayer chooses to leave the excess with the Commissioner, he may do so, and interest at 2 per centum per annum will be payable thereon.
The opportunity provided by the introduction of this bill is being taken to implement a number of other decisions at which the Government has arrived in regard to matters affecting income tax. The first of these is concerned with the exemption provided by section 23s of the act in respect of the pay and allowance of members of the defence forces. Under the law as it stands, the exemption of pay and allowances earned in Australia by a member of the military forces prior to embarkation for service in the territories applies to members who (a) joined the forces by enlistment in or appointment for service beyond the limits of the Commonwealth; and (b) are members of the Militia Forces and have not transferred to the Australian Imperial Force. In respect of members of the Militia Forces who have transferred to the Australian Imperial Force, the effect of the proviso which it is proposed to repeal is to deny to them the exemption of pay and allowances earned in Australia prior to transfer. The amendment will remove this anomaly, and will confer the full exemption upon all members of the forces serving in the territories of the Commonwealth.
Although the minimum income on which income tax is to be imposed is, in respect of civilians, to be reduced from Pd156 to Pd104, the Government does not propose to reduce the existing special deduction of Pd250 allowed to members of the defence forces. Margins between ranks, after taxation, will be substantially preserved by extending the concession to incomes up to Pd586, compared with incomes of Pd354 under the present scale.
It is proposed, also, that the special deduction granted to members of the defence forces shall apply to sea-going members of the mercantile marine serving round the Australian coast and on the high seas. A deduction will not, however, be allowed to personnel serving in harbour and river craft.
The increase of the rates of tax has occasioned consideration of the rebates of tax allowed in respect of the domestic responsibilities of taxpayers. These have been recognized by the Government, and it is proposed to extend the personal allowances to include concessions in respect of a dependent invalid child of the taxpayer over sixteen years of age, and a dependent daughter who is keeping house for a widowed father or mother. As in the case of other concessional allowances, these concessions will be made by way of rebates of tax. The allowance in respect of the daughter-housekeeper will be based on an amount of Pd100, diminishing as the taxpayer's income progresses, until it ceases when his income reaches Pd500. The allowance in respect of the invalid child will be based upon an amount of Pd75. This amount will, however, be reduced by the amount of any invalid pension paid by the Commonwealth in respect of the child, and the test of invalidity will be the same as that under the Old-age and Invalid Pensions o Act, although there will be no means test. In regard to dependent children under the age of sixteen years, the present maximum rebate for each child in excess of one is Pd5. It is proposed to increase this to Pd8 to ensure that the maximum rebate shall be reached at approximately the same income as under the present rates.
Another concession contained in the bill is the provision for an allowance in respect of gifts to a State government for the purposes of defence. Gifts made by taxpayers to the national emergency services organized by the States will be subject to this concession.
The bill also contains a drafting amendment re-expressing the provisions of section 23A of the act. This section was enacted last session to grant a special exemption to the metalliferous mining industry engaged in the production of base metals and rare minerals required for war purposes. When the provision was enacted the Government had in contemplation that the exemption should apply as a stimulus to the production of those metals and minerals in short supply, or in danger of being in short supply in Australia, and urgently required for the production of war materials. The particular metals and minerals to which the Government has decided that the exemption should apply have since been specified in the Income Tax Regulations. The basic idea of the concession was that one-fifth of the profit arising from the production of the prescribed base metal or rare mineral should be exempt from taxation. In many instances mining operations result in the production of a prescribed metal or mineral in combination with metals and minerals to which the concession was not intended to apply. In those cases the present provision is open to the construction that the exemption extends to the total profit derived from the mining operations, including profits not intended to be included in the exempt class. The proposed amendment will ensure that the exemption will be limited to the profit derived from the prescribed base metals or rare minerals.
A provision is being inserted in the law requiring taxpayers engaged in business to keep their records in the English language, and to preserve such records for a period of ten years. Great difficulty is being experienced in examining books of accounts of nationals of other countries; who keep the books in their own languages. As honorable members are well aware, it is not an uncommon practice for taxpayers to try to avoid their taxation liabilities by lodging false returns with the Commissioner of Taxation, but when the affairs of the taxpayer are being investigated, the department is confronted with the fact that the taxpayer has not preserved his books and records, or has never, in fact, kept any proper books. This makes the task of the Commissioner in discovering the true income of the taxpayer exceedingly difficult. In any case in which the Commissioner notifies the taxpayer that the books and records need no longer be preserved, the taxpayer will be at liberty to destroy them. In the case of a company which has gone into liquidation and has been finally dissolved, there will be no obligation to retain the records. Apart from the division relating to the registration of tax agents, the remaining provisions of the bill are relatively unimportant, and do not call for any special comment here.
Honorable members may recall that the Royal Commission on Taxation 1932- 1934, in its third report, expressed the opinion that the registration of tax agents would be in the best interests of both the taxpayer and the Taxation Department. The royal commissioners said that registration would provide an assurance to both the taxpayer and the department that a person authorized to act on behalf of a taxpayer is reputable and competent. It would prevent exploitation of the taxpayer by unscrupulous persons who may ultimately involve him in serious trouble, and, perhaps, penalties. Moreover, it would also enable the department to deal effectively with such unscrupulous persons. These views of the royal commissioners, with which I agree, were approved by the government of the day, but at that time a system of registration was already in operation in the States of Queensland and South Australia, and it was decided to leave the matter to the States, in order to avoid duplication. In due course, the States of Tasmania and New South Wales enacted legislation requiring the registration of tax agents. Registration has not been required in Victoria or Western Australia. Since the passage of the uniform income tax legislation last year, however, the State laws relating to income tax are in suspense, and the establishment of a system of Commonwealth registration becomes necessary. Clauses have been inserted in the bill which are designed to give effect to the Government's proposal in this regard. The proposal to establish a separate board in each State accords with the royal commission's recommendation. Each board is to consist of three members- namely, the Accountant of the Commonwealth Sub-Treasury in the State, who shall be chairman of the board; the Commonwealth Chief Auditor for the State; and a third person who is to be appointed by the Governor-General, and who will no doubt be a person professionally engaged in connexion with income tax matters.
Where, however, as in New South Wales, Queensland and Tasmania, a State board has already been constituted under the State income tax laws, provision is made to enable that board to function as a Commonwealth board. It will be subject to the relevant provisions of the Commonwealth law except as regards the appointment of chairman and acting chairman. Under the South Australian law, the Registrar of Companies has been entrusted with the duty of registering tax agents for several years past. As it is desired to utilize the services of this experienced official, there is a provision in the bill under which he may be appointed to the board instead of the Commonwealth Chief Auditor of the State.
The bill provides for the payment of a registration fee of Pd1. Annual registration, however, is not to be required. Once a person is registered by a board his registration will remain effective until it is cancelled by a board. It is considered that if a person is already registered as a tax agent for State income tax purposes he should not be required to pay another fee for registration for Commonwealth purposes, and this is provided for, although any tax agent seeking registration for Commonwealth purposes will be required to make application to the Commonwealth board.
Two most important features of the proposals are-first, that subject to minor exemptions, no person other than a registered tax agent may charge a fee for preparing income tax returns; and, secondly, that on every income tax return prepared by a registered tax agent, the agent's certificate shall be signed by a person registered by the board. The bill also contains a number of provisions essential for the effective working of the scheme, which is designed to come into force on a date to be fixed by proclamation. If the Opposition concurs the Government is prepared to submit the bill to the Special Committee on Taxation.
Debate (on motion by Mr. FADDEN) adjourned.