Notes for the Treasurer's Second Reading Speech
On Thursday last, I signed, on behalf of the Commonwealth, an agreement between Australia and New Zealand designed to provide measures for the relief of double taxation of incomes flowing between the two countries. The agreement was signed on behalf of New Zealand by the High Commissioner for New Zealand, His Excellency the Hon. F. Jones.
Agreements of this nature are important steps in the removal of taxation deterrents to international trade and investment. The Parliament has previously given its approval to similar agreements concluded with the United Kingdom, the United States of America and Canada and the present Bill, when enacted, will give the force of law in Australia to this latest agreement with New Zealand.
It seems unnecessary for me to explain to honourable members that double taxation occurs when income taxed in the country of its origin is also subjected to tax by the country in which the recipient of the income resides.
To a very large extent, Australia and New Zealand, by independent action in their own taxation laws, have avoided double taxation of their own residents. New Zealand has achieved this result by exempting its residents from tax on Australian income taxed in this country. Australia has allowed a corresponding exemption of income, other than dividends, derived from sources in New Zealand and taxed in that country. Dividends received by Australian residents from New Zealand sources are assessable income for Australian taxing purposes, but double tax is relieved by the allowance against the Australian tax of a credit for New Zealand tax on those dividends.
Despite the generally adequate nature of the present unilateral procedures, there have nevertheless been instances in which income has been taxed by both Australia and New Zealand without appropriate relief. This situation has arisen because of differing concepts in the taxation laws of the two countries concerning the source of profits on the sale in one country of the products of the other. One of the effects of the agreement will be to remove thso deterrent to trade between the two countries.
As in the case of agreements made with the other countries previously mentioned, the prior right of Australia and New Zealand to tax income arising within the respective countries will in general be preserved. In conformity with these agreements, however, there are classes of income where the country of origin will exempt and the country of residence will tax.
The agreement also includes a provision that will, with minor exceptions, limit to 15% the rate of tax that may be imposed on dividends paid by a company resident in one country to a shareholder resident in the other country. This provision will have an important consequence in relation to the withholding tax on dividends paid by Australian companies to overseas investors.
As honourable members know, this tax will come into effect on 1st July of this year and it will be met by tax deductions made from the dividends at the time of distribution.
If it were not for this agreement, dividends flowing from Australia to New Zealand shareholders would be subjected to a withholding tax of 6/- in the Pd, but under the agreement the rate is, with rare exceptions, limited to 3/- in the Pd. Correspondingly, dividends paid by New Zealand companies to Australian shareholders will not be taxed at a rate higher than 3/- in the Pd.
As is usual in agreements of this nature, provision is made for the exchange between the taxation authorites of the two countries of such information as is necessary for the operation of the agreement and the prevention of fraud or avoidance of tax. The taxing laws of both countries ensure secrecy in relation to the information exchanged and the agreement specifically precludes the exchange of information relating to trade secrets or trade processes.
The agreement will commence to apply in Australia to income derived in the current income year 1959/60 and in New Zealand in the corresponding income year which ended on 31st March, 1960.
The full text of the agreement is set out in the Schedule to the Bill. Detailed explanations of the agreement are provided in a memorandum that is being circulated for the information of honorable members and for this reason I do not propose to embark upon an examination of the articles of the agreement.
The agreement will apply for five years certain and thereafter may be terminated only by giving of due notice by either country. It is, however, contemplated by both countries that the agreement will establish a permanent basis for the relief of double taxation. Accordingly, there will be engendered a feeling of confidence that business arrangements may be entered into and capital invested without the risk of income being taxed in full by the two countries.
I would like to add that, because of the bonds that have always existed between Australia and New Zealand, it gives me more than ordinary pleasure to bring the agreement before this House and to seek its endorsement.
I commend the Bill to honorable members.