House of Representatives

Explanatory Notes

(Circulated by the Treasurer, the Rt. Hon. Sir Arthur Fadden.)

Notes on Clauses

Clause 1: Short Title and Citation.

This clause formally provides for the short title of the Amending Act and of the Principal Act as amended.

Clause 2: Commencement.

Section 5(1A.) of the Acts Interpretation Act 1901-1950 provides that every Act shall come into operation on the twenty-eighth day after the day on which the Act receives the Royal Assent, unless the contrary intention appears in the Act.

By this clause, it is proposed that the Income Tax and Social Services Contribution Assessment Act 1957 shall come into operation on the day on which it receives the Royal Assent.

The Principal Act as proposed to be amended by this Bill is to be incorporated and read as one with the Income Tax and Social Services Contribution (Rating) Act 1957, which it is also proposed shall come into operation on the day on which it receives the Royal Assent.

In this connection, section 221YB(3.) of the Principal Act states that provisional tax and contribution shall not be payable in respect of the income of a year of income unless the Act declaring the rates of tax and contribution payable in respect of that year provides for the payment of such provisional amounts.

By bringing the two enactments into operation together when they receive the Royal Assent, the preparation and issue of assessments in provisional tax cases will thus be facilitated.

Clause 3: Parts.

Section 5 of the Principal Act sets out the Parts and Divisions of the Act. Section 121A and 121B relate to the basis of taxation of income of Friendly Society Dispensaries. By clause 21 of the Bill, it is proposed to repeal section 121B and, as a consequence of that repeal, this drafting amendment of section 5 of the Principal Act is being made.

Clause 4: Definitions.

Section 6 of the Principal Act contains definitions for the more convenient interpretation of that Act.

The inclusion of definitions of "adopted child", "child" and "daughter" are designed to place any adopted child, step-child or ex-nuptial child in the same position, for income tax purposes, as the children of the marriage of the taxpayer.

In order that the status of adopted child for the purpose may be precisely established, the criterion to be fixed by the definition is that the adoption shall have conformed to the requirements of the relevant laws of the Commonwealth or the States. In the case of adoptions overseas, the adoption is effective if its validity would be recognised under Australian law.

Having defined "adopted child", the further definition of "child" is necessary so as to include within the compass of that expression adopted child, step-child and ex-nuptial child. There is no need to define "step-child" or "ex-nuptial child", as the meaning of each of these is well established in law.

For practical purposes, the provisions of the Principal Act which will be affected by the definition of "child" are section 82H and section 102(1.)(b).

Section 82H authorises the deduction of premiums for life, sickness and accident insurance, as well as payments to superannuation funds, under specified conditions. With regard to children, a condition to deductibility to the taxpayer is that the insurance shall be effected on the life of his own child, or against the sickness of or accident to the child. Likewise, payments to a superannuation fund shall be for the benefit of the taxpayer's child.

The insertion of the definition of "child" in section 6 of the Principal Act will extend deductibility of insurance premiums and superannuation payments irrespective of whether the child concerned is the taxpayer's own child, adopted child, step-child or ex-nuptial child.

Section 102(1.)(b) applies where a trust is created by a person and the income is payable to or accumulated for, or applicable for the benefit of a child or children of that person who are minors and unmarried. In such cases, the trustee is liable to pay an amount of tax equal to the additional amount which the person who created the trust would have had to pay if the trust income had been received by him.

By inclusion of the definition of "child" in the Principal Act, the provisions of section 102(1.)(b) will become applicable to trusts created in favour of an adopted child, step-child or ex-nuptial child of the person who created the trust.

The definition of "daughter" is being inserted in section 6 of the Principal Act for the purposes of section 82B of that Act.

Section 82B authorises the allowance of concessional deductions to a taxpayer for dependants maintained by him or her. In the case of a widower or widow whose daughter is wholly engaged in keeping house for him or her the taxpayer is entitled, subject to certain conditions, to claim a concessional deduction.

The definition now proposed to be inserted in section 6 will extend the deduction to those cases in which the daughter concerned is an adopted daughter, step-daughter or ex-nuptial daughter of the taxpayer.

The amendments to be made by clause 4 will commence to apply in assessments based on income of the year 1957-58.

Clause 5: Taxpayer Resident in Territories.

The purpose of this clause is to exempt residents of the Island of Nauru from taxation on income derived from sources within that island.

Nauru is a trust territory under the trusteeship system of the United Nations. On behalf of the United Kingdom, New Zealand and Australia, the island is administered by Australia, where most of the administrative staff is recruited.

A resident of Australia is liable to taxation on earnings derived from sources outside Australia if those earnings are free from tax in the country of derivation. Nauru does not impose an income tax and consequently any resident of Nauru who continues to be a resident of Australia also is liable to Australian tax on his Nauruan earnings.

Most Australians serving in Nauru continue for taxation purposes to be residents of Australia even while absent from Australia, because a clause in the definition of "resident of Australia" in section 6 of the Principal Act includes within the meaning of that expression a person who is a contributor to the Commonwealth Superannuation Fund. Thus Commonwealth Public Servants who accept appointments with the Administration of Nauru and who continue to be contributors to the Commonwealth Superannuation Fund are residents of Australia for taxation purposes.

Personnel of the Nauruan Administration who are not recruited from the Commonwealth Public Service may also continue to be residents of Australia, for example, if a home is maintained in Australia to which the official proposes to return on completion of his term of duty in Nauru.

In the case of the Territories of Papua, Norfolk Island, New Guinea and Cocos (Keeling) Islands, section 7(1.) of the Principal Act operates to exempt from taxation income derived by a resident of those Territories from sources within the Territories. The amendment proposed by clause 5(a) of the Bill will apply a similar exemption to income derived by residents of Nauru from sources in that island.

Section 7(2.) of the Principal Act further provides that, for the purposes of assessment and payment of taxation on income derived from sources in Australia, a resident of the Territories shall be deemed to be a resident of Australia. The principal effect of this provision is to entitle a resident of the Territories to the concessional allowances for dependants, medical expenses, life assurance payments, etc., in calculating taxable income derived from Australian sources. The amendment of section 7(2.) proposed by clause 5(b) of the Bill will extend this entitlement to residents of Nauru who derive income from Australian sources.

The amendments proposed by the clause will commence to apply in respect of the income of the year 1956-57.

Clauses 6-16: Depreciation.

Introductory Note

Clause 6 to 16 of the Bill are designed to implement certain recommendations of the Commonwealth Committee on Rates of Depreciation.

One of these recommendations concerns the rates of depreciation to be applied in calculating the annual deductions allowable in respect of assets used in the production of assessable income.

The rates of annual depreciation are determined under section 55(1.) of the Principal Act. That section requires the Commissioner of Taxation to estimate the effective life of the asset assuming it is maintained in reasonably good order and condition and an annual percentage allowance is fixed accordingly. Thus, for example, the annual rate of depreciation on an asset with an estimated effective life of ten years is 10 per cent.

Section 56(1.) then specifies the methods to be followed in calculating the amount of annual depreciation allowable. These are known as the diminishing value method (paragraph (a) of section 56(1) and the prime cost method (paragraph (b)). The section provides that the allowance shall be calculated by the diminishing value method, unless the taxpayer exercises an option to have the prime cost method applied.

Under the diminishing value method, the depreciation for each year is calculated on the written down value of the asset at the beginning of that year, that is, the original cost less depreciation already allowed. Thus, a lower deduction is allowable in each successive year and the cost of the asset is not entirely written off until it is disposed of or scrapped. Under the prime cost method, on the other hand, the depreciation for each year is calculated on the original cost of the asset, the effect being that the full cost is written off by equal instalments over its estimated effective life.

At present, the same percentage rate of depreciation is applied under both the diminishing value and prime cost methods. The result is that, whilst the cost of an asset is wholly written off over the period of its effective life under the prime cost method, only about two-thirds of the cost is written off over the same period under the diminishing value method.

In examining this aspect of the depreciation allowances, the Commonwealth Committee on Rates of Depreciation expressed the view, based on evidence, that, as a general rule, it would be recognised as good practice to effect replacement of plant at the expiration of approximately two-thirds of its effective life. With a view to bringing the two methods of calculation into reasonable equality at this point, therefore, the Committee recommended that the rates of annual depreciation to be applied under the diminishing value method be increased by 50%.

As a corollary to this recommendation, the Committee suggested that taxpayers at present using the prime cost method be given an option to change to the diminishing value method if they so desire. The Committee proposed that the option should be available in regard either to the whole of the taxpayer's depreciable assets or only to future purchases, in which case the existing assets would be allowed to work out on the prime cost method.

At present, regulation 7 of the Income Tax and Social Services Contribution Regulations permits an exercise of the option to use the prime cost method only in relation to the whole of the taxpayer's depreciable assets. It is not permissible to select one method for application to some assets and the other method for application to other assets. Furthermore, once the option to use the prime cost method is exercised, a change to the diminishing value method may be made only by leave of the Commissioner of Taxation - section 57.

The Committee also received representations from taxpayers using the diminishing value method who stated that they desired to change to the prime cost method, but were prevented from doing so because of the practical difficulty of establishing the present individual depreciated values of early plant. To meet such cases, the Committee suggested that the present option to change from diminishing value to the prime cost method should be extended to permit the change to be made in regard either to the whole of the taxpayer's depreciable assets or only to future purchases.

A further aspect of the depreciation allowances which was examined by the Commonwealth Committee on Rates of Depreciation was the system of balancing adjustments provided by section 59 of the Principal Act where a depreciable asset is disposed of, lost or destroyed.

Under section 59(2.), where the consideration receivable exceeds the written down value of the asset, the excess (to an extent not greater than the depreciation allowed on the asset) is included as a balancing charge in the assessable income of the year in which the disposal, loss or destruction occurs. By this means, the total deductions allowed in respect of the asset over the period of its use are equated to the actual cost of the asset after taking into account any amount received on its disposal, loss or destruction.

Because of the effect of the graduated rates of tax, the inclusion in assessable income of one year of a recoupment of depreciation previously allowed as deductions over a number of years tends to diminish the value of those deductions in many instances. Moreover, since any surplus consideration received on the disposal or loss of an asset is frequently absorbed in the higher price of the replacement asset, the liability for tax on the balancing charge reduces the funds available for replacement at a time when they are most needed for this purpose.

In order to afford taxpayers some relief in such circumstances the Committee recommended that an alternative basis of adjustment of the balancing charge provided. Last year, section 59 was amended to give effect to this recommendation so far as it related to insurance and other recoveries on the loss or destruction of a depreciable asset. It is proposed in this Bill to extend those provisions to amounts received in relation to the disposal of depreciable assets.

The general plan of the provisions is to afford the taxpayer a choice between the inclusion of the balancing charge in his assessable income of the year in which the asset is disposed of, lost or destroyed, and the deduction of a corresponding amount from the value of the replacement asset or other assets in respect of which he is entitled to depreciation. Where the latter course is chosen, future depreciation allowances on the asset or assets against which the balancing charge is off-set are then calculated on the reduced value. The practical effect of adjustment on this alternative basis is to reduce depreciation allowances of future years to an extent equal in total to the amount of the balancing charge which would otherwise be included in assessable income of one year.

The following are notes on clauses 6 to 16 of the Bill:-

Clause 6: Calculation of Depreciation.

The amendment of section 56(1.) proposed by this clause is designed to increase by 50% the rates of annual depreciation where depreciation is claimed under the diminishing value method. Thus, where the rate of depreciation fixed under section 55(1.) is 10%, the rate to be applied in future under the diminishing value method will be 15%. The rates to be applied under the prime cost method will remain as at present.

The increased rates will apply to depreciable assets on hand at the commencement of the income year 1957-58, as well as to future purchases.

Clause 7: Exercise of Option.

As previously explained, a taxpayer who has exercised an option in favour of the allowance of depreciation according to the prime cost method is bound to that option in respect of all depreciable units of property, unless authorised by the Commissioner of Taxation to revert to the diminishing value method.

Sub-section (1.) of section 56A proposed to be inserted in the Principal Act by clause 7 of the Bill provides for the exercise by the taxpayer of the option to adopt the prime cost method. Whereas at present this option is available only in relation to the whole of the taxpayer's depreciable assets, the taxpayer will in future have the alternative of exercising the option in respect of future purchases only.

Sub-section (2.) will deem a taxpayer who has exercised the option to adopt the prime cost method before the commencement of section 56A to have exercised a similar option under the new section. This will obviate the need for taxpayers at present using the prime cost method and wishing to continue that method to make a fresh election under section 56A.

Under sub-section (3.), however, those taxpayers will be afforded an opportunity to change to the diminishing value method if they so desire. As in other cases, this option will be available in regard either to the whole of the taxpayer's depreciable assets or to future purchases only.

Sub-section (4.) sets out the procedure by which the options provided by the section are to be exercised. The options may be exercised in relation to the income year 1957-58 or any subsequent year.

Clause 8: Alteration of Method of Depreciation.

Section 57 of the Principal Act provides, in effect, that, having adopted either the diminishing value or prime cost method of calculating depreciation, that method shall continue to be applied by the taxpayer, unless altered by leave of the Commissioner of Taxation, or in exercise of the option to change from the diminishing value method to the prime cost method provided by section 56. The amendment of section 57 proposed by the clause is a drafting provision in consequence of the further option provided by sub-section (3.) of the proposed new section 56A.

Clause 9: Special Depreciation Allowance to Primary Producers.

Section 57AA of the Principal Act provides a special depreciation allowance at the rate of 20% per annum, calculated by the prime cost method, in respect of primary producers' plant and improvements. Where applicable, this provision supersedes the normal provisions relating to rates and methods of depreciation expressed in the three preceding sections of the Principal Act. The amendment proposed by this clause is a drafting provision in consequence of the insertion in the Act of the proposed additional section 56A.

Clause 10: Depreciation on Property Used for Primary Production in the Northern Territory.

This clause is a drafting provision also consequent on the inclusion in the Principal Act of the additional section 56A.

Section 57AB of the Principal Act provides a special basis of depreciation allowances in respect of primary producers' plant and improvements in the Northern Territory. Where applicable, this provision supersedes the provisions of sections 55, 56, 57 and 57AA. The new section 56A is being included in the provisions which are superseded by section 57AB.

Clause 11: Depreciation under Commonwealth and State Acts.

Section 58 was introduced into the Principal Act in 1936 to enable the adoption of uniform values for depreciation purposes under both the Commonwealth and State income tax laws.

In effect, the section provided that, where the value of an asset for depreciation purposes under the Commonwealth Act was higher than that under the State Act, future depreciation was to be based on the lower value. The difference between the two values was then to be allowed by way of further depreciation over a maximum period of 10 years until the two values were brought into line.

As it has been inoperative for some years, it is proposed by clause 11 that the section be now repealed.

Clause 12: Disposal, Loss or Destruction of Depreciated Property.

By this clause, it is proposed to extend to taxpayers who dispose of assets for a consideration in excess of the depreciated value of those assets provisions granting an option to set-off the balancing charge against the value of other assets, instead of including that balancing charge in assessable income of the year in which the assets are disposed of.

The provisions concerned, which are at present limited to balancing charges arising out of insurance and other recoveries on assets lost or destroyed are contained in sub-sections (2A.) to (2E.) of section 59.

Sub-section (2A.) provides for the exercise of the option by the taxpayer to have the alternative basis of adjustment applied and proceeds to specify the order in which the balancing charge may be deducted from the values of other assets. If the asset is replaced in the same year as the disposal, loss or destruction occurs, the deduction must be made firstly from the cost of the replacement. If the replacement cost is less than the balancing charge, or if there is no replacement in that year, the charge or the remainder of the charge, as the case may be, is to be deducted successively from the cost of any other asset acquired during the year and then from the depreciated values of other assets held by the taxpayer at the beginning of the year of income.

Sub-section (2B.) provides that the balancing charge shall not be set off against the cost of an asset unless that asset is, at the end of the income year, used wholly for the purpose of producing assessable income or installed ready for use for that purpose and held in reserve. The sub-section also requires that depreciation shall be allowable on that asset. The sub-section thus ensures that the exclusion of the balancing charge from assessable income leads to an equivalent reduction in the depreciation allowances.

The effect of sub-section (2C.) is that any excess of the balancing charge over and above the amount deducted from other assets will be included in the assessable income of the taxpayer in accordance with the general provisions of sub-section (2.) of section 59.

Sub-section (2D.) applies where an asset is not replaced in the year of disposal, loss or destruction, but is replaced within the next two succeeding years. In that event, the balancing charge would be brought into assessable income of the year of disposal, loss or destruction, unless the taxpayer had required the Commissioner of Taxation to set off that balancing charge against the values of other depreciable assets. Where the balancing charge has been included in assessable income in these circumstances, the taxpayer may require the Commissioner of Taxation to exclude the balancing charge from assessable income and to reduce the cost of the replacement by a corresponding amount for depreciation purposes.

Although sub-section (2E.) is not being amended by clause 12, it is explained for the sake of completeness that the effect of that sub-section is to deem the amounts deducted from the value of an asset under the preceding provisions to be depreciation which has been allowed in respect of the asset in calculating its depreciated value for the purposes of future deductions for depreciation and in calculating balancing adjustments on the disposal, loss or destruction of the asset.

The amendments proposed by this clause will commence to apply in assessments based on income of the year 1957-58.

Clause 13: Notional Income Where Assessable Income Includes Consideration Receivable on Disposal, Loss or Destruction of Depreciated Property.

The new section 59AB which is proposed by this clause to be inserted in the Principal Act is complementary to the provisions of sub-sections (2A.) to (2E.) of section 59 already described in the explanatory notes on clause 12 of the Bill.

The provisions of section 59AB will apply where the disposal, loss or destruction of depreciable assets results in the cessation of the taxpayer's business. In such circumstances, there would be no remaining assets against which to set off any balancing charge that may arise and the charge would be assessable in full in the year in which the disposal, loss or destruction occurred. To provide a measure of taxation relief to taxpayers placed in such a situation, and to whom the provisions of section 59(2A.) to (2E.) are not available, it is proposed that, on the application of the taxpayer concerned, the balancing charge shall be subject to tax at a rate lower than the rate at which tax would otherwise be assessed.

Sub-section (1.) of the proposed section 59AB provides that the section shall be applicable, subject to exceptions stated later, to those taxpayers in whose assessable income a balancing charge is included consequent on the cessation of business and the disposal, loss or destruction of assets on which depreciation has been allowed.

The excepted cases are companies, primary producers where rates of tax are determined under the averaging system and taxpayers who may have been in a position to set off the balancing charge against the value of other assets and have elected to do so.

Companies have been excluded as graduated rates of tax comparable with the rates applicable to the incomes of individuals do not operate in the case of companies.

Primary producers to whose incomes rates determined under the averaging system are applied have been excluded as the average system serves as a mitigation of the effects of graduated rates on abnormally high incomes.

Those taxpayers who have elected to set off the balancing charge against the value of other assets are adequately provided for and accordingly are excluded from the application of section 59AB.

Sub-section (2.) provides that the abnormal income shall be the amount of the balancing charge. In the case of a sole trader, the abnormal income will be the whole amount of the balancing charge (paragraph (a)).

In the case of a partner in a partnership, the abnormal income will be the proportionate interest in the balancing charge to be included in the partner's assessable income (paragraph (b)).

In the case of a trust, the abnormal income will be the amount included in the net income on which the trustee is assessable. Where, however, a beneficiary is assessable in respect of the whole or part of the balancing charge, the abnormal income shall be such part of the balancing charge as is included in his assessable income (paragraph (c)).

Under sub-section (3.), a taxpayer desirous of exercising his rights under the section is required, on or before the date of lodgment of his return of income for the relevant year, to apply in writing to the Commissioner of Taxation for a determination of a notional income. Where special circumstances exist, however, the Commissioner is authorised to accept applications lodged after that date.

Sub-section (4.) provides that, where a taxpayer has made such an application, determination of a notional income for rating purposes shall be in accordance with sub-sections (5.), (6.) and (7.) of the proposed section 59AB.

Under sub-section (5.), the notional income is an amount arrived at by deducting from the taxable income an amount equal to two-thirds of the abnormal income, that, is generally speaking, two-thirds of the balancing adjustment.

By way of example, a sole trader may include a balancing adjustment of Pd3,000 in his income tax return which discloses a taxable income of Pd8,000. In calculating the notional income, two-thirds of Pd3,000, that is, Pd2,000, would be deducted from Pd8,000 leaving a notional income of Pd6,000. Tax on the taxable income of Pd8,000 would be calculated at the rate appropriate to a taxable income of Pd6,000.

Sub-section (6.) will operate in those cases where the abnormal income is greater than the taxable income.

To reverse the example given in the note to sub-section (5.), a sole trader may include a balancing adjustment of Pd8,000 in his income tax return which discloses a taxable income of Pd3,000. The notional income in such a case would be an amount equal to one-third of the taxable income, that is, one-third of Pd3,000 = Pd1,000. Tax on the taxable income of Pd3,000 would be calculated at the rate appropriate to Pd1,000.

Sub-section (7.) will meet the circumstances of cases which might possibly arise where a taxpayer is entitled to a determination of a notional income under section 86 or under section 158D (or both), as well as under section 59AB.

Section 86 provides for the application of a notional rate of tax where a taxpayer receives a premium for a lease for a period greater than twenty-five months. For rating purposes, the net premium is replaced by a notional income arrived at by dividing the net premium by one-half of the number of years in the lease term. Any taxable income that may be derived by the taxpayer in addition to the lease premium is aggregated with the lease notional income to determine the rate at which tax is payable on the total taxable income.

Section 158D of the Principal Act provides for the determination of a notional income for rating purposes where there are abnormal receipts of income by authors and inventors. Shortly stated, the taxable income (including the abnormal receipt) is taxed at the rate of tax appropriate to the taxpayer's normal income plus one-third of the abnormal receipt.

Where either or both of these sections is applicable in addition to section 59AB, if the notional income determined under section 86 or section 158D (or a combination of the two) is greater than the abnormal income due to the balancing adjustment, the notional income on assessment for rating purposes will be further reduced by two-thirds of the abnormal income. If, on the other hand, the notional income determined under section 86 or section 158D (or both) is less than the abnormal income under section 59AB, the notional income for rating purposes will be one-third of the notional income so determined.

The provisions of section 57AB will apply to assessments based on income of the year 1957-58 and subsequent years.

Clause 14: Repeal of Sections 59A to 59E.

Sections 59A to 59E of the Principal Act were introduced into the Act in 1942 to permit the allowance of special depreciation in respect of plant and buildings acquired or constructed after 30th June, 1938, for use primarily and principally in connection with the prosecution of the 1939-45 war. The provisions ceased to have effect from 28th April, 1954, that is, two years after the official termination of that war on 28th April, 1952.

As the provisions are now inoperative, it is proposed by clause 14 that they be repealed.

Clause 15: Acquisition of Depreciated Property.

Section 60(1.) of the Principal Act, which is proposed to be amended by this clause, provides that where a person acquires an asset on which depreciation has been allowed, he shall not be entitled to any greater deduction for depreciation than would have been allowed to the person from whom the asset was acquired if that person had retained it.

The primary purpose of this provision is to ensure that where, notwithstanding a change in the legal ownership of depreciable assets, the beneficial ownership is retained by the transferor (e.g., where a taxpayer converts his business into a proprietary company), no additional depreciation will be allowable because of any writing-up of the book values of the assets in connection with the change.

The section makes special provision, however, to cover cases in which the transferor is assessable, under section 59 of the Principal Act, on the whole or part of the consideration receivable by him in respect of the transfer. In such circumstances, the new owner is allowed depreciation calculated on the sum of the assessable portion of the consideration (known as the balancing charge) and the depreciated value of the property at the time of transfer.

By clause 12 of this Bill, it is proposed that, in lieu of inclusion of a balancing change in the assessable income of the year of disposal, the taxpayer may elect to deduct a corresponding amount from the value of other depreciable assets. The inclusion of sub-section (1A.) in section 60 proposed by clause 15 is accordingly necessary to ensure that, where such an election is made by the transferor, the amount set off by the transferor against other assets will correspondingly be subject to depreciation allowances to the transferee.

Clause 16: Expenditure on Scientific Research.

Section 73A (5.) of the Principal Act, which is proposed to be amended by this clause, fixes a special rate of depreciation of 33-1/3rd per cent. for application to plant which is used for the purposes of scientific research only.

The amendment of this provision proposed by clause 16 is consequential upon the increase in the rates of depreciation for application under the diminishing value method proposed in clause 6.

The practical effect of the amendment in cases where the diminishing value method is used will be to increase the rate of depreciation allowable on the class of plant specified to 50 per cent. In cases where the prime cost method is used, the rate of depreciation allowable will continue to be 33-1/3rd per cent. as at present.

The new rate will apply to plant on hand at the commencement of the income year 1957-58, as well as to future purchases.

Clause 17: Gifts, Contributions, Allowances and Pensions.

Section 78(1.)(a) of the Principal Act authorises the allowance of deductions for gifts of the value of Pd1 and upwards to specified institutions and funds in Australia.

It is proposed by this clause to extend the deduction to gifts to the following:-

The National Trust in each of the States of New South Wales, Victoria and South Australia.

Public libraries, museums and art galleries.

The Sydney Opera House Appeal Fund.

The Sidney Myer Music Bowl Trust.

The Industrial Design Council of Australia.

The National Trust in each of the States of New South Wales, Victoria and South Australia has been established with the objects of preserving buildings and articles of historic, scientific, artistic or architectural interest, as well as places of natural beauty.

The main objects of the Industrial Design Council of Australia are to promote the study of problems of industrial design and to encourage research into those problems in relation to the products of industry.

The amendments effected by this clause will apply to gifts made during the income year 1957-58 and subsequent years.

Clauses 18-20: Deductions for Dependants.

The principal amendments proposed by these clauses are designed to -

(a)

Increase the maximum deduction for maintenance of each class of dependant by Pd13; and

(b)

Extend the present deduction for a dependent parent to a parent-in-law.

The amendments will apply in assessments based upon income of the year 1957-58 and subsequent years.

Increase in Deductions.

The following is a comparison of the present and proposed maximum deductions for each class of dependant:-

Dependent Parents-in-Law.

Section 82C of the Principal Act, which is proposed to be amended by clause 19, provides for the allowance of a deduction of Pd130 to a taxpayer who wholly maintains his parent if the parent is a resident of Australia.

In the event of a separate net income being derived by the parent, the maximum deduction of Pd130 is reduced by an amount equal to that separate net income.

In any case where two or more children contribute to the maintenance of a parent, the deduction is apportioned between them having regard to the circumstances of the case.

The amendments proposed by paragraphs (a) and (c) of clause 19 will extend this allowance to parents-in-law of the taxpayer subject to the same conditions as those applying in relation to the maintenance of the parents of the taxpayer.

In consonance with the increase in the deductions for other classes of dependants, the amendment proposed by paragraph (b) of the clause will increase the maximum deduction for a dependent parent or parent-in-law to Pd143.

Deletion of References to Step-Child.

The deletion from sections 82B and 82D of the references to "step-child", as proposed by clauses 18 and 20, are drafting provisions, as the definition of "child" to be inserted in section 6 will make these references unnecessary - see note to clause 4 of the Bill.

Clause 21: Dispensaries to be Deemed to be Non-profit Companies.

Section 121B forms part of Division 9A of the Principal Act, which relates to the taxation of Friendly Society Dispensaries and provides that the dispensaries are to be taxed at the rates of tax applicable to non-profit companies.

It is now proposed to provide a special rate of tax for application to Friendly Society Dispensaries and it is more appropriate that the substance of the present section 121B should be included in the rating measure by which the special rate of tax is to be imposed. This is being effected and it is accordingly proposed by clause 21 to repeal section 121B.

Clause 22: Amendment of Assessments.

Section 170 of the Principal Act, which is proposed to be amended by this clause, provides authority for and prohibitions against amendment of assessments.

Sub-section (10.) of section 170, as far as relevant, provides that nothing in that section shall prevent the amendment, at any time, of an assessment for the purpose of giving effect to the provisions of sections 59A or 59B of the Act.

As explained in the note on clause 14, those sections are now inoperative and it is proposed that they be repealed.

The amendment of section 170(10.) proposed by this clause will correspondingly delete from that section the references to sections 59A and 59B.

Clause 23: Application of Amendments.

The amendments proposed by the Bill will commence to apply as indicated in this clause. The commencing date for application of each amendment has been stated in the note to the relevant clause.

So far as it may affect trusts to which section 102(1.)(b) of the Principal Act applies, it is not intended that the definition of "child" proposed by clause 4 to be inserted in section 6 of the Act should apply retrospectively to existing trusts. It is accordingly proposed by sub-clause (3.) of clause 23 that the application of the definition in such cases shall commence to have effect from the income year 1958-59.