Explanatory Memorandum.(Circulated by authority of the Treasurer, the Rt. Hon. Harold Holt.)
INCOME TAX (INTERNATIONAL AGREEMENTS) BILL 1964.
This is the third taxation Bill referred to in the introductory part of the memorandum.
The amendments proposed by this Bill are technical ones that are consequential on amendments to the Income Tax and Social Services Contribution Assessment Act proposed by the Bill to amend that Act, i.e., the first of the Bills explained in this memorandum.
Clause 1: Short Title and Citation.
This clause formally provides for the short title and citation of the Amending Act and of the Income Tax (International Agreements) Act 1953-1963 as amended.
Clause 2: Commencement
By reason of section 5 (1A.) of the Acts Interpretation Act 1901-1964, every Act, unless the contrary intention appears, is deemed to come into operation on the 28th day after it has received the Royal Assent.
By this clause it is proposed that the Amending Act shall come into operation on the day on which it receives the Royal Assent. The provisions of the Income Tax and Social Services Contribution Assessment Bill (No.3) 1964, upon which the amendments proposed by this Bill are consequential, will, as explained at page 7 of this memorandum, come into operation on the day it receives the Royal Assent. It is, therefore, appropriate to include a corresponding provision in this Bill.
Clause 3: Ascertainment of Australian tax on Dividend.
This clause proposes two amendments to section 16 of the Income Tax (International Agreements) Act.
Section 16 of that Act states a formula for ascertaining the amount of Australian tax that is attributable to a dividend from an ex-Australian source. It is necessary to ascertain that amount of tax because it is the maximum amount that may be allowed as a credit against Australian tax in respect of foreign tax paid on a dividend received by a resident of Australia from ex-Australian sources.
Paragraph (a) of clause (3.) proposes the substitution in section 16 of a revised sub-section (5.).
The present sub-section (5.) applies to determine the amount of Australian tax attributable to an ex-Australian dividend where a trustee has paid, or is liable to pay, tax assessed under section 102 of the Income Tax and Social Services Contribution Assessment Act. The revised sub-section will not alter the application of the section in this respect.
The present sub-section (5.) also applies, however, to determine the amount of Australian tax attributable to an ex-Australian dividend where a partnership is assessed under section 94 of the Income Tax and Social Services Contribution Assessment Act in respect of a share of partnership income over which a partner lacks real and effective control. As explained in the notes in this memorandum on clause 24 of the Bill to amend the Income Tax and Social Services Contribution Assessment Act, it is proposed that in future the special liability under section 94 of that Act will fall on the partner lacking control of his share and not on the partnership.
In these circumstances, it is necessary to re-express sub-section (5.) in relation to cases to which section 94 applies so as to accord with the altered basis of assessment under that section. Broadly, where a person has paid or is liable to pay further tax under section 94 in respect of the income of a year, the amount of Australian tax attributable to a dividend derived by him in that year is to be such amount as the Commissioner of Taxation considers is reasonably attributable to the dividend.
In the absence of the proposed amendment, the further tax under section 94, which relates exclusively to income from a partnership, could inappropriately be reflected in the amount of Australian tax determined to relate to a dividend from ex-Australian sources.
Paragraph (b) of clause (3.) will omit from sub-section (8.) of section 16 of the Income Tax (International Agreements) Act a definition of "apportionable deduction".
That definition describes a number of deductions of a concessional nature which are not, strictly speaking, directly related to income-producing activities, for example, the deductions for gifts and for the maintenance of dependants. In ascertaining the amount of Australian tax attributable to a dividend, a proportion of the taxpayer's apportionable deductions are applied against the dividend.
It is necessary to extend the scope of the definition to the special deduction to be allowed to certain superannuation funds under sub-section (3.) of the new section 79 proposed to be inserted in the Income Tax and Social Services Contribution Assessment Act by clause 14 of the Bill to amend that Act. A new definition of "apportionable deductions" (which will include the deduction under the new section 79(3.)) is being inserted in section 6(1.) of the Income Tax and Social Services Contribution Assessment Act. The definition will, as a consequence of the omission of the present definition from section 16 of the Income Tax (International Agreements) Act, also apply for the purposes of that Act.
Clause 4: Application of Amendments.
By this clause the amendments to be made by clause 3 will first apply in relation to income of the 1965/66 income year.
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