House of Representatives

Income Tax Assessment Bill 1975

Income Tax Assessment Act 1975

Second Reading Speech

Mr STEWART (Lang-Minister for Tourism and Recreation and Minister assisting the Treasurer)(12.53)-I move:

That the Bill be now read a second time.

One purpose of this Bill is to amend the Australian income tax law so that when Papua New Guinea becomes independent it will be treated as a separate country for Australian tax purposes. The Bill will also give effect to other taxation proposals, some of which have been earlier announced. Our income tax law contains a number of special provisions relating to Papua New Guinea. These are the product of a variety of circumstances, including the longstanding policy of applying our tax laws in a limited way to Australian Territories. Some relate to an administrative position that came about in 1959 when a separate income tax was imposed in the Territory of Papua New Guinea. The provisions appropriate for a Territory are not of course appropriate for an independent country. Moreover, changes in both countries' laws since 1959 have removed the justification for the provisions relating to the 1959 situation. Except in a few respects, the amendments proposed by this Bill will end the operation of these special provisions. In broad terms, those provisions that provide special treatment for certain categories of income or expenditure related to activities conducted in either Australia or in Papua New Guinea, but not in other countries, will be made inapplicable by the Bill so far as concerns income and expenditure related to activities conducted in an independent Papua New Guinea. Subject to some exceptions, income derived from a source in Papua New Guinea by Australian residents will be treated in the same way for Australian tax purposes as income from a source in other places outside Australia. Residents of Papua New Guinea will be taxed like other non-residents on income from sources in Australia.

One of the more important exceptions is a form of double tax relief to apply after independence. A tax credit system at present applies in respect of Papua New Guinea income of Australian residents and in the converse case. It is proposed to retain this system in Australia after independence but, as the Treasurer (Dr J.F. Cairns) announced recently, the salary or wages of Australians working in Papua New Guinea will be exempted from Australian tax where Papua New Guinea taxes the income. The rate of withholding tax on dividends paid to Papua New Guinea residents is half the general rate of 30 per cent. This is a concession we ordinarily make only in the context of a comprehensive double taxation agreement with other countries. We propose however to continue it in Papua New Guinea's case after independence. The Bill generally requires the changes I have described to be synchronised with Papua New Guinea's independence. Transitional provisions are included to take account of commitments that may have already been undertaken by taxpayers against the background of the present law. The Bill also contains some other measures related to Papua New Guinea's independence. One of these is that, on a basis of reciprocity, people in receipt of pensions from Australia or Papua New Guinea are to be taxed only in whichever of the 2 countries they reside. Another will confer an exemption from Australian tax on compensation and allowances paid under the employment security scheme now authorised by the Papua New Guinea (Staffing Assistance) Act 1973. These amounts are paid to members of the Australian Staffing Assistance Group and other former expatriate officers of the Public Service of Papua New Guinea on termination of their services there.

An altogether different provision of the Bill will facilitate the raising of loans overseas by the Australian Industry Development Corporation. It will provide an exemption from withholding tax for interest paid by the Corporation on such loans. The Bill provides also for the accelerated income tax deductions for depreciation announced on 9 December 1974 to stimulate investment in manufacturing and primary production plant. Taxpayers will be entitled to claim depreciation deductions on eligible plant calculated at twice the rates normally applied for income tax purposes. The increased rates will continue to apply in succeeding years until the cost of the eligible plant has been written off. Plant that would have qualified for the now abolished investment allowances, and is first used or installed ready for use during the 12 months period ending 30 June 1975, will be eligible for the concession. In broad terms, this is new plant acquired for use in a manufacturing or associated process and plant to be used wholly and exclusively in primary production activities. Taxpayers may elect to forgo the accelerated depreciation allowances if they so wish.

The Bill will also implement 2 earlier announced decisions designed to give relief in the private sector of the economy. The first of these-to dispense with the collection of an instalment of tax from companies in February 1975-was announced late last year. The second-the repeal of provisions enacted in the 1974-75 Budget to ascribe minimum values for income tax purposes to cars available for private use of employees-is one of a package of measures that the Treasurer announced on 28 January to assist the motor vehicle industry. The law will also be amended by the Bill so as to remove any possible doubt that allowances paid under the National Employment and Training system are liable to income tax and subject to tax instalment deductions. The various amendments are explained in detail in the memorandum being circulated to honourable members, and I need not elaborate on them further in this introductory speech. I commend the Bill to the House.

Debate (on motion by Mr Wilson) adjourned.

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