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Friday, 11 September 1942


Mr CHIFLEY (MACQUARIE, NEW SOUTH WALES) (Treasurer) . - by leave - I move -

That the bill be now read a second time.

The bill provides for certain amendments to the War-time (Company) Tax Assessment Act 1940-1941. Some of the amendments are consequential on amendments which have been made to the Income Tax Assessment Act. Prior to the amendment of section 72 of the Income Tax Assessment Act earlier this year State income tax paid during the year of income was an allowable deduction for income tax purposes. This deduction was automatically allowed for war-time company tax purposes because the taxable income forms the basis for the ascertainment of the taxable profit in respect of which war-time company tax is payable. As a result of the amendment State income tax paid on income derived during the year ended the 30th June, 1941, will not be allowed as a deduction for Commonwealth income tax purposes. Therefore, unless provision be made to the contrary, a company will not be entitled to a deduction in its war-time company tax assessment of State income tax paid during the accounting period. The bill therefore provides for the reinstatement of this deduction for war-time company tax purposes.

The War-time (Company) Tax Assessment Act provides for the exemption of a life assurance company, the profits of which are wholly divisible among the policy-holders. Representations have been made to the effect that the "mutual income " of a life assurance company, the whole of the profits of which are not divisible among the policy-holders, should be exempt from the tax. The Income Tax Assessment Act now differentiates between the mutual and non-mutual income of life assurance companies. The " mutual income " is liable for ordinary income tax at a. rate lower than is imposed on non-mutual income, and is not liable for super-tax or the tax imposed under that act on undistributed profits.

The Government considers that the "mutual income" of all life assurance companies should be exempt from wartime company tax, and provision for this has accordingly been made in the bill. A consequential provision is that capital employed in producing the " mutual income " shall not be taken into account in ascertaining the amount of capital employed by a life assurance com- pany. The present law does not specify a time within which a company may claim a greater statutory percentage than that prescribed by the act, or may apply for an increase of the capital employed. It is desirable that a time limit be imposed, otherwise claims and applications may be lodged years after assessments have been made. The bill provides for a time limit, which is consistent with the conditions of the law relating to the lodgment of objections, namely, within 60 days of service by post of the notice of assessment. Where the claim affects a class of business, the time limit for the application has been fixed to terminate at the end of the financial year of assessment to which the claim relates.

Under the War-time (Company) Tax Assessment Act, a company is authorized to deduct from dividends payable to preference shareholders a proportion of the war-time company tax payable by the company. Legal opinion is to the effect that as the act stands at present, the deduction can be made only from dividends which are paid out of the taxable profit on which the tax has been assessed. This means that a company which is desirous of deducting a proportion of the tax from the preference dividend in accordance with the act must delay the declaration and payment of the dividend until the tax has been assessed.

Obviously, it was not intended that the law should cause delay and inconvenience to companies and shareholders. It is proposed, therefore, to amend the law so as to make it clear that a company which has paid or becomes liable to pay war-time company tax may deduct a proportion of the tax from dividends subsequently paid to preference shareholders.

In December, 1941, a provision was inserted in the act limiting the period of its operation to six months after the end of the financial year during which the present war with Germany terminates. It will be obvious to honorable members that this provision is inadequate in view of the entry of- other nations into the war. The bill provides for the deletion of the reference to any specific nation with which this country is at war, and makes clear the meaning of the words " present war ". As the law stands at present, serious anomalies will arise when the act ceases to operate. The Commissioner of Taxation will then be precluded from completing any assessments, or from giving effect to decisions upon objections. He may also be precluded from collecting any tax outstanding at, that date. The Government proposes, therefore, to amend the law so that the tax will apply to taxable profit derived up to the end of the financial year during which the war terminates. This provision will enable the department to complete all assessments and to collect all tax in respect of each year to which the act applies.

In common with the Income Tax

Assessment Bill, this bill will also be submitted to the Special Committee on Taxation for examination before the second-reading debate is proceeded with.

Debate (on motion by Mr. Fadden) adjourned.







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