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Tuesday, 23 October 1956


Mr SPEAKER - Order! There is too much audible conversation in the chamber. I must ask honorable members to be silent.


Sir ARTHUR FADDEN - The interruption is very disturbing, Mr. Speaker, lt is proposed also that subscriptions to hospital and medical benefits funds shall be removed from the class of payments subject to the new maximum of £300. It is thought to be more appropriate that these subscriptions should be allowed as separate deductions. The adjustments I have mentioned will apply as from 1st July, 1956. Another amendment relating to hospital and medical benefits funds will exempt the income of such organizations which are registered under the National Health Act 1953-1955. This exemption will afford substantial assistance towards consolidating the assets of the funds in the interests of members It will be noted that the amendment will operate as from 1st January, 1952, and accordingly will apply to the income of funds registered for purposes of the national health legislation in force prior to the present National Health Act. Any income tax that may have been paid by these registered organizations will be refunded. lt is proposed also to increase the special deductions allowed to residents of isolated areas - generally known as zone allowances. Residents of the more remote area - Zone A - are at present allowed an annual deduction of £120. This deduction will be increased to £180. Residents of Zone B are allowed an annual deduction of £20. which will be increased to £30. The increased deductions will apply as from 1st July, 1956. It is further proposed to extend, as from 1st July, 1956, the area of Zone A to include a substantially greater portion of Western Australia, the whole of the Northern' Territory, and that part of western Queensland west of the 141st meridian of longitude, which is now in Zone B. As a result, the annual deductions allowable to residents of such centres as Alice Springs, in the Northern Territory, Carnarvon, . in Western Australia and Birdsville, in Queensland, will be increased from £20 to £180.

Another concessional allowance which is being increased is the deduction for education expenses incurred by a taxpayer in the full-time education of his own children under 21 years of age, or other children under that age who are dependent upon him. As honorable members know, since this concession was introduced by the present Government in 1.952, it has won approval in all quarters. When first introduced, the concession covered actual payments to schools, colleges and universities and it was subject to a maximum deduction of £50 in respect of each child. On that occasion, however, I promised that the allowance would be reviewed in the light of experience and that it would be extended if found necessary. In pursuance of that promise, the maximum was raised to £75 in 1953, and the allowance was broadened to include such necessary expenditure on education as the cost of text-books and fares to and from school. Following a further review this year it has been decided to increase the maximum deduction, in respect of each child, to £100. The increase will apply as from 1st July, 1956.

It is proposed also that the concessional allowances for gifts of £1 and upwards to specified funds, authorities and institutions in Australia shall be extended as from 1st July, 1956. Deductions will be allowed for gifts to the Commonwealth, where those gifts are made for the specific purpose of promoting research in the Australian Antarctic Territory. This allowance will be consistent, in principle, with the present deduction for gifts to approved research institutes for the purposes of scientific research. Deductions will also be allowed for gifts to the Royal Australasian College of Surgeons, the Royal Australasian College of Physicians, the Australian Regional Council of the Royal College of Obstetricians and Gynaecologists, the New South Wales College of Nursing and the College of Nursing, Australia. The activities of these colleges are directed towards the promotion of post-graduate training and research in the fields of surgery, medicine and nursing, lt is proposed also to allow deductions for gifts to the Council for Christian Education in Schools. The function of the council is to supervise the work of teaching Christian faith and conduct in government schools. It has been recognized by the legislature of Victoria as the accredited body in that State for this purpose. 1 turn now to those clauses in the bill which relate to the taxation of members of the defence forces. Since 28th June, 1950, when Commonwealth forces first became engaged in operations in Malaya, the pay and allowances of members of the Australian military and air forces allotted for duty in Malaya have been exempt from income tax. The exemption was not expressed to apply to Australian naval forces, as Australian naval vessels were not then operating in Malayan waters. Since 1st July, 1955, however, Australian naval personnel have been serving in the Malayan area as part of the Far East Strategic Reserve. It is proposed, as from 1st July, 1955, to apply the exemption to the pay and allowances of these members of the Australian Navy. While these exemptions have been thoroughly justified over the last six years, it has been thought necessary, in the light of changed circumstances of service in Malaya, to discontinue the exemptions as from the date on which the amending legislation now before the House receives the Royal Assent. At the same time, however, personnel serving in the Malayan area will become eligible for an annual deduction of £180 as from 1st July, 1956. Consistently with the proposed increase in zone allowances, the present deduction of £120 provided for members of the Australian Defence Force serving in certain other overseas localities will also be raised to £180 as from 1st July, 1956.

A subject which has engaged the attention of the Government is the provision of income tax allowances for expenditure on capital assets which, with the passage of time, lose their value. There will be general agreement, I feel sure, that where assets are acquired and used to produce assessable income and those assets are not of an enduring nature, the capital expended on the assets should be deductible for income tax purposes. This principle is recognized in the present income tax allowances of depreciation on plant and machinery and on capital expended in the mining industry. In considering this matter, the Government has had the assistance of the valuable report submitted last year by the Commonwealth Committee on Rates of Depreciation. T wish to pay my tribute to the work of that committee which examined the subject under the able chairmanship of our colleague, the honorable member for Petrie (Mr. Hulme). For reasons which have been stated on other occasions, it has not been found practicable, up to the present, to give effect to recommendations of the committee relating to depreciation allowances generally. As a step towards implementation of the committee's proposals, however, it has been decided to provide deductions for such expenditure as the cost of access roads in the timber industry and the cost of developing or purchasing patents, registered designs and copyrights.

So far as access roads are concerned, the proposal is that the cost of an access road constructed after 1st July. 1956, will be deductible by annual instalments over the estimated period during which the road will be used for the purpose of providing access to a stand of timber. There will be cases, no doubt, where a road will serve this purpose for a period estimated to be longer than 25 years, for example, a road giving access to an area where re-afforestation is undertaken. In a case such as this, annual deductions for the capital expended on the road will be based on a maximum life of 25 years. A proportionate part of the cost of an access road constructed prior to 1st July, 1956, will also be deductible if the road is still in use after that date for the purpose of gaining access to timber. In such a case, the cost of the road will be allocated between the period of its use prior to 1st July, 1956, and the estimated period of its use after that date. The part of the cost allocated to the latter period will be deductible.

Concurrently with the amendment to authorize the deduction for the cost of access roads, it is proposed to remove certain limitations in the present income tax allowances relating to the felling of timber. Broadly, it is proposed to allow expenditure to acquire standing timber or a right to fell timber. The annual deduction will be the part of the expenditure proportionate to the timber felled in the year. These deductions will be allowed in all cases where assessable income is derived in consequence of the felling of the timber - whether by direct sale of the timber, its use in manufacturing processes, or by way of royalties from the granting of a right to fell the timber.

Another proposal relates to the basis of assessment of insurance moneys recovered in consequence of the destruction by fire of planted forests. At present, taxable insurance recoveries are included in assessable income of the year in which they are received. It is proposed that the taxpayers concerned should have a choice of including one-fifth only of the insurance recovery in the assessable income of the !year of receipt and one-fifth in each of the next four succeeding years. This amendment, which applies as from 1st July, 1956, is consistent with similar legislation introduced by the present Government in 1952 in regard to insurance recoveries received by primary producers on the loss of livestock.

Ant .ner recommendation by the Hulme Committee which is being given effect to by this bill relates to expenditure on those assets which may be described in general terms as rights in industrial property - that is, patent rights, registered designs and copyrights, lt is proposed to allow annual deduction of such expenditure proportionately over the period of the right, commencing with the year of income in which the right is first used for the purposes of producing assessable income. Under Australian law, the normal life of a patent right is sixteen years and of a registered design, fifteen years. The normal period of copyright is for the life of the author and 50 years afterwards. These allowances will apply to all expenditure of a capital nature incurred on the development or the purchase of a patent, registered design or copyright, or on the purchase of a licence to use a patent, registered design or copyright.

The deductions authorized in these new provisions will commence to operate in the income year 1956-57, and will apply to rights existing at that date as well as to future rights. In the case of existing rights, the deduction will be calculated on the basis of the written-down value at 1st July, 1956. In addition, original registration fees and periodical renewal fees paid after 1st July, 1956, will, in all cases, be allowed as an outright deduction in the year in which the expenditure is actually incurred.

Another amendment arising from the Hulme Committee's report is a provision designed to adapt, as a continuing feature of the income tax law, special war-time provisions which related to insurance and other recoveries on assets lost or destroyed. As honorable members may know, the system of depreciation allowances for income tax purposes comprises, not only annual deductions based on the cost of each unit of plant or other depreciable asset, but also balancing adjustments when such assets are disposed of, lost or destroyed. Any deficiency of depreciation which is evidenced on the disposal, loss or destruction is allowed as an additional deduction. Where, on the other hand, the consideration receivable for the asset exceeds its written-down value, the excess, to an extent not greater than the depreciation deductions previously allowed, is included in assessable income.

For the purposes of the balancing adjustment, insurance or other moneys recovered on the loss or destruction of an asset are regarded as consideration receivable for the -asset. To an extent not greater than the depreciation previously allowed, therefore, 4he excess of the insurance recovery over the written-down value of the asset is required to be included in assessable income.

In some cases, however, this results in -u substantial amount being added to the -assessable income of one year. To assist in financing replacement of the asset, -special provisions were introduced during "World War II., which had the effect of -modifying the balancing adjustment in relation to insurance and other recoveries on Assets lost or destroyed during the war. Broadly, the taxpayer was given an option, in lieu of being assessed on the balancing adjustment, to set off an equivalent amount against the cost of the replacement asset or against the value of any other assets subject to depreciation. The Government has decided to adopt, commencing with the income year 1956-57, a proposal by the Hulme Committee that taxpayers should be given a similar option in regard to any insurance recovery in respect of the loss or destruction of depreciable assets.

An amendment proposed in this bill relates to the provision which authorizes the deduction of losses incurred by a taxpayer during the period of seven years preceding the year of income. It is expressly stated in the present law that no deduction shall be allowed of losses incurred prior to the dates on which a taxpayer becomes bankrupt or is otherwise released from his debts by the operation of the Bankruptcy Act. In the generality of cases, this prohibition operates fairly, as there would be no justification for allowing a taxpayer a deduction in respect of a debt which he did not actually discharge.

From several quarters, however, the Government has received requests for a relaxation of this prohibition. The representations have been mainly directed towards allowing a former bankrupt to deduct debts which he has paid voluntarily after his discharge from bankruptcy. There is considerable merit in these claims and, accordingly, it is proposed to allow a deduction, in the year of payment, for debts so paid, to the extent that the taxpayer is able to demonstrate that the debts had entered into the calculation of a business loss, the deduction of which has been denied to him. In its practical effect, the amendment will apply to payments made on and after 1st July, 1956, on account of debts incurred by the taxpayer within seven years prior to the year of payment.

Clauses of the bill propose relaxations of certain conditions attached to the exemption of dividends paid by private companies out of funds which have borne undistributed income tax at shareholders' graduated rates of tax. These conditions are, firstly, that the dividends are paid wholly and exclusively out of the taxed funds; and, secondly, that the dividends are paid on shares by reference to which the undistributed income tax was calculated. These conditions were first established many years ago when the system of taxation of private companies was very different to that operating to-day. Experience has shown that the conditions have affected private companies and their shareholders in an uneven manner and have unduly hampered the taxpayers concerned.

As the conditions were, in effect, part of a system of private company taxation which was replaced four years ago by the present system, it is thought that the time is now opportune for the removal of those conditions. Provisions to this effect are included in the bill and will apply to dividends paid on and after 1st July, 1956.

It is proposed in the bill to give formal legislative effect to Article 13 of an agreement dated 26th November, 1949, between the United States and Australia, generally known as the Fulbright Agreement. In this article, it was agreed that grants by the United States Educational Foundation in Australia to students and research workers should be exempt from income tax. Until recent times, it was not necessary to provide a specific exemption of these grants in the Assessment Act as the grants were made to students in circumstances that caused one of the present exemptions to apply. More recently, however, visiting professors, lecturers and research workers have received grants to which the present exemption does not apply. It is now proposed to amend the assessment act to provide specifically for the exemption of all grants by the foundation.

The bill includes several other amendments mainly of a drafting and machinery nature. These may more appropriately be explained in a memorandum on the bill which is to be circulated for the information of honorable members. In that memorandum the opportunity will be taken also to furnish a more detailed explanation of the amendments to which 1 have referred in the course of this speech.

Debate (on motion by Mr. Crean) adjourned.







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