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Thursday, 25 November 1965


Mr CLEAVER (Swan) .- Mr. Deputy Speaker,this afternoon we are dealing with a very important measure related to the assessment of income tax. I am delighted that the honorable member for Melbourne Ports (Mr. Crean) is now supported in this debate by the presence in the chamber of a few of his colleagues. I cannot help recalling that Opposition members in recent days, in their friendly fashion, have accused Government supporters of not supporting certain proposals that have been discussed. A few minutes ago the honorable member for Melbourne Ports had only one supporter, but I am pleased to say that some of his colleagues have now joined him in the chamber. The Income Tax Assessment Bill is a very important measure indeed. We realise that it will amend only a few sections of the principal Act. But I want to place on record the fact that this measure represents only the first attack by amendment of the existing law which unfortunately is not in a very tidy state. As a matter of fact, some of us consider that the income tax legislation has become so complex as to make it easy for the Government to allow it to be amended in the way in which it was amended last year. Well have we been criticised for this. Today there are some who would say that the ta legislation is in quite a mess. Indeed, some honorable members on this side of the House are encouraging the Government to put the situation in order with a minimum of delay. Those of us who suggest that this be done have accepted a fairly firm assurance by the Treasurer (Mr. Harold Holt) that because the present Bill goes only part of the way we shall be given an opportunity early in the first sessional period of 1966 to rectify other defects in the law. We shall bear that assurance in mind. We are quite sure that it will be honoured.

I remind honorable members and myself that if we look back into recent history we can see that various Commonwealth governments have periodically called in experts in the tax field. I emphasise the need to call in the experts, Mr. Deputy Speaker. I am one who believes that study of the tax laws, with all their complexity, is not the sole right and prerogative of the highly trained and devoted officers of the Taxation Branch. A responsibility Falls also on the elected representatives of the people in this Parliament. But a representative of the people, whether he be a member of this House or of the other House, or whether he be a member of the Ministry or of the Cabinet, is simply not sufficiently in touch with the day to day activities of commerce and the complexity of the tax laws as it is seen in the commercial world to be qualified to sit on specialist committees such as a select committee or some standing committee concerned with the tax field. While we can make a helpful contribution through our Government or Opposition members committees I firmly believe that not one of us is in a position to grapple with these complexities and to- guide the Government to satisfactory decisions on any major feature of the tax laws. In saying that, I do not write down my own ability or the dedication and ability of my colleagues. We, as representatives of the people, must give our attention to 101 things. I believe that we need the guidance and assistance of men who are employed virtually full time in the tax field, whether on the legal, the accountancy or the advisory side.

In the past governments have appointed ad hoc commissions or committees to report on specific aspects of our tax laws. They were considered from 1932 to 1934 by the

Federal Royal Commission on Taxation - the Ferguson Commission. In 1954 there was appointed the Commonwealth Committee on Income Tax Allowances for Depreciation, which met under the chairmanship of our present Postmaster-General (Mr. Hulme). In 1950 the first Commonwealth Committee on Taxation was appointed. Then, as we well know, in 1959 and 1960 the second Commonwealth Committee on Taxation met under the chairmanship of Mr. Justice Ligertwood and in 1961 presented a most comprehensive and valuable report. Each of these inquiries, which usually involved the part time services of accepted authorities on tax matters, as we recall, produced useful reports after receiving evidence from representatives of both those who administered the tax laws and the taxpaying groups in the community. I point out that the methods adopted in Australia have provided no constant or regular review. So again today I ask in this House for the appointment of a standing review committee on taxation. This committee should be appointed under the Act and the burden of resolving tax problems should not be placed on the shoulders of members of the Parliament. The members of the committee should be drawn from the ranks of those concerned with the legal, accounting and advisory aspects of taxation in the commercial world. This field includes men who have been members of bodies that conducted earlier inquiries. In addition there are highly qualified men, some of whose names come to my mind now, who are associated with the writings that today represent the reference books for those who are concerned with the operation of our tax laws. These are men whom, I believe, the Government might well call to take their places on a standing review committee on taxation.

I have made my point. As I have said, I believe that my parliamentary colleagues and I are simply unable to give sufficient time, and have not sufficient up to date experience to give, to this task. No doubt many honorable members are aware that in recent months the Taxpayers Association of Australia has advocated a statutory committee, but has emphasised that in its view such a committee should he modelled op the Tariff Board. When the Treasurer replied to the Association's representations and rejected the proposal he based his objections largely on the suggestion that the proposed committee be modelled on the Tariff Board. I believe that the proposal that I make again today for the appointment of an advisory committee to review each item of the tax laws falls into a category altogether different from that into which the committee recommended by the Taxpayers Association would fall. I believe that such a review committee, in setting its own programme, could move progressively through the various classes of taxation legislation, such as estate duty, gift duty, pay roll tax and sales tax, and of course keep under constant review the now massive document that we know as the Income Tax and Social Services Contribution Assessment Act, which is to become the Income Tax Assessment Act.

The major headaches of the departmental officers might well be transferred to the review committee for deep and fundamental research. From the Government there could be remitted to the review committee items that the parliamentary members from time to time might highlight. But do not let it be thought that my advocacy here is that the Government has everything to do in this field in the interests of the taxpayer. I admit that we have much that we should and must do for the taxpayer, but I believe that the taxpayer himself must be challenged to do more for the business community and for himself. In making that assertion I am well reminded of the deep impressions that I gained on my visit to Toronto, Canada, just 12 months ago. I was in that great city for only a few days, but one of the purposes of my going there was to make contact with the Canadian Tax Foundation. My session with the Director of the Foundation was valuable. I have here the letters patent and by-laws of this organisation. I should like to point out that its objects are -

To encourage study, research and investigation in the field of taxation and economics insofar as the various laws and Statutes of the Dominion of Canada, or any of the Provinces thereof, and regulations passed thereunder may affect the enterprise of its citizens or in any way hinder the expansion of Canadian industry and trade; and

To make reports and suggestions to Governmental authorities for changes in the various laws and regulations which in the opinion of the directors of the Corporation may in any way interfere with the growth of Canada.

They are, indeed, very commendable objects. But then in the other documents that I brought home from the Canadian Tax Foundation I find that there are points of distinct interest, I am sure, to my friend the honorable member for Melbourne Ports during whose very good speech last night I interjected about this aspect of review committees.

Dealing with research, the Foundation in Canada emphasised that tax research is not unlike any other form of organised investigation. The basic assumption is that there are suitable and unsuitable ways of arranging the fiscal structure of a country and of imposing taxes and that these ways may be determined by the establishment of the facts and the consideration of those facts in an objective fashion. The Foundation further suggested that it involves the continuous study of tax problems by persons trained in the relevant principles, policies, laws and practices; but to be effective this type of tax research must be carried on independently of either taxpayers or tax authorities. That is why I would not be a party to the establishment just within our own estimable Taxation Branch of a research organisation. It must be practical and work towards practical objectives, and it must be conducted by a permanent, full time, well qualified staff of experts. That is what the Canadian Tax Foundation has. We note with interest that the Foundation in Canada receives no financial assistance whatever from governments. It is selfsupporting.

Going further on the important aspect of research, I want to point out to the House that comprehensive studies are carried on by the staff and outside experts in the major fields of Federal, provincial and municipal taxation, from those at the top level down to those at the municipal level, and the subjects covered include income tax, capital gains, computation of business income, undistributed income, double taxation of corporate income, taxation of international investment, the problem of co-operatives, regional taxation incentives, appeal procedures and so on. They do not neglect the other avenues which I have mentioned today - sales tax, succession duties, estate tax and natural resources taxation, which evidently find a place in their prgramme, and municipal taxes. As in any voluntary organisation of this kind, the life of the Foundation in Canada depends upon the financial support given by its members. Its revenues come solely from the contributions of corporations and individuals since it receives, as 1 have said, no contribution whatever from government sources. About four fifths of the present revenues today are coming from corporations with the balance coming largely from individual memberships. For those who may be interested I should be happy to share the interesting contents of the last report, which is the 18th annual report of the Foundation in Canada. The contributions in the last financial year continued at a high level, both in numbers and amounts, and the total subscription income was 176.000 dollars. Time does not permit me to amplify that further but I suggest that people in Australia who are thoughtful and constructive in this field of taxation should recognise that business and individuals in a corporate fashion, like this Foundation in Canada, can do much to help themselves as well as the Government.

Let me comment now on the Bill. Several of my colleagues have dealt with important aspects in detail. I hope, therefore, that I do not need to take very many moments. I do not desire to be repetitive, but some of the points "are so important that they should be underlined. This Bill makes certain provisions relating to superannuation funds, among other items. The 1964 amendment to the Income Tax and Social Services Contribution Assessment Act severely affected these funds which we regard so highly. My colleague the honorable member for Sturt (Mr. Wilson) has again and again pointed out the value of superannuation in preparation for one's retirement and, apart from that, the amount that is so saved and invested is in the interests of this growing country. We know that the Association which has made representations to the Government represents a vast number of these traditional funds controlling investment today well in excess of £300 million. The legislation put through hurriedly at the end of last year did the very thing which the Ligertwood Committee warned against. It presented an impossible situation for genuine superannuation funds.

I have mentioned the importance of the funds and I go on to say that the outcry against the amendments of last year brought during the course of this year the announcement by the Government of certain new amendments and the issue from the Taxation Commissioner of his Public Information Bulletin. These booklets represent a very estimable procedure which has been adopted this year to make known the views of the Commissioner and his officers on current legislation. This particular Bulletin, which was No. 6, dealt particularly with the impact of last year's amendments upon the superannuation funds and the rethinking that had been given to the problem. The Association of Superannuation and Provident Funds of Australia has indicated clearly to the Government its gratitude for its co-operative spirit displayed this year. It indicated that some of the amendments which have been agreed to, and which now find a place in the Bill before the House, are very acceptable. Unfortunately the Association had to point out to us as Government supporters and members of the House that the amendments did not go far enough.

Influenced by the reports and proposals from the Association, private members on the Government side have worked assiduously under the chairmanship of the honorable member for Parramatta (Mr. Bowen) who spoke in the debate at an earlier stage. We have worked to unravel the complexity of the law and have tried to influence the Government to bring the legislation back to the concept of the Ligertwood Committee. The Association of Superannuation and Provident Funds of Australia pointed out that the nine tests mentioned in section 23F were probably beyond fulfilment by every genuine fund and that this placed the matter under the discretionary power of the Commissioner of Taxation.

I turn now to section 23f (2). As my colleagues have indicated, it is felt that a distinct improvement to this section would be the omission of the words, " the Commissioner is satisfied that". The Commissioner now has a discretion. He is required to be satisfied that the nine tests mentioned are met by the funds. At present, if the trustees find themselves in conflict with the opinion of the Commissioner, they have access only to a Board of Review. If the words. " the Commissioner is satisfied that", were deleted, the situation would depend upon a question of fact - was each of the tests met by the fund? In that case, the trustees not only could take the dispute to a Board of Review but they would also have the option of taking it further, either to the Supreme Court of a State, or the High Court. Because of the negotiations which have taken place subsequent to those very helpful representations by the Association of Superannuation and Provident Funds of Australia, I expect the Government to accept an amendment along these lines.

There are other matters connected with section 23f which require attention, as has been mentioned by my colleagues. For example, the trustees of a fund are required to show that an employer had contributed to the fund in the year of income in respect of every employee. We understand that the Government is prepared to accept an amendment designed to modify this requirement. Under the Act as it stands, a breach of this condition would attract, as the honorable member for Sturt - the chairman of the Government Members' Committee on Taxation and Finance - has said, a penalty tax of 10s. in the £1 on the whole of the income of the particular fund. We believe that if the words, " in respect of that employee" are removed from paragraph (b) of section 23f (2) the relief that is desired will be achieved.

My colleague from Sturt pointed out a few moments ago in a very strong fashion, how other requirements which we now expect to be amended place upon the trustees of funds a quite impossible task. They virtually call for a procedure which has never before been known in the long history of some of the funds and which would come to some of the workers in large organisations as quite surprising and novel.

I acknowledge that the Bill includes provisions other than those about superannuation funds about which I have spoken in a general manner. A number of them have been mentioned by previous speakers. One which I feel that I, too, should comment on in particular is the recognition that a fundamental change in accountancy approach was introduced in connection with machine conversion costs which will be faced by industry and commerce with the introduction of decimal currency in February next year. There were some of us who looked in complete dismay at the relevant provision in this Bill. The Taxpayers Association of Victoria, recognising that this was fundamentally unsound, made its representations. My friend and colleague the honorable member for Henty (Mr. Fox) has had quite an influence in pointing this out to the Government, and we are glad to know that an amendment which will apply the traditional practice in relation to depreciation and involuntary expenses will be accepted. We understand that when the conversion costs are faced by industry the compensation received from the Decimal Currency Board will be taken, in the year in which it is received, as a direct deduction from the written down value of the machines in question, and then the full cost of the repairs will be allowed as normal expenses again in the year in which they are incurred. So we find a rectification of something which was fundamentally wrong. What surprised me in respect to this was the original adoption of such a principle. Now, fortunately, we expect it to be corrected.

The only other item that I want to comment on is covered by clause 20 which deals with the beneficial ownership of, or rights attached to shares. This is linked with the vexed question of the acquisition of a loss company. Well do we recall that the Ligertwood Committee pointed out that probably the avoidance of tax was costing the Consolidated Revenue Fund something in the region of £14 million per annum. We recognise that there are devices that some organisations have adopted for tax avoidance or evasion. Any honorable member who knows anything about the importance of taxation laws will carry no brief for a continuance of those conditions. However, there are certain things which have become traditional in taxation and there are certain things which may, for a limited time at least, find a place in the law. What concerns some of us is that as amendments were brought down last year, and as people were informed that they had become law, we ought to be fair when another quick amendment is introduced some months later.

On page 59 of the explanatory memorandum may be found an explanation of why the current amendments contained in clause 20 are required. I suggest that the explanation cannot be easily reconciled with the wording of the Bill. It seems to me that the intention of the Government was to relieve the taxpayers of some of the severity of the legislation of last October and November. But the very reverse seems to have occurred. The taxpayer who acted in good faith under the 1964 Bill is now put in a much worse position. I suggest, therefore, that the amendment which we propose to clause 20 should be accepted by the Government. Representations to the Treasurer have been made accordingly. I believe it to be essential that the clause should expressly exclude contracts completed between the time when the Act was last amended in 1964 and the time of introduction on this Bill. In other words, I do not think we can justify any retrospectivity. If this amendment is not accepted, I believe that the Government could well be accused of leading the taxpayers up what I might well term a tortuous and expensive path over a period of 12 months, only to compel them - not just invite them - to go back to the commencement of the trail and begin their exercise again.

I am pleased to make these comments upon a Bill which I think goes part of the way - perhaps a very small part of the way - towards eliminating the difficulties caused by the amending legislation of 1964.

I commend the Government for many of the provisions that are in the Bill. I point out that the Government is not yet attempting, in the field of partnerships and trusts, to correct some of the anomalies, some of the errors of judgment, and some of the unjustified severity against which Mr. Justice Ligertwood and his Committee warned by drawing particular attention to the need for genuine funds and genuine people not guilty of evasion or avoidance of tax to be protected.

As amendments are brought in to shut the door on the avoidance of such an alarming amount as £14 million, which by right should find its place in the Treasury of the Commonwealth, we should take extra steps in accordance with the suggestion of the Ligertwood Committee to see that other honest taxpayers are not injured. We must keep this in mind and I, and my colleagues on this side, will be assiduous in the months ahead to do further research to try to locate the defects and to recommend strongly to the Government the type of action required. We accept gladly the assurance of our colleague, the Treasurer, that we will be given every consideration when our report is presented. It is my hope that as we come into the new parliamentary year of 1966 we will see further amendments that will put at rest the minds of so many people in the community. I commend the Bill and look forward during the Committee stage to being associated with some of these commendable amendments that my colleagues and I have mentioned.







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