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Wednesday, 16 June 1926

Senator CRAWFORD (Queensland) (Honorary Minister) . - I move-

That the bill be now read a second time.

The bill is designed to provide for the following points which were not covered by the War-time Profits Tax Assessment Act 1924:-

1.   The basis of valuation of live stock for assessments made for the first time after the passing of the 1924 act;

2.   The disabilities suffered by a number of pastoralists located in far distant parts of Australia, through being unable to make a choice of live stock values under the 1924 act, because the time fixed by that act within which the choice could be exercised was too short to meet their cases; and

3.   To remove an anomaly in the shape of a greater amount of war-time profits tax having to be paid by some persons who were on active service at the war, than they would have paid if they had remained in Australia.

The War-time Profits Tax Assessment Act 1924 had provided that in any case where an assessment had been made by bringing live stock to account, the person assessed could elect to have the assessment altered so that the live stock not disposed of at the beginning or end of the accounting periods upon which the assessment was based should be brought to account at a value selected by the taxpayer within the limits of the minimum and maximum values then recently prescribed for income tax purposes. The 1924 Act did not contemplate the possibility of original assessments being made after the date of its commencement, and no provision was made in the act to meet such a possibility. The possibility arose, and, in the absence of any specific provision, the department was obliged to make the new assessments by bringing live stock to account at market values. This course was compulsory, because section 10 of the War-time Profits Tax Assessment Act provides that the profits shall be ascertained according to the same principles as are applied in ascertaining the profits for income tax purposes. The department had therefore to refer to the provisions of the income tax law operating in 1914-15 to 1918-19, both inclusive, That law, through the amendments made by the Income Tax Assessment (Live Stock) Act 1924, provides that live stock shall be brought to account at the value thereof, namely, the market values. Thus the department had to adopt market values in its new war-time profits tax assessments, which were issued for the first time after the 1924 act was passed. This basis had been avoided in existing assessments, by the War-time Profits Tax Assessment Act 1924, as I have already explained, and it was accordingly decided to amend the law so that the new assessments mentioned might also avoid it if the taxpayer so desired. This bill, therefore, gives him a choice between market values and values selected by himself from the limits prescribed for income tax purposes. In regard to the right to select values from the income tax limits, these later taxpayers are placed in exactly the same position as those who had been assessed before the passing of the 1924 act. In order to overcome the effect of insufficient time in some cases having been allowed by the 1924 act for making a choice between the existing assessments and assessments based on values selected by the owner from the income tax limits, certain provision is made in this bill. First of all it covers the case of those who were assessed before the 'passing of the 1924 act, but who did not choose between existing assessments and new assessments based on values selected by themselves. Some taxpayers who failed to select values in time under the principal act would have done so if they had known the exact range within which they could select live stock values. As a matter of fact, the department itself was not sure of the position until more than four months' time after the principal act was passed, and, accordingly, the taxpayers concerned were given a further three months within which to elect. Clauses 2 (a) and '5 of the bill will validate this action of the department. Some taxpayers failed to make" an election of values under the principal act because, through living in remote parts of the Commonwealth, they were not aware of the position rinder the act. Clause 2 (b) will rectify this by giving a new right of election of values to all who did not elect under the principal act. Failure to make an election under this bill in any case within the time stated therein will require the Commissioner of Taxation to amend the existing assessments so that the live stock shall be taken into account at market values. Persons who were assessed after the passing of the 1924 act, and failed to select their values, will be required to state whether they desire to bring their live stock to account at their own selected values taken from the income tax limits, or to- have their live stock taken into account at market values. Failure to make a choice will compel the Commissioner of Taxation to bring the live stock to account in the assessment at market values. The bill will entitle certain persons, who had been on active service, to have their assessments re-opened, in order that the tax assessed may be reduced to the amount that would have been payable by. them if they had not gone on active service. The present anomaly in this connexion is due to the fact that in the existing assessments no deduction on account of Federal income tax could be made, because no such tax was actually payable on account of the active service of the person concerned, and, in the case of a Victorian owner of a business, there was no- Victorian State income tax payable for the same reason, and, therefore, no State income tax was deductible. In the case of a South Australian owner of a business, there was a lesser amount of State income tax payable because of active service outside Australia, so that the deduction in the war-time profits tax assessment in respect of South Australian income tax was less than it would have been if the taxpayer had not 'gone on active service. The lack of deduction on account of Federal and State income taxes meant that the excess profits were greater than they would have been if a deduction of the income taxes had been possible. Thus the war-time profits tax was actually increased through the absence of a provision to meet the position. Partnerships, with one of more partners on active service, were similarly penalized. The remedy is provided by clause 4 of the bill. A suggestion was made in another place that it is desirable to amend the bill, to provide that in certain cases the purchase price of live stock bought by a new business should not be altered to any lower selected value, on the ground that the live stock were on hand at the commencement of the first accounting period of the business. There is no necessity for any amendment so far as regards businesses which must be treated under the law as new businesses. However, the case which has been put forward is not of this class, so far as can be gathered from the meagre particulars supplied during the debate in another place. The impression gained from those particulars is that thesons who purchased their father's business desired to debit their accounts with the purchase price of stock in the sale, and at the same time they desired that they should be granted the pre-war standard of profits which their father would have had if he had not sold the business. Not only does the law not permit these two claims to be granted together, but it would be grossly unfair if it did. The whole scheme of the act is to tax a business either as a continuing business by comparing the wartime profits with the pre-war profits, or as an entirely new one without any reference whatever to pre-war profits which may have been derived by a previous owner of the business. The amendment is, it is thought, desired by certain persons in South Australia expressly to meet a particular case in which they have failed to gain their ends by representations tothe department, but if it were made, it would probably involve the department in many re-assessments of cases that have been long finally settled. It is impossible to say how the particular assessment mentioned would be affected, but if the proposed amendment were granted it would discriminate in favour of that particular business against many hundreds of others which have been similarly affected by the existing law. It has also been urged that for the purposes of section 15 (13) of the War-time Profits Tax Assessment Act 1917-18, the losses mentioned in the section should be ascertained according to the same rules as are applicable to the profits. The department has been advised by the Crown Law Department that the contention is unsound, and should not be allowed, and it has not been allowed. The sole object of the proposal in this connexion is to reduce the liability to war-time profits tax of those pastoralists who may have selected values from the income tax limits. It is claimed that the application of those particular values in the wartime profits tax assessment would produce in one year a fictitious reduction of profits, and in the next year a corresponding fictitious increase of profits, but that over the two years the true position would be disclosed by the accounts. This position could not exist if the proposed amendment were made, because it would be necessary to deduct the fictitious loss from the fictitious profits before making an assessment. The taxpayer would thus escape tax in the first year through the fictitious loss, and again escape tax on the same amount through its deduction from the fictitious profit of the following year. Reason and equity both require that a loss that should be deducted should be a bona fide loss, and, therefore, as advised by the Crown Law Department, the proper way to ascertain that loss in any case is in accordance with the exact facts, and in the light of the true value or market value of any trading stock which may be involved in the consideration. The following proposals have been made for the exemption of persons on active service: - .

1.   To provideinthebill for an exemption from war-time profits tax on similar lines to those provided for income tax by section13 of the Income Tax Assessment Act 1915-21;

2.   To extend the present relief from war time profits tax topersons having a whole or a part interest iu the ownership of a business, notwithstanding the fact that they may not prior to their active service have devoted the whole or the greater part of their time in connexion with the management of the business.

The first of these suggestions was considered when the provisions of the original War-time Profits Tax Assessment Act were considered by the Government of the day, and it was found to be impossible to express the exemption from war-time , profits tax in similar terms to those used in the Income Tax Assessment Act. It was necessary, in the case of a partnership, to bo express the exemption that it would be limited to the particular partner or partners who went on active service, and so that the partner or partners who did not go on active service should pay some tax. It was found that the only way to accomplish this end was to provide for a refund to the active service partners of their share of the partnership tax. If the law had merely expressed an exemption in favour of the partner or partners on active service, it would have been still necessary to assess the business as a business for war-time profits tax, and under the law relating to partnerships the stay-at-home partners would have demanded from the active service partners contributions by them towards the tax assessed on the business. Again, in the case of a shareholder of a company, no exemption would have operated if the terms of the Income Tax Assessment Act had been employed, because that exemption was limited to income from personal exertion and did not apply, therefore, to dividends from companies. There are many small private companies managed by the shareholders which are frequently regarded as being small partnerships. It was necessary to provide that when any of these shareholders went on active service they should receive similar treatment to individual owners or members of partnerships who went on active service. ' The exemption, as it is expressed in the War-' time Profits Tax Assessment Act 1917- 18, is the only way by which all classes of cases may be met, provided it is desired to limit the exemption - to persons who, before they went on active service, were residents of Australia and devoted the whole or the greater part of their time in connexion with the management of the business. This leads me to the second suggestion which was made because of a case in which a member of a partnership who was on active service in the danger zone failed to obtain exemption because he had not previously been connected with the management of the business. It is understood that this person enlisted for active service before he was a partner in the business, and that he became a partner while on active service in terms of his father's will upon the death of his father (luring that active service. The reason for. the condition precedent to exemption of participation in the management of a business was that the Government of the day considered that the exemption should be limited to persons who had given up something to go to the war. If the existing conditions mentioned were removed, then a sleeping partner in a business could, on the score of active service, secure individual relief from the tax, notwithstanding the fact that the business was not in any way prejudiced by his active service. Fundamentally, the sleeping partner and the other person who had not previously bien a part- ner are identical in principle since neither of them gave up anything in connexion with the business upon going to the war. Furthermore, it may be pointed out that if relief were extended to these people they would receive the benefit without any sacrifice on their part in respect of the business, whereas those who remained in Australia to conduct the business for them would pay tax. Generally speaking, it may be said that the bill seeks to remedy the most glaring of the anomalies that have been discovered, To have attempted more would have involved a complete revision of the whole structure of the War-time Profits Tax Assessment Act, although it has ceased to apply to profits earned since 30th June, 1919. That the Government is not prepared to do.

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