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Thursday, 1 July 1926


Senator CRAWFORD (Queensland) (Honorary. Minister) . - The amendment now proposed by Senator Elliott is no more acceptable to the Government than was his previous . amendment, to which I took exception on the ground that it would not accomplish what the honorable senator desired, and also because it proposed a drastic alteration to the basic principle of the original act itself. As tho honorable senator's present proposal does not differ materially from the amendment which he previously submitted, I must ask the committee to reject it, and also to delete the provisos which were inserted in clause 4 at the instance of the honorable senator. It is contended that these provisos merely remove certain anomalies; but, as a matter of fact, they exempt a large body of wealthy taxpayers whom it was never intended to exempt. If the bill is altered as proposed by Senator Elliott, it will be, not a Government measure, but, to all intents and purposes, a private member's bill. Both the honororable senator's original amendment and his present proposal have received very careful consideration from the taxation authorities, the Treasurer, and the Government; and, although the time at my disposal is limited, I shall endeavour to explain the position as comprehensively as possible. The admitted object of the amendment inserted by the committee, at the instance of Senator Elliott, is to grant relief to sole owners or partner owners of taxed businesses who had not obtained relief under the existing law because they had not devoted the whole or the greater part of their time to the management of the business prior to enlisting for active service. The position under the present law is that relief is granted from tax to -

(1)   a sole owner of a business;

(2)   a partner in a business; and

(3)   a shareholder in a company, the number of shareholders in which does not exceed twenty, subject to the following conditions: -

(a)   That they are residents of Australia.

(b)   That they are on active service outside Australia with the Allied Forces.

(c)   That before enlistment for active service - in the case of a sole owner or a partner, he devoted the whole or the greater part of his time in connexion with the management of the business; in the case of a shareholder in a company, that he was wholly employed in the service of the company.

It will be noticed that the companies mentioned are principally privately owned companies.

(d)   That his military or naval duties required him (at the time. spoken of in the section) to be in the danger zone of the war.

Where the foregoing conditions existed, the relief granted was -

(i)   In the case of the sole owner - exemption from the tax.

(ii)   In the case of the partner - a refund of that part of the tax assessed to the partnership which is proportionate to his interest in the profits of the partnership.

(iii)   In the case of the company shareholder - a refund of the company tax which is proportionate to his interest in the dividends distributed by the company out of the profits assessed.

No difficulty has arisen in the case of shareholders in companies. The only difficulty which has been complained of is that affecting sole owners and partners in the ownership of a business who had not devoted the whole or part of their time in connexion with the management of the business prior to their enlistment. Wheu the present law was framed, the Government of the day gave exhaustive consideration to all phases of the subject. Consideration had first of all been given to the question of granting an exemption from war-time profits tax for reasons similar to those which had been adopted by the Parliament for purposes of exemption from income tax. It was found, however, that exemption from war-time profits tax could not be expressed in a manner similar to that used in the Income Tax Assessment Act, because the war-time profits tax is a tax on a business irrespective of the character of the ownership, whether it be a sole owner, a partnership ownership, or a company ownership. It was, therefore, necessary to provide a special expression of the personal relief which was to be afforded to the sole owner, the separate partner, and the employee shareholder. This was done. The basic principle finally adopted by the Government was that relief from tax should be granted to those individuals who were residents of Australia, whose absence on active service was likely to prejudice the business, and whose active service exposed them personally to risk of injury or death in the danger zone of the war. It was considered that a business would be prejudiced by the absence of an owner who had been actively associated with its management, but that it would not be prejudiced by the absence of any other person. The arguments which have been advanced for and against the proposed extension of the present relief to those who were on active service in the danger zone, notwithstanding that they may not, prior to enlistment, have devoted the whole or the greater part of their time in connexion with the management of the business are as follow : -

For the extension -

(1)   That it is unfair to any person who went on active service to be penalized by being required to pay war-time profits tax. That, as relief has been granted to one class of soldier, it should be granted to all. That all those who went on active service did so at the call of their country, and each made some sacrifice for the country.

(2)   That it was the clear intention of the Parliament to make no distinction between persons who went on active service, as evidenced by the exemption granted under the Income Tax Assessment Act.

It has to be observed that persons who went on active service in the war were not entirely exempt from income tax. They were only exempt in respect of income from personal exertion. If they had sufficient income from property to render them taxable, they were taxed. It has wrongly been assumed by many people that complete exemption from income tax had been enjoyed by persons on active service.

Against the extension -

(a)   There isno fundamental difference between charging war-time profits tax on the profits of a business derived during the absence of the sole or part owner of the business where that person had not previously engaged in the management of the business, and charging income tax, as was done, on income from property which accrued due to a person on active service during that service. In neither case did the person concerned do anything in connexion with the active production of the income. His business in the one case, or the investment source of his income in the other, was not affected in any way by his absence on active service.

(b)   There is no hardship to a person who is required to pay war-time profits tax in cases in which that person has done nothing to acquire the business, but has inherited it during the period of his active service, and who previously was not in any way associated with the business or its management. As an example -

A carried on a business in Australia.

He had several sons, but none was connected with the management of the busi ness in any way. One son was in England at the outbreak of the war. He enlisted with the British Forces. During the war A died, and under his will his sons inherited his business. The son on active service did not take any part in the business until his return to Australia from active service. He did nothing to gain or conduct the business. The proposal under consideration would, however, grant him a refund of the share of the war-time profits tax assessed to the business which is proportionate to his capital interest in the business. If his father had lived, the tax would have been paid by him without any diminution on account of the absence of his son on active service. As the assessment was made on the business as distinct from the owners, the sons have merely paid the tax which their father would have paid. There does not appear to be any good ground for granting a refund to the active service son, while his brothers would get no relief, although they kept the business going for the benefit of themselves and their absent brother.

(c)   The proposed extension would also benefit an individual owner, whose business was entirely managed for him by a non-relative. This person did not manage his business, because, it is understood, his health precluded active association with it. He went on active service; but the business did not suffer on that account, nor did the owner make any sacrifice in respect of his business by going on active service.

(d)   Benefit would also accrue to a sleeping partner who had no connexion with the management of the business.

(e)   Hard cases are inseparable from any legislation. This possibility was known at the time of the preparation of' the wording of the 1917-18 act, which grants the present relief in specified circumstances.

The only way by which all possible hard cases now existing might be considered in relation to other cases, is to have each war-time profits tax return examined for the purpose of extracting a complete description of the circumstances connected with each case in which an interested person on active service had not received relief from tax. There is not sufficient information in hand at present to render successful any attempt to express an amendment which would limit an extension of the existing relief to particular cases.

Sitting suspended from 6.30 to 8 p.m.







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