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Thursday, 8 December 1927


Senator Sir GEORGE PEARCE (Western Australia) (Vice-President of the Executive Council) [9.16]. - I move -

That the following words be added at the end of proposed new sub-section 2 b : - " and no amount of loss, incurred prior to the first day of July, One thousand nine hundred and twenty-six, or prior to the commencement of any accounting period substituted under sub-section (3 ) of section thirty -two of this act for the financial year commencing on that date, shall be taken into account under sub-section (8) of section thirteen of this act in ascertaining the excess of allowable deductions for the year in which the loss was incurred, which would not have been allowable as a deduction in the assessment of income derived (prior to that date or that commencement) in any financial year or accounting period subsequent to the year or period in which the loss was incurred, if the provisions of this section had been so in force and had so applied."

As it may be somewhat difficult for honorable senators to follow the meaning of the amendment, let me explain that it is to achieve the same result in regard to losses incurred prior to the 1st July, 1926, as the proviso to sub-section 1 achieves in regard to losses incurred on or after the 1st July, 1926. That is to say, it is to prevent the losses from being brought into account twice in ascertaining the average income by reference to which the rate of tax is to be calculated. As the provision stands there will be a double deduction in ascertaining such average income for the purposes of assessments for the financial years 1927-28 to 1930-31, of so much of any loss incurred prior to the 1st July, 1926, as is deductible under sub-section 2 of the new section in the assessments for those years. This position, which will be rectified by the amendment, did not become apparent until the new section had been applied, by way of test, to a number of specific cases.

The explanation of the position is as follows :- Section 13 (8) provides that the excess of allowable deductions over the assessable income of any year shall be taken into account in calculating the average income. If a taxpayer makes a business loss in a year in which he has no income from other sources the amount to be taken into account, as the section 13 (8) excess for that year, in calculating the average income of the next four years will be, leaving out of consideration the statutory exemption, the amount of that loss. Under sub-clause 2 of new section 26 as it- stands, however, the amount of that loss will be "carried forward as a deduction in ascertaining the taxable income of the next year or of the next two, three, or four years, as the ease may require. As deductions in ascertaining taxable income are. also deductions in arriving at the average income, it follows that, unless the case is provided for, there will be two deductions in respect of one loss in arriving at the average income, namely, the deduction of the " Section 18 (8) excess" for the year of loss and the deduction consequential uponcarrying forward thatexcess as an allowance from the taxable income of the succeeding year or years. The proviso to sub-section 1 of new section 26 was inserted to obviate this duplication of deductions, but as the new section is to apply for the first time in assessments of income derived in the year 1926-27, that proviso is limited to losses incurred after the 1st July, 1926, and hence is ineffective to prevent a double deduction of losses incurred prior to that date, some of which losses will,in certain circumstances, be carried forward under sub-section 2 as deductions in ascertaining the taxable incomes of the years 1926-27, 1927-28, 1928-29, and 1929-30. The following example will illustrate the position: - A taxpayer, who commenced business during the year 1925-26, made a loss of £5,000 in that year and a profit of £10,000in the year 1926-27. As the provision stands his average income for 1926-27 would be calculated as follows : -

 

Hence there is no rate to apply to the taxable income of £5,000. In other words, although the taxpayer's net income for the two years was £5,000, he would entirely escape tax. Under the proposed amendment the average income would be calculated as follows: -

 

Taxpayers would be assessed on £5,000 at the rate applicable to £2,500. It is not every loss incurred in the four years prior to the 1st July, 1926, that is deductible in assessments of income derived in the years 1926-27 to , 1929-30, and where a deduction is allowable in those assessments in respect of any such loss, it is not necessarily the whole of the loss that is deductible. The proposed amendment aims at the elimination from the " Section 13 (8) excess " of the year of loss of that part only of the loss which is allowable as a deduction in those assessments. That is to say, a taxpayer who commenced business in 1924-25, made a loss of £5,000 in that year, a profit of £1,000 in 1925-26, and a profit of £10,000 in 1926-27. Under the provision as it stands his average income for 1926-27 would be calculated as follows : -

 

The taxpayer would be assessed on £6,000 at the rate applicable to £666. Under the proposed amendment the income for 1926-27 for averaging purposes would be:-

 

The taxpayer would, -therefore, be assessed on £6,000 at therate applicable to £2,000. The £5,000 loss of 1924-25 becomes £1,000, because £4,000 of that loss is deductible, under new sub-section 2, proviso b, from the 1926-27 income.

Amendment agreed to.

Clause, asamended, agreed to.

Clauses 17 to 32 agreed to.

Title agreed to.

Bill reported with an amendment.

Standing Orders suspended; report adopted.







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