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Wednesday, 20 May 1936


Senator E B JOHNSTON (Western Australia) .- 'This bill is the result of agitation in Australia for many years past for simpler and more uniform taxation methods, which can be easily understood by those who have to pay taxes. It is desired that taxation assessment methods shall be similar throughout the field of the seven taxing authorities. As the result of that agitation, the Federal Government appointed a royal commission in 1932, consisting of Sir David Ferguson, and Mr. E. W. Nixon, who were empowered to inquire into and report on the simplification and standardization of taxation law in the Commonwealth and the States. I desire to associate myself with the tributes which have been paid by both the Minister in charge of the bill (Senator A. J. McLachlan), and the Leader of the Opposition' (Senator Collings) to the members of the royal commission, and to those State and Commonwealth Ministers and taxation officers to whose efforts the bill in its present form is due.

The Leader of the Opposition started his speech and ended it by advocating the Labour party's visionary plank of unification, which is entirely opposed to the contract as understood by the States when they entered into federation.


Senator Brown - Why is it visionary?


Senator E B JOHNSTON - It is unjust, at any rate, and, as far as Western Australia is concerned, it is also visionary, because the people of that State, by a two to one majority have expressed their opposition to it, and their preference for complete self-government. If I thought that this bill represented a step in the direction of unification, I should oppose it at every point. But, of course, it really has nothing whatever to do with unification, which is opposed throughout the Commonwealth by at least two of the great political parties, and in Western Australia is opposed by every section of political thought. I refer the Leader of the Opposition to the opinions expressed some time ago by the Labour Premier of Western Australia, Mr. Collier, in an interview published in the press. In the course of that interview he opposed unification, and went so far as to say that unification would mean ruin to the people of Western Australia.

To the extent that this measure simplifies and renders uniform our taxation laws, it will be regarded as a valuable and acceptable addition to Commonwealth legislation, particularly when the States observe their obligation to pass complementary legislation, based on this measure and on the recommendations of the royal commission on taxation. Uniformity is very desirable as long as the basis of taxation is just. There is a feeling, however, that the tax gatherers are taking advantage of this opportunity to tighten up the law, and to increase the burdens of taxation borne by primary producers. I admit, that relief has been given in some directions, but the cumulative effect of the provisions of the bill operates against the primary producers, and will increase the total burden of the federal taxpayer.

This legislation is very complicated, and requires detailed examination in committee. It is really a matter for accountants and experts. If, however, the States bring their income-tax legislation into line with this federal measure, other than in respect of the amount at which taxation of income commences, p heavy increase of State taxation must follow. Speaking generally, State taxation has been more reasonable, and the exemptions under it are more generous, than under federal law. Uniformity of taxation legislation is desirable, but I hope that the federal taxpayer and the State taxpayer, the same individual, will not be asked to shoulder too great an increase of the general taxation burden for the sake of uniformity. If the States' bring their legislation into line with this bill there must be a withdrawal of many of the concessions which the States are at present granting. Thus, uniformity, if attained, will lead to a considerable increase of the amount of taxation collected through Federal and State sources combined. It seems to me that the increases are particularly directed against graziers, farmers, and pastoralists. I wonder, also, whether uniformity is to extend, not only to income-tax legislation, but also to the whole range of taxation covered by the royal commission's report. As indicating the differences which exist in the taxation systems of various States, it is interesting to recall that New South Wales, alone of all the States, imposes no State land tax. All the other States, smaller in population and poorer in resources and taxable capacity than New South Wales, have State land taxes of varying, but generally, heavy incidence. New South Wales, which has more than one-third of the population of Australia, and considerably more than one-third of its wealth, particularly in the form of land value, is very fortunate in having no direct State land tax upon those enormous land values. The bringing of State income tax into line with the federal measure will, therefore, impose a heavier burden on the residents of the land-taxing States such as Western Australia, than on the residents of New South Wales, who have so far escaped the heavy direct taxation on land which is a feature of the budgets of all the other States, and of the Commonwealth.

Of course, when the Constitution was framed, it was never anticipated or intended that the Federal Government would enter the field of direct taxation of income. The power to tax income was included only in the closing stages of the Federal Convention, and it was then regarded as an emergency power which, it was said, would be used only in times of national emergency such as war. However, with the growth of the federal octopus we find that the Federal Government has duplicated almost every avenue of taxation which the fathers of federation intended should be reserved to the States, and there seems to be little hope that it will retire from any field of taxation which it has once invaded. Thus, we have duplicated State and Federal income taxes, State and Federal land tax, and State and Federal probate duty. In every case the State and Federal governments each insist upon bleeding the unfortunate taxpayer alike in life and in death. A few years ago, Mr. S. M. Bruce, when he was Prime Minister, in a notable speech delivered at Perth, stressed the need for encouraging enterprise and employment in Australia, and, in order to do this, he said that it was necessary for the Federal Government to withdraw from the field of income taxation, leaving it entirely to the States. He stressed the undesirability of one government collecting revenue for another government to spend. To-day there seems little prospect of Mr. Bruce's desire being carried into effect. The Commonwealth Government has not yet been able to abolish even the super tax on certain incomes imposed by the Scullin Government during the darkest days of the depression. It is well to remember that any increase of the weight of taxation under this measure may apply not only to ordinary federal income tax, but also to the super taxes on property incomes for the retention of which provision is made in this measure. I trust that that provision does not mean that the super tax on property incomes is to be extended beyond the end of this financial year. In view of the fact that the Government anticipates having a surplus of over £4,000,000 at the end of 'this financial year it should dispense with the provision for continuing this super tax on income from property. However, many of the main recommendations of the Royal -Commission on Taxation have been put into effect, and some provisions of the bill which are of advantage to the taxpayer may be summarized as follows: -

1.   Alimony is not to be taxable income in the hands of the person receiving same.

2.   Losses incurred in earning income have been slightly widened.

3.   Expenses of borrowing are to be allowed over a period of five years, expenses of preparing a lease to be a deduction.

4.   Losses by embezzlement or larceny are to be allowed.

5.   Subscription to associations i3 allowed to a limited extent.

6.   Allowance for wife of taxpayer of £50 is now provided where wife is dependent.

7.   Medical expenses. - Under the present act a taxpayer with an income of £900 is not entitled to any deduction. The bill proposes a maximum allowance of £50, irrespective of income.

When the bill is in committee the Minister might consider the desirability of allowing exemptions in respect of dental expenses and increase the amount of the allowance to enable that to be done. Other benefits are -

8.   Funeral expenses. - The bill provides for an allowance up to £20, irrespective of income,

9.   Life insurance. - Deduction for premiums has been increased from £50 to £100.

10.   Time for objections and appeals. - This has been extended to 60 days.

In committee I propose to suggest that the Commissioner should, where he thinks fit, have power to extend the period beyond 60 days to meet the convenience of taxpayers who may be absent from Australia or who can satisfy the Commissioner that an extension is justified.

On the other hand there are a number of disadvantages which seem to be mainly directed against the primary producers. It is remarkable, and I regret it exceedingly, that this Government in which the Federal Country party is so strongly represented should be amending the taxation laws in directions which are entirely opposed to the interests of those engaged in our primary industries. Amendments to the detriment of those engaged in the agricultural and pastoral industries are as follows: -

1.   The sale of breeding stock on the realization of a business is now deemed to be taxable income.

2.   A purchaser is not entitled when buying sheep in the wool to treat the wool on the sheep's back as a deduction from the subsequent proceeds of the wool.

3.   The proceeds of wool sold abroad is taxable in Australian currency.


Senator Dein - That is fair enough.


Senator E B JOHNSTON - The Privy Council is now determining whether that can or cannot be done under the existing act. They continue -

4.   Employees on grazing properties are now to be taxed upon the value of their quarters.

I do not think that the fears of the Leader of the Opposition (Senator Collings) to the effect that the employers will derive any advantage under this provision will be realized.


Senator Collings - I never knew an employer to miss an opportunity.


Senator E B JOHNSTON - Certain employees on stations and farms are to be taxed on the value of the premises they occupy, but that does not mean that the employers will alter their arrangements. In an overwhelming majority of cases employers have not collected money in this respect and will not do so in the future. The disadvantages continue -

5.   Graziers are not permitted to omit natural increase until sold or otherwise disposed of, and must bring into account each year's natural increase.

6.   A grazier cannot have a new notice of election changing from cost price to market price, but he has a new election only in regard to the value of natural increase.

7.   The minimum values for natural increase to be included as income are to be raised as follows : -

Lambs, 2s. 6d. to 4s.; calves, 10s. to 20s. ; foals, 15s. to 20s.

8.   Growing crops, on the disposal of a business are to be deemed taxable income.

9.   On the death of a taxpayer, taxable income which may result as the devolution by death, is deemed a sale of trading assets.

10.   Losses carried forward. - It is proposed to reduce the number of years from four to three, for which iosses may be carried forward.

11.   Averaging provision. - This will only be applied in the future to primary producers.

Throughout five years of depression the averaging sections of the Income Tax Act have applied to all taxpayers, and during four of those years taxpayers have been paying an increased rate of tax on high incomes received prior to the depression. We have not yet recovered from the depression, but provision is made in this measure that, after 1938, only primary producers shall receive the benefit of the averaging provisions. "When the measure is in committee I propose to move to extend the period from which averaging of ordinary incomes will cease, from 1938 to 1940.


Senator Arkins - The farmers and graziers will enjoy the benefit of the averaging system.


Senator E B JOHNSTON - Yes.


Senator Arkins - Would it not he fair to say that, under this measure, primary producers are receiving greater consideration than other taxpayers?


Senator E B JOHNSTON - I do not agree with the honorable senator. Another disadvantage is -

12.   Board of Review. - It is proposed to discontinue the present Board of Review and set up a single judge.


Senator Duncan-Hughes - That is not provided for in the bill.


Senator E B JOHNSTON - No ; but the Postmaster-General has informed the Senate that it is the intention of the Government to make that alteration within one year. Although the law provides that the Taxation Board of Review shall be appointed for a period, not exceeding seven years, the term of office of its members expires in June next, and it is proposed, to appoint these gentlemen, who are holding responsible positions, foi- only a year.


Senator Duncan-Hughes - The Commonwealth Grants Commission has had its term similarly extended, and it seems to be able to function very well.


Senator E B JOHNSTON - We cannot compare the work of the Commonwealth Grants Commission to that of the Federal Taxation Board of Review. Although the members of that board do not occupy judicial positions, they should, as provided in the existing law, be reappointed at once for a term of seven years.

When the bill is in committee, I propose to ask honorable senators to oppose amendments designed in their cumulative effect to increase the incidence of taxation upon primary producers. I emphatically protest against the announcement made by the Treasurer (Mr. Casey) in the House of Representatives, that the Government proposes to abolish the Board of

Review and replace it by a single judge. This is a retrograde step; and one which has caused indignation and alarm amongst the general body of Australian taxpayers. It is the most stupid taxation proposal made by the Government, and is one which, I hope, will not be agreed to by the Senate. It is a proposal that strikes a blow at rights which the taxpayers have enjoyed for the last fourteen years. The Taxpayers' Association, and many other leading organizations, representing the majority of taxpayers, are vigorously opposed to it. The Board of Review was established in 1922 for the express purpose of enabling taxpayers to appeal from any decision of -the Commissioner with a minimum of expense and delay. That purpose has been adequately fulfilled, and, from its non-judicial character, it has proved to be the most satisfactory tribunal to which small taxpayers in particular can appeal. With its trained personnel it is generally regarded as being vastly superior to an ordinary court for the determination of cases depending on an interpretation of business facts.

The proposals of the Ministry in this regard have evidently been based upon the recommendation of the recent Royal Commission on Taxation. This matter was dealt with in the .commission's third report at pages 154 to 157, but it is submitted by the Taxpayers' Associations of Australia that the final recommendation was made without a true grasp of the actual facts. Certain inaccuracies as to the number of appeals, &c, were apparent in the report, and these were corrected some months later in a subsequent report. Little, if any, evidence was submitted to the commission in regard to the Board of Review, for the reason that it was presumed that the board, which had given such general satisfaction for a number of years, would naturally be retained. That the board is welcomed by taxpayers is indicated by the fact that the number of appeals to it is five times as great as the number of federal appeals taken to the Supreme Court and to the High Court.

The Board of Review was established under the federal act of 1922, for the express purpose of providing taxpayers with the means of having any decision of the Commissioner of Taxation reviewed by an expert tribunal with the minimum of expense and delay, and without the necessity for embarking upon costly legal proceedings. This procedure was recommended by the first Royal Commission on Taxation, and was based on the English system, where taxpayers appeal first to a board of special commissioners. Under the English system the right of appeal from decisions of the special commissioners to a higher court is limited to questions of law only. In dealing with the question of appeals, the first royal commission said: -

There was perhaps no single subject upon which such unanimity of opinion was manifested by witnesses as upon the necessity for the appointment of a tribunal other than n court to deal with the numerous cases under the income tax act in which taxpayers dissent from the decisions of the Commissioner, but for various reasons, are unable or unwilling to assert what they believe to be their rights, in a superior court.

The expense, delay, and risk of proceedings in the superior courts arc said to deter taxpayers particularly where the amount involved is not large, from seeking a judicial determination of points at issue between themselves and the Taxation Department, and some witnesses considered that there were occasions on which departmental officers had taken advantage of this reluctance.

It is contended also that in many cases, no point nf law arises, but the issue is one depending upon differing views as to facts. All witnesses were agreed that, where a question of law is involved, an appeal should lie from the suggested board of appeal to the High Court or a Supreme Court.

As the outcome of the commission's recommendation the present board was constituted in 1922, .and has functioned successfully and with general satisfaction since that date.

I wish to refer to some of the advantages of the board.

Disputes between taxpayers and the Commissioner of Taxation are inevitable under any form of taxation, and particularly under such a necessarily complex measure as an income assessment tax act. What income is assessable? What deductions should be allowed? These are questions upon which genuine differences of opinion will inevitably rise. The taxpayer is, however, more than frequently in no position to incur the prospect of heavy legal expenses in having his point of view contested. The Board of Review, however, provides a simple, cheap and efficient remedy. The board deals expeditiously with appeals in a businessslike and practical manner. Its simple procedure offers an attractive contrast to the formalities of a court of law. Taxpayers appear before the board in person, or may be represented by agents or accountants. In important cases they are frequently represented by leading counsel. The board's proceedings are usually conducted in camera, so that publicity may be avoided. Any taxpayer may, however, have a public hearing, if he so desires.

The board is a highly competent tribunal. The present personnel comprises a taxation expert, a leading accountant, and a barrister and solicitor. It is claimed that an experienced board of this nature is preferable to a conventional court for the determination of the majority of taxation appeals that arise. The members of the board have a wide knowledge of business matters, and are possessed of an all-round commercial experience. The value of the board is more obvious when it is realized that the great bulk of taxation appeals relate to disputed matters of fact,' and not of law. Experience has shown that a tribunal of this nature is more suitable for the majority of such appeals than is a. single judge. Probably there could not be a better summary of the value of the Board of Review than the words of the Privy Council : -

If you want to have the assessment reviewed judicially, go to the court; if you want to have it reviewed by business men, go to the board.

This statement appeared in a Privy Council judgment, delivered in 1930, in which it was held that this Parliament had full power to establish the board as a non-judicial tribunal. Previously, when the same case was before the High Court, Mr. Justice Isaacs said that the Board of Review afforded : -

A practical means of reconsidering business matters without the intricacies, delay, and expense of legal proceedings.

An outstanding advantage of the Board of Review is its influence in minimizing legal costs. The greatest advantage of the Board to the smaller taxpayer in particular lies in the fact that costs of contesting any decision of the Commissioner of Taxation are kept down to a minimum. Without the existence of the board, it is obvious that many taxpayers would not contemplate an appeal from the dictum of the Commissioner. An unfortunate characteristic of any court of law is that high legal costs seem to be inevitable. Departmental officials -are prone to take advantage of this point, and to rely upon the taxpayers' natural reluctance to invoke the tortuous and costly process of appealing to tile' courts. For this reason the federal hoard has, perhaps, proved to bc of considerable embarrassment to taxation officials. But this fact demonstrates the main virtue of the board in the eyes of the taxpayer - he has, in all cases, the right of appealing to the board for redress. He can, if he so desires, appear in person, and incur no expense whatever. This fact, alone, ensures that (.-very objection lodged by a taxpayer receives the consideration it deserves at the hands of the department. Our experience in taxation matters in Australia during the last fourteen years has shown that the board is preferred to the tribunal proposed by the Government.

The second royal commission has recommended that the judge of the proposed new taxation court should finally decide all matters of fact, and all matters of discretion. These powers are too wide to be exercised by any one man. Taxation appeals are mostly concerned with disputes as to facts, and the application of the act to them. A perusal of any volume of taxation decisions will confirm this statement, and will show that in many instances an examination of more or less complicated accounts is required. Consequently the deciding authority should possess a sound knowledge of business methods and principles. That is why it is essential to preserve the choice so admirably summarized by the Privy Council : " If you want to have the assessment reviewed judicially, go to the court; if you want to have it reviewed by business men, go to the board."

The great majority of taxpayers will not take their grievances to a court. They will not face " the intricacies, delay, and expense of legal proceedings." This has been proved up to the hilt, and is the main objection to depriving the public of their present right to determine whether they will appeal to a court, or to an expert and businesslike tribunal'.

In 1925 the original Board of Appeal was re-constituted in its present form as a Board of Review. A suggestion that a judicial body might be preferable was strongly opposed by the then Federal Treasurer (Dr. Earle Page) and by the then Leader of the Opposition (Mr. Scullin), and Parliament, for the second time, emphatically decided that a tribunal of taxation and business experts was much to be preferred to anything in the nature of a court. I refer honorable senators to Hansard of the 18th September, 1925, at page 252S. It is extraordinary that the Minister in charge of the bill should suggest abolishing the board at the very time when some of the States are actually adopting the federal principle of a Board of Review.

The Income Tax Assessment Bill introduced in New South Wales provides for the establishment of a tribunal similar to the present federal board. The Governments of Victoria and South Australia are also reported to be considering the appointment of similar " nonjudicial5' tribunals. Surely the adoption by the States of this principle gives added weight to the necessity for the retention of the federal board.

The principle of having one court of final appeal for purposes of both Federal and State cases has considerable merit, and is welcomed by the taxpayers and the taxpayers' associations throughout, the Commonwealth. ' But why the establishment of this court should necessitate the scrapping of the Board of Review cannot be seen. The removal of the board would strike a severe blow at the rights of taxpayers, and would lead to a reversion to the state of affairs which obtained in the federal sphere prior to 1922, and aroused the greatest dissatisfaction amongst taxpayers generally. If the Commonwealth Government and the governments of several of the States favour the idea of a special court, then let there be such a tribunal to hear appeals from the Board of Review. This would bring the present system into line with the English practice, and would certainly be more acceptable to taxpayers.

The case for the retention of the Board of Review may be summarized as, follows : -

1.   The board was established on the recommendation of the first Royal

Commission on Taxation, and in the light of overwhelming evidence.

2.   The board has for fourteen years given general satisfaction, and is welcomed by taxpayers; it has enabled taxpayers to appeal against any decision of the Commissioner with the minimum of expense and delay; it has enabled taxpayers to avoid the high legal costs of court proceedings.

3.   With its trained personnel, itis better fitted than a court to deal with questions of business or commercial facts upon which most taxation litigation devolves.

4.   The principle of a non-judicial tribunal to review decisions of the Commissioner is in accordance with the practice in Great Britain, a practice that has stood the test of time.

5.   Outside of tax administrators, there has been no demand for the abolition of the board; on the other hand, all sections of taxpayers are insistent that the board shall remain.

I hope that the Government will reconsider the announcement by the Minister that it intends to retain the services of the board for a further period of one year only. It is wrong to deny proper security of office to officers doing important work of the nature of that performed by the Board of Review; they should be re-appointed for the full seven years. The bill deals with other interesting and important matters, to which I shall refer when the measure.reaches the committee stage.







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