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Wednesday, 20 May 1936

Senator A J McLACHLAN (SOUTH AUSTRALIA) (Postmaster-General) . - I move -

That sub-clauses (2) and (3) be left out with h view to insert in lieu thereof the following sub-clauses : - "(2.) In this section, 'business' means a business which from its nature and character requires the retention in the business of not less than fifteen per centum of the taxable income of each year. (3.) This section shall not apply in an;, case by reason only of Die existence of any one or more of the following facts: -

(a)   The amount set aside, appropriated or written off the value of assets in the accounts of an individual in respect of depreciation, exceeds the amount, if any, allowable under this Act in respect of depreciation of those assets.

(b)   It is necessary to retain taxable income to meet expenditure of such a nature as would be, if and when incurred, a deduction under this act from assessable income.

(c)   It is necessary to retain taxable income to repay borrowed money.

(d)   It is necessary to retain taxable income to increase capital.".

The amendment proposed represents a re-arrangement of the terms of the existing sub-clauses 2 and 3 for the purpose of expressing their intention more clearly. By a recent decision, the Board of Review has interpreted the corresponding provision in the existing law in a manner which would expose the revenue to heavy loss unless the terms of the provision be amended as proposed. The original object of the provision, which was incorporated in the law by the Income Tax Assessment Act 1922, was to grant the concession provided by the section to a limited class of business which, being fully capitalized, was bound to appropriate part of its taxable income for the purpose of preserving its assets at their original value. That provision was never intended to grant the concession, at the expense of other taxpayers, to a person entering upon a business with the use of borrowed money and retaining his taxable income in order to pay off his indebtedness, and so build up his capital. But the recent decision of the Board of Review would extend the benefits of the section to such a case. Hitherto, the section has been applied almost exclusively to pastoral propositions, where the natural increase of live stock must be retained to replace worthless animals, and thus enable the assets of the business to be maintained at their effective strength. The alteration of the wording of the sub-clauses will not deprive primary producers of the benefit of the section in those types of cases in which it is now being applied. It should be noticed that it is taxable income which must be retained. Thus, a retention of proceeds of the business under the heading of depreciation would not be a cause for the application of the section to a case, because the law already provides for complete exemption by way of deduction in an assessment of the part of the taxpayer's gross receipts that represents the permissible provision for depreciation of plant and machinery. No further con cession, by way of reduction of the rate of tax on any part of the taxable income, could be justified or permitted in such a case.

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