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Thursday, 27 November 1941

Senator KEANE (Victoria) (Minister for Trade and Customs) .- The effect of section 45 is to provide that any portion of Commonwealth loan interest contained in a dividend shall be free of income tax to the same extent as that interest itself is free in the hands of the recipient company. The origin of section 45 may be traced to the agreement made in 1931 between the Commonwealth and the bondholders stating the terms on which bonds were to be converted. Included in that agreement was a provision that interest on the converted securities should not carry a greater rate of tax than that applying for the financial year 1930-1931. In the following year the Lyons Government inserted the provisions which it is now proposed to repeal. The incorporation of section 45 in the law was justified on the ground that it was the logical extension of the undertaking given to the bondholders when they converted their loans. It was then contended by the Government that if section 45 were not enacted the agreement with the bondholders would partly be nullified. However, the undertaking given to the bondholders applied to the interest on the loans and did not extend to dividends paid out of Commonwealth loan interest. Taxation on interest received by companies from these converted bonds does not exceed1s. 4d. in the £1, that being the rate of tax applied to companies in the financial year 1930-1931. Accordingly, a company, as the recipient of the interest, has in the past received, and will continue to receive, the advantage of the difference between the 1930-1931 rate and the ordinary company rate of taxation as well as freedom from super tax and the undistributed profits tax of1s. and 2s. in the £1 respectively. It is considered that there was no justification for the inclusion of section 45, and it is now proposed that that provision be repealed. The Royal Commission on Taxation 1932-34 recommended the repeal of the section.

Clause agreed to.

Clauses 9 to 12 agreed to.

Clause 13-

Section seventy-eight of the principal act is amended -

(b)   by omitting paragraph (d) of subsection (1.) ; and

Section proposed to be amended -

(1)   The following shall . . . he allow able deductions: -

(d)   Calls paid by the taxpayer in the year of income on shares owned by him in a mining company or syndicate carrying on mining operations in Australia for gold, silver, base metals, rare minerals or oil, or in any company carrying on afforestation in Australia as its principal business.

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