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Tuesday, 2 June 1942

Senator KEANE (Victoria) (Minister for Trade and Customs) . - I move -

That the bill be now read a second time.

This bill is also part of the Government's proposals for the establishment of a uniform income tax plan that will secure to the Commonwealth full access to the income tax field. This will enable the maximum, amount of this form of revenue to be made available to the Commonwealth for the efficient prosecution of the present war. Its particular purpose is to give effect to the Government's decision to adopt those recommendations of the special committee which require to be embodied in the Income Tax Assessment Act. The principal feature of the bill is the change proposed to be made in the concessional allowance for spouse, children, dependent mother, life assurance, superannuation, medical and funeral expenses, gifts, and rates and taxes paid on non-income producing property. Under the existing law, these concessions are made by way of deductions from assessable income for ordinary income tax purposes. For war tax purposes, however, the concessions in respect of spouse, children and dependent mother take the form of rebates of tax. In a uniform income tax, it is necessary to adopt either one principle or the other f or application to all of the concessional allowances. After considering this question at considerable length the special committee recommended that the concessions should take the form of rebates of tax. After a thorough examination of the varying concessional allowances provided for in the various Commonwealth and State income tax: laws, the committee also recommended that these rebates be based upon amounts which, broadly speaking, will preserve to taxpayers, approximately^ the same tax concessions in respect of dependants as they have received under the multiple taxing system. In the bill now before the chamber, the Government proposes that these particular recommendations of the committee be adopted.

Clause 23 of the bill provides that a . rebate of tax, calculated at the personal exertion rate appropriate to the taxable income of the taxpayer, be allowed in respect of a spouse, children and dependent mother of the taxpayer, as well as gifts, medical and funeral expenses, life assurance, superannuation and rates, and land tay paid on non-income producing property. As regards dependants' allowances it is proposed that the rebates shall be based on £100 for a spouse or female relative, £100 for the dependent mother of the taxpayer, £75 for one child under sixteen years, and £30 for each other child. Where, however, the taxable income is between £200 and £300 the concessional allowance for a spouse or female relative will vary from £100 to £125 according to the size of the taxable income. It is further provided that the amounts on which rebates for medical expenses, funeral expenses and life assurance and superannuation are to be based, shall be limited to £50, £20 and £100 respectively, as at present. It is also proposed that the rebate of tax allowed for a spouse or female relative, dependent mother and one child, respectively, shall not exceed £45 for each such dependant. It is also provided that the rebate of tax for each child in excess of one shall not exceed £5. A further provision is that the sum of all the rebates to which the taxpayer is entitled in his assessment shall not exceed the tax otherwise payable by him. The object of this provision is to ensure that the total amount of the rebate shall be sufficient only to cause the taxpayer not to be liable to pay tax. Any balance of the rebate over the tax calculated will not be paid to the taxpayer.

It is proposed by clause 5 that the pay and allowances earned in Australia by members of the forces of the allied nations shall be exempt from the uniform tax, if the payments are not made by the Commonwealth. It is also proposed by clause 5 to exempt the remuneration earned in Australia by those persons who visit Australia primarily and principally for the purpose of assisting the Commonwealth Government in the defence of Australia. Such an exemption will apply mainly to the remuneration of visiting civilian personnel of British, American and other allied nations from occupations carried on by them in Australia in connexion with the defence of Australia.

Several clauses in the bill relate to the assessment of mutual life assurance companies, and the mutual incomes of partly mutual companies. In regard to these companies, the problem that confronted the special committee was to establish a common basis of assessment that would produce an amount of tax substantially the same as that paid at present by these companies to the Commonwealth and the States. To solve this problem, the committee recommended the withdrawal of the special deduction of 4 per cent, of calculated liabilities, at present allowed to life assurance companies, and the assessment of the companies at a concessional rate of tax of Is. 6d. in the £1, instead of the proposed company rate of 6s. in the £1. On behalf of the life assurance companies, however, representations were made to the -Government that the principle of the special deduction based upon the amount of calculated liabilities should be retained, but that the percentage should be reduced from 4 per cent, to 3 per cent., and that the rate of tax upon income derived from mutual business be fixed at 5s. in the £1. The proposal submitted by the life assurance companies is estimated to yield approximately the same amount of revenue as that which would have been obtained under the committee's proposals. Tn the circumstances the -Government has decided to adopt the suggestions of the companies' representatives. As time did not permit of a thorough examination of the situation, the Government has intimated to the companies concerned that it is proposed to examine further the position during the next financial year and to make any amendments that may be justified in the light of that further examination.

By clause 8 of - the bill it is proposed to withdraw the deduction at present allowed for State and territorial income taxes. Taxes paid on incomes derived during the year ended the 30th June, 1941, will, therefore, not be allowable deductions from income of the years ended the 30th June, 1942, onwards. Under the scheme of uniform income tax, State and territorial income taxes will not be imposed, so the need for the provision allowing such taxes as a deduction will disappear. However, with regard to State and territorial income taxes paid after the 30th June, 1941, in respect of earlier financial years, it is proposed that amounts paid before the 1st July, 1944, on incomes derived during the years ended the 30th June, 1938, 1939 and 194'0, respectively, shall be deducted from the income of the year ended the 30th June, 1941. Honorable senators will agree that this provision will meet all normal cases of delay, and will accord equitable treatment to those taxpayers whose liability for these taxes had not been determined by the 30th June, 1941. Another important provision is the proposal to allow a rebate of 2s. in the £1 in respect of interest which is subject to full Commonwealth rates of tax derived by taxpayers £rom Commonwealth Government, State government and semi-government securities which were issued under conditions that guaranteed exemption from State income tax.

The rates of the uniform tax are designed on the basis that the yield will approximate the present Commonwealth and State taxes. If special provision were not made in respect of the loan interest that is at present free from State income tax, the value of the concession would be lost to the bondholder. The committee, after investigating the matter, has recommended a rebate of 2s. in the £1 on the amount of such interest included in the taxable income, as adequate compensation. to the taxpayers concerned, both individuals and companies. The rebate will not be allowable on Commonwealth loan interest which is subject to sub-section 2 of section 20 of the Commonwealth Debt Conversion Act 1931, or section 52b of the Commonwealth Inscribed Stock Act 1911-1940. That interest, as honorable senators are aware, is, in effect, taxed at the 1930-31 rates of tax, and there will be no additional tax on that interest in consequence of the proposed uniform rates of tax.

By clause 30 of the bill, it is proposed that payment of Commonwealth income tax shall have priority over payment of State income tax. All taxpayers and all trustees, liquidators, &c, will be obliged to observe this priority. A provision of this nature is required to establish an effective uniform taxing system. The other provisions of the bill are mainly drafting amendments.

This measure is an essential part of the plan to establish a system of uniform taxation for the purpose of raising the maximum amount of revenue for the effective prosecution of the war, and to remove anomalies in the income tax legislation of the Commonwealth and the States.

Debate (on motion by Senator McLeay) adjourned.

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