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Wednesday, 11 November 1964

Senator McKENNA (Tasmania) (Leader of the Opposition) . - Yesterday I dealt with the Government's grave delay in attending to the question of tax avoidance and with it's failure to honour its own solemn undertaking, given on 17th August 1961, that this legislation, when introduced, would be made retrospective to that date. I pointed out how this Government, having regard to the time that has elapsed and is still to elapse before the major part of this legislation becomes effective on 1st July 1965, has allowed some £50 million to escape through its hands. I do not traverse that subject again. I dealt at length with the complexity of the Bill and the matters with which it deals,, and I protested on behalf of the Opposition at being obliged to consider a Bill of this magnitude and importance in less than three weeks, particularly as some 40 other matters have to be concluded before the present sessional period ends. Then I mentioned the factors that create difficulties in settling this legilation in normal form, that is, that the conditions under which a taxpayer is liable should be clearly specified. I pointed out that in this measure there is an approach which casts the net rather widely, and having done that, provides a discretion to the Commissioner to make allowances in cases of hardship.

This legislation is not altogether unusual when one compares it with the existing Income Tax and Social Services Contribution Assessment Act because in many respects a good number of matters are already left to the discretion, judgment and opinion of the Commissioner of Taxation. This Bill really does not strike any notoriously new provision. The section of the Act that I have in mind is section 167 which deals with three sets of circumstances. Amongst other things, it enables the Commissioner of Taxation, if he is not satisfied that an accurate return has been submitted or if a taxpayer has not submitted a return, to make such assessment as, in his judgment, he thinks proper. That is a particularly wide power. I cannot imagine a more omnibus power than that. The section provides that in these circumstances - the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of the last preceding section.

The preceding section, section 166, authorises the Commissioner to make assessments. One finds this pattern running right through this Bill. I think it is exemplified best in clause 6 which begins on page 3 and deals with the exemption of income of certain superannuation funds established for the benefit of employees. The normal superannuation fund established by an employer for the benefit of employees falls into the exempt class. Proposed sub-section (2.) which appears on page 4 of the Bill provides that the exemption is to apply in favour of funds to which the section applies. Those funds are defined elsewhere. They are exempt, as one will see by reference to the proposed subsection, if the Commissioner is satisfied that nine particular complicated matters are in existence. The listing of those nine matters takes up two fully printed pages of the Bill.

Proposed sub-sections (3.), (4.) and (5.X which are devoted to explaining and amplifying particular phrases and situations that are outlined in proposed sub-section (2.), are spread over pages 6 and 7 of the Bill. Proposed sub-section (6.) contains this rather delightful provision -

Where, in relation to a superannuation fund, the Commissioner is not satisfied as to a matter referred to in sub-section (2.) of this section but the trustee of the fund satisfies the Commissioner that, by reason of special circumstances that existed in relation to the fund during the year of income, it would be reasonable for this section to have effect as if the Commissioner were satisfied as to that matter, this section has effect as if the Commissioner were satisfied as to that matter.

Senator Wright - A sub-section which one might say is very satisfactory.

Senator McKENNA__It is one of the escape clauses to which I referred a moment ago. Proposed new sub-section (7.) provides for exemption from income tax and proposed new sub-sections (8.), (9.) and (10.) are qualifications of proposed new sub-section (7.). The exemptions are to be subject to the three new succeeding sub-sections to sub-section (7.). Each of these provide for circumstances in which the opinion of the Commissioner of Taxation is the determining factor.

That illustrates very well what I have said about the set-up under the Bill. A wide number of matters are necessarily left to the Commissioner's being satisfied as to each of the long explanations required in relation to these matters, and often the exemption itself, after all that, is subject again to three matters which are dependent upon the opinion of the Commissioner of Taxation. I merely direct attention to these things because that pattern runs right through the Bill. I remarked last night that it was an unusual procedure. That is true if you look at general law, but when one looks at the specific problems of income tax and what has been in the Act without question for many decades, one ultimately finds that it is not so unusual in this specially complex field of income tax law.

I want to refer to three other cases where the opinion of the Commissioner determines matters and where escape clauses are provided. First I would refer to dividends being paid by one private company to another private company. The Ligertwood Committee recommended that the rebate on dividends received by one such company from another such company should be reduced by 15 per cent. There was complete exemption for those dividends and a complete rebate of tax on them. The Ligertwood Committee recommended that the rebate should be reduced by 15 per cent. This is one of the recommendations the Government has not accepted for reasons that have been given. We learned from the Treasurer that this was the final decision. In the end, the Government has decided that the rebate in relation to private companies, but not public companies, that receive dividends from other private companies be reduced to half the present level, but that the Commissioner of Taxation should be authorised to allow a full rebate where he is satisfied that this is justified by the circumstances of the case. That is one example of the exceedingly wide discretion that it given to the Commissioner and it is shown in clause 10 and proposed new sub-section (3.) (c).

I pass now to the imposition of a special rate of tax on the income of trusts to which any person has present entitlement. The rate to be fixed under the Bill is the very high one of 10s. in the £1. Under the terms of proposed new section 99a, the Commissioner is obliged to consider all relevant facts and he is authorised not to apply the new provisions where it would be unreasonable to do so. The Bill goes on to set out the various specific matters that the Commissioner must consider for these purposes. This also is a particularly wide discretion. Again, in relation to partnerships where there are provisions dealing with the situation in which a partner is deemed not to have control of his income from the partnership, proposed new section 94, shown in clause 24, provides that the Commissioner may not apply the legislation in a suitable case. 1 merely put these matters on the record to indicate that the Opposition has given consideration to the principles on which the Bill has been developed. I am not complaining about them at this stage of the Government's approach to the matter. I think it merely proper that I direct particular attention to them. It behoves everybody in this Parliament and in government to watch the developments under these particular provisions. My hope and expectation is that the Government of the day will from time to time review these very wide provisions and, if circumstances permit, reduce them to specific requirements that will be clear to taxpayers and will get away from the resting of matters on the satisfaction or opinion of the Commissioner and leaving him with such wide discretion to set aside the normal provisions of the Act.

I sympathise with all those concerned with the drafting of this measure in view of the infinite variety of transactions with which they are faced. No matter how many draftsmen or experts sat down, I venture to say there would bc as wide a field outside any specific net they sought to erect as would fall within the net. So I give a general concurrence to this somewhat unusual feature to meet the case of tax avoiders although I would be very much opposed to it in almost any other field of legislation.

It is as well to remember that an appeal is provided from all decisions of the Commissioner either to a Taxation Board of Review or a judge of the Supreme Court or the High Court of Australia. It may well be that, arising out of this legislation, there will be many more such appeals, particularly to the Taxation Boards of Review. If the Minister is in a position to do so, I should like him to give to the Senate an assurance that if there is any need to strengthen the Taxation Boards of Review following the introduction of this measure, the Government will be alerted to do it and not let the situation develop to a stage where there is a vast accumulation of cases awaiting decision. This is of real importance because we must remember that under the income tax measures and in view of the vast power the Commissioner has, once he makes his assessment, the obligation is cast on the taxpayer to pay, no matter how much merit may be found later in the taxpayer's objection. The money must be paid and quite a long time might elapse before an appeal. I should like to have from the Minister the assurance that I seek on that point.

As I understand it, sections 192 and 193 of the Act allow the Taxation Board of Review the opportunity to supplant the Commissioner or, in other words, to step into his shoes and reverse the judgments he has made of satisfaction and of opinion as though the Board itself were the Commissioner acting from the beginning. I have seen criticisms of particular provisions of the Bill in the Press and I directed the attention of the Minister for Civil Aviation (Senator Henty) to them. I notice that the Treasurer, who is represented in this place by the Minister for Civil Aviation has answered them generally. I shall not pursue them at this stage and I would be quite happy to accept the assurance hitherto given by the Treasurer that the alleged difficulties to which attention was directed do not, in fact, exist. I would hope that the Minister for Defence would be in a position to give a similar assurance on these matters if they arc raised.

The Parliament is indebted to the honorable member for Melbourne Ports (Mr. Crean) who within the last day or two made a review, based upon recent statistics issued by the Commissioner of Taxation, of the people who are involved in various categories of taxation. It was a very comprehensive statement, but I merely want to record the honorable member's broad conclusions. He dealt with the number of partnerships and the persons who constitute them, the number of superannuation funds, the number of trusts and all sorts of other matters, including the distinction between taxpayers who pay provisional tax and those who do not. The conclusion that he reached and which I think he demonstrated quite adequately was that the great bulk of the taxpayers of Australia will in no way be affected by this legislation. He pointed out that three-fourths of the taxpayers of Australia lie outside the possible scope of this measure. Of the balance there would be many who have not been pursuing practices of tax avoidance such as are aimed at by the Bill. It is consoling to know that the Bill might apply to only a section - I should hope it would be a reasonably small section - of the remaining one-fourth of the taxpayers. That reduces the impact of this legislation to a reasonably small field.

The broad purposes of the Bill were adequately described in the second reading speech of the Treasurer and were repeated, with some slight variations, here last night. I do not think that at this stage I need to concern myself with them. In conclusion, to those who are uneasy about the exercise of discretion on the part of the Commissioner of Taxation I say this: I have learned from a fairly wide experience gained over very many years that, in cases where there is no falsehood, deceit or dishonesty, the Commissioner of Taxation and his officers are always ready to meet the taxpayer.

Senator Sir William Spooner - Hear, hear!

Senator McKENNA - I am interested to hear my friend Senator Sir William Spooner, who has had vast experience in the accounting and taxation field, endorse what I said. It has occurred to me that the reaction of the Commissioner of Taxation in such cases should be made more widely known. A taxpayer who perhaps has put in a wrong return but who without being detected by the department goes along voluntarily and makes a complete disclosure is met exceedingly well. The proper tax is charged and interest is charged as from the date when the tax. was properly payable, but the taxpayer is not posted on the list of defaulters. I have had some experience in this direction. I hasten to add that I have been acting for other people. If the Commissioner of Taxation cares to accept the suggestion, he might well decide to use the advertising media of this country to announce that that is his policy. By doing so he might give peace of mind to many people and accumulate a lot of unexpected revenue. I merely digress in that way to indicate that, from vicarious experience, I am not alarmed about leaving matters to the fairness and sense of justice of the Commissioner of Taxation.

Although this is an exceedingly complicated measure, the Opposition welcomes it. We regret that it has been delayed for so long. It is unfortunate that it should be complicated - necessarily so - but we hope that it will achieve the purposes which the Government hopes it will achieve. This is more an expression of hope than an act of faith on the part of the Opposition, because of the extreme complexity of the matter and the infinite variety of transactions to which ingenious minds can be applied with very astonishing results. I have pleasure in supporting the measure at this stage.

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