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Wednesday, 11 November 1964

Senator WRIGHT (Tasmania) .- This clause, as the shoulder note indicates, relates to assessable income in the form of a premium for a lease and revives the language that has been used in the income tax legislation for some lime to define a premium as - a consideration payable in one amount, or each amount of a consideration payable in more than one amount--

That is to say, whether it is payable in a lump sum at the commencement of a lease or the assignment or surrender of a lease, or by instalments over the term of the lease - where the consideration is -

(a)   in the nature of a premium, fine or foregift payable for or in connection with the gram or assignment of a lease; or

(b)   for or in connection with an assent to the grant or assignment of a lease, but does not include an amount in respect of goodwill or a licence.

Proposed new sub-section (2.) is the operative one. It states -

Where, in the year of income, a taxpayer receives a premium that relates to the grant or assignment of a lease of property that was not, at the date on which the agreement to grant or assign the lease was made, or the assent to the grant or assignment of the lease was given, as the case may be, intended by the grantee or assignee to be used by the grantee or the assignee ... for the purpose of gaining or producing assessable income, the assessable income of the taxpayer shall include the premium.

In the previous law a premium was taxable income in the hands of the recipient irrespective of whether it was paid in respect of premises, the lease of which was given for the purpose used by the grantee for producing or gaining assessable income. So far as 1 know, that has been the law since the amending act of 1936.

The effect of this Bill - I will be corrected if I am wrong - is that a premium in respect of brewery premises, or any commercial premises or any premises of a primary producing nature that are let for the purpose of the lessee carrying on some business to gain an assessable income thereon, is free of income tax. I think that the Committee should ponder hard and long before it adopts that principle. Mr. Jutice Ligertwood did not recommend anything of that kind. He did not recommend, as I recall, any abolition of the taxability of the premium.

The principle upon which the Government is relying is that the landlord is not to be taxed on the premium and the tenant is not to receive a deduction in his assessable income for the premium that he pays. The Government is suggesting that it is sufficient protection, first, of the revenue, and secondly, of the business equity of this lease arrangement in regard to commercial properties that in the bargaining between the parties the tenant will be able toprotect himself sufficiently. I would have thought that a century's experience of landlordism would have shown that, in an increasing degree, the power of ownership of freehold, particularly in our huge cities where the ownership of freehold gives terrific power from the point of view of leasehold bargaining, exposes the tenant, in the majority of cases, to pressure and power to which he is unequal.

Senator HENTY (TASMANIA) - That is not the case in New South Wales, is it?

Senator WRIGHT - I would think especially in New South Wales. I have not sought to intensify my knowledge of the intricacies of the landlord and tenant legislation in New South Wales. I have no relish for it. I do not approve it. When Senator Henty made his comment I was about to say that New South Wales senators probably would see the argument that I am advancing in a special sense because, as I understand it, there is rent control in regard to some commercial properties in New South Wales and there is freedom to bargain about premiums out of the rent control.

Representations have been made to me by people who have a particular insight into the injustice to which a tenant will be subjected in the payment of that premium. Whereas at present he enjoys a deduction in respect of his income tax assessability after this Bill is passed he will no longer be able to claim that deduction. I would have thought that where the law itself marks this division between permissible rent and premium, the tendency to exaggerate the premium so that the - landlord will receive a non-taxable amount at the expense and to the injustice of the tenant would appeal to all those who espouse this form of rent control particularly for the just protection of tenants.

But it is in the generality of cases that I feel we are taking a long step backwards in relying upon the argument that the fairness of the market is sufficient to protect the tenant. I rose to bring this matter to light because I think the clause should be deleted if only as an indication that the proposed alteration of basis should not be adopted.

Let me call attention to the language of proposed sub-section (4.) which is one of those intriguing sub-sections that I think will let the people know what massive cobwebs we are weaving into the income tax law to which we expect them to conform. First, let me refer to proposed sub-section (2.) which states in effect that the premium exacted in respect of the lease of premises that are let wholly or partly for the purpose of gaining or producing assessable income is not taxable. Then proposed sub-section (3.) refers to the intention of the grantee or assignee and the use of the premises. If the grantee or assignee takes premises not for the purpose of using them to raise assessable income and the landlord levies a premium on those premises, he is taxable. Now I come to proposed sub-section (4.). How would honorable senators like to have their affairs determined in this way -

Where, in a case referred to in either of the last two preceding sub-sections, the taxpayer satisfies the Commissioner that, at the date on which the agreement to grant or assign the lease was made, or the assent to the grant or assignment of the lease was given, as the case may be, he -

The landlord - believed on reasonable grounds that the grantee-

The tenant - or assignee intended a particular use of the property-

Senator Murphy - What if it is a company?

Senator WRIGHT - Take a company - this juristic person without a body to be kicked or a soul to be damned. I am not speaking of governments, but of companies. What is the intention? We have ways of ascertaining the intention. But here is a situation in which you have to inquire whether or not the landlord beleived something. Then you have to know whether he had reasonable grounds to believe it. What is the subject matter of his belief? It is that the lessee intended to do something. This shows a complete lack of consideration of this Bill.

We had just the same shemozzle in regard to the deductibility of covenanted improvements under the old system whereby if you consented to a lease in writing which contained a provision that the tenant should carry out improvements certain things should be done. Mr. Justice Ligertwood after going through the cobweb involved in examining a man's mind said: " Make it certain. Let the parties at the time of the transaction each sign a document that this lease is to be used for that purpose. Let that be the obviously clear statement that would determine taxability." But, no. We have a situation again presented to the Commissioner of Taxation that he must be satisfied that the landlord believed on reasonable grounds that the lessee intended the premises to be used for commercial purposes. For the purpose of indicating my position in relation to the changed basis of this taxability and non-taxability of premium, I wish to oppose the clause,

Clause agreed to.

Clause 10 (Rebate on Dividends).

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