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Thursday, 12 November 1964

Senator McKENNA (Tasmania) (Leader of the Opposition) . - I refer to clause 5 of the Bill, which seeks to amend section 53a of the principal Act. I take the opportunity in discussing this clause to direct attention to an anomalous position that exists in Australia in relation to beneficiaries under this legislation. The number of persons involved is small; there are only 62 of them. There are some 17 Australian mariners, 33 wives or widows of Australian mariners, and other dependants of Australian mariners numbering about 12 in all. Approximately 62 persons are affected by the anomaly to which I am directing attention.

Difficulty arises from the fact that there were persons resident in Australia during the war - persons who were citizens and taxpayers of Australia - who enlisted in British ships not registered in Australia. The original Seamen's War Pensions and Allowances Act applied only to persons serving in ships registered in Australia. A number, but not a very large number, of Australian residents served during the recent war in ships not registered in Australia. Some of these people were killed and some were injured. Accordingly they, or their dependants, became entitled to pensions from the British Government. Those pensions were lower than those available to Australian mariners who did exactly the same service, but rendered that service in ships registered in Australia. The two classes of people were doing exactly the same service at the one time.

Because the British pension was much lower than the Australian pension, for a good many years - up to 1952 - the Australian Government, by way of ex gratia payments, made up the difference between the British pension and the Australian pension, but in 1952 the position was regularised by legislation. The legislation provided that those who had served in the circumstances which I have mentioned - who were residents of Australia before entering into their contracts of service - were to be regarded as Australian mariners. The 1952 legislation was given retrospective effect and applied to persons who began to serve as from 1943.

At the same time as that provision was written into the Act, incorporating the various persons who served in British ships, there was also written into the Act section 53a, which is now being amended by the Bill before us. That section provided - I incorporate in it the amendment that is proposed in this Bill because the Opposition has no objection to it - that -

Where an Australian mariner or any of his dependants is entitled to receive payment by way of compensation for the death or incapacity of the Australian mariner arising out of a war injury -

(b)   under a law of a country other than the Commonwealth that is or has been a part of the dominions of the Crown, the compensation so payable shall be taken into account for the purposes of this Act in such manner end to such extent as the Commission thinks just, and for that purpose the Commission may direct that a pension or allowance under this Act shall be reduced or shall not be payable.

Applying that section to the circumstances I have in mind, the men to whom I have referred - and their dependants who receive British pensions - now collect the amount of the Australian pension less the amount of compensation payable to them by the United Kingdom. We are faced with the position, however, that by reason of a change in the income tax law in 1954, which provided that all war pensions should be free of income tax - and so too should British pensions received by Australian residents - an unfortunate result has occurred. The change involved the Double Taxation Agreement between Australia and Great Britain, and when the British pension became nontaxable according to Australian law, it immediately became taxable according to English law.

There are 62 persons today who, by reason of an Act of this Parliament which was intended to make seamen's pensions and war pensions completely free of income tax, have become subject to British taxation. This matter has been raised on a number of occasions by the Deputy Leader of the Opposition in another place. (Mr. Whitlam), and various proposals have been put forward to cure the position. The object is simply to see that all Australian mariners, whether they served in ships registered in Australia or in British ships - they were Australians and taxpayers of this country before they embarked - should be treated upon the same basis. The great bulk of mariners and their dependants benefiting under this Bill receive their payments entirely free of tax of any kind.

Senator Wright - What are the words that have caused the British income tax to be imposed?

Senator McKENNA - I have not the Agreement before me, but I think I can give the honorable senator a precis of it in these terms: Under Article 10 of the 1946 Double Taxation Agreement with Britain the British pension being derived from sources within Britain by an individual who was a resident of Australia, and being subject to tax in Australia, was exempted from tax in Britain. Such a pension was regarded as subject to Australian tax, even when the pensioner's net income did not exceed the amount at which one becomes liable to pay tax. Pursuant to section 8 of the Income Tax and Social Services Contribution Act of 1952, depending on her age, a widow's income became tax free. Then the 1954 legislation was introduced which exempted Australian and British pensions from Australian taxation. Consequently, the pension being no longer subject to tax in

Australia was no longer exempt from tax in Britain under Article 10 of the Double Taxation Agreement.

Here we are with this one little island of people, differentiating in two respects between them and the great class of beneficiaries under the Act. First, they served in exactly the same way, but some served on British ships not registered in Australia, and others served on British ships which were registered in Australia. Secondly, our own Act of 1954 threw the British portion of their pension within the scope of the income tax law in Great Britain. Various suggestions have been made on that matter. I am informed that the total amount of the pensions is about £ 11 , 000 per annum. It is not a very big amount. I think it averages out at a little over £3 per week.

The suggestion has been made that if these British beneficiaries relinquished their pensions they should be entitled to the full pension in Australia. That suggestion, of course, would relieve the British taxpayer of £ 1 1 , 000 that he is now paying, but it would, at least, put everybody on the same footing. It occurs to me that there are two ways in which this position could be cured. One way would not involve amendment of the legislation. That would not be required in the terms of the section of the Act I have mentioned. I am speaking now of compensation paid by a country other than our own. The section states that - the compensation so payable shall be taken into account for the purposes of this Act in such manner and to such extent as the Commission thinks just . . .

Senator Wright - What Commission is that?

Senator McKENNA - The Commission appointed to administer the Seamen's War Pensions and Allowances Act.

Senator Anderson - The Repatriation Commission.

Senator McKENNA - That is correct. So by a simple administrative act the Commission could determine that it would be just to carry out the intention of this Parliament that pensions of this nature should be completely free of taxation. It could do that quite simply by exercising the power that it possesses. Surely it is just that these people, who differ only because some served on one type of ship and some served on another type of ship, should be put on the same basis.

I point out that, with the total British pensions in this category running to about £11,000 per annum, the amount of British tax would be insignificant, so far as this Parliament is concerned, though it is a matter of financial importance to the people concerned. If the Commission decided to exercise the undoubted power in possesses, the amount of money involved might be only hundreds of pounds. I have no basis for assessing the amount of tax, but it could not be much on £ 1 1 , 000 spread over 62 individuals, the average being slightly more than £3 per week.

Senator Wright - Has the Commission given any answer to that?

Senator McKENNA - I do not know the answer. I am putting it forward as a possible approach to this matter because I am concerned to see that the anomaly is rectified.

Another way in which the problem could be solved would be by a simple amendment of the clause to provide that tax charged in a country outside Australia on a pension paid by that country shall be disregarded in making a deduction from the Australian pension. That could be done if we altered the section of the Act to read - the compensation so payable--

That is by another country - less the amount of income taxation thereon deducted by such country, shall be taken into account for the purposes of this Act in such manner and to such extent as the Commission thinks just . . .

I am putting that there are three possible approaches to the matter. One approach is to say to the beneficiaries: " Relinquish your British pension and we will treat you on the same basis as all our pensioners in Australia who served in ships registered here during the war ". The second approach is for the Commission to say: " We have a discretion. If the British pension is £5 a week and it is subject to a taxation deduction of 10s. a week, we will deduct only £4 10s. and not £5 from the Australian total pension." The third approach, which seems to me to be completely just and open, is simply to provide that in deducting the pension abroad, the amount of tax that is charged on it be disregarded. Accordingly, the deduction from the Australian pension would be merely the net amount that the pensioner receives from the United Kingdom Government.

I put it to the Minister that the last suggestion has probably not been placed before the Parliament previously. It may be that the second one that I have put has not been placed before it either. It is certain that the first one has been placed before the Parliament on several occasions. I am putting the argument that even if that proposal were adopted, it would involve a cost of £11,000 to the Australian Community and would relieve the British taxpayer of that amount. It would give even-handed justice to the people in this category. I hope that the Minister will not lightly dismiss any of the suggestions. I think that he will see the problem that is involved. It is anomalous that our own citizens, doing exactly the same work on the same type of ships, the only difference being that some of the ships were registered in Australia and some were not, should be dealt with differently.

The justice of the matter emerges all the more clearly when we know that it is because of our own efforts in amending the 1954 Act to make all war pensions completely free of tax that we have projected this small category of people into the British taxation field. I hope that the Minister, if he is not prepared immediately to accept one or other of these suggestions will assure the Committee that the fullest consideration will be given to the three proposals and that in due course we shall have the matter before us again after proper consideration has been given to it by the Government.

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