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Amending Income Tax Assessment Act



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T1EASU1E1

EMBARGO ,

STATEMENT BY THE TREASURER, THE HON. J. HOWARD, MP ;

NO.100

The Treasurer, the Hon. J. Howard, MP, today announced that

the Government proposed amending the Income Tax Assessment

Act to put beyond doubt that employers are entitled to

deductions for the cost of their employees' long service

leave, holiday pay and other kinds of leave only at the time

that payment for the leave is made.

The amendment will make it clear that deductions are not ■ ; · 9

allowable for unpaid amounts accruing for leave commitments

whether or not the amounts are being set aside by employers

as provisions in their financial accounts. .

Mr. Howard said the Government was compelled to introduce

these amendments in the light of the implications of the

decision of the Supreme Court of Victoria in Nilsen Development

Laboratories Pty. Ltd. v. F.C.T. In that instance, the Court

held that in the year in which an employee becomes entitled

to leave, the employer can' claim a deduction for the cost

of the employee's leave entitlement. It also held that

employers cannot deduct the value of leave entitlements that

had accrued to employees, before the beginning of an income

year. The Court indicated that the cost of such leave

could not be deducted in any later year until payment was

made for it. It thus purported to set up two ways in which .

deductions might be. taken. .

2 .

The decision of the Supreme Court raises questions of

considerable significance fcr the Government and taxpayers

alike. If employers could claim deductions for the value

of leave that employees had qualified for but not taken, there

would be a very substantial cost to revenue, ^possibly of the

order of $600M in the current year. Given the.Government's

budgetary position, a.revenue loss of such proportions in

1978-79 could not be contemplated. - .

If, on the other hand, it was decided on appeal that there

was only one way for deductions to be taken, i.e., if the

primary finding of the Court, but not the secondary, were .

upheld, employers would lose very substantial deductions

in future years when their employees are paid for leave . '

which had previously accrued and for which deductions had "

not been allowed.

In the ordinary course, the Government would much prefer

to defer consideration of an amendment of the lav; until

after an Appellate court had expressed its views on what is

obviously a most significant matter. The revenue implications

of the Supreme Court decision and the uncertainty arising .

from the disturbance of a-long-settled practice on this

occasion do not permit us to wait for the ordinary processes

of appeal to be concluded. The Government has, therefore,

decided that it has no choice but to insert specific provisions

in the law to lay down the basis for deduction.

3 .

The- Treasurer- said that the amendment to be' introduced by

the Government w o uld; apply. ■in respect, of assessments for the.

1977-78 income year and subsequent years and emphasised .

that as a result the loss to revenue in 1978-79 of up to '

$600 million would not occur. It will not apply in respect

of assessments yet to be raised in respect of earlier income

years nor will it apply to assessments already raised in .

respect of-earlier years where - the taxpayers have protected

their rights by way of objection or appeal to a Court. So

far as these latter cases are concerned the Government will

await the final decision of an appellate court before deciding

whether any further legislative amendments might be required.

The Treasurer pointed out that specific details of any . . ' ’ . . . a

further amendments to the law could not, be given at this

stage because they would depend on the final court decision.

However, as an indication of what might be involved, the

Treasurer said that legislation, could be necessary to ensure

that on the one hand employers did not suffer any loss of

deductions and on the other hand employers did not gain

any double benefit. The double benefit could arise, for

example, if it were held that an employer is entitled to

a deduction for a provision in an earlier year and the

law, as proposed to be amended, provides a deduction for

actual outlays in a later year in respect of the same

employee. ■ .

4 ,

The Treasurer said, that he realized that the amendment would

have retrospective effect. Although the Government was

extremely reluctant to use retrospective legislation, the

proposal to amend the law on this occasion would not result

in the loss of ar.y tax deductions to taxpayers. Leave

liabilities will remain fully allowable. It is a question

only of timing of deductions for them. The Government’s .

proposal will do no more than restore the former position

and, at the same time, will guard against the possibility

that deductions for amounts as yet. unpaid, would be denied

to employers when employees take leave that has long since

accrued and receive payment for it. . . '

In all these circumstances, and because of the serious

revenue threat posed by the decision, the Government . .

sees no option but to resolve the uncertainty by specific

and retrospective legislation. The effective alternative

to the Government’s decision would have been a decision

to increase company taxation by approximately 6 per cent.

CANBERRA

27 September 1978