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Thursday, 10 November 1938

Mr CASEY (Corio) (Treasurer) . - by leave - Honorable members are aware that, as the result of the report of the Royal Commission on Taxation, the Commonwealth and State Governments agreed to adopt, as far as possible, a uniform Income Tax Assessment Act. Having once achieved a maximum degree of uniformity between the seven Income Tax Assessment Acts in Australia the problem then arose as to how to maintain that uniformity. It was agreed between the various governments that no government would, on its own account, without prior consultation, introduce amendments of its own act. So the practice has been adopted of holding a biennial, and, where necessary, a moTo frequent than biennial conference of Taxation Commissioners to discuss the various amendments believed to have become necessary, and to do their best to arrive at unanimous conclusions as to amendments to be submitted to their respective governments. The most recent of- these conferences took place in Canberra in May last, and the bill now before us is the result, as far as the Commonwealth Government is concerned, of the deliberations of the Taxation Commissioners. The amendments embodied in this bill have received the full consideration of the commissioners, and they are in agreement that they should be passed into law.

Mr Gregory - Were any representatives of the taxpayers members of that conference ?

Mr CASEY - No ; the honorable gentleman and his friends are representatives of the taxpayers.

These amendments are not of a controversial character. They . are mostly technical, and are brought forward by reason of the experience of the operation of the uniform act over' the last year or so. There are also certain drafting amendments, which it is considered should be passed. Of course, such of these amendments as are relevant to the State acts we have every reason to believe will be introduced in similar amending bills in the Parliaments of the various States. To assist honorable members in the consideration of this measure, I have had a memorandum prepared describing each of the proposed amendments, and, therefore, I do not now propose to go to great length in elaborating what is contained in the memorandum. I propose at the end of my speech to suggest that the further consideration of the bill be adjourned for at least a week, or possibly a fortnight, to give honorable members proper time for the consideration of its provisions. I shall briefly describe the principal provisions of the measure.

One provision is to enable confidential information in regard to income tax returns to be made available to the chairman of the National Insurance Commission, in order to avoid duplication by the collection of information by two governmental authorities. Thi3 is in conformity with the provisions of the act whereby the Commissioner of Pensions is allowed to have access, confidentially, to information contained in income tax returns.

A weakness in the present provisions of the income tax law has become apparent, us it is possible for companies to pay larger dividends than is proper out of the proceeds of exempt income. It is considered that this loophole should be closed, and provision is made in the bill to ensure that the proper expenditure in earning exempt income is debited against that income before it is available as exempt income for the purpose of paying dividends exempt from taxation.

It is proposed to insert another provision to carry out the original intention of the Government and the Parliament in respect of exempt dividends from profit.! earned by gold-mining companies. As the law now stands, the freedom from taxation in respect of these dividends is lost once the dividends pass through the hands of .a holding company. It was believed that this was not the intention of the Parliament in the first place, and the amendment seeks to maintain that exemption, even when the dividends technically go through the hands of the holding company before they are distributed to shareholders.

Following provisions made in the Queensland Income Tax Assessment Act, deductions are to be allowed to recoup expenditure incurred by the owner of a franchise granted for a public purpose, if the owner is required to hand over the assets to a government, or to a public authority without compensation after a certain period. Up to the present time, I think that this provision will apply only to Queeusland, where franchises have been granted in respect of the building of a toll bridge and the building of a toll road. Assuming that the amount of capital outlaid by a company to build a bridge was £100,000, that the franchise was for twenty years, and that, at the end of that period, all the assets of the company were to become the property of the State Government, it is believed to be proper that the law should allow an annual deduction to the company taking up such a franchise of a proportion of its capital corresponding to the number of years for which the franchise is granted. In other words, a company which spends £100,000, and has a franchise for twenty years, should be allowed £5,000 a year as a deduction from its profits before they are assessed for taxation.

Mr Nock - That is quite fair.

Mr CASEY - It is. Such a provision is, as I have already said, part of the law of Queensland.

Another proposal in the bill is to amend the Commonwealth act to make provision for the allowance of deductions of national insurance contributions by employees, and on this, I think, the House will find itself in agreement.

Another provision relates to private companies. As honorable members know, the law contains a provision whereby a certain percentage of the profits of a private company have to be distributed, and, if they are not distributed, they are deemed to have been distributed for taxation purposes, and are taxed at the rate applicable to the individual shareholders, who either receive, or are deemed to have received, dividends at a certain rate. As the law stands, these companies are unable to deduct losses made in any ex-Australian business or trading. The Commissioner is obliged to deem a certain percentage of the profits made in Australia by a private company to have been distributed, thus attracting a greater amount of tax, while at the same time the company may have made losses, large or small, which it is not allowed to offset against its profits.

Another point has arisen with regard to the taxation of shipping freights. This taxation is not an easy matter, from the Commissioner's point of view. For many years, the practice has been to take the total sum received by way of freights, and to deem 5 per cent, of that to he profit. On that 5 per cent, the Commissioner is enabled, under the law, to levy tax.

Mr Lazzarini - The companies make more than a 5 per cent, profit.

Mr CASEY - The percentage varies from time to time. No difficulty is experienced in the assessment of payments for freight, except in the case of wool. In the carriage of wool overseas, a system of rebates operates. A company is not allowed to take into account the benefit of these rebates in returning its total net freight in respect of the carriage of wool overseas. This problem has been known for some time. The Government has gone into the matter to soe how the difficulty could be overcome, and it is believed that the provision contained in the bill will enable the Commissioner to exact his proper modicum of tax from freights earned in carrying wool in the same way as in regard to freight charges on other commodities.

Mr Paterson - That is 5 per cent, as calculated on freight earnings, and should not be confused with interest in the ordinary sense.

Mr CASEY - That is so.'

A rather complicated point in respect of the taxation of re-insurance premiums paid to overseas firms has arisen. As the law now stands, the Commissioner taxes an Australian company on the profits earned in its insurance business carried out in Australia. There is provision in the law whereby it is mandatory that re-insurance entered into by an Australian insurance company with an overseas insurance organization should be taken into account, and either the profits or losses on the re-insurance credited or debited against the profits of the Australian insurance company in Australia. This provision seems satisfactory in theory, but it does not work out well in practice. The Commissioner, who, I think, does not lack agility in carrying out the law, has found it practically impossible to give effect to it in this regard. He has had many conferences with the insurance companies, and the proposal is now made that the whole of this re-insurance provision should be taken out of the law as unworkable. In the future, an Australian insurance company will be taxed on its profits in Australia, and, whether it re-insures overseas, or makes a profit or loss on its overseas re-insurance, will have nothing to do with the taxation in Australia. The Commissioner has given an assurance that there will be no appreciable gain or loss of revenue as the result of this legislation. He has not been able to make assessments for the last two years, taking into account this re-insurance business, because of the almost insuperable tangle of the accounts associated with such transactions.

Mr Scullin - Would not the income from insurance be paid in Australia by Australians, even if re-insurance had been taken out overseas?

Mr.CASEY.-Iam advised that the difficulty arises largely out of the impossibility of dissecting the accounts of overseas insurers. However, I shall obtain information in regard to the matter, and make it available later.

Mr Lazzarini - How can anyloss a rise in connexion with this business?

Mr CASEY - If no loss arises the premium paid for re-insurance is itself a loss. If there is a loss in respect of which re-insurance has been made, there is a profit on the re-insurance transaction. The provision which it is proposed to amend may be regarded as an attempt to achieve perfection. Unfortunately, in practice, it has been found unworkable.

Mr Lazzarini - What will be the effect on the revenue of Australia of the amendments proposed?

Mr CASEY - I do not think that the net effect will be very great. There will be small gains in some directions, and small losses in others. No estimate has yet been prepared, but I shall have one made available to honorable members before the debate on this measure concludes.

Debate (on motion by Mr. Forde) adjourned.

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