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Tuesday, 29 September 1942

Mr FADDEN (Darling Downs) (Leader of the Opposition) .- This bill, which can be described as a concessional measure, is made necessary, first, by the requirements of the war, and, secondly, by the imposition of uniform income tax. It is needed to overcome certain anomalies, particularly, overlapping anomalies as between the various States and the various previous methods of taxation. The bill has been considered by an allparty committee of honorable members, whose recommendations the Government has expressed its readiness to adopt. The most important matter is the relief provided for the mining industry. Partial exemption from taxation should be granted in respect of wasting assets, because the inevitable loss from investments in mines which have to be worked to a maximum capacity to produce minerals essential to the war effort must be classified as a capital loss. The working of such mines is very important to the nation's war effort. The effect of the proposed amendment will be to reduce the maximum rate of tax from 216d. in £1 to 172.Sd., with the right of appeal to the Board of Referees for greater relief. Twenty per cent, of the present net income from mining will be exempt from tax, and that portion of the profits will be free from dividend tax in the hands of shareholders. This provision is deficient in that the dividend must be paid wholly and exclusively out of the exempt mining income, and therefore the benefit of section 44 (3) of the act will be limited to one-fifth of the dividend of the mine. If exempt profits are overestimated by £1, the whole of the dividend will automatically become taxable, because the dividend will not have been paid " wholly and exclusively " out of exempt income. This applies to companies which want to pay as dividends the whole of their incomes which they consider to be exempt. Under section 44 (3) a dividend of £20,000 paid out of a profit of £36,000 will be exempt only in respect of the first £4,000. In my view, the exemption should he extended to cover the whole of the profits. Companies had no notice of the Government's intention, and could not have declared, before the 30th June, 1942, a dividend wholly and exclusively out of the percentage of its profits, which the Government' now proposes to exempt. There is no provision in the bill for exemption from tax in the hands of shareholders of dividends paid between the 1st July, 1942, and such date as would be reasonable, after the notification of these proposals, for com,panies to arrange to declare their dividends as being " wholly and exclusively " out of the exempt mining income. The next important provision of this bill relates to depreciation. The standard rates allowed -up to the present time do not provide for exceptional losses arising from the installation of new plant and buildings for war purposes, or from the high-speed use of equipment in compliance with the demands of government departments. Unfortunately, the allowance to taxpayers will not. be available to them during the war, when the money will be needed to meet the cost of new plant. Obviously, there should be some adjustment with regard to depreciation. Depreciation that was considered reasonable in normal times, when probably only one shift was worked, must necessarily be regarded as totally inadequate to-day when plant is being worked 24 hours a day. The amendment proposed in the bill will meet the position in some degree, but there are other deficiencies that should have been taken into account. The bill provides that adjustments will be made in the year in which compensation is receivable, instead of at the time when compensation is actually received. That is a very important point. Compensation on account of war damage or other causes over which the owners have no control may be receivable, to-day, but it will not be received, under the war damage insurance scheme, until after the war. That aspect should be cleared up.. The provision is not so liberal as it should be in the light of existing circumstances. No adjustment is proposed if assets are acquired by competent authorities for the purposes of the present, war. Technically, a profit will be shown, although the asset will have been removed from the taxpayer just as though the acquisition had been compulsory. Why should not depreciation be allowed on buildings as a nominal matter, even if the rate be low, and no adjustments made on sale if a sale is effected. Various bodies have recommended that allowances be made for the payment of State taxes for all years prior to the income year 1940-41. The act provides an allowance in respect of the payment of State taxes. But there may be circumstances in which delays in effecting adjustments, or in dealing with objections, or in making investigations over many years have bren brought into account, and it is reasonable to submit that State taxes paid in respect of years prior to .1040-11 should be allowable as concessions. Another important provision relates to expenditure on enemy raids precautions. Such expenditure is now treated, as an allowable deduction in certain circumstances, and the right of appeal to the Board of Referees is granted. The Government should deal wit/h this matter thoroughly and allow deductions in respect of expenditure incurred on enemy raids precautions during 1940-41. Unfortunately, this provision does not extend to the cost of restoring premises after the war to their original condition. 'Certain enemy raids precautions have involved the alteration of buildings, and the allowance of deductions to the amount of the cost of such alterations is, in the circumstances, not sufficient.

The bill also contains a provision relating to payments by doctors and other professional men to funds providing benefits for fellow members of their professions engaged on overseas service. These payments should be allowable deductions, whether they be made pursuant to a written agreement or not. The bill provides that, where an agreement has been entered into in writing, an allowance shall be made. However, the fact of payment should be proof of an agreement. Recipients - should be assessed at personal exertion rates. I am aware of cases in which agreements have not been committed to writing; adjustments should be effected in respect of these transactions.

Mr Scullin - There should be no difficulty about obtaining a signed agreement.

Mr FADDEN - There may be delay owing to the absence overseas of one party to the agreement. I bring this matter to the notice of the Treasurer because it could be rectified without difficulty. 'Concessional deductions in respect of gifts by companies to charitable institutions are allowable for the year ended the 30th June, 1942, and an amendment is foreshadowed to provide for such deductions in the future. This course is justified, for many companies have made commitments in respect of future gifts. It is a matter for regret, however, that the Government is not providing for such deductions in relation to the tax upon undistributed income. As gifts are encouraged, in respect of the 6s. part of the tax, I can see no reason why they should he discouraged in respect of the 2s. tax on undistributed income.

Mr Scullin - That matter is covered by the provisions in relation to deductions from taxable income.

Mr FADDEN - I do not think that it is sufficiently covered. At any rate there is some ambiguity which should be eliminated. The bill also leaves untouched a number of major problems, the chief of which relate to proprietary companies. That aspect of our taxation law should be looked into without delay. No effort has been made to meet the position of taxpayers, who, in respect of the income year 1940-41, were required to pay taxes amounting to more than 20s. in the £1. I am aware that under the uniform income tax provisions such a position will not arise in the future; but some injustice has already been done mainly through the lack of co-operation by certain States, and it would be desirable, in my view, for the Commonwealth Government to make such adjustments as may be necessary. The Treasurer expressed the hope some time ago that amicable arrangements would be made between the Commonwealth and State taxing authorities for a ceiling at 18s. in the £1, but that hope was not realized. The result has been that some companies and individuals, have had to pay more than 20s. in the £1 in Commonwealth and State taxation. It would be a gracious act on the part of the Commonwealth Government to make adjustments in those cases.

Mr Scullin - Is the right honorable gentleman suggesting that the Commonwealth Treasurer should make the adjustment out of 'Commonwealth funds?

Mr FADDEN - I am aware that the injustice has been caused in consequence of the unwillingness of certain State governments to co-operate with the Commonwealth to remove the injustices.

Mr Scullin - TheCommonwealth Government has done its best to secure agreement. Adjustments could be made equitably only out of State moneys.

Mr FADDEN - I realize that, but it seems to me that the adjustment could be made part and parcel of the uniform income tax scheme.

Mr Scullin - But the adjustment should be made out of State moneys.

Mr FADDEN - I would say so.I hope that the Government will take an early opportunity to deal constructively with the position of private companies, many of which are so placed that they cannot protect their assets against a fall in values which is expected to occur after the war. Many such companies will be unable to take their part in post-war reconstruction plans unless the present unfair incidence of taxation in respect of them is removed. I am glad that some of the anomalies in our taxing legislation are being removed! by this measure, but I urge the Government to turn its attention to the other matters to which I referred. I wish the bill a speedy passage.

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