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Wednesday, 7 December 1927

Senator Sir GEORGE PEARCE (West ern Australia) (Vice-President of the Executive Council) [3.7]. - I move -

That the bill be now read a second time.

I draw the attention of the Senate to the fact that the permanentsettlement which has been achieved in the matter of the financial relations of the Commonwealth and the States has opened the way to a full consideration of all the anomalies and hardships that exist under our income tax legislation. The Government has therefore, decided to not only reduce the rate of income tax payable, but also introduce a bill dealing generally with the removal of a number of anomalies and giving concessions of various kinds to taxpayers. I crave the indulgence of the Senate whilst I explain the various alterations in our income tax law, for which this bill provides in the terms' of a document thathas been prepared on the subject. Honorable senators who are familiar with legislation of this character can appreciate how technical and involved it is. I am not a taxation expert and must, therefore, rely for my information upon others who possess that knowledge.

The bill contains probably the greatest number of concessions to taxpayers which have yet been embodied in one bill submitted to Parliament. In addition to the proposed reduction by 10 per cent. in the rate of tax payable by individuals, there is to be a reductionof the minimum tax from £1 to 10s. The subjects dealt with in the bill are : -

1.   Carrying forward of losses of one year which are not recouped out of the income of that year, to be deductions from the profits of any of the four years next succeeding the year of loss. (Clause 16.)

2.   Deduction of certain capital expenditure incurred in connexion with opening up land for increased production, so as to encourage persons to undertake that pioneer work. (Clause 14, amendmentf).

3.   The extension of the deduction for obsolescence of plant, machinery, &c, used by primary and secondary industries, so as to grant it also to taxpayers whose annual deduction for depreciation has hitherto been calculated on what is known as the annual diminishing value basis. Also the extension of the deduction for depreciation so as to allow it in the case of fences, dams, and other improvements on land owned andused by the taxpayer for agricultural or pastoral pursuits, but not including improvements used for domestic or residential purposes. (Clause 14, amendmentb).

4.   Removal of an inequity to a purchaser of wool growing on sheep's back, in order that he may obtain a deduction of the price paid for the wool as distinct from the sheep. (Clause 12.)

5.   The extension of the present deduction of gifts exceeding £5 made to public charitable institutions, so as to cover -

(a)   Gifts in cash and gifts in kind purchased out of assessable income, and representing £1 or over, each;

(b)   gifts to public universities and colleges affiliated therewith;

(c)   gifts to public funds established and maintained for providing money for the construction or maintenance by or on behalf of the Commonwealth, a State, or Territory of the Commonwealth of a public memorial relaxing to the great war;

(d)   gifts to public funds established and maintained for the purpose of providing money for public charitable institutions or for the relief of persons in necessitous cases. (Clause 14, amendment c.)

6.   Protecting the revenue against loss by the abuse of a provision in section 23 (1) n of the principal act, which enables a lessee of land who has covenanted to expend money on improvements on the leased land and who has no tenant rights in the improvements, to deduct in his assessment the annual sinking fund required to amortize his expenditure. (Clause 14, amendment d.)

7.   Protecting the revenue against loss through the claims by husbands and wives that partnerships exist between them in business with resultant reduction in income tax payable on the profits of the business. (Clause 18.)

8.   The removal of an anomaly created by a recent judgment of the Supreme Court of Victoria and confirmed by the High Court, in which it was held that under section 17 of the principal act, exemption from tax on the proceeds of sales of live stock which in the opinion of the Commissioner were ordinarily used by the vendor for breeding purposes, could be successfully claimed by a person carrying on a continuing business as a pastoralist, although the intention of Parliament when enacting the section was to limit the exemption to cases of walk-in-walk-out sales to put an end to the taxpayer's business or to sales of the whole of the assets in other manner for the same purpose. (Clause 11, amendmentb.)

9.   Revision of the averaging provisions of the law so as to ensure -

(a)   that a taxpayer who has once been assessed by reference to an average income of a fiveyear period shall thereafter continue to be assessed by reference to a five-year period. (Clause 9, amendment d, new sub-section 12.)

(b)   that a person whose income is not received from a business carried on by him, but is received from salary or salary and investments, shall be assessed on the income of the year when he first becomes liable to assessment without reference to his financial position of any previous year. (Clause 9, amendment d, new sub-section 11.)

(c)   that there shall be no doubt that in the case ofa person whose income has been permanently reduced to less than two-thirds of the average taxable income by reference to' which his assessments would be under the ordinary averaging provisions of the act, he shall commence a new averaging period as from the year in which his income was so reduced. (Clause 9, amendment c.)

(d)   that in the case of a person who may have been assessed , for several years, but who then may cease for a year or more to have any assessable income from Australian sources (e.g., he may leave Australia for one or more years) a new averaging period is to be commenced in respect of any income which he may subsequently derive from Australian sources. (Clause 9, amendment d, new subsection 13.)

10.   To grant a deduction, not at present allowable, to timber-millers in respect of the purchase price of standing timber purchased for felling, removal, and sale. (Clause 14, amendment g.)

11.   The prevention of a double deduction for cost of leases when the purchaser is taxable on profits from the sale of leases. (Clause 15, new paragraph ii.)

12.   Exemption from tax on the proceeds of the sale in Australia of produce from specified islands in the Pacific Ocean the residents of which must trade with Australia. (Clause 10, amendment c.)

13.   Exemption from tax of profit on the sale in Australia of gold mined in the mandated territory of New Guinea. (Clause 10 amendment a).

14.   Amendment designed to create the position of Second Commisioner of Taxation in place of the Assistant Commissioner, and to improve the methods by which the work arising under the act may be more expeditiously dealt with by setting out in the act the powers and functions which may be exercised by the Second Commissioner. (Clauses 5, 6 and 7.)

15.   Provision to specify the exact dates when the present terms of office of the members of the Income Tax Board of

Review will expire, and to empower the Governor-General to make any fresh appointment for any period of time up to seven years. (Clause 21.)

16.   A provision which will preclude the Income Tax Board of Review deciding any question of law, and requiring it to refer a question of law for the determination of the High Court. (Clause 22.)

17.   Improvements in the provisions relating to companies in liquidation. (Clause 23.)

18.   Deduction to co-operative companies of bonuses paid to purchasers based on the volume of purchases. (Clause 13.)

19.   Machinery to enable the Commissioner of Taxation to secure payment of income tax in any case in which a person, whose income is taxable, may have died, but whose estate is not being administered by any person. (Clauses 24 and 31.)

20.   An amendment of the definition of "absentee" so that the provision which entitles an officer of the Commonwealth who is absent from Australia on Commonwealth duty to be treated as a resident, may be extended to the officer's wife who may have accompanied her husband to reside with him abroad. (Clause 3.)

21.   Alterations in the wording of section 67 of the principal act which imposes penalties for breaches of the act - in cases where legal proceedings are not taken - so as to enable the amount of the penalty to be calculated in certain cases. (Clause 27.)

22.   Further exemption for five years of income from primary production is the Northern Territory.

23.   Minor alterations in machinery clauses to facilitate their application.

Re1. Deduction of losses from profits. See clause 16. - The concession will commence to apply in assessments for the current financial year 1927-28. In that year the concession will be in respect of losses of the previous four years to the same extent as if the provisions of the concession had operated in those four years. Losses will be taken in theiro rder of occurrence, i.e., the earliest loss in the five-year period will be the first to be set off against the earliest subsequent profits of that period. If that loss is greater than the profits of the four years next succeeding the year of loss, the excess of the loss ceases to be a deduction from any later profits. The Government considers that a period of four years after the year of loss is sufficient in practically all cases to permit of recoupment of losses. Where that period is not sufficient, the case would probably receive sympathetic consideration by the Relief Board. This concession is being combined with the present averaging system which provides for the taxation of the actual taxable income at a rate applicable to the average taxable income of that year and the four (preceding years. Under the proposal in the bill, the rate will be affected in cases where losses have occurred because the taxable income of a year succeeding a year of loss will be reduced by the amount of the loss, if it is less than the income. If the loss exceeds the subsequent income, then that income is not taxable. The scheme is a distinct advantage to taxpayers who suffer losses. There are, unfortunately, many such persons in the Commonwealth, more particularly among those engaged in primary production. I say regretfully that during the present financial year many taxpayers in Australia will appreciate that provision.

Senator Sir Henry Barwell - Is it intended to average the income or the rate of the tax?

Senator Sir GEORGEPEARCE.The rate. Several methods of meeting this position have been examined by the Government. It has been found that that which is proposed in the bill is the most acceptable from all points of view, having regard to the necessity for reasonable certainty as to revenue for the annual budget and for reasonable costs of administration. The explanatory document from which I have been reading continues -

Re2. Deduction for cost of opening up new lands for agricultural or pastoral purposes. (Clause 14, amendment /). - It is expected that this provision will be a distinct incentive to persons engaged or desirous of engaging in primary industry to undertake the opening up of new country. Under the present law such expenditure cannot be deducted because it is a capital outlay. It should, how ever, be borne in mind that the expenditure is incurred for the sole purpose of converting by natural means the elements of the soil into food stuffs and other necessaries of life and well being. In this connexion there is a striking distinction between rural lands and urban lands. In the case of the latter lands, nothing is drawn from the soil per se. The land is useful only for sites for buildings or factories, or other similar income producing assets. It is those assets, in this case, which produce the income. On the other hand, the rural land itself yields the income only after its potentialities have been made available for that purpose by the expenditure of money in clearing timber and other obstacles which prevent the effective use of the constituents of the soil. The secondary industries obtain a deduction of an annual sinking fund to amortize expenditure on factory buildings, machinery, &c, which produce their income. The proposal in the bill is an adaptation of that principle, given in the proposed form because there is no effective method by which a sinking fund to amortize the expenditure might reasonably be calculated. The effect of the proposal on an assessment will be so to increase the deductions in the relevant case as possibly to cause the aggregate of the allowable deductions of that year to exceed the total assessable income of that year. The excess of deductions over assessable income will thus represent a " loss " for the purpose of ascertaining the average income when assessing any actual taxable income of a succeeding year, and for the purpose of deduction of lossess from profits of the next succeeding four years.

Re3. Extension of the depreciation deduction to cover absolescence in all cases; and to allow depreciation deduction to farmers and pastoralists on certain assets. (Clause 14, amendment b). - The proposal of the bill extends the special provision inserted in the law by the 1924 amending act, under which a deduction for obsolescence of plant and machinery could be allowed. That provision was limited, however, to cases in which the deduction for depreciation was calculated at a fixed proportion of the cost of the asset being dealt with. It permitted the owner of the asset to write off any part of the cost which still remained to be written off at the date when the asset is sold or otherwise disposed of, i.e., thrown on the scrap heap or given away. This concession did not, however, apply to cases in which the deduction for depreciation was calculated on what is known as the diminishing value basis. There are very many secondary industries which obtain the deduction for depreciation on the diminishing value basis, and those have found it impracticable to change from that basis to the alternative basie known as the " prime cost basis," on account of insuperable difficulties encountered in ascertaining the original cost of their respective assets of plant and machinery. These taxpayers have, by the terms of the existing law, been deprived of any deduction for depreciation of the plant and machinery on and from the date when they cease to use it for the production of income. The proposal in the bill will, however, place those taxpayers in the same position as regards writing off un recouped expenditure on plant, &c, as the taxpayers who have adopted the " prime cost basis." The wording of the existing law has, therefore, been re-arranged to give "effect to this policy. At the same time, the opportunity has been taken to include among the items in respect of which deduction for depreciation may be allowed, fences, dams, and other improvements on land owned and used by farmers and pastoralists for the purposes of their particular business. Hitherto, fences, dams, &c, have been regarded as part of the land, and, therefore, not subject to deduction for depreciation. It has also been considered that the increment in value of land would offset any loss sustained through depreciation of fences, dams, &c. Experience, however, does not support that view. On the contrary, it has shown, in some cases at least, that the expenditure is never recouped out of the sale prices. It is considered that the new provision represents delayed justice to the primary producer in this respect. lie 4. Sheep sold in the wool (Clause 12). - This amendment will in future enable a purchaser of sheep in the wool to obtain a deduction of the purchase price of his wool. In the past, it has not been possible to allow this deduction in cases where no purchase price of the wool has been specified in the contract of sale, and many purchasers who have elected to bring live stock to account at cost have thus suffered double taxation on the value of the wool, because they have had to bring the sheep to account at the end of their trading years at the price paid for them in the wool. The purchased wool has also been brought to account at its shorn value, or at its sale price, as the case requires, and thus the unfortunate purchaser has had to bring his wool to account as income twice - once as shorn wool, and once as new wool on the sheep's back - and pay tax on it.

Re 5. Gifts to public charitable institutions, &c. (Clause 14, amendment c). - The existing law has had a limited application. It was confined to gifts in cash exceeding £5 each, paid to a public charitable institution. !N"o deduction could therefore bc allowed for gifts in kind, or for contributions to such funds as the fund of the. Lord Mayor of Melbourne, which collects money and distributes it among specified public charitable institutions in Victoria, or to a similar fund of the Sydney Chamber of Commerce, , or to special relief funds organized by a Lord Mayor for relief of distress among persons who might suffer calamity through bush fires, floods, or tempests. The proposal in the bill will include gifts in kind and all the objects mentioned, and will extend also to public universities and colleges affiliated therewith. The definition of " public charitable institution " is included in the bill on the suggestion of one of the Justices of the High Court, made during the delivery of a judgment in a case in which the question arose as to what is a public charitable institution. lie 6. Protection of the revenue against subterfuges (Clause 14, amendment d). - This proposal will limit the deduction under section 23 (1) n of the principal act to cases of bona fide lessees who have no connexion directly or indirectly with a lessor. That section permits a deduction to a lessee of the sinking fund required to amortize expenditure covenanted by him to be made on improvements on building leases when the lessee has no tenant rights' in the improvements. This prevents the lessee from being taxed on the part of his annual profits which represents the recoupment of his capital outlay which Would otherwise be lost to him. That concession is, however, being abused by freeholders of laud forming themselves into private companies in order that the company might take a lease of the land, mid so secure a deduction in the assessment of its income of the sinking fund required to recoup the cost of the improvements made by the company on the land. The freeholder in such cases provides the capital for the erection of the building, and thus obtains indirectly a very great advantage through the deduction allowed to the company in its assessment. It is proposed, therefore, te deny the amortization deduction to lessees in cases where there is a lease of land to a company from any individual who directly or indirectly controls the voting power of the company or in any other case in which the commissioner is of the opinion that, in consequence of the terms and conditions of the lease or of any circumstances associated with the lease, the lessor is in substantial control of the operations of r,he lessee.

Ite7. Husband and wife partnerships. (Clause IS.) - The department has, during the past two years, been faced with great difficulties in dealing with cases in which partnerships between husband and wife have been alleged to exist. The claims submitted have been for separate assessment of husband and wife of their alleged respective interests in the partnership profits. Many extraordinary claims of this kind have been received, with the obvious object of reducing the amount of income tax which was formerly paid without objection by the husband as the sole owner of the income. The possibility of reducing the tax has apparently been brought very prominently before many taxpayers carrying on business in an individual capacity by some taxation agents who have gained their fees bv suggesting and causing the formation of partnership arrangements between the taxpayer and his wife. The department has critically examined each case in *.he large number which have come under notice. In some, the joint subscription of capital and the joint active assistance rendered by both husband and wife in the. production of the income have shown clearly that the partnership exists in fact, and should be recognized. But there are a great many others in which the husband supplies all the capital and does all the work while the wife attends to domestic duties at home, and others in which the wife supplies the whole of the capital but the husband does all the work while the wife remains at home attending to domestic duties. In the former class it is obvious that the alleged partnership arrangement is a subterfuge to reduce or entirely avoid taxation. In the latter class, the husband is in the same position in regard to his wife's capital as he would be if he had borrowed capital himself from some other person or from a bank. In such cases, the most which the husband could reasonably claim is a deduction of interest on his wife's capital upon which the wife would be taxed if it were of a taxable amount. But the claim for division of the profits equally between husband and wife would, in a number of cases, render both of them not liable to tax, or would very considerably reduce the amount of tax which would be assessable if the profits were taxed to one person. The proposal is aimed, at the fictitious cases here indicated, and will authorize the commissioner to assess the profits as the profits of one individual if he considers the arrangement was entered into for the purpose of avoidance of liability to tax by either the husband or the wife.

Be2. Walk-in-walk-out sales of businesses. (Clause 11, amendment (b). - This amendment deals with a very important matter, and is urgently necessary to protect the revenue against loss unexpectedly encountered through a recent judgment of the Supreme Court of Victoria, confirmed by the High Court on appeal in the case of Weatherly v. Commissioner of Taxation. This appeal was based upon the contention that section 17 of the principal act entitled a vendor of live stock which, in the opinion of the Commissioner were, ordinarily used by the vendor for breeding purposes, to exemption from tax on the proceeds of the sale of such stock even though the sale were made in the. ordinary course of a continuing business. When section 17 of the principal aci was enacted it was intended, and Parliament was so informed, to overcome the detrimental effect upon the revenue of two judgments which had then recently been delivered by the High Court on the question whether there could be any taxable profit from the sale of ::i business on a walk-in walk-out basis. The court decided that there could* not be any taxable profit in such a case. Section 17 of the principal act therefore provided that there should be a possibility of taxable profit arising from the sale of the whole or part of the trading stock of any business, whether on the sale of a business as a going concern or in any other manner for the purpose of discontinuing the business. But the courts have recently held that the words " whether on the sale, &c." really moan " whether oi not on the sale of the business as a going concern or in any other manner for the purpose of discontinuing the, business.'5 This was not the unanimous judgment of the court, but a majority judgment. The result is so opposed to the intention of Parliament that the Government has taken this first opportunity of re-expressing its intention in a manner which, it is expected, will be free from any doubt. The amendments for this purpose are being included in section 16 of the principal act as that section deals with what is assessable income of a taxpayer.

Re9. Revision of the average provisions of the act. Clause 9, amendments c and d). - These are partly due to the introduction into the law of the principle that losses of one year may be deducted from profits of th, next succeeding four years. Most of the amendments proposed, however, ar.e. not directly connected with that principle. The amendment which was first described in my remarks is to make it quite clear that when once a taxpayer has come under the averaging provisions of the law, and has completed a five-year period he shall thereafter be assessed on the basis of a five-year period. This is not the present position. a° the wording of sub-section 5 of the principal act, though originally intended only to ascertain the first average year which was to be used when a taxpayer first became taxable has been found to necessitate a re-ascertainment of the first average year when a second five-year period is due to be considered. It has happened, therefore, that some persons whose income of the five-year period had been assessed at the rate applicable to an average income of five years, were assessed on their income of the sixth year at a rate applicable to an average income of a period less than five years, in some cases a fouryear period, in others three years, and in some, two years, merely because the income after the second year of their first five-year period was on the down grade. The matter will be more fully explained in committee. The amendment secondly described is to prevent heavy unproductive administrative work. When the averaging scheme was first introduced into the law it was intended that a person who was not carrying on a business should be taxed upon his first taxable income at the rate appropriate thereto, but that a person who is carrying on business should be taxed on his first taxable income at the rate applicable to an average ascertained by associating that first taxable income with any previous losses which may have arisen in years to which the averaging would have applied if there had been any income. The business man was to have the benefit of any previous business losses arising after the averaging scheme was introduced. The salary or wage-earner was to be taxed without reference to any previous nontaxable years which he may have had. If this had not been done the department would have had to call upon all salary and wage-earners coming into the taxable field for the first time to lodge statements of their earnings during the preceding four years so as to ascertain the average income for the five-year period. It was decided that the circumstances would not justify the heavy unproductive expenditure which would thus have been involved. It was recently ascertained, however, that a judgment of an English court on the question of whether an employee in receipt of salary or wages waa carrying on a business within the meaning of the English Income Tax Act, supported a contention raised under the Commonwealth law that a ' person in receipt of salary or wages was entitled to be treated as carrying on a business. As this is contrary to .the original object of the law, this amendment is proposed in order that the original object may be carried out. The amendment, thirdly described is a drafting amendment only which will make clearer the intention of the sub-section dealt with. The amendment fourthly described is necessary in order that a person who might leave Australia for several years after having been a taxpayer should not have his tax on any subsequent Australian profits assessed at a rate ascertained from the earlier income, together with nil results during his absence. Such persons should commence a new averaging period upon their return to Australia.

Be10. Deductions to timber millers. (Clause 14, amendment g). - The underlying principle of this amendment is similar to that present in the case of wool growing on sheep's backs. The standing timber is part of the ground, just as the growing wool is part of the sheep. The reasons for the amendment in this case are similar to those in the case of the growing wool. The amendment will remove an anomaly.

Be11. Double deductions to lessees trafficking in leases. (Clause 15.) - The amendment in this case is necessary in order to prevent a lessee of property obtaining a double deduction of the cost of his lease.

Section 25i of the principal act grants a deduction to a .lessee of the annual sinking fund required to amortize the purchase price, if any, paid by him for the lease, over the unexpired period of the lease from the date of purchase. It sometimes happens that if the person at any time sells the unexpired period of his lease the circumstances of the transaction may be such as to render him liable to pay tax on any profit which he might make by the sale. In that case there would be a deduction of the whole of the purchase price of the lease. The discovery of this liability in many cases is not made until several years hav. elapsed after the original purchase of the lease, and, in the meantime, the deduction of the sinking fund mentioned has been allowed, thus exempting profits representing a part of the original purchase price. If, therefore, the full purchase price of the lease is deducted from the final selling price the taxpayer would receive an advantage to which he is not entitled. This amendment will place the matter on a proper footing.

Be12. Exemption in respect of profits by the sale of Pacific Island produce. (Clause 10 amendment c). - The object of this amendment is to remove a cause of considerable irritation among residents of the Pacific Islands controlled by any part of the Empire or by a condominium in which any part of the Empire is interested. Practically all of those traders are obliged to send their produce to Australia for sale. The produce is usually sold to an agent who is able to purchase all the produce from all the traders, and then can export it himself for sale in ex Australian markets. There is practically no market in Australia for this produce, and the traders have no alternative to sending it to Australia for re-export. They cannot secure oversea freight from their islands. The revenue involved is negligible and the probability is that the proposed exemption will produce a very desirable attitude among the island traders towards the Commonwealth. The amendment will apply to produce from the territory of Papua if it is immediately exported from Australia.

Be13. Exemption of profit on sale in Australia of gold mined in New Guinea. (Clause 10 amendment a). - This amend ment is desirable, because the law already exempts profits from gold produced in the adjoining territory of Papua, and also from mining in Australia. If the amendment were not accepted by Parliament the Department of Taxation would have the greatest difficulty if. ascertaining the true amount of profits upon which tax should be levied. The work involved would be great, the irritation to the gold-miners would be still greater, whilst the results in revenue would be extremely small.

Be14. Second Commissioner of Taxation. (Clauses 5, 6 and 7). - The provisions of the bill relating to the Second Commissioner of Taxation and expressing the powers and functions which the Assistant Commissioner of Taxation may exercise have been found to be both necessary and desirable in order that the work of the department might be carried on expeditiously. It should be explained that the position of Assistant Commissioner of Taxation is created by the Estate Duty Assessment Act. That act is not being amended at present, and therefore it is necessary in this bill to retain references to the Assistant Commissioner of Taxation. By the Estate Duty Assessment Act, the Assistant Commissioner of Land Tax is made the Assistant Commissioner of Taxation. Therefore the person who was appointed Assistant Commissioner of Land Tax is by the statute at once the Assistant Commissioner of Taxation. The work of the Assistant Commissioner of Taxation does not, as might perhaps be supposed, consist of minor matters of management. The necessity of the Comissioner of Taxation to visit each of the capital cities of the Commonwealth at frequent intervals, together with the necessity for the Commissioner to be in Canberra while Parliament is sitting, has thrown the bulk of the administrative work upon the, Assistant Commissioner, and it has been necessary for the Assistant Commissioner to give rulings on matters which would otherwise be dealt with by the Commissioner. The position is, therefore., more aptly described as that of Second Commissioner. At the same time, it is very desirable that the powers and functions which may be exercised by the. Second Commissioner should be expressed in the law, as litigation is now pending in which a decision and determination by the Assistant Commissioner of Taxation is # challenged before tha court. The Assistant Commissioner had made the decision and determination under authority delegated to him by the Commissioner. It is very undesirable that an administrative officer's decisions should be exposed to challenge in the court on the ground of invalidity. The bill will therefore overcome this risk in future. Provision is continued in clause 32 (1) proviso of the bill to conserve all gain which the appellant in the pending appeal may obtain from the judgment of the court in his case; but all other acts, decisions, and determinations of the Assistant Commissioner are validated by the provisions of clause 29 (1), which make the amendments under reference operate retrospectively to 1st July, 1924, the. date when the

Assistant Commissioner commenced to make determinations of the kind now challenged by the appeal mentioned.

Re15. Members of the Income. Tax Board of Review. (Clause 21).- -The amendments in this clause are required because of the declaration by the High Court that the body known as the, Income Tax Board of Appeal had no valid existence. The present members of the Board of Review had been appointed members of the Income Tax Board of Appeal for periods of seven years, varying by a few days owing to the variations in the dates of appointment of the respective members. The declaration of the invalidity of the Board of Appeal was immediately followed by legislation to constitute the Board of Review and provision was made that the persons appointed members of the Board of Appeal should be deemed to have been appointed members of the Board of Review. The law provided for appointments to be for :i period of seven years. The intention "was that the members so appointed as members of the Board of Review should hold office until the expiration of seven years from the dates of their original appointments as members of the Board of Appeal. The amendment will have this result. At the same, time the amendment will enable the Government to make future appointments to the board for any period not exceeding seven years.

Re16. Decisions on questions of law. (Clause 22). - This amendment will curtail the power of the Board of Review so as to cause it to refer all questions of law to the High Court for decision. Some, unsatisfactory positions have been created by recent decisions of the Board of Review having decided points of law in a manner contrary tol the -advice received by the Commissioner from the Crown Lav.' Department. The Board of Review ;s not a judicial body. It is not intended to be such a body, but was intended to be a body which would ascertain facts and decide disputes between taxpayers and departments as to the actual facts. All questions of law associated with the facts were to be left to the High Court. The amendment will produce this result.

Re17. Liquidators of Companies. (Clause 23.) - The amendment proposed has been found necessary owing to the provisions of the company law in one State making it illegal to appoint a liquidator in the case of certain companies. The law requires the liquidation to be carried out by persons concerned in the management of the company. This has been found to mean that in such a case the persons charged with the liquidation of the company are not responsible under the Income Tax Assessment Act to retain sufficient funds out of which any tax due by the company might be paid. The amendment will remove this risk of loss of revenue.

Be 18.Deduction of Bonuses paid byCo-operative Companies. (Clause 13.) - This amendment will remove an anomaly from the act under which a cooperative company which has paid bonuses to purchasers based upon the volume of purchases is required to pay tax on the bonuses whilst the purchaser who receives it is exempt from tax upon it. Co-operative companies are at. present entitled to a deduction in their assessments of all interest and dividends distributed to shareholders in respect of their shares. This amendment will place the bonuses in the same position as dividends and interest, and will exempt the bonuses from tax. It may be added that dividends and interest received by shareholders of the company are taxable to the shareholders. The bonuses merely represent a return of part of tha purchase money paid by the member of the company for goods supplied.

Re19. Recovery of tax on certain trust estates. (Clauses 24 and 31.) - This amendment will enable the commissioner to recover taxes in the cases mentioned in the amendment. He is not able to do this at present because there is no person in whose name the assessment may be made or against whom recovery action might be instituted. The amendment will authorize the commissioner to make an assessment in such a case and to secure payment of the tax by levy and distress upon the assets left by the deceased person.

Re20. Definition of " absentee ". (Clause 3). - Cases have como under notices in which the wife of a Commonwealth officer who is stationed abroad on fluty is liable to be assessed as an absentee without a deduction on account of the general exemption of £300, while her husband is, by the act, treated as not being an absentee. This incongruity is removed by the proposed amendment.

Re21. Amendments in the penalty section. (Clause 27.) - Section 67 of the Principal Act which is amended by this clause causes a penalty automatically to apply to any person who has failed to lodge a return or information as and when required by the act or regulations or by the commissioner. The penalty is the greater of two amounts, £1 or 10 per cent. per annum upon any tax payable. As the section at present stands it requires the penalty of 10 per cent. per annum to be calculated from the due date of the payment of the tax, but it does not state any definite period for which it should be calculated. It has been found in practice that this defect in the wording of the section has rendered inoperative the penalty of 10 per cent. per annum. The clauses expresses the period for which the penalty should be calculated, namely, for the period commencing on the last day allowed for furnishing returns or information and ending on the day upon which the return or information is furnished or -the day when the assessment is made, whichever first happens. The opportunity is taken to reexpress the latter part of the existing section in simpler language.

Re22. The remainder of the amendments are minor machinery alterations designed to facilitate the work of the department without in any way altering the principles expressed in the sections which are being amended.

Debate (on motion by Senator Needham) adjourned.

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