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Tuesday, 17 May 1960

Mr HAROLD HOLT (Higgins) (Treasurer) . - by leave - I move -

That the bill be now read a second time.

On Thursday last, I signed, on behalf of the Commonwealth, an agreement between Australia and New Zealand designed to provide measures for the relief of double taxation of incomes flowing between the two countries. The agreement was signed on behalf of New Zealand by the High Commissioner for New Zealand, His Excellency the Honorable F. Jones.

Agreements of this nature are important steps in the removal of taxation deterrents to international trade and investment. The Parliament has previously given its approval to similar agreements concluded with the UnWed Kingdom, the United States of America and Canada and the present bill, when enacted, will give the force of law in Australia to this latest agreement with New Zealand.

It seems unnecessary for me to explain to honorable members that double taxation occurs when income taxed in the country of its origin is also subjected to tax by the country in which the recipient of the income resides. To a very large extent, Australia and New Zealand, by independent action in their own taxation laws, have avoided double taxation of their own residents. New Zealand has achieved this result by exempting its residents from, tax on Australian income taxed in this country. Australia has allowed a corresponding exemption of income, other than dividends, derived from sources in New Zealand and taxed in that country. Dividends received by Australian residents from New Zealand sources are assessable income for Australian taxing purposes, but double tax is relieved by the allowance against the Australian tax of a credit for New Zealand tax on those dividends.

Despite the generally adequate nature of the present unilateral procedures, there have nevertheless been instances in which income has been taxed by both Australia and New Zealand without appropriate relief. This situation has arisen because of differing concepts in the taxation laws of the two countries concerning the source of profits on the sale in one country of the products of the other. One of the effects of the agreement will be to remove this deterrent to trade between the two countries.

As in the case of agreements made with the other countries previously mentioned, the prior right of Australia and New Zealand to tax income arising within the respective countries will in general be preserved. In conformity with these agreements, however, there are classes of income where the country of origin will exempt and the country of residence will tax.

The agreement also includes a provision that will, with minor exceptions, limit to 15 per cent, the rate of tax that may be imposed on dividends paid by a company resident in one country to a shareholder resident in the other country. This provision will have an important consequence in relation to the withholding tax on dividends paid by Australian companies to overseas investors.

As honorable members know, this tax will come into effect on 1st July of this year and it will be met by tax deductions made from the dividends at the time of distribution. If it were not for this agreement, dividends flowing from Australia to New Zealand shareholders would be subjected to a withholding tax of 6s. in the £1, but under the agreement the rate is, with rare exceptions, limited to 3s. in the £1. Correspondingly, dividends paid by New Zealand companies to Australian shareholders will not be taxed at a rate higher than 3s. in the £1.

As is usual in agreements of this nature, provision is made for the exchange between the taxation authorities of the two countries of such information as is necessary for the operation of the agreement and the prevention of fraud or avoidance of tax. The taxing laws of both countries ensure secrecy in relation to the information exchanged and the agreement specifically precludes the exchange of information relating to trade secrets or trade processes.

The agreement will commence to apply in Australia to income derived in the current income year, 1959-60, and in New Zealand in the corresponding income year, which ended on 31st March, 1960. The full text of the agreement is set out in the schedule to the bill. Detailed explanations of the agreement are provided in a memorandum that is being circulated for the information of honorable members, and for this reason I do not propose to embark upon an examination of the articles of the agreement.

The agreement will apply for five years certain and thereafter may be terminated only by the giving of due notice by either country. It is, however, contemplated by both countries that the agreement will establish a permanent basis for the relief of double taxation. Accordingly, there will be engendered a feeling of confidence that business arrangements may be entered into and capital invested without the risk of income being taxed in full by the two countries. 1 should like to add - and I am sure all honorable members will share this pleasure with me - that, because of the bonds that have always existed between Australia and New Zealand, it gives me more than ordinary pleasure to bring the agreement here and to seek the endorsement of the House for it.

Finally, may I say that many officers of Commonwealth departments have given expert attention and care to the preparation of this agreement, just as has been the case in respect of New Zealand's officers from the stand-point of that country. I am sure that the House will join with me in paying a special tribute to Sir Patrick McGovern, who carried the great weight of the negotiations and preparation in this matter, and 1 am happy to pay a public tribute to him.

I commend the bill to honorable members.

Debate (on motion by Mr. Crean) adjourned.

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