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Wednesday, 17 May 1972
Page: 2667

Mr SNEDDEN (Bruce Treasurer3.43) - I move:

That the Bit) be now read a second time.

In a statement to the House on11th April last, I announced a proposal to vary the operation of section 26(a) of the Income Tax Assessment Act so as to provide greater certainty in the taxation law for people having stock exchange transactions in shares. This Bill is designed to give effect to that proposal. Under the present law, a person who acquires shares or other property with the sole or dominant purpose of reselling at a profit is subject to tax under section 26 (a) on any profit he makes on sale. If the sale of property acquired with this purpose results in a loss, a complementary provision section 52 - authorises the allowance of an income tax deduction for the loss.

These provisions do not apply if the property is acquired for purposes other than that of profit making. For example, a person who buys a house for his residence or invests in shares principally for the purpose of deriving dividends from them, is not taxable on any capital profit he may make, nor is he allowed a tax deduction for a loss of capital he may suffer when he eventually disposes of the property.In the Government's view the basic principles of the law are sound and should be maintained as a broad general rule. In one area, however, the Government has accepted that there is evidence that the application of the principles has caused some undesirable uncertainty as to the practical operation of the law.

The area 1 speak of is the acquisition and sale of shares traded on stock exchanges. The Government has thought it desirable to take action to reduce the uncertainty without fundamentally chang ing the principles. It accordingly proposes amendments to the income tax law which will provide a more certain basis for determining the taxability or otherwise of share profits. For this purpose the Bill, in broad terms, provides that profits or losses made by a person on the sale of shares listed on a stock exchange are not to be taken into account for income tax purposes if the person had owned them for a period of at least 18 months before sale, and had not acquired them as an incident of carrying on a business. It is proposed that the new provisions will apply to shares acquired on or after 12th April 1972, the day immediately following my announcement of the Government's intentions.

Under the proposed amendment persons who are not engaged in a business of share dealing, or whose share transactions are not incidental to their business activities, may be sure that any profit arising on the sale of listed shares that they have held for at least 18 months will not be subject to income tax. As a corollary, losses on the sale of shares they have held for at least this time will not be tax deductible. The amendments will not apply where, on or before lodging his first return after acquiring particular shares, a person has notified the Commissioner of Taxation that the shares were acquired for the purpose of profitmaking by sale. Where such a notification has been given in accordance with the existing section 52 of the Assessment Act the present law will have effect regardless of when the shares are eventually sold by the person concerned. The present law will also continue to apply, of course, as regards shares sold within 18 months of acquisition.

The amendment will apply where persons acquire shares jointly or alone and will have effect whether or not shares are registered in the name of the owner or in the name of a nominee or trustee, provided the beneficial ownership of the shares does not change within 18 months. It will apply also to an interest in shares acquired by a person as an owner in common if he remains the owner of that interest for at least the statutory period. Changes in ownership of shares due to the death or bankruptcy of the owner will, however, be disregarded.

To meet the case where a person is allotted shares in a new issue by a company, the Bill requires that, for the 18 months exemption to apply, the shares must become listed on a stock exchange within 3 months after he became the owner of them. The amendments proposed by the Bill will apply only where shares are owned by individual persons. The tax situation of companies will therefore remain unchanged.

The Government has decided on the course of action I have outlined as a means of providing greater certainty in the application of the income tax law to people who, for any of a number of reasons, buy shares which which they may later sell, but who are not engaged in a business of share dealing. The operation of the proposed amendment will be carefully watched and, should experience show that it is tending to lead to the devising of arrangements to avoid or minimise taxation, the Government will have no hesitation in introducing such further amendments as may be thought necessary to prevent systematic income tax avoidance. A memorandum explaining technical features of the Bill is being made available for the information of honourable members. I commend the Bill to the House.

Debate (on motion by Mr Crean) adjourned.

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