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Wednesday, 6 August 1930


Sir GEORGE PEARCE (WESTERN AUSTRALIA) - Even if it is not a bona fide company, and a man has formed a family company and is paying his son a salary as manager of the company, surely he is entitled to deduct the amount of the salary so paid, as he would be entitled to do if he were taxed as an individual taxpayer. The two principles raised in my amendment are, first that when a company is declared not to be a company the rate of the tax should not be greater than would be imposed on the individual taxpayer, and secondly that the remuneration paid for services rendered by any shareholder to the company shall be an allowable deduction.

Senator DALY(South Australia - Vice-President of the Executive Council)

Leader of the Opposition stood by itself it would be a perfectly reasonable one, but I am sure that honorable senators will appreciate that it is most unreasonable when read in conjunction with the other provisions of clause 10. They apply not to a bona fide company, but to those companies which are formed for the purpose of evading the taxation law. If a man for the deliberate purpose of evading income tax forms a company, why should this Parliament extend any consideration to him? If the offence is proved against him, why should he not be compelled to pay the full penalty for his misdeed? Where a man's son is bona fide employed in the business of a bona fide company, the salary paid is treated as a deduction in the ordinary way, but if it is not a bona fide company the effect of the amendment would be to fetter the discretion of the Taxation Commissioner. In the administration of the department a case has been discovered in which a family company made a profit of £20,000 during one year, and that profit was distributed by subterranean methods among the various shareholders. In one case known to the department, a director of a- company drawing £200 a year was only 2£ years old.


Senator McLachlan - Parliament wishes to help the Government to get at those people, but there are others who should be given every consideration.


Senator DALY - The provisions of clause 10 do not apply until it is established that a company has been formed for the purpose of relieving some persons from the liability to pay his just taxation. The amendment would fetter the discretion of the Taxation Commissioner by declaring that the principal shareholder of such a company cannot be forced to pay any higher tax than he would have paid had he been in a partnership. He could still say, "I was prepared to pay that infant £200."


Senator Sir George Pearce - But the man who was actually managing a business would be entitled to draw his salary.


Senator DALY - And possibly the £200 was actually paid to the infant shareholder, but the whole point is that an honest and straightforward company has nothing to fear from the provisions of the bill as it stands. The discretion of the Commissioner is absolutely limited to companies that are formed for the purpose of relieving persons from paying their just taxation. Senator McLachlan says that the Senate is anxious to help the Government. If we are all agreed on the principle that transactions, which are not bona fide, should be controlled, why should we waste our time in considering what form of relief we can give to the man who is found to have broken the law ? Let such a man take the full consequences of what he has done. If he has formed a company for the purpose of enabling him to evade taxation, and given his daughter 200 shares in it, that daughter should be treated as his nominee. Against the decision of the Commissioner, there is an appeal to the Board of Review, but if the decision of the Commissioner, that the transaction is not bona fide, is held to be sound, why should we pass an amendment which fetters the Commissioner's discretion, and reduces the liability of the shareholder, who has nominee shareholders in a company he has formed?


Senator Sir George Pearce - The amendment provides that his tax shall not exceed what otherwise he would be liable to pay.


Senator DALY - If the amendment were carried, the taxpayer could say, "If I had not formed a company I should still have paid that infant £200 to assist me in the management of the concern.5' Elsewhere in the bill we charge the Commissioner with the responsibility of inquiring into these transactions and judging whether they are bogus or not, bin under the amendment, if a transaction is found to be bogus, the person who is found to have been doing something wrong would have the opportunity to say, "1 am not in any worse position by forming a company". That is a method of legislating which is absolutely abhorrent to my ideas of what should be done. I have always understood that the wrongdoer should be made to pay the full penalty. Senator Pearce will admit that his amendment holds out to the people, who desire to form bogus companies, the promise that if they do so and are found out they will be in no worse position from the taxation standpoint than if they had not set out to form companies for thepurpose of evading taxation. Under those circumstances, bogus companies will be formed, and, if they are found out, will bless the majority in this chamber which prevented the Commissioner from taking steps which might have prevented other companies from being so formed. Before honorable senators pass the amendment, I invite them to consider the proviso in relation to the other provisions of the clause, and ask themselves whether they are acting fairly in declaring that though they are willing to prevent the formation of bogus companies for the purpose of evading taxation, they are also prepared to see that the persons who form these companies shall be in no way penalized.







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