Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. Frank Crean, M.P.)Main Features
INCOME TAX BILL 1974
General rates of tax payable by individuals (Clause 6(1))
The general rates of tax payable by individuals for the 1974-75 financial year, in respect of income of the 1974- 75 income year are, as a consequence of a new rates schedule, to be varied from those applicable for the 1973-74 financial year.
Surcharge of tax on property income (Clause 8)
A surcharge is to be payable in respect of income from property included in the taxable income of an individual whose taxable income exceeds $5,000. Where the taxpayer's taxable income is $5,500 or more the surcharge will be equal to 10 per cent of the basic tax on the taxable income from property. For taxable incomes in the range $5,001 to $5,499 the rate of the surcharge will, however, be 0.02 per cent for each $1 by which the taxable income exceeds $5,000.
For the 1974-75 financial year the special transitional rebate of tax that is allowed to aged persons (i.e., men aged 65 or more and women aged 60 or more) and the wives of aged persons is to be $130 where the taxpayer's taxable income is $3,224 or less, reducing by 25 cents for each $1 of taxable income by which the taxable income exceeds $3,224, and phasing out at a taxable income of $3,744.
Rates of tax payable by companies (Clause 10)
The general rate of company tax payable for the 1974-75 financial year (on taxable income of 1973-74) is to be reduced from 47.5 per cent to 45 per cent. The general rate will also be payable by private companies whose rate will thus remain unchanged at 45 per cent. The reduced rates of tax payable by friendly society dispensaries and by co-operative companies and non-profit companies other than friendly society dispensaries, and the rate of additional tax payable on undistributed profits of a private company are to be the same as for the 1973-74 financial year.
INCOME TAX ASSESSMENT BILL (NO. 2) 1974
Mining activities on the continental shelf (Clause 4)
Mining companies engaged in carrying out exploration or mining and associated activities on the continental shelf for minerals other than petroleum will be treated for income tax purposes as if those activities were conducted on the mainland in the same way as now applies to off-shore activities in relation to petroleum exploration and production.
Exemption of certain mining income (Clauses 5 and 27)
A provision of the Principal Act which authorises the exemption from tax of one-fifth of the profits earned from mining prescribed metals or minerals is to be withdrawn with effect from the commencement of the 1974- 75 income year.
Exemption of interest received by credit unions (Clauses 6 and 20)
A credit union that satisfies the Commissioner in respect of specified matters relating to the conduct of its affairs is to be exempt from tax in respect of interest derived from loans to members (clause 6). A credit union that qualifies for this exemption will be ineligible for assessment as a co-operative company (clause 20).
Cars available to employees for private use (Clause 7)
A new provision, operative for 1974-75 and subsequent years of income, is to be included in the Principal Act to complement the operation of section 26(e) (which deals with the taxation of benefits in kind derived from employment) as that section applies to benefits arising from cars being made available to employees for private use. Under the new provision the amount included in an employee's assessable income in respect of such a benefit will be not less than an amount ascertained under a prescribed formula which takes account of the value of a car provided.
Employee share acquisitions (Clause 8)
A new provision is to be included in the Principal Act to govern the taxation of employee benefits in the form of share issues or grants of rights to acquire shares. The new provision will apply to options or other rights acquired after 17 September 1974 and to shares acquired after that date unless acquired as a result of the exercise or operation of rights acquired on or before that date. Unless a right is sold, there will be no liability to tax until a share is acquired. The value of the share on the date of acquisition, less any costs of acquiring it, will be included in assessable income. Profits on sales of rights will also be assessable in certain circumstances. A person to whom shares are issued or to whom rights to acquire shares are granted will have a tax liability under the new provision if the issue or grant is connected with the employment of a relative of the person.
Club fees and leisure facilities (Clauses 9 and 11)
Commencing with the 1974-75 year of income, deductions will not be allowable for fees paid in relation to membership of sporting and social clubs, whether paid by a member or some other person such as the employer of a member. There will also be a prohibition against deductions for expenditure relating to boats, ski lodges, holiday cottages and facilities of similar kinds unless a genuine and substantial business need for the facility is established. Depreciation of leisure facilities will also be non-deductible.
Deductions for depreciation of child-care facilities (Clauses 11 and 12)
The depreciation provisions of the Principal Act are to be amended to make it clear that expenditure on plant and facilities used in child care centres provided by employers for children of their employees qualify for deductions by way of depreciation in the same way as comparable expenditure on facilities provided for employees in rest rooms and recreation areas.
Maintenance of non-resident dependants (Clause 14)
The allowance of concessional deductions to taxpayers who contribute to the maintenance of certain classes of dependants is conditional on the dependants being "residents" of Australia (or Papua New Guinea). It is intended to remove the residency requirement in relation to claims for dependants in respect of the 1974-75 and subsequent income years. The requirement that a taxpayer claiming maintenance deductions be a resident is, however, to be retained.
Education expenses (Clauses 15 and 16)
Commencing with the 1974-75 income year, the statutory maximum deductions of $400 a year authorised by section 82J of the Principal Act for amounts paid as education expenses of a student who is receiving full-time education at a school, college or university or from a tutor, and by section 82JAA for self-education expenses of a taxpayer, are to be reduced to $150.
Deductions for interest paid on home loans (Clause 17)
A concessional deduction is to be provided for interest paid by a resident taxpayer on loan moneys used to purchase, construct or extend a house he uses as his sole or principal residence. Loan moneys used by a taxpayer to acquire vacant land will also attract the deductions for interest paid as from the year of income in which he takes up residence in a home built on the land. The deduction will apply to payments made on or after 1 July 1974 by way of interest that became payable on or after that date.
Deductions in relation to calculated liabilities (Clause 19)
The special deduction allowable to life assurance companies under section 115 of the Principal Act of, very broadly, 2 per cent of calculated liabilities, is to be reduced to 1 per cent of calculated liabilities.
Capital expenditure on prospecting and mining for minerals other than petroleum (Clauses 21 to 29, 39 and 44)
The provisions governing the allowance of special deductions for capital expenditure incurred in prospecting and mining for minerals (other than oil or natural gas) are to be revised. The principal effect of the amendments will be to withdraw the options now available to general mining companies under sections 122E, 122F and 122G of the Principal Act to claim deductions on special bases for allowable capital expenditure, for expenditure on housing and welfare and for appropriations of income to provide for allowable capital expenditure. Withdrawal of these concessions will apply in respect of expenditure incurred, or appropriations made, after 17 September 1974, but subject to transitional arrangements that will preserve entitlements to deductions for certain expenditures contracted for on or before that date.
The broad effect of withdrawing the options referred to will be that deductions for allowable capital expenditure will in future be allowable to general mining companies on the "life-of-mine" basis provided in section 122D of the Principal Act. Exploration and prospecting expenditure of general mining companies will continue to be immediately deductible in the year of incurrence from the net assessable income derived in the year from carrying on a mining business or from associated activities (section 122J of the Principal Act). However, a more liberal basis is to be provided for allowing deductions of amounts expended on exploration in 1974-75 or subsequent years where the expenditure exceeds the net mining income of the year in which it is made. The excess expenditure will be immediately deductible against the net mining income of the next year in which such income is derived or, if necessary, successively against such income of 2 or more years.
Transport of minerals (Clauses 30, 31 and 32)
The period over which expenditure incurred on a railway, road, pipeline or other facility for transporting minerals (including petroleum) and mineral products mined in Australia or Papua New Guinea is deductible is to be changed from 10 to 20 years. This change will generally apply to expenditure incurred after 17 September 1974, subject to transitional arrangements for certain expenditures contracted for on or before that date. Taxpayers who incurred expenditure on a transport facility on or before 17 September 1974 will be given an option to take deductions over the longer period for so much of the expenditure as has not been allowed and is not allowable as deductions in assessments of previous years.
Capital Expenditure on prospecting and mining for petroleum (Clauses 33, 39 and 45)
Deductions under Division 10AA of the Principal Act for allowable capital expenditure incurred in developing a petroleum field (oil or natural gas) in Australia or Papua New Guinea are, in relation to expenditure incurred after 17 September 1974, to be allowable over the estimated life of the field against net assessable income from petroleum and not to be immediately deductible as under the present provisions of the law. This change is to be effected by repealing the existing Division 10AA and substituting a new Division. Petroleum mining companies are also to be given a right to elect to claim ordinary depreciation allowances for expenditure on plant rather than claiming deductions over the life of the field.
Exploration expenditure incurred by a petroleum mining or exploration company in searching for oil or natural gas in Australia or Papua New Guinea is to continue to be immediately deductible from net assessable income from petroleum. Any excess amounts of petroleum exploration expenditure incurred in a year of income in excess of net assessable income from petroleum of the year will be deductible successively against any such income derived in subsequent years.
Rebate for low-income taxpayers with families (Clause 35)
Taxpayers whose tax saving from the concessional deductions for the maintenance of dependants is less than 40 per cent of the amount of those deductions are to be allowed a rebate of tax to give them an overall tax saving, by means of the dependants deduction and the proposed rebate, of 40 per cent of the deductions.
Dividends from Papua New Guinea (Clauses 37 and 38)
Amendments of a technical character (as foreshadowed in a statement made by the Treasurer on 21 May 1973) are to be made to provisions governing credit against Australian tax for Papua New Guinea tax. These are consequential on the introduction by Papua New Guinea of a withholding tax on dividends leaving that country.
Release of taxpayers in cases of hardship (Clause 43)
The Commissioner is to be authorised to deal with applications for relief from payment of amounts of tax up to $200 instead of the present $100. The Relief Board is to be empowered to determine, without reference to a member of a Board of Review or the Chairman of a Valuation Board, applications for relief from payment of amounts of tax up to $2,000 instead of the present $1,000.
Provisional tax for 1974-75 (Clause 46)
The provisional tax payable for 1974-75 is to reflect the surcharge of tax on property income proposed by clause 8 of the Income Tax Bill 1974.
The following notes provide explanations of individual clauses of the Bills.