House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Rt. Hon. Harold Holt.)

INTRODUCTORY NOTE

RESOLUTION AND BILL

The main features of the Resolution and Bill are -

Rates of Tax: Individual Taxpayers -

1. That the rates applicable for last financial year 1959-1960 on incomes of the year ended 30th June, 1960 shall continue to apply for the current financial year 1960-1961, that is, to income of the year ending 30th June, 1961.

(Note: The rebate of 5% allowed last year is not being re-enacted.)

Rates of Tax: Companies -

2. That the primary rates of tax payable by companies in assessments for the current financial year 1960-61 (based on income of the year ended 30th June, 1960) shall be six pence in the Pd above the rates for last financial year.

(Note: The rate of 10/-in the Pd payable on insufficient distributions by private companies is not being altered.)

Age Allowance

3. That the exemption level for persons qualified by age - 65 years in the case of men and 60 years in the case of women - shall be increased from Pd429 to Pd442 and that, in the case of married couples, both satisfying the age qualification, the exemption point be raised from Pd858 to Pd884.

Gifts

4. That the income tax deduction for gifts of Pd1 and upwards shall be available for gifts to seven additional organizations to be specified in the Act.

Subscriptions

5. That the deduction of Pd10.10.0. at present available for subscriptions paid to associations shall be increased to Pd21.

Depreciation

6. That the maximum amount upon which the special depreciation of 20% is allowable in relation to residential accommodation provided for employees, tenants and share-farmers engaged in agricultural, pastoral or pearling activities shall be increased from Pd2,750 to Pd3,250.

Partial Exemption of Mining Profits

7. That the exemption of 20% of the profits from mining prescribed metals and minerals shall be continued indefinitely.

Notes on Resolution

RESOLUTION TO DECLARE RATES OF TAX

The Resolution declares the rates of tax to be payable by individuals and companies for the financial year 1960- 1961. As in previous years, the Resolution also authorises the granting of an age allowance.

The explanations below relate primarily to those aspects of income tax rates that differ from the provisions enacted in 1959.

Discontinuance of 5% rebate to individuals.

The rates of income tax declared in the first four schedules to the Resolution apply to the taxable incomes of individuals for the current year 1960-1961.

These rates are the same as those at which tax was payable for the 1959-1960 year. For that year, however, the Resolution authorised a rebate equal to 5% of the tax otherwise payable. The present Resolution does not include a corresponding provision.

Age Allowance.

Paragraph 5 of the Resolution proposes an increase in the level of incomes to which the age allowance may apply.

The allowance is available to persons who have been residents of Australia throughout the year of income and who, at the end of the income year, have attained the age of 65 years in the case of men or 60 years in the case of women.

The objective of the allowance is to exempt from tax persons satisfying these tests and whose income does not exceed the sum of the full age pension and the maximum permissible income for age pension purposes. At present, the allowance confers freedom from tax on net incomes not exceeding Pd429 in the case of a single taxpayer. In the case of married couples, combined net incomes of up to Pd858 are exempt from tax if both husband and wife satisfy the tests mentioned and one of them contributes to the maintenance of the other.

Consistent with the proposed increase of 5/-a week in the age pension, paragraph 5 of the Resolution proposes that the present exemption limits of Pd429 and Pd858 be increased to Pd442 and Pd884 respectively.

In addition to the exemptions outlined, the age allowance also provides a measure of relief where the net income is somewhat in excess of the amounts mentioned. This relief may, at present, be effective where the net income is, in the case of a single aged person, between Pd429 and Pd485 and in the case of aged married couples, between Pd858 and Pd1,181. Paragraph 5 will increase the upper limit at which the allowance may operate from Pd485 to Pd502 and, in the case of a married taxpayer, from Pd1,181 to Pd1,236.

Where the net income of an aged person exceeds the exemption limit, but is within the upper limits referred to, the amount of tax payable is limited to nine-twentieths of the excess of the net income over the exemption point. For example, if the combined net incomes of a married couple total Pd950 the excess over the exemption point of Pd884 is Pd66. In these circumstances the tax payable by the aged person is limited to nine-twentieths of Pd66, that is, Pd29.14.0. If, however, there should be circumstances in which the normal assessment processes result in a smaller amount of tax being payable, then only that smaller amount is charged.

The revised age allowance will apply for the current year of income 1960-61.

Rates of tax payable by companies.

The Fifth Schedule to the Resolution declares rates at which income tax is to be payable by companies for the financial year 1960-1961, that is, in respect of incomes for the 1959-1960 income year.

The rates will be six pence in the Pd above those applied to taxable incomes of the preceding year 1958-1959. The rates of tax proposed are -

•

Further tax at 10s. in the Pd1 payable on undistributed amount.

+

Maximum income subject to this rate is Pd5,000 less mutual income.

XX

Maximum income subject to this rate is Pd5,000 less the sum of the mutual income and dividend income included in the taxable income.

++

Maximum income subject to this rate is Pd5,000 less dividend income included in the taxable income.

Notes on Clauses

Income Tax and Social Services Contribution Assessment Bill (NO. 2) 1960.

Clause 1: Short Title and Citation.

This clause formally provides for the short title and citation of the Amending Act and the Principal Act as amended.

Clause 2: Commencement.

Section 5(1A) of the Acts Interpretation Act 1901-1957 provides that every Act shall come into operation on the twenty-eighth day after the day on which that Act receives Royal Assent, unless the contrary intention appears in the Act.

By this clause, it is proposed that the Income Tax and Social Services Contribution Assessment Act (No. 2) 1960 shall come into operation on the day on which it receives the Royal Assent.

By this action the preparation and issue of assessments involving payment of provisional tax will be facilitated.

Clause 3: Partial Exemption of Income from Certain Mining Profits.

The purpose of this clause is to extend indefinitely the operation of section 23A of the Principal Act.

Stated broadly, section 23A exempts from tax 20% of the profits derived from mining in Australia or the Territory of Papua and New Guinea for prescribed metals and minerals. Sub-section (3.) provides, however, that the exemption shall not apply to income derived after the end of the 1959-1960 income year.

That sub-section is to be repealed by clause 3 and the partial exemption will accordingly be available for the current income year 1960-1961 and for subsequent years.

The metals and minerals prescribed for the purposes of section 23A and in relation to which the 20% exemption applies are -

Asbestos

Bauxite

Chromite

Emery

Fluorspar

Graphite

Ilmenite

Kyanite

Magnesite

Manganese Oxides

Mica

Monazite

Pyrite

Quartz Crystals (piezo-electric quality)

Radio-active Ores

Rutile

Sillimanite

Vermiculite

Zircon

Ores of

Antimony

Arsenic

Beryllium

Bismuth

Cobalt

Columbium

Copper

Lithium

Mercury

Molybdenum

Nickel

Osmiridium

Platinum

Selenium

Strontium

Tantalum

Tellurium

Tin

Tungsten

Vanadium

Clause 4: Special Depreciation Allowance to Primary Producers.

By clause 4 it is proposed to increase the maximum amount upon which primary producers are entitled to the special 20% rate of depreciation on residential accommodation provided for employees, tenants and sharefarmers.

Section 57AA of the Principal Act authorises depreciation allowances of 20% on the cost of depreciable property used in agricultural or pastoral pursuits or for fishing or pearling operations. The special allowance is available in relation to structural improvements on land used in agricultural or pastoral pursuits. It also applies to structural improvements used wholly and exclusively for the purposes of pearling operations, if the improvements are erected in the vicinity of the port or harbour from which those operations are conducted.

If these tests are satisfied, the 20% allowance is at present available on amounts of up to Pd2,750 expended on residential accommodation for any one employee, tenant or share-farmer engaged in agricultural, pastoral or pearling operations.

It is proposed by sub-clause (1.) of clause 4 of the Bill to increase the maximum amount to which the 20% rate may apply from Pd2,750 to Pd3,250. Depreciation at normal rates will continue to be available in relation to expenditure in excess of Pd3,250 on accommodation for any one employee, tenant or sharefarmer.

Sub-clause (2.) provides that the increase in the maximum amount upon which the 20% allowance is available applies only in relation to structural improvements commenced on or after 1st July, 1960. Existing provisions of the law provide that the 20% rate shall apply to buildings completed before 1st July, 1962. That rate will, however, be available if a building is commenced by 30th June, 1962 and completed before 1st July, 1963.

Clause 5: Subscriptions to Associations.

By this clause it is proposed to increase the amount of the deductions authorised for certain subscriptions etc. paid by members of associations.

Under section 73(3.) of the Principal Act, a member of a trade, business or professional association is entitled to a deduction for periodical subscriptions paid to the association. The maximum deduction in respect of subscriptions to any one association is at present Pd10.10. 0. Clause 5 will increase this amount to Pd21.

Section 73(2.) of the Principal Act relates to subscriptions, levies and contributions paid to an association that conducts on behalf of its members activities the cost of which would be deductible by the members if they carried out those activities themselves.

If the subscriptions etc. paid to any such association do not exceed Pd10.10. 0. the member is entitled to a deduction for the whole of the amount paid.

In cases in which the payments to an association exceed Pd10.10. 0., the deduction may be limited to Pd10.10. 0. If, however, the whole of the association's expenditure would have been deductible by members if they had themselves carried on the activities of the association, a deduction for the whole of the payments is authorised. If a proportion only of that expenditure would have been deductible by members if they had incurred that expenditure, the allowable deduction is a like proportion of the subscriptions etc. or Pd10.10. 0. whichever is the greater. The principle of the provision is that a deduction is provided for the subscriptions etc. to the extent that they may reasonably be said to represent an expense incurred in earning income subject to tax.

The practical effect of clause 5 will be to ensure that the subscriptions etc. of up to Pd21 will be allowable under section 73(2.).

The proposed increases in the maximum deductions will apply for the 1960-1961 income year and subsequent years.

Clause 6: Gifts.

Section 78(1.)(a) of the Principal Act authorises the allowance of deductions for gifts of the value of Pd1 and upwards to specified institutions and funds in Australia.

It is proposed by this clause to extend the deduction to gifts to the following -

the National Trust of Australia (Tasmania) Limited;

the Art Gallery Society of New South Wales;

the Australian Productivity Council.

The clause also proposes the allowance of deductions where gifts are made to -

the Australian Postgraduate Federation in Medicine;

the College of Radiologists of Australasia;

the Australian College of General Practitioners;

the College of Pathologists of Australia.

In the cases of the immediately four preceding institutions it is a condition of deductibility that the gifts be made exclusively for the purposes of education or research in medical knowledge or science.

The amendment will apply to gifts made during the income year 1960-1961 and subsequent years.

Clause 7: Application of Amendments.

The amendments proposed by the Bill will commence to apply as indicated in this clause. The commencing date for the application of each amendment has been stated in the note on the relevant clause.

Clause 8: Provisional Tax for the Year of Income Commencing 1st July, 1960.

Clause 8 is a drafting amendment relating to provisional tax and is consequential upon the discontinuance of the 5% rebate allowed to individuals for the 1959-1960 income year.

Section 221YC of the Principal Act provides the basis of calculation of the amount of provisional tax payable by an individual taxpayer in respect of income other than salary or wages.

Paragraph (a) of sub-section (1.) of that section applies where the taxpayer derived a full year's income from professional, business or property sources in the year preceding that for which the provisional tax is payable. In such cases, the provisional tax payable for the current year is an amount equal to the tax assessed for the preceding year.

Paragraph (b) applies where the income of the preceding year was not a full year's income. In these cases, the provisional tax payable for the current year is an amount equal to the tax for the preceding year adjusted to a full year basis.

Unless it is provided otherwise, the provisional tax for the 1960-1961 income year will be calculated as though the rebate of 5% of the tax payable by individuals for the 1959-1960 year applied also for 1960-1961. As the rebate will not be available for the later year, it has been necessary to include clause 8 which will ensure that the provisional tax for 1960-1961 is ascertained without taking into account the 5% rebate that applied for the preceding year.