Senate

Explanatory Memorandum

(Circulated by authority of the Minister representing the Treasurer, Senator, The Hon. N.H.D. Henty).

Introductory Note

The Income Tax Assessment Bill 1965, in its original form, has been explained in detail in an Explanatory Memorandum that was issued by authority of the Treasurer when the Bill was introduced in the House of Representatives. The purpose of this memorandum is to explain the effect of a number of changes in the Bill that have since been made by amendments in the House of Representatives.

Amendments were made in provisions of the Bill which relate to the subjects listed hereunder. Explanations of the amendments are to be found at the pages of this memorandum indicated below -

superannuation funds (pages 2 to 7)

conversion of plant for use with decimal currency (pages 7 to 12)

bonus shares issued by companies (pages 12 and 13)

prior year losses of companies (page 13)

The amendments have caused changes in the numbering of clauses of the Bill. They have also necessitated some changes in the numbering of sub-sections of certain of the sections which the Bill proposes to insert in the Principal Act. A schedule at the end of this memorandum correlates the clause numbers and sub-section numbers as included in the original Bill with the clause numbers and sub-section numbers in the Bill as it now stands.

Notes on Clauses

SUPERANNUATION FUNDS.

Amendment to clause 5.

This clause has not been re-numbered. By clause 5, it is proposed to insert in the Principal Act a new section - section 6A - which contains provisions relating to the cessation of a right of a member of a superannuation fund to receive benefits from the fund.

The purpose of the section is to state the circumstances in which a person or his dependants is deemed to have ceased to have a right to receive benefits from a superannuation fund and to provide a means of quantifying the benefits the right to receive which has ceased.

Paragraph (a) of sub-section (1.) of the proposed section 6A originally provided, in effect, that a right of a person (or of his dependants) to receive superannuation benefits from a fund shall be deemed to have ceased where the right to receive benefits for which provision has been made in the fund ceases to exist otherwise than by payment of the benefits to the person (or his dependants).

The amendment made to paragraph (a) is designed to ensure that a right of a person (or his dependants) to receive benefits from a fund will not be treated as having ceased when the amount in the fund to provide the benefits is transferred to another superannuation fund and the person has a fully secured right to receive benefits from the other fund. It will be necessary for the right of the person in respect of benefits to be provided by the other fund to be at least as valuable as the right he had in respect of benefits to be provided by the fund from which the amount is transferred.

Amendment to clause 7.

This clause has not been re-numbered. Clause 7 of the original Bill has been amended by the insertion of a new sub-clause (a) which proposes an amendment of section 23(ja) of the Principal Act.

Section 23(ja) relates to superannuation funds providing benefits for self-employed persons. A fund which meets the requirements of the provision, and is approved by the Commissioner of Taxation, qualifies for an exemption from tax if it satisfies the "30/20 rule" concerning the investment of a proportion of its assets in public securities.

One of the requirements of this provision is that persons entitled to receive benefits from the fund (otherwise than as dependants of members) be not less than twenty in number at any time during the year of income. The amendment made will, in effect, ensure that a wife or child of a member is always treated as a dependant of the member for the purposes of section 23(ja).

Amendments to clause 9.

This clause has not been re-numbered. Clause 9 proposes the repeal of section 23F of the Principal Act and the insertion of a new section in its stead.

The provisions of the proposed section 23F apply, broadly, to funds established by an employer to provide superannuation benefits for his employees or their dependants and are explained at pages 22 to 31 of the Explanatory Memorandum circulated by the Treasurer. The principal amendments made to the provisions of the new section as it was originally proposed are explained below.

Sub-section (1.) of the proposed section 23F, which contains definitions of terms used in the section, has been amended by the addition of a definition of a "dependant" of an employee. The definition will ensure that a wife or child of an employee is, in all cases, treated as a dependant of the employee for the purposes of section 23F.

Sub-section (2.), which specifies the tests that are to be met in order that a superannuation fund for the benefit of employees or their dependants may qualify for exemption under section 23F, has been amended in several respects.

One amendment is the omission of the requirement that the Commissioner be satisfied that the various tests are met. The purpose of this amendment, as with other amendments of the same nature referred to later in these notes, is to remove limitations on the right of appeal of trustees of superannuation funds to a Court, which may have been imposed by the provisions as originally proposed. The amendment will not, of course, affect the right of trustees to request that a decision of the Commissioner be referred to a Taxation Board of Review for review.

Paragraph (b) of sub-section (2.) of section 23F has been amended so that a fund will satisfy the test if an employer of each employee who is a member of the fund contributes to the fund during the year of income. Before the amendment, paragraph (b) required that an employer of each employee-member contribute to the fund during the year of income in respect of each employee-member. In consequence of the amendment, it will be sufficient if an employer who has established a superannuation fund for his employees contributes to the fund during a year of income. It will not be necessary for him to contribute on behalf of each of the employees who are members of the fund.

Paragraph (e) of sub-section (2.) has been amended in relation to the requirement that an employee-member of a fund be notified of his right to receive benefits from the fund. The paragraph will now require that the employee be notified in writing of the existence of a right to benefits before, or at the time when, contributions are first made to the fund for his benefit, or by 31st March 1966, whichever is the later. The Commissioner is authorised to extend the period during which the notification may be given to an employee.

A practical effect of this amendment will be that existing funds which have not already complied with the test will have until at least 31st March 1966 to do so. A further effect is that notification may be in a less precise form than the original provisions may technically have required.

Paragraph (h) of sub-section (2.) has been amended by omitting the sub-paragraph (iii) originally proposed and inserting a new sub-paragraph in its stead.

The test prescribed in paragraph (h) is that benefits provided by a fund for employee-members are not excessive having regard to certain matters. Sub-paragraph (iii) originally required that regard be had to any past, present or future benefits paid, or that may be paid, to the employee or his dependants from any other fund. In consequence of the amendment to this sub-paragraph, it will be necessary for regard to be had only to benefits provided, or to be provided, from a fund of the type covered by section 23F. In other words, regard need be had, for the purposes of paragraph (h), only to benefits provided from employer-employee funds which, provided they have observed the "30/20" rule regarding investment of assets in public securities, qualify for exemption under section 23F.

Another amendment to section 23F is the insertion of a new sub-section (3.). This sub-section will have effect only where the trust deed governing a fund contains a provision designed to avoid a breach of a rule of law relating to perpetuities. The provisions of the sub- section will ensure that such a provision in the deed does not prevent the fund from qualifying as an "indefinitely continuing" fund for the purposes of section 23F.

The provisions of sub-section (11.) (previously sub- section (10.)) of section 23F have also been amended. The sub-section is relevant where, for the purposes of the section, the trusteeof a superannuation fund has lodged with the Commissioner of Taxation an undertaking concerning the application of amounts of benefits to which members' rights have ceased.

As originally proposed, the sub-section declared that certain consequences were to follow if the Commissioner was not satisfied that an undertaking had been complied with during a year of income. As amended, application of the sub-section is not to depend specifically upon the formation of an opinion by the Commissioner.

Provisions originally incorporated as paragraph (a) of the sub-section have, as a consequence of the altered terms of the sub-section, been transferred to a new sub- section - sub-section (12.). The new sub-section provides that, where it appears to the Commissioner that an undertaking has been breached, he is to inform the trustees in writing as to the respects in which he considers the undertaking has not been complied with.

An amendment has also been made to sub-section (18.) (previously sub-section (16.)) of the proposed section 23F. As originally proposed, this sub-section provided that income derived by a fund from a transaction is not exempt under the section if the Commissioner is satisfied that the parties to the transaction were not dealing with each other at arm's length and the income is greater than might have been expected if the parties had dealt at arm's length.

As amended, application of the sub-section is not to depend specifically upon the formation of an opinion by the Commissioner.

Other minor drafting amendments to the proposed section 23F are consequential upon those explained above. They do not alter the practical effects of the section as explained in the Treasurer's explanatory memorandum.

Amendments to clause 18.

In the Bill as originally proposed this clause appeared as Clause 17. Clause 18 proposes the repeal of section 79 of the Principal Act and the insertion of a new section in its stead.

The provisions of the proposed section 79 have been explained at pages 46 to 56 of the explanatory memorandum circulated by the Treasurer. Explanations of the principal amendments made to the provisions of the new section as originally proposed are given below.

Sub-section (1.) of the proposed section 79, which contains definitions of terms used in the section, has been amended by the insertion of a definition of a "dependant" of a member of a fund. The definition will ensure that a wife or child of a member is always treated as a dependant of the member for the purposes of section 79.

Sub-section (2.), which specifies the tests that are to be met in order that a superannuation fund may qualify for the special deduction authorised by section 79, has been amended in several respects.

One amendment is the omission of the requirement that the Commissioner be satisfied that the various tests are met. The purpose of the amendment is to remove any limitation on the right of appeal to a Court which the existence of the discretion imposed. The right of a fund to have the Commissioner's decision referred to a Taxation Board of Review is not, of course, affected by the amendment.

Paragraph (c) of sub-section (2.) has been amended in relation to the requirement concerning the notification to a member of a fund of his right to receive benefits from the fund. The paragraph will now require that the member be notified in writing of the existence of a right to benefits before, or at the time when, contributions are first made to the fund for his benefit, or 31st March 1966 whichever is the later. The Commissioner is authorised to extend the period during which the notification may be given to a member.

As in the case of a similar amendment to the proposed section 23F which has already been explained, the practical effect of this amendment to the proposed section 79 will be to grant existing funds a period up to 31st March 1966 during which members of the funds may be notified in respect of their rights to benefits, if this has not already been done.

Paragraph (g) of sub-section (2.) has been replaced by a new paragraph.

The terms and conditions applicable to a fund are to be approved by the Commissioner of Taxation before the fund may qualify for the special deduction authorised by section 79.

In approving the terms and conditions in relation to a fund, the Commissioner was required by paragraph (g), as originally proposed, to have regard to the reasonableness of past, present and future benefits provided for the member from the fund and any other fund.

As amended, paragraph (g) provides, in broad terms, that the Commissioner is to have regard only to benefits from funds to which special provisions of the law apply. He is to have regard to benefits from a fund which is exempt from tax under section 23(jaa), e.g., a fund established by a government or a governmental or municipal authority. He is also to have regard to benefits from an employer- employee fund to which section 23F applies, or has applied, and from a fund for self-employed persons to which section 23(ja) applies, or has applied. He must also take into account benefits from any other fund which is entitled to the special deduction provided by section 79. He may not, however, take into account benefits from any fund which, for the reason that it cannot meet the requirements of the provisions mentioned, is taxable on income derived by it.

The provisions of the new sub-section (3.) that has been inserted in the proposed section 79 correspond with the provisions of the new sub-section (3.) inserted in the proposed section 23F that have been explained at page 4 of this memorandum.

Sub-section (7.) and sub-section (8.) (in the original Bill sub-section (6.)) of the proposed section 79 relate to an undertaking by the trustee of a fund in respect of benefits the right to which has ceased. The provisions of these sub-sections correspond with the amended sub- sections (11.) and (12.) of section 23F which are explained at page 4 of this memorandum.

Other minor amendments to the proposed section 79 are consequential upon those explained above. They do not alter the practical effect of the section as explained in the Treasurer's explanatory memorandum.

Amendment to clause 23.

This clause appeared in the original Bill as clause 22. The clause has been amended to insert in sub-section (1.) of section 82AAA of the Principal Act a definition of "dependant". That sub-section contains definitions of terms used in Subdivision AA - Division 3 - Part III, of the Principal Act. Subdivision AA governs the allowance of deductions to employers in respect of contributions to a superannuation fund for the benefit of employees and their dependants. The definition to be inserted will ensure that a wife or child of an employee always qualifies as a dependant of an employee-member.

Amendment to clause 24.

This clause appeared as clause 23 in the original Bill. By clause 24 it is proposed to repeal sections 82AAG to 82AAL, inclusive, of the Principal Act and to insert new sections in their stead. The proposed new sections are explained at pages 69 to 79 of the explanatory memorandum circulated by the Treasurer.

Sub-sections (7.) and (8.) of the proposed section 82AAG, and which are explained at pages 70 and 71 of the explanatory memorandum circulated by the Treasurer, have been amended by the omission of the Commissioner's discretion in respect of the compliance by a trustee with an approved scheme relating to the application of terminated benefits.

This has necessitated a consequential drafting amendment concerning the requirement that the Commissioner notify the trustees in writing that he is of the opinion that the scheme has not been complied with. The provisions requiring that the Commissioner notify the trustees to this effect are now contained in a new sub-section - sub-section (9.) - of the proposed section 82AAG.

Amendment to the Principal Act by clause 30.

This is a new clause inserted in the Bill by amendment. It is proposed by clause 30 to amend sub-section (4.) of section 121BA of the Principal Act.

Section 121BA prescribes the basis for determining the "net income" of a superannuation fund to which section 79 applies. Broadly, the net income is the income arising from assets taken into account in calculating the special deduction of 5% of the net cost of assets as reduced by the special deduction and non-capital expenses incurred in producing the income.

Sub-section (4.) of section 121BA applies where income (other than a dividend paid by a private company) is derived by a superannuation fund to which section 79 applies from a transaction, if the Commissioner of Taxation is satisfied that -

(a)

the parties to the transaction were not dealing with each other at arm's length in relation to the transaction; and

(b)

the income derived by the fund was greater than the income which might have been expected to be derived by the fund from the transaction if the parties were dealing with each other at arm's length.

In these circumstances the special deduction authorised by section 79 is not allowable against the income concerned.

As proposed to be amended by clause 30, application of the sub-section is not to depend specifically on the formation of an opinion by the Commissioner.

The amendments relating to superannuation funds effected by clauses 5, 7(a), 9, 18, 23 to 27 (inclusive) and 30 will apply as from the commencement of the 1965-66 income year.

CONVERSION OF PLANT FOR USE WITH DECIMAL CURRENCY.

Amendment to clause 15.

This is a new clause inserted in the Bill by amendment. Clause 15 of the Bill as introduced into the House of Representatives has been replaced by clauses 15 and 16. The following explanatory notes are substituted for the notes appearing under the heading "Clause 15 : Provisions Relating to Conversion of Plant for use in connection with Decimal Currency" at pages 41 to 44 inclusive of the explanatory memorandum circulated by the Treasurer.

Clause 15: Cost of Converting Plant for use in Connection with Decimal Currency System to be Allowable Deduction.

This clause proposes the introduction into the Principal Act of a new section - section 53F - which will authorise a deduction of the costs incurred by a taxpayer in converting plant for use with decimal currency. The deduction will be allowed in the year in which the costs are incurred.

The proposed new section will apply to conversion costs incurred by all categories of taxpayers including those engaged in mining operations. The special provisions of Divisions 10 and 10AA of the Principal Act relating to capital expenditure incurred by taxpayers engaged in mining operations will not be applicable to conversion costs.

Sub-section (1.) of the proposed new section defines two terms used in the section. These are -

"conversion costs"

: This term is defined to mean expenditure incurred in relation to a unit of property in converting or adapting it for use with the new currency.

"unit of property"

: This term is defined to exclude property which is held by a taxpayer as trading stock. Taxpayers who make payments to convert machines which form part of their trading stock will obtain deductions under the general provisions of the Principal Act. The broad effect of this definition is to confine the operation of the section to conversion costs incurred in relation to units of property used as plant for the purpose of producing assessable income.

Sub-section (2.) is the operative provision of the proposed section. It provides for a deduction of the full amount of the conversion costs where the unit of property converted is used either to produce the taxpayer's assessable income, or is used in carrying on a business for that purpose. The deduction is to be allowed in the year of income in which the conversion costs are incurred.

Sub-section (3.) is designed to ensure that a taxpayer does not become entitled to more than one deduction in respect of conversion costs incurred in respect of his business plant.

Paragraph (a) formally provides that no part of any conversion costs that are deductible under the proposed new section may be allowable as a deduction under any other provision of the Principal Act. The paragraph also provides that no part of those costs may be taken into account in ascertaining the amount of an allowable deduction, e.g., by way of depreciation allowances or deductions for capital expenditure incurred by taxpayers engaged in mining operations. Deductions in relation to losses of a prior year, to which section 80 of the Principal Act applies, are not affected by the paragraph.

Paragraph (b) states that conversion costs are not to be treated as capital expenditure or expenditure of a capital nature for the purposes of the Principal Act. The principal effect of this provision will be in respect of plant converted that is used in mining operations. When plant so used is disposed of, lost or destroyed, balancing adjustments are made in accordance with section 124 of the Principal Act by reference to the capital expenditure incurred on the plant. Paragraph (b) will exclude conversion costs allowable as a deduction under the proposed new section from the capital expenditure on the plant that is to be taken into account for the purpose of the balancing adjustments.

Sub-section (4.) of the proposed section is designed to permit the amendment of any assessments for past years of income if those assessments have been made on the basis that conversion costs are not allowable deductions. It is unlikely that many such assessments will have been made but the sub-section will authorise the necessary amendment in any such cases that do arise. The usual powers of the Commissioner to amend assessments in relation to the present income year and future years will not be affected by this provision.

The proposed new section will apply to assessments in respect of income of any year of income.

Clause 16: Provisions Relating To Compensation Payments For Conversion of Plant for Use in Connection with the Decimal Currency System.

By this clause it is proposed to insert in the Principal Act a new section - section 62AAA - to provide a uniform basis for dealing with amounts received by a taxpayer from the Commonwealth in relation to plant that requires conversion for use with decimal currency.

Broadly, it is proposed by the clause that depreciation allowances on such plant will be adjusted by reducing the depreciated value of the plant by the amount of the compensation payment received in respect of the plant.

Depreciation allowances are available under the depreciation provisions of the Principal Act in relation to plant owned by a taxpayer and used by him in the production of assessable income. The new section will apply in relation to such plant. Special provisions of the Principal Act apply in relation to plant used in the mining industries and measures proposed to be inserted in the Principal Act by clauses 32 and 33 of the Bill relate to plant subject to these special provisions. Explanations in respect of those clauses are given at pages 81 to 85 of the explanatory memorandum circulated by the Treasurer.

The proposed new section will not apply to compensation payments received by a taxpayer in respect of plant that is trading stock. These payments will be dealt with as provided in clause 10 of the Bill which is explained at page 32 of the explanatory memorandum circulated by the Treasurer.

Sub-section (1.) of the proposed section 62AAA contains definitions of two terms used in the section. These are -

"compensation payment"

: This term is defined to mean a payment received by a taxpayer in respect of a unit of plant in pursuance of the Decimal Currency Board Act 1963-1965. That Act authorises the Commonwealth to enter into arrangements for the conversion of certain plant for use with decimal currency and to make payments in relation to such plant that requires conversion for this purpose.

"unit of property"

: This term is defined to exclude property held by the taxpayer as trading stock. Compensation payments in respect of trading stock are dealt with separately in Clause 10 of the Bill.

Sub-section (2.) is the operative provision of the section. It provides that any amount or amounts of a compensation payment (as defined in sub-section (1.)) are to be applied in reducing the depreciated value of the unit of plant in respect of which the compensation payment is made. This adjustment is to be made to the depreciated value of the unit as at the end of the income year in which the compensation payment is received.

The amount to be applied under this sub-section cannot exceed the depreciated value of the unit at the relevant time. Provision is made in later sub-sections for the application of any excess of the compensation payment over the depreciated value.

A practical effect of the sub-section is that a receipt of compensation payments during a year of income will not affect depreciation allowances until the succeeding year.

Sub-section (3.) is designed to apply only where the compensation payment received by a taxpayer in respect of a unit of plant exceeds the depreciated value of the unit at the relevant time.

In these circumstances, the amount of the excess is to be applied to successively reduce the depreciated values at that time of other units of plant owned by the taxpayer and used by him in producing assessable income. The order in which the excess is to be so applied is set out in paragraphs (a) to (e) and is as follows :-

(a)

any plant acquired by the taxpayer during the income year in which the compensation payment was received to replace the plant in respect of which the payment was made;

(b)

any other plant acquired by the taxpayer during the income year in which the compensation payment was received which is of a kind, or has a use, similar to the unit in respect of which the compensation payment was made;

(c)

any other plant acquired by the taxpayer during the income year in which the compensation payment was received;

(d)

any other plant owned by the taxpayer which is of a kind, or which has a use, similar to the machine in respect of which the payment was made, but which was not acquired during the year of income in which the compensation payment was made;

(e)

any other depreciable plant owned by the taxpayer.

Sub-section (4.) will require that where the whole of a compensation payment received by a taxpayer is not applied to reduce the depreciated value of plant owned by him in accordance with sub-sections (2.) and (3.), the amount that is not so applied is to be included in the assessable income of the taxpayer for the year in which the payment was received.

This sub-section is necessary to cover any case that may occur where a compensation payment exceeds the aggregate depreciated values of all depreciable plant owned by a taxpayer. It is expected that, in practice, the sub- section will have very limited application.

Sub-section (5.) is designed to apply where a compensation payment is received by a taxpayer in respect of a unit of plant which is disposed of, lost or destroyed during the year of income in which the payment is received.

Paragraph (a) provides that, in these circumstances, the amount of the compensation payment received is to be applied to reduce the depreciated value of the plant immediately prior to the time when the disposal, loss or destruction of the plant occurred. The practical effect of this provision will be to ensure that the compensation payment is taken into account in the calculation of any balancing adjustments to be made in relation to the plant in respect of which the compensation payment is made.

Paragraph (b) will apply where the compensation payment exceeds the depreciated value of the relevant plant at the time immediately before the plant was disposed of, lost or destroyed.

Sub-paragraph (i) of paragraph (b) will require that the excess be applied to successively reduce the depreciated values at the end of the year of income in which the compensation payment is received of other plant owned by the taxpayer. The order of the application will be the same as is required under paragraphs (a) to (e) of sub- section (3.).

Sub-paragraph (ii) will require that, in any case where the whole of the compensation payment cannot be applied to reduce the depreciated values of other plant, the amount which is not so applied is to be included in the assessable income of the taxpayer for the income year in which the payment is received.

Sub-section (6.) is designed to apply where a compensation payment is received by a taxpayer in respect of a unit of plant which has been disposed of, lost or destroyed in a year prior to the year of income in which the payment is received.

In these circumstances it will not be practicable for the compensation payment to be applied to reduce the depreciated value of the unit at the end of the year of income in which the payment is received. It is, therefore, proposed that the payment will be set off against the depreciated values of other plant owned by the taxpayer.

Paragraph (a) requires that the compensation payment is to be applied to successively reduce the depreciated values of other plant at the end of the year of income in which the payment is received. The order of application of the payment is set out in sub-paragraphs (i) to (v) and corresponds with the order set out in paragraphs (a) to (e) of sub-section (3.).

Paragraph (b) of sub-section (6.) will require that, in any case where the whole of the compensation payment cannot be applied to reduce the depreciated value of other plant, the amount which is not so applied is to be included in the assessable income of the taxpayer for the income year in which the payment is received. As already mentioned in relation to sub-section (4.), it is expected that this provision will have application only in isolated cases.

Sub-section (7.) will limit the classes of plant in respect of which adjustments to the depreciated value will be authorised by sub-sections (3.), (5.) or (6.) of the section.

Those sub-sections all require the application in given circumstances of part or the whole of compensation payments to adjust depreciated values of plant other than the plant in respect of which the compensation was paid.

Paragraph (a) and paragraph (b) of sub-section (7.) provide that no part of a compensation payment is to be applied to reduce the depreciated value of other plant in accordance with sub-sections (3.), (5.) or (6.) unless, at the end of the income year in which the payment is received, the plant was used exclusively for the purpose of producing assessable income, or had been installed ready for use for that purpose, and depreciation allowances are available in respect of the plant under the general depreciation provisions of the Principal Act.

Sub-section (8.) has the purpose of deeming an amount deducted from the depreciated value of a unit of plant under preceding provisions to be a deduction allowed as depreciation in respect of the unit in calculating its depreciated value for the purposes of future deductions for depreciation and in calculating balancing adjustments on the disposal, loss or destruction of the unit.

The new section 62AAA will come into operation on the day on which the Amending Act receives the Royal Assent. It will apply in relation to the assessment of a taxpayer of any year of income in which he receives, or has received, a compensation payment.

BONUS SHARES ISSUED BY COMPANIES.

Amendment to clause 44.

This Clause appeared in the original Bill as clause 42. Sub-clause (1.) of this clause specifies the commencing date for the amendments proposed (by clause 13) to withdraw the exemption for dividends paid out of certain capital profits and satisfied by the issue of redeemable shares.

An explanation of these amendments will be found at pages 36 to 39 of the explanatory memorandum circulated by the Treasurer.

As originally proposed, the amendments relating to bonus share issues would have applied to shares that were issued in satisfaction of dividends declared after 10th June 1965. As amended, the commencement date of 10th June does not apply in all cases.

Where shares issued are redeemable in the strict sense, the commencement date remains 10th June 1965 (see page 37 of the explanatory memorandum circulated by the Treasurer). If, however, the shares issued are redeemable in the wider sense provided for in paragraph (b) of sub- section (2D.) being inserted in section 44 of the Principal Act by clause 13, the commencement date will be 28th October 1965. This will mean that if shares that are redeemable in the extended sense are issued in satisfaction of dividends declared on or before 28th October 1965 the amending legislation will not apply to them.

PRIOR YEAR LOSSES OF COMPANIES.

Amendment to clause 44.

Sub-clauses (5.) and (6.) of this clause specify the commencing date of the amendment proposed by clause 21 of the Bill. Clause 21, which appeared as clause 20 in the original Bill, proposes that sub-section (5.) of section 80B of the Principal Act be repealed and a new section inserted in its stead. An explanation of this amendment is given at pages 59 and 60 of the explanatory memorandum circulated by the Treasurer.

As originally proposed, the new sub-section (5.) would have had general application as from the commencement of the 1965-66 income year. The commencement date has been changed in respect of contracts, agreements or arrangements entered into, or rights, powers or options granted, on or before the date the Bill was introduced into the Parliament, that is, the 28th October 1965. Where these circumstances exist, the provisions of the new sub-section (5.) of section 80B will first apply in assessments based on income earned during the 1966-67 income year.

If options have been granted on or before 28th October 1965 in respect of shares owned by a person in a "loss" company throughout the year in which the loss was incurred, the provisions of the present sub-section (5.) of section 80B of the Principal Act will apply in the assessment of income derived by the company during the 1965-66 income year. Where contracts, agreements or arrangements are entered into, or rights, powers or options are granted, in respect of shares in a "loss" company after 28th October 1965, the provisions of the proposed new sub-section (5.) of section 80B will apply in assessments based on income derived during the 1965- 66 income year and subsequent years.

INCOME TAX ASSESSMENT BILL 1965.

The following schedule supplements the schedule of clauses at page 92 of the Explanatory Memorandum to the original Bill as introduced into the House of Representatives. This schedule shows the changes that have been made to clause and sub-section numbers of that Bill in the amended Bill now before the Senate.