House of Representatives

Explanatory Memorandum

(Circulated by the Treasurer, the Rt. Hon. A. W. Fadden.)

Ed. Note

INTRODUCTORY NOTE:-

The provisions contained in the Resolution and the Bill are directed principally towards the simplification of the income tax law and practice.

This simplification is being effected by three major reforms, viz.:-

(1)

The merging of the present two separate levies of income tax and social services contribution into a single levy on taxable income.

(2)

The introduction of stepped rates of tax and contribution that increase for every Pd50, or multiple of Pd50, of taxable income. This system of stepped rates will replace the present system of rates which increase by fractions of one penny for every Pd1 of increase in the taxable income.

(3)

The allowance of concessions for dependants, medical expenses, life assurance premiums, superannuation contributions, friendly society dues and other concessions by way of deductions from income. These concessional deductions will replace the concessions that are allowed at present either by way of rebates of income tax or by way of concessional rates of social services contribution.

In 1945, the levy of taxation on the incomes of individuals was divided into two charges-income tax and social services contribution.

Although complementary to income tax, the contribution operates as a separate levy, being separately imposed and separately assessed. The contribution is notified to the contributor as a liability separate from income tax but is shown on a combined income tax and social services contribution assessment. In the Treasury accounts, the contributions payable are recorded separately from income tax for the purpose of appropriation to the National Welfare Fund.

The contribution is imposed at graduated rates commencing at slightly more than 1d. in the Pd at an income of Pd105 in the case of a contributor without dependants and rising to a maximum of 18d. in the Pd at an income of Pd500. Income tax, as such, does not become payable until an income from personal exertion exceeds Pd500 or from property Pd350.

Where the income recipient maintains dependants, the income level at which the contribution commences to be payable and the income level at which the contribution reaches the maximum rate of 18d. in the Pd1 depend on the number of his dependants. Concessional allowances such as medical expenses, friendly society dues and life assurance premiums also affect the level at which the contribution commences and at which it reaches the maximum of 18d. in the Pd1.

Income tax, in addition to social services contribution, becomes payable at approximately the income levels at which the contribution reaches the maximum rate of 18d. in the Pd1. The rates of income tax are so designed, however, as to blend gradually with the contribution rates so that there is no abrupt increase in the combined liability to tax and contribution.

In those cases where social services contribution only is payable, very little complication enters into the assessments, but where both contribution and tax are payable, serious complications arise.

The merging of the contribution and the tax into a single levy, the introduction of the system of stepped rates and the allowance of concessional deductions instead of rebates of tax, will simplify the processes of assessment and the annual notices to the extent that taxpayers will be enabled to check their liabilities to income tax and social services contribution.

As a further step towards simplification, it is proposed that the present method of differentiation with regard to property income be replaced by a further tax and contribution to be imposed on property income only. The further tax will be imposed at rates of 4d., 8d. and 1s. 4d. in the Pd1 applied to broad steps.

The proposals for stepped rates of tax and contribution and a further levy on income from property are based on recommendations of the Commonwealth Committee on Taxation.

Statements are appended to this memorandum comparing-

(a)

the proposed basic tax and contribution;

(b)

the present total tax and contribution; and

(c)

income tax at war-time rates,

payable by several classes of taxpayers deriving income from personal exertion. The amounts shown as proposed tax and contribution reflect the proposals for the amalgamation of income tax and social services contribution, the introduction of stepped rates and the reversion to a system of concessional deductions, as well as the adjustment of rates to give effect to these reforms. Also appended are statements showing a comparison between the proposed amounts payable and the present liability where income is derived either wholly or partly from property sources.

The following are notes on the paragraphs of the Resolution and the Clauses of the Bill.

INCOME TAX AND SOCIAL SERVICES CONTRIBUTION RESOLUTION 1950.

Notes on paragraphs

PARAGRAPH 1.

Consequent on the merging of the income tax and social services contribution, the imposition of the contribution at separate rates will no longer be necessary. The last year of income to which social services contribution will apply as a separate charge will be the year of income ended 30th June, 1950. The rates of contribution will continue to apply, however, for all purposes in connexion with social services contribution payable on income derived during the years ended 30th June, 1946, to 30th June, 1950, both inclusive.

PARAGRAPH 2.

This paragraph, which is comprised of six Divisions, declares the rates at which income tax and social services contribution will be payable for the financial year 1950-1951.

Division A.- Basic Rates of Tax and Contribution.

Division A declares the basic rates at which tax and contribution are to be imposed on taxable incomes other than the taxable incomes of companies.

The proposed table introduces a new system of rates progressing in steps of taxable income of Pd50, Pd100, Pd200, Pd400, Pd600, Pd1,000 and Pd2,000. This system will replace the present system of rates which increase by a small fraction of one penny for every Pd1 of increase in the taxable income.

The proposed rate commences at one penny in the Pd1 on the first Pd100 of taxable income. It is not proposed, however, that income tax and social services contribution should be payable by individuals deriving a taxable income less than Pd105. The declaration of a rate of tax on taxable incomes of Pd1 to Pd104 is being made for application in those cases where the taxable income exceeds Pd104, and it will apply also in the case of a primary producer whose taxable income is greater than Pd104 but whose average income is less than Pd105.

The maximum rate declared in the table is 180 pence in the Pd1 on that part of the taxable income which exceeds Pd10,000. This rate coincides with the total of the present maximum income tax rate of 162 pence in the Pd and the maximum social services contribution rate of 18 pence in the Pd1.

The rates intervening between the minimum and maximum rates are declared in pence, thus avoiding the complications of fractions and decimals.

Although the rates are expressed in steps of Pd50, or multiples of Pd50, and in pence without recourse to fractions or decimals of one penny, those rates approximate very closely to the present rates of social services contribution and to the present rates of income tax combined with the maximum rate of contribution. In all ranges of income from personal exertion, the application of the stepped rates will not result in any material difference in the present liabilities of income recipients.

The basic rates of tax and contribution shown in the table are applicable to the total taxable income derived by the taxpayer from (a) personal exertion; (b) property; and (c) both personal exertion and property. Taxable income in excess of Pd100 derived from property is subject, in certain cases, to further tax and contribution as specified in Division E. of this paragraph.

It will be observed that the rates of tax and contribution shown in the table apply to specified parts of a taxpayer's total taxable income. For example, all taxpayers other than those whose taxable incomes are less than the minimum taxable amount of Pd105 will be required to pay 1d. in the Pd1 on the first Pd100 of their income, i.e. 8s. 4d. In the same way, all persons whose taxable incomes exceed Pd150 will pay in addition to the 8s. 4d. on the first Pd100 of their income, 6d. on every Pd1 of income between Pd100 and Pd150, i.e.

Pd50 at 6d. = Pd1 5s.


-a total of Pd1 13s. 4d.

This feature of the system allows a table to be prepared showing the amount of tax and contribution payable on each of the incomes at which the various steps commence, e.g. Pd100, Pd150, Pd200, etc. rising to Pd10,000.

The following is the table which will be printed on the reverse of all Notices of Assessment so as to enable most taxpayers to calculate and check their liability:-

A taxpayer whose income coincides with one of the amounts shown in Column 1 can read off from Column 3 of the table the amount of his liability.

If his income lies between any of the amounts shown in Columns 1 and 2 it is only necessary in order to ascertain the amount payable to add to the amount shown in Column 3 against the appropriate range of income an amount calculated by multiplying the excess of his income over the amount shown in Column 1 by the rate of tax and contribution shown in Column 4.

The following is an example of the application of this table to a taxable income of Pd630. The tax and contribution would be calculated as follows:-

Division B.- Rate of Tax and Contribution by Reference to an Average Income.

This Division is operative only in the assessments of those taxpayers who carry on a business of primary production in Australia. For the purposes of these assessments, Division 16 of Part III. of the Assessment Act provides the method by which the average taxable income of the primary producer is to be ascertained. As a general rule, this average taxable income is the average of the taxable incomes of the year of assessment and the taxable incomes of the preceding four assessment years.

The process of ascertainment of the rate of tax and contribution to be applied in the assessment of a primary producer is to calculate, firstly, the amount of tax and contribution that would be payable on the average taxable income at the rates shown in Division A. The tax so calculated is then divided by the average taxable income to determine the rate. This rate is then applied to the actual taxable income of the assessment year to determine the tax and contribution payable by the primary producer on that taxable income.

Divide Pd4,100 by 5 to obtain an average taxable income of Pd820.

Ascertain the amount payable by applying to a taxable income of Pd820 the rates set forth in Division A as those rates are to be shown on the assessment notices.

Divide Pd94 6s. 8d. by Pd820 to obtain a rate of 27.6098d. in the Pd1.

The tax and contribution payable on a Taxable Income of Pd1,500 at 27.6098d. is Pd172 11s. (to nearest shilling).

If the taxpayer were assessed on a taxable income of Pd1,500 without reference to an average income, the tax and contribution would be calculated as follows:-

Division C.- Rate of Tax and Contribution by Reference to a Notional Income.

This Division applies in the assessment of any taxpayer whose assessable income includes any consideration in the nature of a premium for the grant or assignment of a lease or for the goodwill or licence attached to or connected with the leasehold premises.

The inclusion of lease premiums in assessable income is based on the principle that the premiums are, in substance, rent received in advance or commuted rent.

Where, however, the premium is received for the grant of a lease for a term of over two years or for the assignment of a lease having an unexpired term of more than two years, the premium represents income that would otherwise have been received in two or more years.

Apart from any special provision, the premium would be taxed at the rate of tax and contribution appropriate to the total taxable income derived by the taxpayer in the year in which the premium is received. This would cause the taxpayer, however, to pay a greater amount of tax and contribution than he would have been required to pay if he received the amount of the lease premium in the form of rent spread over the years of the lease term.

Sub-section (1.) of section 86 of the Assessment Act accordingly provides a special basis for the ascertainment of a rate of tax where a lease premium is included in the assessable income and the term of the lease granted or the unexpired term of the lease assigned is more than twenty-five months.

The special basis provided by the sub-section is to the effect that the net premium, i.e. the gross premium less expenses, shall be divided by one-half of the number of years of the lease term. The result of this division when added to any other taxable income derived by the taxpayer provides a notional income by reference to which the rate of tax and contribution is determined.

The notional income is ascertained by dividing the net premium of Pd6,000 by 3 = Pd2,000 and adding that result to the other taxable income Pd3,000, providing a notional income of Pd5,000.

Apply to a notional income of Pd5,000 the rates set forth in Division A as those rates will be shown on the assessment notice.

Pd5,000-Tax and Contribution-Pd2,088 6. 8d.

Divide Pd2,088 6s. 8d. by Pd5,000 to obtain a rate of 100.24d. in the Pd1.

If the taxpayer were assessed on a taxable income of Pd9,000 without reference to a notional income, the tax and contribution would be calculated as follows:-

Division D.- Rates of Tax and Contribution Payable by a Trustee.

This Division prescribes the rate at which income tax and social services contribution shall be payable by a trustee in those cases where a trustee becomes liable to pay tax and contribution under either section 98 or 99 of the Assessment Act.

Ordinarily, a trustee is not assessed and liable to pay tax and contribution as the beneficiaries are required to pay the tax and contribution on their respective shares of the trust income, if they are presently entitled to the income and are not precluded from receiving that income by reason of some legal disability.

Where, however, there is a legal disability preventing a beneficiary from receiving his share of the trust income or where there is trust income to which no beneficiary is presently entitled, the trustee is assessed and liable to pay the tax and contribution. The income is assessed as if it were derived by an individual taxpayer. In these assessments, the rates declared in Division A are applied and, if the income is derived from a business of primary production, the rate appropriate to an average income as prescribed by Division B are applied. Correspondingly, if the trust income includes a premium for a lease, the provisions of Division C operate in the assessment of the trustee and the rate of tax and contribution is ascertained by reference to a notional income.

Division E.- Further Rates of Tax and Contribution in Respect of Taxable Income Derived from Property.

Under the present law, separate graduated rates of tax are prescribed for personal exertion and property incomes. In cases where the taxable income is derived from personal exertion and property sources, the rates appropriate to the total taxable income are applied to the personal exertion and property components of that income. The rate prescribed for income from property is higher than that for income from personal exertion.

The principle underlying the proposed rates in Division E is to levy in accordance with long continued practice, but by a simplified method, an additional impost on income from property. This impost is additional to the tax and contribution imposed at the basic rates prescribed by Division A, B, C or D. These basic rates apply to the total taxable income derived from personal exertion or from property, or from both personal exertion and property.

The further rates of tax and contribution proposed by Division E. are designed in the form of stepped rates to conform to the pattern of the basic stepped rates proposed by Division A. The following table sets out in a simplified form the proposed further rates of tax and contribution:-

A further rate of tax and contribution is not being declared on taxable incomes from property of Pd100 or less. If the taxable income is comprised wholly of property income or partly of property income and partly of personal exertion income, neither the basic tax and contribution nor the further tax and contribution will become payable unless the taxable income exceeds Pd104.

Where the basic tax and contribution is payable and the taxable income from property is less than Pd100, no further tax and contribution will be payable on the property income, irrespective of the amount of the total taxable income. The adoption of this proposal will simplify the processes of assessment by removing thousands of cases from the field of further tax and contribution. In many of these cases, the relatively small amount of property income is, as a general rule, derived from the investment of savings from earnings.

The further rate of tax and contribution in the range to Pd1,000 is 8d. in the Pd1 on the excess of the property income over Pd100. Further tax and contribution will not be payable, however, unless the taxable income from property or from both personal exertion and property exceeds Pd400. Provision to this effect is contained in paragraph 4 of the Resolution.

In the range of property income to Pd1,000, no further tax and contribution is payable on the first Pd100. On the excess of property income over Pd100, further tax and contribution is payable at the rate of 8d. in the Pd1.

Similarly in the range of property income to Pd4,000 the further tax and contribution is to be calculated as follows:-

In the range to Pd6,000 the further tax and contribution on Pd4,000 will be Pd230 and the further tax and contribution on the balance of Pd2,000 will be calculated at the rate of 8d. in the Pd1, i.e. Pd66 13s. 4d., making a total liability of Pd296 13s. 4d.

It will be noted that the rate of further tax and contribution on taxable incomes from property in excess of Pd4,000 declines in steps from 16d. to 8d. and to 4d. in the Pd1 until no further tax and contribution is payable on the excess over Pd10,000 of taxable income from property. This diminution of the rate conforms broadly to the present differentiation in the rates of income tax on personal exertion and property incomes.

The decline in the rate of the proposed further tax and contribution from the point at which the taxable income from property is Pd4,000, while broadly following the pattern of the present differentiation in the rates, is to be considered together with the advance that is made in the basic rates of tax and contribution. The further tax and contribution on property income is blended with the basic rates on the total taxable income in such a manner as to achieve an equitable levy having regard to the amount and nature of the taxable income.

In the field of taxable income from property, there is no further tax and contribution additional to the basic tax at the rate of 15s. in the Pd1. In this respect the proposed system of further tax and contribution accords with the present system which does not differentiate between the value of tax on personal exertion and property incomes in excess of Pd10,000. Apart from the already high rate of 15s. in the Pd1, there is a distinct element of property entering into the derivation of incomes in excess of Pd10,000 from personal exertion and there is no substantial justification for an added levy on property income as compared with personal exertion income.

Statements are appended to this memorandum comparing-

(a)

the total contribution and tax at present; and

(b)

the total of the proposed basic tax and contribution and further tax and contribution,

payable by several classes of taxpayers deriving taxable incomes from property and from property and personal exertion.

Division F.- Rates of Tax and Contribution Payable by a Company, other than a Company in the Capacity of Trustee.

This Division prescribes the rate of tax and contribution to be payable by companies for the financial year 1950-1951-that is, the year of income ended 30th June, 1950. The proposed rates are the same as the rates at which income tax was payable by companies for the last financial year.

Paragraph (a) provides that the general rate of tax and contribution applicable to companies will be 5s. in the Pd1 on the first Pd5,000 of the taxable income and 6s. in the Pd1 on the remainder.

Paragraph (b) prescribes the rates of tax and contribution for mutual life assurance companies. The rates applicable to these companies will be 4s. in the Pd1 on the first Pd5,000 and 5s. in the Pd1 on the balance. A mutual life assurance company is a life assurance company, the profits of which are divisible only among its policy holders. In the assessment of a mutual life assurance company, premiums on life assurance policies and expenditure related thereto are excluded. The company, generally speaking is taxed only on its net income from investments. It is this income which is taxed at the reduced rates.

Paragraph (c) prescribes the rates of tax and contribution payable by a non-mutual life assurance company. A non-mutual life assurance company is also exempt from income tax and social services contribution in respect of premiums on life assurance policies. The taxable income of such a company is divided into (a) mutual income and (b) other income. The mutual income represents the same proportion of the taxable income derived by the company from its life assurance business, e.g., investment income, as the profits divided among life assurance policy holders bear to the total life assurance profits divided among shareholders and policy holders. The mutual income derived by such companies is taxed at the rate of 4s. in the Pd1 on the first Pd5,000 of mutual income and 5s. in the Pd1 on the balance of the mutual income. The non-mutual income of such companies is taxed, as to that part which is equal to the amount by which the mutual income is less than Pd5,000, at the rate of 5s. in the Pd1, and the balance at the rate of 6s. in the Pd1.

Paragraph (d) specifies the rate of further tax and contribution payable on the undistributed income of public companies. The amount of undistributed income is arrived at by deducting from taxable income the dividends paid out of that taxable income, certain ex-Australian losses incurred during the year of income, and liabilities for Commonwealth income taxes. The rate of further tax and contribution specified is 2s. for each Pd1 of undistributed income. The mutual income of a life assurance company is not subject to the further tax and contribution.

Paragraph (e) declares the rate of tax and contribution to be paid by a company on interest paid or credited by it to a non-resident. The rate specified is 6s. in the Pd1. If the non-resident is a company, the tax and contribution is payable on every Pd1 of such interest. If, however, the non-resident is an individual, the tax and contribution is payable only on so much of the interest as exceeds Pd104. The company paying the tax and contribution is empowered to deduct the relevant amount from the interest otherwise payable to the non-resident and the non-resident is entitled to have the amount paid by the company set off against the total income tax and social services contribution assessed to him.

It is here observed that paragraph 7 of this Resolution also proposes the retention of the super tax on companies. This is imposed on each Pd1 of taxable income in excess of Pd5,000. The rate of super tax is 1s.

PARAGRAPH 3.

This paragraph declares, in effect, that taxable incomes of Pd104 and less derived by individuals shall not be subject to income tax and social services contribution.

By "taxable income" is meant the amount remaining after deducting from the assessable income all allowable deductions.

In the Income Tax and Social Services Contribution Assessment Bill it is proposed to substitute concessional deductions for concessional rebates of tax. The concessional deductions will accordingly be allowable in ascertaining a taxpayer's taxable income.

It will be seen from the following table that, having regard to the concessional deductions, the effective exemption points under the proposed basis for various classes of taxpayers with dependants has been increased, as compared with the present basis of concessional rebates:-

The minimum taxable income of Pd105 applies also where a trustee derives income to which no beneficiary is presently entitled, or in respect of which the beneficiary is under a legal disability. If any such income is less than Pd105, neither the trustee nor a beneficiary is subject to tax on that income.

A company, other than a company in the capacity of a trustee, is liable to tax and contribution on taxable income of Pd1 and upwards.

PARAGRAPH 4.

This paragraph imposes the further rates of tax and contribution on taxable incomes derived from property.

Where the total taxable income exceeds Pd400 and the taxable income from property exceeds Pd100, tax and contribution are imposed under-

sub-paragraph (a) on the total taxable income at the appropriate basic rates specified in Division A., B., C. or D. of paragraph (2) of the resolution; and

sub-paragraph (b) on the taxable income from property in the range from Pd100 to Pd10,000 at the further rates specified in Division E.

The further rates of tax and contribution on taxable incomes from property have been explained in the note to Division E.

PARAGRAPH 5.

This paragraph places a limitation on the liability to further tax and contribution payable on taxable income from property in the range of total taxable income from Pd401 to Pd1,000.

The purpose of this limitation is to ensure that, in the range of taxable income between Pd401 and Pd1,000, the further tax and contribution shall not exceed an amount calculated at the rate of 12d. in the Pd1 on the excess of the taxable income over Pd400.

Without this provision, some taxpayers in the range from Pd401 to Pd1,000 would be required to pay considerably more under the combined basic rates and further rates of tax and contribution than they are paying at present.

The application of the limiting provision is illustrated by the following examples based on incomes derived wholly from property:-

This limiting provision will also have the effect of ensuring a gradual increase in the liability corresponding with the increase in the taxable income.

PARAGRAPH 6.

This paragraph provides, in effect, that if a liability for income tax and social services contribution arises and that liability is calculated at less than 10s., the minimum amount payable, except in the case of a company, shall be 10s. This paragraph repeats a provision that has been included in Rating Resolutions since 1928. It has long been recognised as uneconomical to prepare and issue assessments if the amount payable is less than 10s.

PARAGRAPHS 7 AND 8.

Paragraph 7 continues the imposition of a super tax at the rate of 12d. in the Pd1 on the excess over Pd5,000 of the taxable income of certain companies. This super tax was first imposed in 1940 and has been annually re-imposed since that year.

Paragraph 8 provides, in effect, that super tax shall not be payable by a company in the capacity of a trustee, a private company, a co-operative company, a mutual life assurance company or on the mutual income of a partly mutual life assurance company.

PARAGRAPH 9.

The purpose of this paragraph is to eliminate pence from the amount of income tax and social services contribution payable. Amounts of sixpence and less are disregarded, and pence in excess of sixpence are regarded as one shilling.

PARAGRAPHS 10 TO 12.

These paragraphs are designed for application in those cases where the value of instalments deducted from earnings closely approximate the amount of income tax and social services contribution payable on those earnings. If the difference between the value of the instalments and the tax and contribution which would be payable is 2s. or less, the taxpayer is not required to pay the additional small amount involved and, alternatively, the Taxation Department is not required to make small refunds.

These paragraphs were originally introduced into the law as part of the scheme of applying tax instalment tokens to assessments before issue of the latter to the taxpayer. The scheme was primarily directed towards eliminating unnecessary accounting in the case of employees, and accordingly persons liable to pay provisional tax and contribution in respect of income other than salary or wages were excluded from the operation of the paragraph.

There are cases also where the value of instalments deducted from earnings exceed the minimum tax and contribution of 10s. imposed by Paragraph 6 of the Resolution. Small refunds of 2s. or less are made in these cases as the withholding of the refund would have the effect of raising the minimum amount of tax and contribution payable.

PARAGRAPH 13.

This paragraph declares that income tax and social services contribution imposed in accordance with the above-mentioned provisions shall be levied and paid for the current financial year 1950-1951. The tax and contribution is imposed upon the taxable income derived during the year of income as defined in section 6 of the Assessment Act. The application of the definition of year of income means, in effect, that the tax and contribution for the current financial year shall taxable income derived-

(a)

by a company during the year ended 30th June, 1950, or the accounting period substituted for that year of income; and

(b)

by individual taxpayers during the current year ending 30th June, 1951, or the substituted accounting period.

PARAGRAPH 14.

This paragraph provides authority for the application of the above described provisions in assessments for the next financial year 1951-1952 until the commencement of the Act declaring the rates of tax and contribution for that financial year. This authority is involved only in a relatively small number of cases, e.g., where it is necessary to collect income tax and social services contribution from a taxpayer leaving Australia before the rates of tax and contribution for the next financial year are enacted.

PARAGRAPH 15.

This paragraph authorises the imposition of provisional income tax and social services contribution in respect of income of the current income year ending 30th June, 1951.

The payment of provisional tax and contribution is an essential feature of the pay-as-you-earn system of taxation. Under this system, taxpayers are required to pay each year a provisional tax and contribution in respect of the year's income, other than salaries and wages. After the return of income of the year is lodged with the Taxation Department, the correct amount of tax and contribution is assessed and credit is given to the taxpayer for the provisional amount paid.

Under section 221YB(3.) of the Assessment Act, provisional tax and contribution is not payable unless its imposition is specifically authorized by a provision in the Act imposing the rates of tax and contribution on income of the particular financial year.

The amount of provisional tax and contribution payable in the current financial year will be determined on the basis of the taxable income derived during the year ended 30th June, 1950. In calculating the provisional amount, due allowance will be made for the adjustments to the rates of tax and contribution and to the reversion to a system of concessional deductions from income instead of rebates of tax.

PARAGRAPH 16.

This paragraph is a drafting provision for the more convenient and abbreviated reference to the Assessment Act instead of the long reference set out in the paragraph.

INCOME TAX AND SOCIAL SERVICES CONTRIBUTION ASSESSMENT BILL 1950.

Notes on Clauses

INTRODUCTORY NOTE:-

As stated in the introductory note on the foregoing Resolution, the present legislation is directed principally towards the simplification of the income tax law and practice

Possibly the greatest single complication in the present law and practice is brought about by the system of concessional rebates of tax which was substituted for concessional deductions from income in 1942.

For the first 25 years of Commonwealth income tax, allowances for dependants, life insurance, calls to mining companies, etc., were made by means of deductions from assessable income. This basis of allowance was approved in principle by the Royal Commission on Taxation 1932-1934.

In 1941, the deduction basis in regard to calls paid to mining companies was abandoned in favour of a rebate of tax. War tax, which was imposed in the same year, also provided for rebates in respect of dependants.

In the following year, on the enactment of the single uniform income tax, all concessions for dependants and other personal allowances were converted from deductions to rebates of tax. These rebates were then regarded as necessary to the blending of the varying provisions of Commonwealth and State taxes on incomes and were designed to preserve to taxpayers approximately the same value as the concessions that they had previously received under the Commonwealth law and the laws of the States.

Since 1942, the classes of dependants qualifying for concessional allowances have been progressively extended, and almost annual alterations have been made to the rates, so that the purpose for which rebates of tax were substituted for deductions from income no longer applies.

The rebates of income tax are calculated by applying to the concessional amounts the aggregate of-

(a)

the personal exertion rate of income tax appropriate to the taxpayer's total taxable income; and

(b)

the maximum rate of 18d. in the Pd1 social services contribution.

For the purposes of social services contribution, the concessions are reflected in special rates which vary according to the total of the concessional amounts to which the contributor is entitled, i.e., the higher the total of concessional amounts, the lower the rate of contribution.

Experience has shown that the allowance of concessional rebates of tax and the application of concessional rates of contribution add considerably to the complexities of law and practice, both for the taxpayer and the administration.

It is proposed in this Bill, therefore, to abandon the rebates of tax in favour of a system of concessional deductions. At the same time, the opportunity will be taken to re-express the provisions relating to concessional allowances with a view to incorporating therein recommendations of the Commonwealth Committee on Taxation. The extensions of the allowances thus proposed are explained in detail later.

Besides giving effect to the above and to other amendments of the Income Tax Assessment Act, the Bill provides for the repeal of legislation relating to social services contribution.

At present, three sets of statutory provisions relate to social services contribution, viz.:-

(i)

the Social Services Contribution Assessment Acts, which provide the basis of and the machinery for contribution assessments;

(ii)

the Social Services Contribution Acts by which the contribution is imposed; and

(iii)

the Social Services Contribution Regulations.

Reference has already been made, in the notes on the Resolution, to the complications arising in practice from the existence of two separate levies on income. The effect of the provisions upon statutory expression and interpretation is scarcely less complicated. As contributable income for the purposes of social services contribution is ascertained on the same basis as taxable income for the purposes of income tax, and the machinery of administration is the same for both levies, the provisions of the Income Tax Assessment Act are adapted and applied, subject to necessary modifications, for the purpose of social services contribution. To ascertain the precise statutory provision applying to the determination of a liability to social services contribution, it is necessary to refer both to the Income Tax laws and to the Social Services Contribution laws.

In view of these complexities, it is clear that the repeal of the social services contribution legislation and the amendment of the income tax law to impose a single levy of income tax and social services contribution are essential preliminaries to any simplification of taxation law and practice.

CLAUSE 1.- SHORT TITLE AND CITATION.

On the merging of the present two separate levies of income tax and social services contribution into one levy on the income of individual taxpayers, the single levy will be known as "Income Tax and Social Services Contribution". To give effect to the change in title, Clause 1 of the present Bill provides that the Principal Act shall henceforth be cited as the Income Tax and Social Services Contribution Assessment Act 1936-1950. This Act will apply to assessments for the current financial year-that is, in the case of companies, to assessments upon income of the year ended 30th June, 1950, and, in the case of individual taxpayers, to assessments upon income of the year ending 30th June, 1951.

Clause 34 of this Bill provides for the repeal of legislation relating to social services contribution. This repeal will take effect from 30th June, 1950, but provision will be made for the repealed legislation to continue in force for all purposes in connexion with social services contribution payable on income derived during the year ended 30th June, 1946-i.e., the income of the year to which the contribution first applied as a separate charge-and all subsequent years to 30th June, 1950.

CLAUSE 2.- COMMENCEMENT.

Section 5(1A.) of the Acts Interpretation Act 1901-1948 provides that every Act shall come into operation on the twenty-eighth day after the day on which that Act receives the Royal Assent, unless the contrary intention appears in the Act.

It is proposed that the Income Tax and Social Services Contribution Assessment Act 1950 shall come into operation on the day on which it receives the Royal Assent. The main purpose of this proposal is to enable the immediate application of certain of the provisions which will affect the collection of tax and contribution by instalments, and also to avoid delay in the preparation and issue of assessments involving payment of provisional tax and contribution.

CLAUSE 3.- PARTS.

Section 5 of the Principal Act enumerates the Parts and Divisions which comprise the Act.

To give effect to the proposal to allow concessional deductions from income instead of rebates of tax, it will be necessary to repeal the provisions of the Principal Act under which the rebates of tax are allowed, and to enact new provisions authorising the deduction of the concessional amounts from assessable income.

It is proposed, in the interests of clarity and simplification of the Principal Act, to incorporate the sections relating to concessional deductions in a new Subdivision B of Division 3 of Part III, of the Principal Act.

Clause 3 includes a drafting amendment necessary to give effect to this proposal.

The clause provides also for the deletion of the reference to Division 6A in Part III, of the Principal Act. This amendment is complementary to Clause 18 of the Bill.

The other provisions of the clause are drafting amendments consequent upon the merger of income tax and social services contribution. The further tax payable under Part IIIA. of the Principal Act by public companies in respect of undistributed profits will become "further tax and contribution". Similarly, the title of "provisional tax" will be changed to "provisional tax and contribution".

CLAUSE 4.- DEFINITIONS.

In this clause it is proposed to amend section 6 of the Principal Act by inserting a definition of "concessional deductions" and by amending the definition of "income tax".

The expression "concessional deductions" will be used to describe the deductions allowable under the new Subdivision B of Division 3 of Part III. Concessional deductions will include the deductions for dependants, for medical and funeral expenses, and for life insurance premiums, superannuation fund contributions and other payments of like nature.

The alteration to the definition of "income tax" proposed by the clause is necessitated by the merger of income tax and social services contribution into a single levy on incomes. On effecting this merger, the expression "income tax" or "tax" will mean, for the purposes of some provisions of the Assessment Act, the single levy of income tax and social services contribution which is being imposed for the current financial year 1950-1951. For the purposes of some other provisions, the expressions will mean the income tax which was imposed for the financial year 1949-1950 and prior years.

Other contexts of the Act (e.g., the provisions relating to the collection and recovery of tax) require the expression "income tax" or "tax" to be read as meaning the income tax and social services contribution imposed for the current financial year as well as the income tax imposed for previous years.

The proposed definition will obviate numerous amendments to the provisions of the Principal Act in which references are made to "income tax" or "tax".

CLAUSE 5.- INCOME TAX AND SOCIAL SERVICES CONTRIBUTION.

The present section 17 of the Principal Act is the charging provision which requires income tax to be levied and paid for each financial year upon the taxable income derived during the year of income by any person.

The repeal of section 17 and the enactment of a new charging section are necessitated by the merger of income tax and social services contribution in a single levy.

The new provision charging "income tax and social services contribution" will apply to assessments for the current financial year which commenced on 1st July, 1950, and to assessments for all subsequent financial years. The first assessment for the single levy of income tax and social services contribution will accordingly be-

(i)

in the case of companies-upon income of the year ended 30th June, 1950; and

(ii)

in the case of individuals-upon income of the year ending 30th June, 1951.

It will be noted that the present section 17 contains a prohibition against the levy of income tax if the taxable income derived by the individual taxpayer does not exceed Pd250. This amount was fixed by an amendment of section 17 in 1947, but since that date the minimum taxable income from personal exertion on which income tax, as such, may be levied has been raised to Pd501. Income tax, as such, may be levied on a taxable income from property in excess of Pd350. The minimum contributable income from either personal exertion or property on which social services contribution is levied is, however, Pd105. The levies at which income tax becomes payable, in addition to social services contribution, have been altered since 1947 by means of the annual Acts declaring the rates of social services contribution and income tax. Accordingly, it has not been necessary to raise the minimum taxable income of Pd250 specified in the present section 17.

The proposed section 17 omits any reference to a minimum taxable income. However, the minimum income of Pd105 on which tax and contribution may be levied on an income derived by an individual has been preserved by paragraph 3 of the Income Tax and Social Services Contribution Resolution 1950. This paragraph, and a corresponding provision which will be included in the Act to be introduced subsequently to give effect to the Resolution, will ensure that tax and contribution will not be payable unless the income derived by an individual exceeds Pd104.

As in previous years, a company will be liable to pay tax and contribution if its taxable income is Pd1 or more.

CLAUSE 6.- EXEMPTIONS.

Paragraph (a)-Tuberculosis Allowances.

The primary purpose of paragraph (a) of this clause is to exempt tuberculosis sufferers from tax and contribution on allowances paid to them under the Tuberculosis Act 1948. That Act substituted a single Commonwealth allowance for two separate allowances previously paid - one in the form of an invalid pension paid directly to the sufferer by the Commonwealth and the other a supplementary allowance paid by State Authorities from funds provided by the Commonwealth.

The invalid pension was specifically exempted under section 23(ka)(ii) of the Principal Act, and the supplementary allowance, although not specifically exempted, did not attract social services contribution or income tax. Although the allowances now paid under the Tuberculosis Act 1948 have been substantially increased when compared with the invalid pension and supplementary allowance previously paid, it is considered inappropriate that those allowances should be diminished to any extent by a levy of income tax and social services contribution.

The proposed exemption will apply from and including the first year of income in which the allowances are payable-viz., the year ending 30th June, 1951.

The secondary purpose of the paragraph is to substitute the exemption of payments by way of pension, allowance, endowment or benefit under the Social Services Consolidation Act 1947-1950 for the exemption of the payments under the four Acts mentioned in the present paragraph (ka). These four Acts relating to child endowment, invalid and age pensions, widows' pensions and allowances and unemployment and sickness benefits were repealed in 1947. The social service benefits mentioned are now paid under the Social Services Consolidation Act 1947-1950. This amendment to paragraph (ka) is merely a drafting adjustment and does not extend the exemption beyond its present scope.

Paragraph (b)-Remuneration of Officials of Certain International Organisations.

Paragraph (x) of section 23 of the Principal Act exempts the income of any prescribed organization of which Australia and one or more other countries are members. The paragraph was inserted in the Act, primarily, to exempt any income which might be derived in Australia by the United Nations. It is so designed, however, that it may exempt income derived by any other international organization of which Australia and one or more other countries are members and which is prescribed by the Income Tax Regulations as an organization entitled to the exemption. Apart from the United Nations, the organisations which have been prescribed by Regulation as being entitled to the exemption under paragraph (x) are the United Nations Relief and Rehabilitation Commissioner, the International Refugee Organization, the South Pacific Commission and the International Civil Aviation Organization.

Exemption from income tax is granted under paragraph (y) of section 23 in respect of the salaries and emoluments derived, in certain circumstances, by officials of the organisations prescribed for the purposes of paragraph (x). Generally speaking, the exemption applies to remuneration derived by non-residents who are performing services in Australia, and to remuneration applicable to services rendered out of Australia by officials who are resident in this country but who are appointed for service overseas. However, all remuneration derived by officials of United Nations is exempt in accordance with the Convention of Privileges and Immunities of the United Nations, which was ratified by the Parliament in 1948.

The granting by regulation of appropriate exemptions to international organisations and to their officials will enable the Commonwealth to carry out expeditiously obligations under international agreements which the Parliament may ratify.

The existing law has authorized this procedure and, in this respect, has operated satisfactorily. The proposed paragraph (y) is required, however, as, under the present paragraph, the prescribing of an organization the income of which is to be exempted automatically involves exemptions, in the circumstances indicated above, of the remuneration of officials of the organization. It has accordingly been impracticable to consider exemption of an organisation's income independently from the exemption of its officials.

Owing to the various circumstances which can arise, it is desirable that these two questions should be capable of independent determination. Clause 6(b) accordingly proposes a provision under which regulations can be made for the purpose of exempting the remuneration of officials in appropriate cases, or in accordance with international obligations ratified by the Parliament.

The proposed amendment will apply for the year of income ending 30th June, 1951, and for subsequent years.

CLAUSE 7.- SUBDIVISION HEADING INSERTED.

Division 3 of Part III. of the Principal Act deals with the subject of "Deductions". As explained in the notes on Clause 3, it is proposed to group the new sections relating to concessional deductions in a separate subdivision within Division 3. This clause effects the necessary drafting amendment to group the remaining sections in Division 3 under the heading of "Subdivision A-General".

CLAUSE 8.- RATES AND TAXES.

The Principal Act now provides for an allowance in respect of municipal and water rates and land taxes under two separate provisions, viz.-

Section 72(1.) allows a deduction in respect of such rates and taxes to the extent that they are charged or levied on property held by the taxpayer for the purpose of producing assessable income.

Section 160(2.)(h) allows a concessional rebate of tax in respect of such rates and land taxes which are not allowable under section 72(1.) as deductions from assessable income. Under the section 160(2.)(h) provision, a taxpayer is allowed a rebate in respect of rates and taxes paid by him on his private residence or on vacant land owned by him.

As part of the general proposal to allow concessional deductions instead of rebates of tax, rates and taxes paid by taxpayers on their residential and other non-income-producing properties will be allowed as deductions from assessable income. Clause 8 accordingly deletes from section 72(1.) the limitation of the deduction thereunder to rates and land taxes on income-producing property. Section 160(2.)(h), in common with other provisions in section 160 authorising rebates of tax, is being repealed-see Clause 22 of the Bill.

From and including the year of income ending 30th June, 1951, rates and land taxes will be allowable as deductions under section 72(1.), irrespective of whether the property is held by the taxpayer for the purpose of producing assessable income or otherwise.

In conformity with the two provisions for an allowance in respect of rates and land taxes paid, the Principal Act at present contains two provisions relating to refunds of those rates and taxes.

Section 72(2.) provides that any refunds of rates and taxes which were allowed as deductions in the taxpayer's assessments should be included in his assessable income of the year of receipt.

Section 160(3.) provides that, where a taxpayer receives a refund of rates and land taxes paid on non-income producing property (including refunds of rates and taxes which have been allowed as deductions from the taxpayer's assessable income prior to the introduction of concessional rebates), the amount on which the rebate of tax is calculated in the year of receipt shall be reduced by the amount of that refund.

In consequence of the substitution of a deduction under section 72(1.) for the concessional rebate now allowed under section 160(2.)(h) in respect of rates on non-income-producing property, the provisions of section 160(3.) will become inapplicable.

Clause 8 accordingly proposes the omission of sub-section (2.) of section 72 of the Principal Act, and the insertion in its stead of a new sub-section (2.) to provide for the inclusion in the taxpayer's assessable income of any refund of rates or land taxes in respect of which he has been allowed a deduction from income or a rebate of tax. The amendment will apply to such refunds received during the year ending 30th June, 1951, and subsequent years.

CLAUSE 9.- GIFTS, CALLS TO COMPANIES, RETIRING ALLOWANCES AND PENSIONS.

Paragraphs (a), (b), (c), (e) and (f)-Gifts to Institutions and Funds.

The amendments proposed by this clause are being made also in consequence of the substitution of concessional deductions for rebates of tax.

The Principal Act provides for concessional allowances in respect of gifts to specified public institutions and public funds.

In the case of gifts by a company, the concession already takes the form of a deduction from assessable income-section 78(1.)(a). In the case of other taxpayers, however, the concession is allowed by way of rebate of tax-section 160(2.)(g).

Clause 9 provides that the concession in respect of gifts shall be allowed to all taxpayers in the form of a deduction from assessable income.

The altered basis will apply in assessments based on income derived during the year ending 30th June, 1951, and subsequent years.

It will be noted that testamentary gifts are excluded from the deductions allowed by section 78(1.)(a) as amended. This provision is in consonance with the present section 160(2.)(g), and is designed for application to gifts made by testamentary direction from the capital of an estate.

The clause proposes also minor amendments in sub-section (2.) of section 78 of the Principal Act, consequent upon the extension, to taxpayers other than companies, of the deduction for gifts to specified institutions and funds.

Paragraph (d)-Calls to Mining, Prospecting or Afforestation Companies and Syndicates.

Since 1941, section 160AA of the Principal Act has provided for a rebate of tax in respect of calls paid on shares in a mining company or syndicate carrying on mining operations in Australia for gold, silver, base metals, rare minerals or oil, or in any company carrying on afforestation in Australia as its principal business. In 1947, the concession was extended to calls paid on shares in prospecting companies and syndicates.

The amount of rebate under section 160AA is calculated by applying to the amount of the calls one-third of the personal exertion rate appropriate to the total taxable income, or, in the case of a company, one-third of the company rate of tax.

In consonance with the replacement of concessional rebates of tax by deductions from assessable income, it is proposed to repeal section 160AA. In lieu of the rebate allowed under that section, it is proposed to allow a deduction of one-third of the amount of the calls.

Paragraph (d) of Clause 9 accordingly provides for the allowance of the deduction by adding a new paragraph (b) to section 78 of the Principal Act.

The amendment will commence to apply to assessments upon income of the year ending 30th June, 1951.

CLAUSE 10.-LOSSES OF PREVIOUS YEARS.

Section 80 of the Principal Act allows a deduction of losses incurred by the taxpayer during the seven years next preceding the year of income.

For the purposes of section 80, the amount of the loss deemed to be incurred in any year is the amount by which the deductions allowable from the assessable income exceed the sum of-

(i)

the assessable income, and

(ii)

the net exempt income,

derived by the taxpayer during that year.

Under the present system of concessional rebates, allowances to which the taxpayer may be entitled in respect of dependants, medical expenses, etc., are not taken into account in ascertaining the amount of a loss allowable under section 80. Upon the substitution of concessional deductions for concessional rebates, it will be necessary to provide for the exclusion of the concessional allowances from the allowable deductions which are taken into account in ascertaining the amount of loss. This provision will restore the position as it was prior to the introduction in 1942 of the system of concessional rebates of tax.

Clause 10 accordingly proposes an amendment of section 80 to provide that concessional deductions will not be included in the allowable deductions upon which the calculation of the loss is based.

The amendment will commence to apply in the calculation of losses sustained during the year ending 30th June, 1951.

CLAUSE 11.-SOCIAL SERVICES CONTRIBUTION.

Section 81 is being inserted in the Principal Act in substitution for sub-section (6.) of section 160, which is being repealed. That sub-section provides that a concessional rebate shall not be allowable in respect of any social services contribution paid by a taxpayer.

The sub-section was enacted in 1948 to remove any ground for a contention that a rebate was allowable in respect of social services contribution as being either a payment to a fund established by an Act relating to insurance for the personal benefit of the taxpayer or his spouse or children, or, alternatively, as being a rate which is annually assessed.

As arrears of social services contribution in respect of income derived during the years ended 30th June, 1946 to 1950, will continue to be payable in the year ending 30th June, 1951, and subsequent years, it is proposed by this clause to preserve the principle of the present section 160(6.).

The new section 81 will enact that, notwithstanding any provision for the allowance of deductions, a deduction shall not be allowed in respect of any amount paid as social services contribution.

CLAUSE 12.-CONCESSIONAL DEDUCTIONS.

INTRODUCTORY NOTE:-

One of the major proposals designed to simplify the existing taxation law is the replacement of the present concessional rebates of tax by concessional deductions from income.

Clause 12 introduces into the Principal Act a new subdivision, which provides for the allowance of concessional deductions.

Besides substituting deductions for rebates as the basis of concessional allowances, the new subdivision will provide for increases in the scope of the concessions. The deduction in respect of student children will be allowed where the student child is between the ages of 16 and 21 years. At present, the concession is limited to student children under 19 years of age.

A partial deduction will be allowable to a taxpayer who partially maintains his parent. At present, the concession is allowable only where the parent is wholly maintained by the taxpayer.

Subject to these adjustments, the classes of dependants for whom concessional deductions are being provided include those dependants for whom concessional rebates of tax are now being allowed.

It is proposed also to apply a uniform test of maintenance in determining whether a concession is allowable in respect of children (including student children) and invalid relatives.

In addition to concessional deductions for dependants, the subdivision will provide for increased concessional allowances in respect of the following outgoings:-

Cost of Medical, Dental, Optical and Therapeutic Treatment.

Cost of Medical and Surgical Appliances.

Funeral and Cremation Expenses.

Life Insurance Premiums, Superannuation Fund Contributions and like payments.

The concessional deductions provided by this clause will be allowable in assessments based on income derived during the year ending 30th June, 1951, and subsequent years.

The new subdivision is comprised of a number of sections relating to the deductions for dependants and the other concessional allowances. These sections, with accompanying explanatory notes, are set out hereunder.

Section 82A.-Limitations to Residents.

This section will preserve the present limitation of concessional allowances to taxpayers who are residents of Australia. This limitation is applied owing to practical administrative difficulties in verifying claims in those cases where the taxpayer is not resident in Australia and because the income tax law of the country in which the taxpayer is ordinarily resident would usually provide concessional allowances for dependants.

Section 82B.-Deductions for Dependants.

INTRODUCTORY NOTE:-

The proposed section 82B covers allowances for all dependants other than the taxpayer's parents (see section 82C) and a housekeeper (see section 82D).

Sub-section (1.) of section 82B is the governing provision which will allow a deduction in respect of dependants in specified classes, subject to-

(i)

the dependant being a resident of Australia;

(ii)

the taxpayer contributing to the maintenance of the dependant; and

(iii)

other requirements of the section being fulfilled.

Sub-section (2.) sets out in the form of a table the classes of dependants in respect of whom a concessional deduction will be allowable, and the amount of deduction in each case.

The amounts of concessional deductions proposed under the new section may be compared with the amounts upon which a concessional rebate is calculated under the present system, as follows:-

It will be noted that, with one exception, the proposed amounts of concessional deductions are lower than the amounts on which the present rebates of tax are based. Nevertheless, the value to the taxpayer of the concessional deduction under the proposed system will not, in any case, be less than the value of the rebate of tax under the present system, and, in most cases, the value of the concessional deduction will be greater than the tax rebate. This result is due to the lower taxable income and lower rate of tax under the concessional deduction system when compared with the higher taxable income and higher rate under the tax rebate system.

By way of illustration, it may be assumed that a taxpayer receives an annual salary of Pd900 and maintains a wife and one child under 16 years and pays Pd27 life assurance premium and Pd15 medical expenses. The assessments under the two systems would be made as follows:-

A further effect of the deduction system, as compared with the rebate system, will be to raise the exemption levels of taxpayers with dependants. A table showing the present and proposed exemption points is included in the explanatory note to paragraph 3 of the Resolution.

It will be noted that, under sub-section (1.) of the proposed section 82B, the primary conditions for a concessional deduction in respect of a dependant are:-

Firstly, that the taxpayer shall contribute during the year of income to the maintenance of the dependant; and

Secondly, that the dependant shall be a resident of Australia during the year of income.

The first condition is the same as that now applying to a rebate of tax for a spouse.

The second condition is that now applying to rebates of tax for all dependants.

The proposed section 82B provides for cases of partial maintenance of dependants under two main heads, viz.:-

Sub-section (3.).-Cases where, by reason of separate net income derived by the dependant, he or she is only partially maintained by the taxpayer; and

Sub-section (4.).-Cases where the conditions of eligibility for the allowance are satisfied for part only of the year, or where the dependant is maintained by more than one taxpayer.

Sub-section (3.) provides for a diminution of the concessional deduction in certain cases where the dependant derives a separate net income during the year of income.

Where the separate net income derived by the dependant during the year of income exceeds Pd52, the amount of deduction otherwise allowable in respect of the dependant will be reduced by Pd2 for every Pd1 by which the separate net income exceeds Pd52. This provision substantially retains the principle which applies at present to the rebatable amount for a spouse or daughter-housekeeper. In the interests of uniformity and simplicity, that principle is being applied also to the concessional deductions for children (including student children) and invalid relatives.

The net effect is that a partial concessional deduction will be allowed if the separate net income of the dependant exceeds Pd52, but does not exceed the following amounts:-

"Separate net income" represents broadly the amount remaining after deducting from the dependant's gross income (including exempt income) expenses which are a direct charge against that income. The proposed definition in sub-section (5.), however, specifically excludes from separate net income the following receipts:-

(i)

any scholarship, bursary, exhibition or prize received from a non-governmental source; and

(ii)

Commonwealth child endowment.

Sub-section (4.) is designed to permit the allowance of a partial deduction in cases where the circumstances of the case do not justify the allowance of the total concessional deduction. In such cases, the deduction allowable will be such part of the full amount of deduction as, in the opinion of the Commissioner of Taxation, is reasonable in the circumstances.

Sub-section (5.) provides for the definition of the terms "daughter-housekeeper." "invalid relative," "student child" and "separate net income," as used in the proposed section 82B.

The following is a comparison between the present and the proposed provisions relating to each separate concessional allowance, together with explanatory notes:-

Spouse of the Taxpayer.

The main alteration to the concessional allowance for the spouse of the taxpayer is the substitution of a deduction of Pd104 for the present rebatable amount of Pd150.

However, the conditions under which the taxpayer becomes entitled to the concession are not materially altered.

Express provision is being made to ensure that the receipt of child endowment by the wife of the taxpayer will not be included in the separate net income of the wife and will not diminish the amount of the concessional deduction to which the taxpayer is entitled.

The references to "a female relative having the care of any of the taxpayer's children or step-children who are under sixteen years of age" in paragraph (a) of section 160(2.) is being deleted as unnecessary. The concession is included in the deduction allowable in respect of a housekeeper.

Daughter-Housekeeper.

The proposed concessional deduction of Pd104 for a daughter-housekeeper will replace the present rebatable amount of Pd150.

A "daughter-housekeeper" is defined in sub-section (5.) of the proposed section 82B, as meaning the daughter of a taxpayer who is a widow or widower, where that daughter is wholly engaged in keeping house for the taxpayer.

In this respect, and in the other conditions attaching to the allowance, the proposed provisions substantially retain the terms of the present paragraph (aa) of section 160(2.).

Provision is made for the allowance of a lesser deduction than Pd104 where the daughter keeps house for the taxpayer for part only of the year.

Child less than Sixteen Years of Age.

The proposed concessional deduction of Pd78 for one child under sixteen years of age will replace the present rebatable amount of Pd100. In the case of other children under sixteen years, the concessional deduction is Pd52 instead of a rebatable amount of Pd50.

An enlargement of the concession is proposed by allowing the full deduction even although the child derived a separate net income not exceeding Pd52 in the income year. At present, the rebatable amount is reduced by any income derived by the child.

Where the separate net income derived by the child exceeds Pd52 the concessional deduction will be diminished by Pd2 for every Pd1 of the excess.

For the purposes of this concessional deduction, endowment paid in respect of the child is expressly stated not to be income derived by the child.

Provision is made also for an apportionment of the deduction where the child is maintained during part only of the year, or where more than one person maintains the child. In the year in which the child attains the age of sixteen years, a proportionate part of the deduction is allowable.

Student Child.

The proposed concessional deduction of Pd78 for a student child will replace the present rebatable amount of Pd100.

The concession applies in respect of a student child between the ages of sixteen and 21 years. At present, the rebate of tax is limited to student children between sixteen and nineteen years.

The requirements that the taxpayer shall contribute to the maintenance of the child and that the child shall be receiving full-time education at a school, college or university are, for all material purposes, the same as the present requirements.

It is proposed to retain the principle expressed in the present law that the amount of the deduction (Pd78) otherwise allowable in respect of a student child shall be reduced by the amount of government assistance provided during the year of income in connexion with the education of the child. Such assistance may consist of money, accommodation or sustenance, and includes the value of scholarships, bursaries, exhibitions or prizes provided by the Commonwealth or a State.

As in the case of other concessional deductions allowed by section 82B, the concessional deduction for a student child will be reduced by twice the amount by which the student's separate net income from sources other than government assistance exceeds Pd52. However, the value of non-governmental scholarships, bursaries, exhibitions and prizes will not be regarded as separate net income for this purpose.

The application of the provisions may be illustrated by the example of a taxpayer who contributes to the maintenance of his student child aged eighteen years. If, during the year of income, the child received Pd40 financial assistance from the Commonwealth, and earned other income amounting to Pd60, the allowance to the taxpayer would be calculated as follows:-

Invalid Relative.

The proposed concessional deduction of Pd78 for an invalid relative will replace the present rebatable amount of Pd100.

The definition of "invalid relative" proposed in section 82B is substantially the same as that of "invalid person" in section 160(2.)(ba) of the Principal Act. The allowance is limited to an invalid person who is a child, step-child, brother or sister of the taxpayer and who is of the age of sixteen years or over. To entitle the taxpayer to the allowance, the dependant must be in receipt of a Commonwealth invalid pension, or, alternatively, the taxpayer must produce a certificate from the Commonwealth Health Department or a Commonwealth Medical Referee that the dependant is permanently incapacitated for work.

The general provisions for apportionment in cases of partial maintenance apply to invalid relatives and, in particular, provision is made for the allowance of a lesser deduction than Pd78 where the dependant is not eligible for the invalid pension or permanently incapacitated for work during the whole of the year.

The amount of deduction otherwise allowable in respect of an invalid relative will be reduced by the amount of invalid pension paid in respect of that relative during the year of income. In this respect, the new section preserves the principle of paragraph (ba) of the present section 160(2.).

The general provisions for a reduction of the allowance where the dependant's separate net income exceeds Pd52, and for apportionment in other cases of partial maintenance, apply to invalid relatives as well as to other classes of dependants in respect of whom concessional deductions are provided by section 82B.

The operation of the provisions relating to partial maintenance may be illustrated by the example of an invalid person who receives an invalid pension amounting to Pd52 during the year, and who is otherwise maintained by his father. The deduction allowable under sub-section (2.) would be reduced in accordance with sub-section (3.) to Pd26. In the event of a brother contributing equally with the father to the maintenance of this invalid relative, the deduction allowable would be Pd13 to each of the two taxpayers, vide sub-section (4.).

Section 82C.-Parents of Taxpayer.

In the proposed section 82C, a concessional deduction of Pd104 will replace the present rebatable amount of Pd150 authorized by paragraph (c) of section 160(2.).

Paragraph (c) is restricted in its application, however, as no concession is allowable if the parent is in receipt of any income or is partly maintained by two or more children. The new section 82C removes these restrictions.

In the event of a separate net income being received by the parent, the standard concessional amount of Pd104 will be reduced by that separate net income. For example, if the parent is in receipt of an age pension of Pd65 from the Commonwealth, and he is otherwise maintained by one taxpayer for the whole of the income year, the deduction allowable to that taxpayer would be Pd39. If, however, the separate net income of the parent is Pd104 or more, no deduction will be allowable.

In any case where two or more children contribute to the maintenance of a parent, the deduction will be apportioned between them by the Commissioner of Taxation having regard to the circumstances of the case.

Section 82D.-Housekeeper.

The principal change proposed in regard to the concessional allowance for a housekeeper is the substitution of a deduction of Pd104 for the present rebatable amount of Pd150.

This allowance is designed to afford taxation relief to those taxpayers - mainly widowers and widows - who are not entitled to a deduction for a spouse or daughter - housekeeper, but whose domestic circumstances are such as to render it necessary for the taxpayer to engage a housekeeper to care for his or her family.

Under the present provisions - section 160(2.)(ab) of the Principal Act - the housekeeper must be wholly engaged in keeping house for the taxpayer and must have the care of any of his children or step-children under sixteen years or any other child under sixteen years in respect of whom he is entitled to a concession. Under the proposed new provision, the concession is being extended to cases where the housekeeper has the care of the taxpayer's invalid child, step-child, brother or sister of the age of sixteen years or over.

As a general rule, a taxpayer who is married will be entitled to the spouse allowance and not to a housekeeper allowance. Where, however, a married taxpayer is not entitled to the spouse allowance and special circumstances exist, the Commissioner is empowered to allow the taxpayer a deduction for a housekeeper of Pd104 or such lesser amount as is reasonable. An example of this class of case is where a husband is deserted by his wife and he is obliged to engage a housekeeper to care for his children under sixteen years of age.

The provisions in the present law for a partial allowance in appropriate cases are being retained in the proposed new section. The effect of sub-section (2.) of section 82D, for example, is that where a taxpayer is entitled to a partial deduction for a spouse or daughter housekeeper by reason of maintaining such a dependant for part only of the year, he will be eligible for a housekeeper allowance during the balance of that year. Similarly, sub-section (4.) preserves the principle of a proportionate allowance where the housekeeper is wholly engaged in keeping house for the taxpayer and in caring for the child or children for part only of the year.

Section 82E.-Double Concessional Deductions.

This section repeats in substance the provisions of the present sub-section (4.) of section 160 of the Principal Act which is being repealed.

The section is designed for application to those cases where a taxpayer would otherwise be eligible for two concessional deductions in respect of one dependant. In these circumstances, the section empowers the Commissioner to grant a deduction of such an amount as is reasonable. In practice, the Commissioner will allow the greater of the two deductions.

Section 82E will apply also in a case where a dependant satisfies during different periods of the year the conditions attaching to two or more allowances. For example, a child may attain the age of sixteen years during the year and thereupon become a "student child". In these circumstances, the Commissioner is empowered to allow partial deductions of two amounts. In practice, a deduction would be allowed of a proportionate part of the amount for a child under sixteen years and a further deduction of a proportionate part of the amount for a student child.

Section 82F.-Medical Expenses.

In consonance with the general scheme of concessional allowances, it is proposed by section 82F to substitute a deduction for the present rebate in respect of medical, optical and dental expenses. The new section will provide also for the enlargement of these concessional allowances.

Under the present provisions - section 160(2.)(d) - the maximum amount of payments in respect of which a rebate of tax is allowed during any year of income is fixed at Pd50 each for the taxpayer, his spouse and each of his children under the age of 21 years. It is proposed to increase this maximum to a concessional deduction of Pd100 for each member of the family group.

Payments to a legally qualified dentist for dental services or treatment are included in the scope of the present allowance, but are subject to a maximum rebatable amount of Pd10 for each member of the family group during any year. It is proposed to increase this concession to a maximum deduction of Pd20. The dental expenses so allowable will continue to be included in the general medical expenses for the purpose of ascertaining whether the aggregate of such expenses exceeds the prescribed maximum (now to be increased to Pd100) in respect of the taxpayer or any member of his family.

In addition to his spouse and children under the age of 21 years, the taxpayer will be entitled, under the proposed section 82F, to a deduction for medical expenses paid in respect of each of the following dependants for whom he is entitled to a dependant's allowance:-

(i)

daughter-housekeeper over 21 years of age;

(ii)

child (other than his own child) under sixteen years of age;

(iii)

student child, other than his own child;

(iv)

invalid relative, other than his own child under 21 years of age; and

(v)

parent.

It is proposed to extend the concession to expenses paid by the taxpayer for therapeutic treatment, which includes not only diathermic treatment but also massage and similar services, provided that the treatment is administered by direction of a legally qualified medical practitioner.

In addition to the allowances for medical expenses under the present paragraph (d), a concession is allowable under paragraph (da) of section 160(2.) for payments in respect of an artificial limb (or part of limb), artificial eye or hearing aid required for the personal use of the taxpayer, his spouse or any of his children under 21 years. Under the new section, this concession is being extended to medical and surgical appliances other than those enumerated above, where the appliances are prescribed by a legally qualified medical practitioner.

At present, the concession in respect of artificial limbs, etc., is allowable without limitation as to the amount of the payments. In the interests of consistency, it is proposed in the new section that such payments should be included in the general medical expenses to which the maximum deduction of Pd100 applies.

In another section (82H), it is proposed to extend a concessional allowance to contributions made by taxpayers to medical and hospital benefit funds. In order to avoid a double allowance, it is proposed that medical expenses should be allowed as deductions under section 82F to the extent only that they are not recouped to the taxpayer by a government, public authority, society or association.

Section 82G.-Funeral Expenses.

Paragraph (e) of section 160(2.) of the Principal Act provides for a concessional rebate in respect of funeral and burial or cremation expenses paid by a taxpayer and arising out of the death of his spouse or any of his children under 21 years. Expenses recouped by any society or association are excluded from the concession. The maximum expenses in any year of income, in respect of which the taxpayer is entitled to a deduction, is Pd30.

Besides substituting a deduction for the concessional rebate, the following amendments are proposed by the new section 82G:-

(a)

The maximum of Pd30 will be applied to the expenses paid in respect of each bereavement, instead of to the aggregate payments during the year as in the present section 160(2.)(e).

(b)

The concession will be extended to include the expenses arising out of the death of any dependant in respect of whom the taxpayer is entitled to a concessional deduction. This extension is consistent with the extension of the concession for medical expenses.

(c)

The deduction will be the amount of expenses actually met by the taxpayer and not recouped to him by a government, public authority, society or association.

If, for example, a taxpayer pays during the year of income funeral expenses in respect of the following dependants:-

and receives Pd15 from a friendly society in part recoupment of his father's funeral expenses, the total deduction allowable to him under the proposed section 82G would be Pd55, ascertained as follows:-

Section 82H.-Life Insurance Premiums, etc.

A concessional rebate is provided under section 160(2.)(f) in respect of the following payments:-

(i)

Insurance premiums on the life of the taxpayer or his spouse or children.

(ii)

Premiums for a deferred annuity or other like provision for his spouse or children.

(iii)

Payments for the personal benefit of the taxpayer, his spouse or children made to-superannuation, sustentation, widows' or orphans' funds, friendly societies, or funds established by Commonwealth or State Acts relating to insurance.

The maximum amount of the above payments in respect of which a concessional rebate is allowed to a taxpayer in any year is Pd150.

In the new section 82H, provision is made for the substitution of a deduction for the concessional rebate, and the concession is being enlarged as follows:-

(a)

The maximum will be increased from Pd150 to Pd200.

(b)

The concession will be extended to premiums for sickness insurance and personal injury or accident insurance.

(c)

The concession will be extended to contributions to medical and hospital benefit funds. This allowance is complementary to the proposed provision in section 82F(1.) that recoupment's from such funds shall be excluded from the amounts of medical expenses otherwise allowable as deductions.

CLAUSE 13.-PARTNERSHIPS-DEFINITIONS.

A partnership is not liable to pay income tax, but each of the partners is assessable upon his individual share of the net income of the partnership. Correspondingly, each of the partners is allowed a deduction of his individual share of any loss sustained by the partnership. The terms "net income" (in relation to a partnership) and "partnership loss" are defined in section 90 of the Principal Act.

The basis for calculation of the net income of a partnership, or the loss sustained by a partnership, is the same as in the case of an individual taxpayer, except that the personal allowances to a taxpayer are not allowed to the partnership. This amendment accordingly proposes that concessional deductions shall not be taken into account in ascertaining the partnership net income or loss. The amendment, for all practical purposes, restores a provision in section 90 which operated prior to the introduction of the concessional rebate system in 1942.

The amendment will commence to apply in assessments upon income of the year ending 30th June, 1951.

CLAUSE 14.-CONCESSIONAL REBATES IN CASE OF PARTNERS.

Under the present law, individual taxpayers are allowed a rebate of tax in respect of amounts paid by them as gifts, rates on non-income-producing property and calls to mining companies. A partnership, however, is not liable to pay income tax, and where payments of the above nature are made by a partnership, a rebate of tax cannot be allowed to the partnership. To preserve the value of the concession in such cases, section 93A of the Principal Act provides that each of the partners shall be deemed to have paid a proportionate part of the gifts, rates and calls paid by the partnership. Each partner is thus entitled to a rebate of tax based on that proportionate part.

It is proposed in the present Bill that deductions should be allowed, instead of rebates of tax, in respect of gifts, rates and one-third of the amount of calls paid to mining companies. As such deductions will be allowed in ascertaining the net income or loss of a partnership, section 93A is unnecessary.

It is accordingly proposed by this clause to delete section 93A from the Principal Act.

CLAUSE 15.-NET INCOME OF TRUST ESTATE.

The net income of a trust estate is calculated on the same basis as in the case of an individual taxpayer, except that the personal allowances to a taxpayer are not allowed to the estate. It is accordingly proposed in this clause to amend the definition of "the net income of a trust estate" in section 95 of the Principal Act to provide that concessional deductions shall not be taken into account in ascertaining that net income. The amendment, for all practical purposes, restores a provision in section 95 which operated prior to the introduction of the concessional rebate system in 1942.

CLAUSE 16.-BENEFICIARY UNDER LEGAL DISABILITY.

Ordinarily, a beneficiary in a trust estate is required to pay tax on his share of the trust income. Where, however, the beneficiary is under some legal disability, section 98 of the Principal Act provides that the liability to pay the tax shall rest upon the trustee of the estate. In such a case, the income is assessed to the trustee as if it were derived by an individual taxpayer.

Prior to the introduction of concessional rebates in 1942, section 98 provided that any concessional deduction to which the beneficiary would have been entitled if he had been assessed in respect of his share should be allowable in the assessment of the trustee upon that share.

By this clause, it is proposed to restore that position, as part of the plan for substituting concessional deductions for concessional rebates of tax.

This amendment will commence to apply in assessments upon income of the year ending 30th June, 1951.

CLAUSE 17.-CONCESSIONAL REBATE IN CASE OF TRUST ESTATE.

Section 100A of the Principal Act provides for the allowance of concessional rebates for rates on non-income-producing property and calls to companies which are paid from the income of a trust estate. As a general rule, the rebate is allowed in the assessment of each beneficiary proportionately to his share in the income of the trust estate. In those isolated cases where the trustee is liable to be assessed on income to which no beneficiary is presently entitled, the rebate proportionate to that income is allowed in the trustee's assessment.

On reversion to a system of deductions instead of rebates, the assessments of beneficiaries and trustees will be simplified by allowing the deductions for rates and one-third of calls in ascertaining the net income of the trust estate.

Clause 17 accordingly provides for the consequential repeal of section 100A.

CLAUSE 18.-HUSBAND AND WIFE.

Division 6A was inserted in the Principal Act in 1941 to provide a special basis of taxation where, after 29th October, 1941, the wife of a taxpayer acquired any property as a result of a gift by the taxpayer.

Briefly, the effect of the Division was to render the husband taxable at the rate applicable to the sum of his own taxable income and the income derived by the wife from the property. The same rate of tax was applied in the wife's assessment to so much of the income from the property as was included in her taxable income.

It was expressly provided in section 102B of the Principal Act that these special war-time provisions for the assessment of husband and wife should continue in operation so long as the National Security Act 1939-1940 continued in operation and no longer.

The National Security Act ceased to have effect after 31st December, 1946. As a consequence, Division 6A of Part III. of the Income Tax Assessment Act also ceased to have effect as from that date. It is accordingly proposed in Clause 18 that Division 6A be deleted from the Act.

CLAUSE 19.-PRIVATE COMPANIES-INTERPRETATION.

In this clause it is proposed to increase the proportion of distributable income which may be retained by private companies free from undistributed profits tax.

For practical purposes, the distributable income of a private company is the residue of its taxable income after deducting therefrom the ordinary income tax assessed at the primary rate payable in respect of that taxable income. By section 103(2.)(e) of the Principal Act, a company is deemed to have made a "sufficient distribution" if, within six months of the close of the income year, it has distributed as dividends to its shareholders a specified percentage of that distributable income. To the extent that the amount actually distributed as dividends within that period falls short of this "sufficient distribution", the company is required to pay undistributed profits tax.

This undistributed profits tax is the additional income tax and social services contribution that the shareholders would have paid if the undistributed income had, in fact, been distributed as dividends to the shareholders on the last day of the year of income.

The following table indicates the amounts (excluding dividends from other private companies) which private companies may retain free from undistributed profits tax, both under the present law and under the proposed amendment:-

The proposed increase in the amount that may be retained by private companies free from undistributed profits tax will place the tax on a more equitable basis, and the weight of tax on private companies and their shareholders will more closely approximate the weight of tax on partners in comparable partnerships.

The amendment will take effect in assessments upon the undistributed profits derived by private companies during the year ended 30th June, 1950, and subsequent years.

CLAUSE 20.-PRIVATE COMPANIES-CALCULATION OF TAX.

As explained in connexion with Clause 19, the undistributed profits tax which a private company is required to pay is the additional income tax and social services contribution that the shareholders would have paid if the undistributed income had, in fact, been distributed as dividends to the shareholders.

In 1948, a new provision - section 105B - was inserted in the Principal Act with the object of simplifying the calculation of the amount of undistributed profits tax payable by a private company.

Sub-section (2.) of section 105B provides, in effect, that each shareholder by reference to whose income undistributed profits tax is calculated shall be regarded as a taxpayer whose income is derived wholly from property and who is not entitled to any of the concessional rebates of tax provided by section 160 in respect of dependants, etc., or the rebates allowed by section 160AA in respect of calls paid to mining companies, etc.

When this provision was inserted in the Principal Act, the elimination of the personal exertion rate and the rebates to which shareholders were entitled in their personal assessments facilitated the assessment of the undistributed profits tax without materially affecting the amount of tax payable by private companies.

Consequent upon the proposed repeal of sections 160 and 160AA, the reference to those sections in section 105B(2.) will no longer be necessary. In this clause, it is accordingly proposed to amend section 105B(2.) to delete the reference to the rebates. It will be unnecessary to substitute similar provisions relating to concessional deductions, as the reintroduction of the deduction system achieves the simplification which was the objective of the deleted provisions under the rebate system.

The amendment will apply to assessments based on undistributed profits derived by private companies during the year ending 30th June, 1951, and subsequent years.

CLAUSE 21.-INTEREST PAID BY A COMPANY TO A NON-RESIDENT.

Section 125 of the Principal Act provides for the payment of tax in respect of interest paid or credited by a company to any person who is a non-resident.

The rate of tax payable in such cases is declared by the annual Rates Act. As the current Rates Act will impose "income tax and social services contribution", it is proposed in this clause to effect a consequential amendment in section 125.

CLAUSE 22.-REPEAL OF SECTIONS 160, 160AA AND 160AC.

The sections which are being repealed relate to rebates of tax for dependants and other concessional allowances. These provisions are being deleted in consequence of the substitution of concessional deductions for rebates of tax.

CLAUSE 23.-AMOUNT OF REBATE IN CERTAIN CASES.

Section 160AD of the Principal Act provides for an adjustment of the amount of rebate in certain cases. For example, it provides for the calculation of rebates to the nearest shilling, in order to eliminate odd pence from the net tax payable.

One provision in section 160AD - paragraph (aa) - had a very limited application to the assessments of a small number of taxpayers upon income derived during the year ended 30th June, 1946. The provision was necessitated by the reduction in the rates of income tax upon incomes of that year, coupled with the separation into two levies, income tax and social services contribution. In effect, it provided that a rebate of tax allowable to any taxpayer-contributor should not be calculated at any higher rate than the combined rate of tax and contribution which was applied in his assessment.

Paragraph (aa) has no application to any year of income subsequent to 30th June, 1946. In this clause, it is accordingly proposed to delete the paragraph from section 160AD.

CLAUSE 24.-RATE OF TAX FOR REBATE PURPOSES.

Section 160AE of the Principal Act specifies the rate of tax at which concessional rebates for dependants, medical expenses, etc. are calculated. In consequence of the proposed repeal of the provisions relating to concessional rebates, section 160AE will no longer be necessary.

CLAUSES 25 AND 26.-FURTHER TAX AND CONTRIBUTION ON UNDISTRIBUTED INCOME OF COMPANY.

These clauses are in the nature of drafting adjustments necessitated by the change from "income tax" to "income tax and social services contribution".

Part IIIA. of the Principal Act imposes a further tax on the undistributed income of companies other than private companies. In consonance with the change in the name of the primary tax payable by companies and individuals, it is proposed to re-name the levy on undistributed profits "further tax and contribution".

Clause 25 provides for the consequential change in the heading to Part IIIA., and Clause 26 provides for the amendment of the charging provision, section 160B of the Principal Act.

The amendment will commence to apply in assessments upon undistributed income of the year ended 30th June, 1950.

CLAUSE 27.-ASCERTAINMENT OF AUSTRALIAN TAX ON DIVIDEND.

Section 160K of the Principal Act sets out a detailed formula for calculating the Australian tax payable in respect of a dividend, for the purpose of ascertaining the amount of tax credit allowable under the Double Taxation Agreement between the United Kingdom and Commonwealth Governments.

As one of the steps in the calculation of Australian tax payable by a company, paragraph (f) of sub-section (2.) of section 160K provides for the deduction of a proportionate part of any rebate allowable under section 160(2.)(h) in respect of rates on non-income-producing property, and any rebate allowable under section 160AA in respect of calls.

Similarly, sub-section (4.) provides for the deduction, in calculating the Australian tax payable by an individual, of a proportionate part of any rebate allowed or allowable which does not relate directly to any part of the taxable income.

Clause 27 is designed to effect the drafting amendments in sub-sections (2.) and (4.) of section 160K necessitated by the proposed repeal of sections 160 and 160AA.

The amendments effected by this clause will commence to apply in assessments upon income of the year ending 30th June, 1951.

CLAUSE 28.-REMUNERATION OF MEMBERS OF BOARDS OF REVIEW.

It is proposed by this clause to increase the maximum appropriation for the remuneration and travelling allowance of members of Boards of Review.

The Principal Act provides for the appointment of independent Boards of Review to which taxpayers may refer matters in dispute. The Boards of Review have power to review, at the request of taxpayers, decisions of the Commissioner of Taxation on objections duly lodged by taxpayers against assessments.

The Boards' functions, although primarily associated with income tax and social services contribution, have, from time to time, been extended to include matters arising in connexion with sales tax, pay-roll tax and entertainments tax, as well as estate and gift duties. One of the Boards, by arrangement between the Commonwealth and the State of New South Wales, has exercised also the duties and functions of a State Income Tax Board of Appeal since the inception of uniform income tax in 1942.

In 1947 the powers and functions of the Board of Referees were conferred upon the Boards of Review. The Board of Referees had been constituted in 1941 under the War-time (Company) Tax Assessment Act for the purposes of determining issues arising under that Act. The functions of the Board of Referees were subsequently enlarged by the inclusion of a number of additional matters arising out of certain sections of the Income Tax Assessment Act. Although the war-time (company) tax has been discontinued, a number of cases under that Act and under the relevant sections of the Income Tax Assessment Act still arise for determination by Boards of Review in the discharge of their functions as Boards of Referees.

Apart from these enlargements of the duties of Boards of Review, the expansion of the field of taxation and the relatively high rates of tax, as compared with pre-war levels, have resulted in increased numbers of taxpayers who are prepared to contest their assessments before the Boards.

Until recently, two Boards of Review have been endeavouring to cope with the volume of appeals referred to them, but it has been apparent for some time that the task, particularly in regard to appeals by New South Wales taxpayers, is beyond the combined capacity of the two Boards. In conformity with the Government's declared policy of expediting the hearing of taxation appeals, a third Board of Review, with head-quarters in Brisbane, was appointed as from 1st August last.

Besides hearing appeals in Brisbane, it is intended that the new Board should conduct sittings in large country centres in Queensland and northern New South Wales, thus sparing taxpayers the expense and difficulty of attending a capital city in order to pursue their appeals. The third Board of Review will be occupied also in assisting to reduce the accumulation of appeal cases awaiting hearing in Sydney.

With the creation of the third Board of Review, the appropriation from Consolidated Revenue of Pd20,000 per annum now provided in section 182 of the Principal Act for two Boards will be insufficient for the payment of the remuneration and travelling expenses of the Chairmen and other members of the three Boards. It is accordingly proposed by Clause 28 of the Bill to increase the maximum appropriation for the purpose mentioned from the sum of Pd20,000 per annum to the sum of Pd30,000 per annum.

CLAUSE 29.-CERTIFICATE NOT REQUIRED BY MEMBER OF THE DEFENCE FORCE.

As part of the general provisions relating to the collection and recovery of tax, section 211 of the Principal Act provides that an authority to travel by ship or aircraft shall not be issued by the owner or charterer of the ship or aircraft unless and until the intending passenger produces a taxation clearance certificate. Section 212 further provides that such an owner or charterer shall lodge a passenger list with the Taxation Department on the first working day after the departure of the ship or aircraft.

The effect of Clause 29 will be to render the above provisions inapplicable in the case of a member of the Defence Forces who is certified to be travelling in the course of his military, naval or air force duties. The certificate is required to be signed by a person authorized in that behalf by the Minister for Defence.

CLAUSES 30 TO 32.-PROVISIONAL TAX AND CONTRIBUTION.

Provisional social services contribution and provisional income tax are essential features of the pay-as-you-earn system of taxation. Under this system, contributors and taxpayers are required to pay each year a provisional contribution and tax in respect of that year's income, other than salary and wages. After the return of income of the year has been lodged, the correct amounts of contribution and tax are assessed, and credit is given to the contributor and taxpayer for the provisional amounts paid.

In consequence of the merger of the contribution and the tax, the single levy will be known as "income tax and social services contribution". It is proposed accordingly to substitute the term "provisional tax and contribution" for "provisional tax" in the relevant sections of the Principal Act.

Clause 30 is designed to effect the necessary change in the heading to the Division which relates to "Provisional Tax".

Clause 31 is a drafting amendment of section 221YA(1.). It will enable reference in the Division to the proposed provisional tax and contribution by the convenient title of "provisional tax".

Clause 32 re-expresses section 221YB in conformity with the change from provisional tax to provisional tax and contribution. Section 221YB, as amended, will provide that provisional tax and contribution will be payable in respect of the income of the year of income ending 30th June, 1951, when the Act declaring the rates for the current financial year is passed.

CLAUSE 33.-AMOUNT OF PROVISIONAL TAX AND CONTRIBUTION.

The amendment proposed by this clause inserts sub-section (2A.) in section 221YC of the Principal Act. The amendment is necessitated by the merger of social services contribution and income tax into a single levy on the incomes of individual taxpayers.

Section 221YC of the Principal Act provides the basis for ascertainment of the amounts of provisional tax payable by taxpayers.

As a general rule, taxpayers are required by sub-section (1.) of that section to pay provisional tax equal to the tax assessed on the taxable income of the preceding year. Where, however, the taxpayer's income is derived partly from salary or wages, from which tax instalments are deducted, it is provided that the Commissioner shall determine the amount of provisional tax. The effect of this provision is that, broadly speaking, the provisional tax so determined, when combined with the deductions made from the taxpayer's salary or wages, approximates the amount of tax which is finally assessed on the total income of the taxpayer.

Sub-section (2.) of section 221YC provides for the ascertainment of provisional tax payable where the rates of tax for the relevant year are higher or lower than the rates for the year next preceding.

Sub-section (3.) of that section provides for the ascertainment of provisional tax in those exceptional cases where a taxpayer commences to derive income other than salary or wages during the year next preceding the year in which the provisional tax is payable.

In addition to provisional tax payable under the Income Tax Assessment Act, provisional contribution is payable under the Social Services Contribution Assessment Act. The relevant provisions of the Income Tax Assessment Act are adapted and applied for the purposes of provisional contribution. As a general rule, the provisional contribution payable in any year is equal to the contribution assessed on the contributable income of the year immediately preceding.

In consequence of the substitution of a single levy of income tax and social services contribution for the two separate levies, it is necessary that the provisional tax and contribution payable in the current financial year shall be ascertained by reference to the amounts of both income tax and social services contribution assessed upon the taxpayer's income of the year ended 30th June, 1950.

It is accordingly proposed in this clause to insert a new sub-section (2A.) in section 221YC, in order to provide specially for the ascertainment of provisional tax and contribution payable in the year of income which commenced on 1st July, 1950.

The effect of paragraph (a) of the proposed sub-section (2A.) will be that the single levy of provisional tax and contribution payable by individual taxpayers in respect of the current year ending 30th June, 1951, will be based on the total of the amounts of social services contribution and income tax separately assessed on income derived during the preceding year ended 30th June, 1950.

In most cases, however, the provisional tax and contribution in respect of income of the current year will be less than the contribution and tax assessed on income derived during last year. This reduction will be due, primarily, to the reversion to the concessional deduction system and, secondly, to the adjustments that are being made in the rates applicable to incomes of the current year as compared with the rates applied to income derived during last year.

For these purposes, it is necessary that the operation of sub-section (2.) of section 221YC be suspended in ascertaining the provisional tax and contribution payable in respect of income of the current year. That provisional tax and contribution will be determined by an Income Tax Regulation to be prescribed on the authority of the proposed sub-section (2A.).

CLAUSE 34.-REPEAL OF SOCIAL SERVICES CONTRIBUTION ACTS, ETC.

By this clause it is proposed to repeal the Social Services Contribution Assessment Act and Social Services Contribution Act of 1945, and subsequent legislation which amended those original enactments.

Sub-clause (2.) is a saving provision designed to give continuing force to the repealed enactments insofar as they concern social services contribution payable in respect of income derived during the years of income ended 30th June, 1946, to 30th June, 1950 (both inclusive). The repealed legislation is specified in the First Schedule to the Bill.

Sub-clause (3.) is a drafting amendment by which it is proposed to omit from the Income Tax Assessment Act a number of references to social services contribution. These omissions are set out in detail in the Second Schedule to the Bill. The references omitted will have no application to assessments of the single levy of income tax and social services contribution on income of the year ending 30th June, 1951, and succeeding years.

CLAUSE 35.-AMENDMENT OF INCOME TAX ASSESSMENT ACT 1941.

This clause relates to the operation of section 101A of the Principal Act.

Section 101A, which was enacted in 1941, was designed to apply where the trustee of the estate of a deceased person had received any amount which would have been assessable income in the hands of the deceased person if it had been received by him during his lifetime. In these cases, the section directs that the amount so received shall be included in the assessable income of the trust estate and shall be deemed to be income to which no beneficiary is presently entitled. In effect, the section was intended to place on the trustee the liability to pay tax in respect of the amount received by him as if it were the income derived by an individual taxpayer.

The section has been applicable mainly in those cases where the trustees of the estates of deceased professional practitioners have received fees for services rendered but not collected during the lifetime of the deceased practitioner. Normally, income tax would not have been paid on these fees during the lifetime of the practitioner and the intended effect of section 101A was to cause the tax to be payable when the fees were collected by the executor.

When section 101A was enacted by section 16 of the Income Tax Assessment Act 1941, section 30(3.) of the Amending Act provided for the application of the new section 101A in the terms quoted above.

At the time of this enactment, it was generally understood that section 101A would have continuing operation. The view has been expressed, however, that the omission of the customary phrase "and all subsequent years" at the end of the section 30(3.) of the Amending Act might have the effect of limiting the application of section 101A solely to the year of income ended on the 30th June, 1942.

Clause 35 will have the effect of removing any doubt regarding the continuing operation of section 101A in current and future assessments and will ensure the validity of assessments which already have been made in respect of income of the year ended 30th June, 1943, and subsequent years.

CLAUSE 36.-APPLICATION OF AMENDMENTS.

The amendments proposed by the Bill will commence to apply as indicated in this clause. The year to which each amendment will commence to apply has been stated in the notes explaining the amendments.

THE SCHEDULES.

FIRST SCHEDULE.

As explained in the note to Clause 34, this schedule specifies the legislation relating to social services contribution which is being repealed.

SECOND SCHEDULE.

This schedule sets out the provisions in the Principal Act which are being deleted in consequence of the repeal of the social services contribution legislation-vide explanatory note on Clause 34.