House of Representatives

Explanatory Memorandum

(Circulated by the Treasurer, the Rt. Hon. Sir Arthur Fadden)

Ed.Note

INTRODUCTORY NOTE:-

The main features of the Resolution and the Bill are-

Individual Taxpayers-

(1)

That the rates applicable for the last financial year 1950-1951 (based on income of the year ended 30th June, 1951) shall continue to apply for the current financial year 1951-1952 (based on income of the year ending 30th June, 1952);

(2)

That a special levy equal to ten per centum of the tax and contribution payable for the current financial year shall be imposed.

Public Companies-

(3)

That a primary rate of 7s. in the Pd1 shall be imposed on taxable incomes derived during the year ended 30th June, 1951;

(4)

That a special levy at the rate of 2s. in the Pd1 shall be imposed on taxable incomes derived during the year ended 30th June, 1951;

(5)

That an advance payment equal to ten per centum of the tax and contribution at the primary rate and the special levy shall be payable for the current year 1951-1952 and shall be credited against the company's liability for the financial year 1952-1953.

NOTE.-Super Tax at the rate of 1s. in the Pd1 on the excess of taxable income over Pd5,000 and undistributed income tax at the rate of 2s. in the Pd1 are not being re-imposed for the current financial year.

Private Companies-

(6)

That primary rates of 5s. in the Pd1 on the first Pd5,000 and 7s. in the Pd1 on the balance of taxable income shall be imposed on taxable incomes derived during the year ended 30th June, 1951;

(7)

That an advance payment equal to ten per centum of the tax and contribution at the primary rates shall be payable for the current financial year 1951-1952 and shall be credited against the company's liability for the financial year 1952-1953;

(8)

That the definition of "private company" shall be restated to clearly specify those companies to be classified as private companies for the purposes of the assessment of tax and contribution on taxable incomes derived during the year ended 30th June, 1952, and subsequent years;

(9)

That the amounts of distributable income derived during the year ended 30th June, 1952, which may be retained free from undistributed income tax shall be limited in those cases where two or more private companies are closely related.

Averaging of Incomes of Primary Producers-

(10)

That the effects of the averaging system shall be modified in any case where the taxable income derived by a primary producer during the year ended 30th June, 1951, or his average income, exceeded Pd4,000;

(11)

That each primary producer shall be given a right to elect that the averaging system shall not apply in the assessment based on income derived by him during the current year ending 30th June, 1952, and in assessments for subsequent years.

Age Allowance-

(12)

That persons of pensionable age, i.e., men over 65 years, women over 60 years, shall not be required to pay tax and contribution or special levy on income derived during the current year ending 30th June, 1952, unless the net income, in the case of a single person, exceeds Pd234, or, in the case of a married couple, the aggregate of their net incomes exceeds Pd468.

Service Pay and Allowances-

(13)

That pay and allowances earned by members of the Navy, Army, Air and Auxiliary Forces while serving since 26th June, 1950, in operational areas shall be exempt from tax and contribution.

Scholarships-

(14)

That income derived after 30th June, 1951, by way of scholarship, bursary or other educational allowance by a student receiving full-time education at a school, college or university shall be exempt from tax and contribution.

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

Notes on Paragraphs/Clauses

INCOME TAX AND SOCIAL SERVICES CONTRIBUTION RESOLUTION 1951.

PARAGRAPH 1. - DEFINITIONS.

The definitions of "life assurance company", "mutual income" and "mutual life assurance company" are to be read in conjunction with paragraphs 9 and 10 and the Sixth Schedule to the Resolution, which contain provisions relating to the rates to be applied to the taxable incomes of mutual life assurance companies and the mutual incomes of partly mutual life assurance companies.

The definitions are identical with those included in Part IIIA. of the Assessment Act under which, in the past, a further tax on the undistributed income of public companies was imposed.

In previous financial years, it was customary to rely on the definitions in Part IIIA. for the purposes of the Resolution. As, however, it is proposed to repeal Part IIIA., it is now necessary to include the definitions in the Resolution.

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 in its net income from investments. This income is taxed at the reduced rate set out in paragraph (3.) of the Sixth Schedule to the Resolution.

A partly 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 definition of "the Assessment Act" is a drafting provision to enable the use of a more convenient and abbreviated reference to the Assessment Act than the long reference set out in the definition.

PARAGRAPH 2. - INCORPORATION.

The basis of income tax and social services contribution is that a taxable income is determined in the first instance under the Assessment Act, and in the second instance the rates as declared by the Parliament under the rating measure are applied to the taxable income. For these purposes, both the Assessment Act and the Rating Act are incorporated and read as a single enactment.

PARAGRAPH 3. - IMPOSITION OF INCOME TAX AND SOCIAL SERVICES CONTRIBUTION.

Sub-paragraph (1.).

This sub-paragraph provides for the imposition of income tax and social services contribution for the financial year 1951-1952 at the rates declared elsewhere in the Resolution.

In the case of companies, the rates will be applied to taxable incomes derived during the year ended 30th June, 1951.

In the case of individuals, the rates will be applied to taxable incomes derived during the current year ending 30th June, 1952, and also for the purpose of the provisional tax and contribution payable under the pay-as-you-earn system in respect of that year.

Sub-paragraph (2.).

This sub-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, including concessional deductions.

The effective exemption points for various classes of taxpayers with dependants, having regard to the concessional deductions, are as follows:-

PARAGRAPH 4.-RATES OF INCOME TAX AND SOCIAL SERVICES CONTRIBUTION PAYABLE BY PERSONS OTHER THAN COMPANIES.

Sub-paragraph (1.) and First Schedule.

Sub-paragraph (1.), read in conjunction with the First Schedule, declares the basic rates at which tax and contribution are to be imposed on taxable incomes other than the taxable incomes of companies. The rates declared by this Schedule are the same as those imposed for the financial year 1950-1951.

The rate commences at one penny in the Pd1 on the first Pd100 of taxable income. Income tax and social services contribution is, however, not 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 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.

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 paragraph 5.

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 are 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 pay the 8s. 4d. on the first Pd100 of their incomes and pay 6d. on every Pd1 of income between Pd100 and Pd150, i.e.

(Pd50 at 6d.)=(Pd1 5s)


Thus on the first Pd150 of their incomes they pay 8s. 4d. plus 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:-

It is also proposed by paragraph 7 of this Resolution that individual taxpayers shall pay, for the financial year 1951-1952, a special levy equal to 10 per cent. of the tax and contribution at the above rates.

In the example given above, the addition of the special levy of 10 per cent. of Pd57 3s. will make the total tax and contribution payable Pd62 17s.

Statements are appended to this memorandum comparing the proposed basic tax and contribution and special levy with-

(i)

the present basic tax and contribution, and income tax at war-time rates; and with

(ii)

the present income tax and national insurance contribution payable in the United Kingdom and the present and proposed income tax and social security charge payable in New Zealand.

Sub-paragraph (2.) and Second Schedule.

Sub-paragraph (2.) 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 income 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 the First Schedule. 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 the First Schedule as those rates are to be shown on the assessment notices.

Divide Pd94 6s. 8d. by 820 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). In addition, the special levy of 10 per cent. of Pd172 11s. will be imposed, making the total tax and contribution payable Pd189 16s.

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:-

It is not proposed to modify this averaging system in any case where neither the taxable income nor the average income exceeds Pd4,000.

The modifications proposed in other cases are-

1.

That, where, in any year, the taxable income and the average income both exceed Pd4,000, the primary producer shall pay the same amount of tax as a person who is not a primary producer and who derives the same amount of income.

2.

That, where the taxable income exceeds Pd4,000 and the average income does not exceed Pd4,000-

(a)

the rate appropriate to the average income shall be applied to the first Pd4,000 of taxable income; and

(b)

the averaging system shall not be applied to the excess of taxable income over Pd4,000.

3.

That, where the taxable income does not exceed Pd4,000 and the average income exceeds Pd4,000, the rate appropriate to an average income of Pd4,000 shall be applied to the total taxable income.

These modifications will commence to apply in assessments based on incomes derived during the year ended 30th June, 1951.

With regard to assessments for subsequent years, it is proposed, by clause 15 of the Assessment Bill, to grant a right to every primary producer to elect, in respect of his income of the year ended 30th June, 1952, or of any subsequent year, that the averaging system shall not be applied in his assessments. The election once made is irrevocable. In effect, the primary producer is to be given the choice between-

(a)

the application of the averaging system (as modified) in his assessments; and

(b)

assessment at the same rate as that to be applied in the assessment of any other individual taxpayer deriving the same amount of taxable income and to which the averaging system does not apply.

The following examples illustrate the proposed modifications in the averaging system:-

(1) Where both the Taxable Income and the Average Income Exceed Pd4,000.

The tax and contribution payable on the first Pd4,000 of taxable income at 88.1d. in the Pd1 (i.e., the rate applicable to a taxable income of Pd4,000) is Pd1,468 6s. 8d.

The tax and contribution payable on the balance of taxable income (Pd2,000) is calculated as follows:-

The tax and contribution payable on the total taxable income is the sum of the two amounts so calculated, viz.:-

The effect of the modification in this case is that the amount payable is identical with the tax and contribution and special levy calculated on the taxable income of Pd6,000 without reference to an average income.

(2) Where the Taxable Income Exceeds Pd4,000, and the Average Income does not Exceed Pd4,000.

The amount of tax and contribution payable by applying to a taxable income of Pd2,000 the rates set forth in the First Schedule is Pd468 6s. 8d.

Divide Pd468 6s. 8d. by 2,000 to obtain a rate of 56.2d. in the Pd1.

The tax and contribution payable on the first Pd4,000 of taxable income at 56.2d. in the Pd1 is Pd936 13s. 4d.

The tax and contribution payable on the balance of taxable income (Pd1,000) is calculated as follows:-

The tax and contribution payable on the total taxable income is the sum of the two amounts so calculated, viz.:-

(3) Where the Taxable Income is less than Pd4,000, and the Average Income Exceeds Pd4,000.

Sub-paragraph (3.) and Third Schedule.

Sub-paragraph (3.) 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 not less 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 the First Schedule as those rates will be shown on the assessment notice.

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

Divide Pd2,088 6s. 8d. by 5,000 to obtain a rate of 100.24d. in the Pd1.

In addition, the special levy of 10 per cent. of Pd4,055 13s. will be imposed, making the total tax and contribution and levy payable Pd4,461 4s.

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:-

Sub-paragraph (4.) and Fourth Schedule.

Sub-paragraph (4.) 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 the First Schedule are applied and, if the income is derived from a business of primary production, the rate appropriate to an average income as prescribed by the Second Schedule are applied. Correspondingly, if the trust income includes a premium for a lease, the provisions of the Third Schedule operate in the assessment of the trustee and the rate of tax and contribution is ascertained by reference to a notional income.

PARAGRAPH 5.-FURTHER TAX AND CONTRIBUTION ON PROPERTY INCOME.

Sub-paragraph (1.) and Fifth Schedule.

This sub-paragraph imposes the further rates of tax and contribution on taxable incomes derived from property. These rates are identical with those declared for the financial year 1950-1951.

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 the First, Second, Third and Fourth Schedules; and

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

In addition to these rates, the special levy equal to 10 per cent. of the tax and contribution will be payable for the financial year 1951-1952.

The principle underlying the rates in the Fifth Schedule is to levy, in accordance with long continued practice, an additional impost on income from property. This impost is additional to the tax and contribution imposed at the basic rates prescribed in the First, Second, Third and Fourth Schedules. 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 the Fifth Schedule are designed in the form of stepped rates to conform to the pattern of the basic stepped rates in the First Schedule. The following table sets out in a simplified form the 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. This course simplifies 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 5 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 and on the excess of property income over Pd1,000 the further rate of tax and contribution is 16d. in the Pd1.

Therefore, on a property income of 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.

(NOTE.-In each of the above examples, the 10% special levy is payable in addition to the amounts of tax and contribution shown.)

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.

The decline in the rate of the further tax and contribution from the point at which the taxable income from property is Pd4,000 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, which is payable where the total taxable income exceeds Pd10,000. Above that level, there is a distinct element of property entering into the derivation of incomes from personal exertion, and there is no substantial justification for an added levy on property income as compared with personal exertion income.

Sub-paragraph (2.).

This sub-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.

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.-LIMITATION OF TAX AND CONTRIBUTION PAYABLE BY AGED PERSONS.

The main purpose of this paragraph is to exempt aged taxpayers in the lower income groups from tax and contribution.

The primary qualification for the concession is that the taxpayer shall have attained the following age on or before the last day of the year of income:-

The concession will be allowed to those persons only who have been residents of Australia during the whole of the year of income.

The effect of the concession is that a resident of Australia who has attained the qualifying age will be wholly free from tax and contribution if his or her net income does not exceed Pd234.

The concession is further extended by providing that, where such a person maintains a wife or husband, as the case may be, who also satisfies the conditions of age and residence, no tax and contribution will be payable unless the combined net incomes of husband and wife exceed Pd468. Where, for example, a husband receives income amounting to Pd468, and the wife has no income, the husband's income will be free from tax and contribution. Similarly, where the husband receives Pd300 and the wife receives Pd168, neither will pay tax and contribution.

A taxpayer who is in the specified age group, but whose net income exceeds Pd234 (or, in the case of a married couple, Pd468) by a small margin, will pay less tax and contribution than would otherwise be payable.

In accordance with this provision, the basic tax and contribution payable by a taxpayer whose net income is between Pd234 and Pd248 will not be greater than one-half of the excess of the net income over Pd234. For example, a man aged 67 years in receipt of income amounting to Pd240 will pay no more than Pd3, plus the 10 per cent. special levy of 6s., making Pd3 6s. in all. Apart from the proposed concession, the tax and contribution payable on a taxable income of Pd240 would be Pd7 5s., including the 10 per cent. special levy.

Similarly, where the combined net incomes of the taxpayer and his wife are between Pd468 and Pd558, the basic tax and contribution payable by the taxpayer will be limited to one-half of the excess over Pd468.

The following examples illustrate the practical application of this paragraph in cases where the combined net incomes of a married couple exceed Pd468:-

The objective of the proposed paragraph 6 is to confer freedom from tax upon persons of pensionable age whose incomes are below the maximum permissible incomes for the purposes of Commonwealth age pensions. Those maximum permissible incomes, as proposed in the current Budget, are as follows:-

In order to conform to the basis of maximum permissible income, it has been necessary to use the expression "net income" in paragraph 6 of this Resolution. In ascertaining the net income of any person for the purposes of this paragraph, his or her gross income (both taxable and exempt) will be taken as a basis. From the gross income there will be deducted all expenses (other than expenses of a capital, private or domestic nature) incurred in deriving that income.

The concessions provided in this paragraph will apply as from 1st July, 1951.

PARAGRAPH 7.-ADDITIONAL TAX AND CONTRIBUTION PAYABLE BY PERSONS OTHER THAN COMPANIES.

By this paragraph, it is proposed that a special levy shall be imposed on the taxable incomes derived by individuals during the current year ending 30th June, 1952.

The special levy will be an amount equal to 10 per cent. of the tax and contribution at the basic rates and at the further rates on income from property.

The following examples illustrate the imposition of the special levy:-

This paragraph provides that the special levy shall be imposed on the amount of tax and contribution before the allowance of any rebate or credit under the Assessment Act.

The rebates for which provision is made in the Assessment Act are as follows:-

Section 107 confers, in effect, freedom from tax and contribution in respect of dividends received by a shareholder from a private company out of profits which have borne undistributed income tax in the assessments of the company. Although the special levy of 10 per cent. is imposed upon the shareholder before the rebate under section 107 is allowed, that rebate is equivalent to the amount by which the shareholder's tax is increased by reason of the inclusion of the tax-paid dividend. The net result is that the shareholder pays only that amount of tax and contribution (including the 10 per cent. special levy) which is appropriate to his taxable income after excluding the tax-paid dividend.

Section 160AB provides for the allowance of a rebate at the rate of 2s. in the Pd1 on interest received from Government Loans issued after 1st January, 1940. The full rebate at the rate of 2s. in the Pd1 will be deducted after the special levy has been imposed.

Section 160ABA provides for a rebate to ensure, in certain circumstances, that industrial experts visiting Australia pay Australian tax of no greater amount than the tax they would have paid in their own country. Here again, whilst the special levy of 10 per cent. is imposed before allowing the rebate, the process of ascertaining that rebate is such that the Australian tax and contribution payable by the visitor is reduced to the amount of the tax which would be payable in his own country if tax had been imposed there upon his Australian income.

The imposition of the special levy in a case where the taxpayer is entitled to a rebate under section 160AB is illustrated in the following example:-

The credits provided in the Assessment Act are allowable under section 45 and under Part IIIB. The purpose of those credits is the relief of double taxation of dividends received by residents of Australia from ex-Australian companies. The imposition of the special levy before the tax credit is allowed will ensure that credit will be given to the taxpayer for the payment of the special levy.

PARAGRAPH 8.-MINIMUM TAX AND CONTRIBUTION.

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 recognized as uneconomical to prepare and issue assessments if the amount payable is less than 10s.

PARAGRAPH 9 AND SIXTH SCHEDULE.-RATES OF INCOME TAX AND SOCIAL SERVICES CONTRIBUTION PAYABLE BY A COMPANY.

This paragraph, read in conjunction with the Sixth Schedule, prescribes the rates at which tax and contribution is to be payable by companies in assessments for the current financial year 1951-1952. These assessments are based on incomes derived by companies during the year ended 30th June, 1951.

For the financial year 1950-1951, all companies, except mutual life assurance companies, were liable to pay tax and contribution at the primary rates of 5s. in the Pd1 on the first Pd5,000 of taxable income and 6s. in the Pd1 on the balance of taxable income.

The rates of tax applicable to the taxable incomes of mutual life assurance companies and to the mutual income of partly mutual life assurance companies were 4s. in the Pd1 on the first Pd5,000 of taxable income and 5s. in the Pd1 on the balance of taxable income. The terms "mutual life assurance company" and "mutual income" are explained in the note on paragraph 1 of this Resolution.

Public companies were liable also to pay super tax at the rate of 1s. in the Pd1 on the excess of taxable income over Pd5,000. Super tax was not payable, however, by private companies, certain co-operative companies and mutual life assurance companies.

Subject to some exceptions, further tax at the rate of 2s. in the Pd1 was payable on the undistributed income of public companies.

It is proposed that, for the current financial year 1951-1952, the primary rates of tax and contribution shall be-

Public Companies.-7s. in the Pd1 on the total taxable income.

Private Companies.-5s. in the Pd1 on the first Pd5,000 of taxable income; and 7s. in the Pd1 on the balance of taxable income.

Mutual Life Assurance Companies.-6s. in the Pd1.

The rate of 6s. in the Pd1 will apply also to the mutual income of a partly mutual life assurance company. The non-mutual income will be liable to tax and contribution at the primary rate of 7s. in the Pd1.

Paragraph 5 of the Sixth Schedule 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 9s. in the Pd1, which is equivalent to the primary tax of 7s. and the special levy of 2s. imposed on public companies under paragraph 10. 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.

PARAGRAPH 10.-ADDITIONAL TAX AND CONTRIBUTION ON CERTAIN COMPANIES.

By this paragraph, it is proposed that a special levy shall be payable by public companies for the current financial year 1951-1952.

The special levy will be at the rate of 2s. in the Pd1 on the taxable incomes derived by public companies during the year ended 30th June, 1951.

By-sub-paragraph (2.) it is proposed that the income of certain companies will not be subject to the special levy.

By clause (a), the special levy is not being imposed on the taxable incomes of private companies. These companies are liable to taxation on a basis that is designed to cause the private company and its shareholders to pay approximately the same taxation as partners in a comparable partnership.

This basis of taxation of private companies is being preserved-

(a)

by an increase of 1s. in the Pd1 in the primary rate of tax on the taxable income in excess of Pd5,000; and

(b)

by the addition of the special levy of 10 per cent. of tax and contribution in calculating the undistributed income tax payable by private companies at shareholders' individual graduated rates.

Under clause (b), the special levy at the rate of 2s. in the Pd1 shall not apply to a company in the capacity of a trustee. In such cases, the special levy of 10 per cent. of tax and contribution payable by individuals will be applicable in any assessment of a company in the capacity of a trustee.

Clause (c) provides that the special levy shall not apply to the taxable income of a mutual life assurance company, or to the mutual income of a party mutual life assurance company. Freedom from the special levy, coupled with the imposition of a concessional rate of primary tax (6s. in the Pd1) preserves the basis of taxation of such companies which was adopted when Uniform Income Taxation was introduced in 1942. In order that those companies should pay approximately the same amount of income tax as they had previously paid to the Commonwealth and the States, legislation enacted in 1942 provided for a lower rate of primary tax.

Clause (d) exempts co-operative companies from the special levy. Such companies are distinguishable from ordinary public companies, as, in the generality of cases, there are limitations on the number of shares that may be held by any one shareholder, there are restrictions on the transfer of shares, and the shares are not saleable through stock exchanges.

Similarly, clause (e) provides that the special levy shall not apply to companies which, by their constitutions, are prohibited from making any distribution of profits to their members. These companies are comprised mainly of clubs, associations, lodges, societies and community hotels. They differ substantially from ordinary public companies, and, as a general rule, their taxable incomes are of relatively small dimensions.

PARAGRAPH 11.-AMOUNT OF ADVANCE PAYMENTS BY COMPANIES.

By this paragraph, it is proposed that advance payments shall be made by all companies.

The advance payment will be an amount equal to 10 per cent. of the tax and contribution payable on income derived during the year ended 30th June, 1951.

This payment will become due and payable at the same time as the assessment based on income derived during the year ended 30th June, 1951, becomes payable. The payment will be credited to the company against its liability on income derived during the current year ending 30th June, 1952.

In the interests of simplification, sub-paragraph (2.) provides for the omission of pence from advance payments.

PARAGRAPH 12.-ELIMINATION OF PENCE.

In the interests of simplification of assessments, it is proposed by this paragraph that pence should be eliminated, firstly, from the tax and contribution and, secondly, from the special levy.

PARAGRAPH 13.-TAX AND CONTRIBUTION WHERE AMOUNT TO BE COLLECTED OR REFUNDED WOULD NOT EXCEED TWO SHILLINGS.

This paragraph is designed for application in those cases where the value of instalments deducted from earnings closely approximates 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.

The paragraph was 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 exceeds the minimum tax and contribution of 10s. imposed by Paragraph 8 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 14.-LEVY OF INCOME TAX AND SOCIAL SERVICES CONTRIBUTION.

Sub-paragraph (1.) of 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 1951-1952. 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 be levied and paid on the taxable income derived-

(a)

by a company during the year ended 30th June, 1951, or the accounting period substituted for that year of income; and

(b)

by individual taxpayers during the current year ending 30th June, 1952, or the substituted accounting period.

Sub-paragraph (2.) provides authority for the application of the above described provisions in assessments for the next financial year 1952-1953 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.-PROVISIONAL TAX AND CONTRIBUTION.

This paragraph authorizes the imposition of provisional income tax and social services contribution in respect of income of the current income year ending 30th June, 1952.

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, 1951. In order to make due allowance for the special levy of 10 per cent., the provisional tax and contribution payable in the current financial year will be 10 per cent. greater than the tax and contribution assessed upon the taxable income of the year ended 30th June, 1951.

PARAGRAPH 16.-RATES OF TAX AND CONTRIBUTION FOR FINANCIAL YEAR ENDED 30TH JUNE, 1951, BY REFERENCE TO AN AVERAGE INCOME.

The purpose of this paragraph is to give effect to the proposed modification of the averaging provisions (as explained in the note on paragraph 4(2.) of this Resolution) in assessments based on incomes derived during the year ended 30th June, 1951.

INCOME TAX AND SOCIAL SERVICES CONTRIBUTION ASSESSMENT BILL 1951.

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.

In this clause it is proposed that the Income Tax and Social Services Contribution Assessment Act 1951 shall come into operation on the day on which it receives the Royal Assent. This provision is necessary in order that the Commissioner of Taxation may proceed immediately with the preparation and issue of assessments involving payments of provisional tax and contribution by individuals and advance payments by companies.

CLAUSE 3. - PARTS.

The various Parts into which the Act is divided are enumerated in section 5 of the Principal Act.

The amendments proposed in this clause are drafting provisions necessitated by the repeal of the further tax payable by public companies in respect of undistributed profits-clause 18-and the imposition of "advance payments" on the income of companies-clause 28.

CLAUSE 4. - OFFICERS TO OBSERVE SECRECY.

The purpose of section 16 of the Principal Act is to ensure that officers of the Taxation Department and other officials shall maintain secrecy in regard to any information respecting the affairs of taxpayers which may be acquired by them in the course of their official duties.

To facilitate the administration of governmental business, the section provides that the Commissioner of Taxation may communicate information to specified Commonwealth and State authorities.

The State authorities specified in paragraph (c) of section 16 include those which administer State Acts relating to Stamp Duties or Succession Duties. However, information may be communicated to an authority of a State only if it is authorized by law to afford similar information to the taxation authority of the Commonwealth.

In this clause, it is proposed to extend the operation of section 16 to permit the communication of information by the Commonwealth Commissioner, on a similar reciprocal basis, to authorities administering State laws relating to Land Taxes.

The amendment will render unnecessary the duplication of inquiries by two different government departments and will serve also to protect public funds.

Only such information will be communicated as is essential for the proper performance of the official duties of authorities administering State Land Taxes. Officers of the State authorities to whom confidential information is communicated in accordance with the amended provision will be subject to the same obligations of secrecy as are imposed upon officers of the Commonwealth Taxation Department.

CLAUSE 5. - EXEMPTIONS.

Paragraph (a)-Visiting Industrial Experts.

Paragraph (vii) of section 23(c) of the Principal Act provides for an exemption from tax in respect of director's fees, salary and wages earned by non-resident industrial experts visiting Australia. The exemption applies to directors, managers and other administrative officers, consultants, technicians and representatives engaged in a manufacturing, mercantile or mining business or in a business of primary production.

Earnings during the first year of the visit are exempt from Australian income tax and social services contribution conditionally upon those earnings being subject to income tax in the country where the expert ordinarily resides.

Earnings during the second year of the visit may also be exempt from Australian tax and contribution. In this case, however, the exemption is conditional upon the Treasurer being satisfied, on the certificate of the Secondary Industries Commission, that the retention of the expert's services will assist in developing Australian industry.

As the activities of the Secondary Industries Commission have been terminated, it is proposed, in paragraph (a) of clause 5, to nominate the Director of the Division of Industrial Development, or any person authorized in writing by him, for this purpose.

A corresponding amendment of section 160ABA of the Principal Act is effected by clause 16 of the present Bill. Section 160ABA provides for the allowance of a rebate of Australian tax in certain cases where visiting industrial experts are not entitled to complete exemption under section 23(c)(vii).

Paragraphs (b) and (c)-Scholarships.

The purpose of paragraphs (b) and (c) of clause 5 is to give effect to a recommendation by the Commonwealth Committee on Taxation that income arising from scholarships and similar educational awards should be exempt from income tax and social services contribution.

Periodical cash payments under scholarships, bursaries, exhibitions, etc., fall within the general meaning of the term "income". As there is no specific exemption of such payments in the present law, they form part of the recipient's assessable income.

The Committee has expressed the view that amounts awarded to a student by way of a scholarship should be available to the successful candidate undiminished by levies of tax. Accordingly, the whole of the amounts receivable under the scholarships should be available for expenditure by the holder for the purposes for which those amounts are provided.

In paragraph (c) of this clause, therefore, it is proposed to add a new provision-paragraph (z)-to section 23 of the Principal Act, in order to confer exemption from tax and contribution upon any income derived by way of a scholarship, bursary or other educational allowance by a student receiving full-time education at a school, college or university.

The exemption will apply to payments under the Commonwealth Scholarship Scheme administered by the Universities Commission, as well as to payments under various private scholarships and similar educational awards, provided that the recipient is a full-time student at a school, college or university in Australia or overseas. Allowances received by a full-time student under the Commonwealth Rehabilitation Training Scheme also will come within the scope of the exemption.

The exemption will not extend, however, to payments, whether termed "scholarships" or otherwise, which are in effect payments in the nature of remuneration for present or future services. Allowances paid to research workers, for example, are indistinguishable in nature from salaries, and will continue to be subject to tax and contribution. Similarly, allowances paid during periods of training for future employment-such as public service cadetships, teachers' training college studentships, etc. - will not fall within the new exemption.

The amendment effected by paragraph (c) of clause 5 will apply to scholarship payments made after 30th June, 1951.

CLAUSE 6. - EXEMPTION OF PAY AND ALLOWANCES OF MEMBERS OF DEFENCE FORCE.

The purpose of the proposed section 23B is to exempt from tax and contribution the service pay and allowances earned by members of the Navy, Army and Air Force and Auxiliary Units serving in operational areas in and around Korea and Malaya.

The exemption will apply to service pay and allowances earned by a member of the Defence Force while serving in a Korean operational area after 26th June, 1950, or in a Malayan operational area after 28th June, 1950.

The period of exemption commences when the member of the Defence Force leaves Australia for service in an operational area and the exemption is terminated when he returns to Australia.

In those cases where the member is outside Australia at the time he is allotted for service in an operational area, the exemption commences when he is so allotted. Correspondingly, the exemption period is terminated when his allotment to the operational area is terminated.

Provision is made to continue the exemption during any period that a member of the Defence Force is receiving hospital treatment for illness contracted or injuries sustained during his war service.

For the purposes of the exemption, "operational areas" will be prescribed. These areas will be identical with those prescribed for the purposes of war pensions and repatriation and re-establishment benefits under the Repatriation Act 1930-1950.

CLAUSES 7 TO 9.-VALUATION OF LIVE STOCK.

INTRODUCTORY NOTE:-

In ascertaining the assessable income of a business, it is necessary to take into account the values of all trading stock on hand at the beginning and at the end of the year of income. "Trading stock" includes live stock.

Provisions for ascertaining the values of trading stock are included in the Principal Act-Sections 28 to 35 inclusive.

Insofar as the valuation of livestock is concerned, two provisions (sections 30 and 35), which were enacted in 1936 to meet special circumstances in connexion with the adoption by the Commonwealth and the States of a uniform basis of valuation, are now obsolete. The repeal of those provisions is proposed in clauses 7 and 9 of this Bill.

In clause 8, it is proposed to vary the basis of valuing the natural increase of livestock, in order that taxpayers engaged in primary production may bring their values, for income tax purposes, more closely into line with present day values.

CLAUSE 7. - WHERE COMMONWEALTH AND STATE VALUES DIFFER.

It is proposed in this clause to delete from the Principal Act an obsolete provision-section 30.

Section 30 was enacted in 1936 as an essential part of the plan for securing uniformity of treatment, insofar as the values of live stock were concerned, for the purposes of Commonwealth and State income taxes. As, prior to 1st July, 1935, the relevant provisions in Commonwealth and State laws varied widely, it was necessary to provide in section 30 for an arbitrary formula whereby a taxpayer might, if he so desired, bring his Commonwealth and State live stock values into line.

In the great majority of cases, the adjustments necessary under section 30 were completed by 30th June, 1940. In any case, State taxes have not been imposed upon incomes derived after 30th June, 1941. Section 30 has accordingly been inoperative for many years.

CLAUSE 8. - COST PRICE OF NATURAL INCREASE.

Section 32 of the Principal Act provides that the value of live stock to be taken into account shall be, at the option of the taxpayer, either its cost price or its market selling value.

In the case of natural increase of live stock the ascertainment of actual cost price would be impracticable. Section 34 accordingly provides that, where a primary producer adopts cost price as the basis of valuation, natural increase is to be taken into account at a value selected by him. The ranges within which values may be selected are prescribed in Income Tax and Social Services Contribution Regulation 5 as follows:-

The values selected are required to be notified to the Commissioner of Taxation by the primary producer. If no notification is furnished, the taxpayer is deemed to have selected the minimum prescribed values. In either case, the value adopted must be applied to the natural increase of all subsequent years unless the Commissioner approves of the selection of a different cost price.

The Commonwealth Committee on Taxation has expressed the view that the minimum values now prescribed appear to be sufficiently low to cover all practical requirements. No alteration of those minimum values is proposed.

The Committee considers, however, that the maximum values, which have remained unchanged since 1936, fall short of present day values in many instances. It is accordingly recommended by the Committee that the references to maximum values should be omitted from the Regulations, on the ground that there is no justification for placing an arbitrary ceiling on the cost price that may be selected by the primary producer.

In this clause, provision is made for the necessary drafting amendments of section 34 to enable the amendment of Regulation 5 to give effect to the Committee's recommendation.

In consequence of the proposed amendments, primary producers who have adopted the cost price basis of valuation will be able, upon application to the Commissioner of Taxation, to value natural increase born since 30th June, 1951, at a selected cost price higher than the maximum values prescribed under the present law.

CLAUSE 9. - OMISSION OF NATURAL INCREASE UNDER PREVIOUS ACT.

The purpose of this clause is to delete from the Principal Act an obsolete provision-section 35.

Section 35 was enacted in 1936 as part of the plan to give effect to recommendations of the Royal Commission on Taxation 1932-1934 in regard to the valuation of live stock.

Prior to 1st July, 1935, the primary producer had been permitted, when lodging his income tax returns, to omit from stock on hand all natural increase bred by him. The 1936 Act, however, made it compulsory for all live stock on hand at the beginning and end of each year to be brought to account. Section 35 was a transitory provision which prescribed the basis of valuation of natural increase omitted from previous returns but required to be brought to account for the first time as at 1st July, 1935.

Section 35 has no practical application to current assessments of primary producers.

CLAUSE 10.-CREDIT IN RESPECT OF TAX PAID ABROAD ON EX-AUSTRALIAN DIVIDENDS.

Section 45 of the Principal Act provides for the allowance of credits to relieve international double taxation on dividends received by residents of Australia from ex-Australian companies. The allowance of this credit has entered into the ascertainment of the deduction allowed under Part IIIA. of the Principal Act, which imposed a further tax upon the undistributed profits of public companies.

It is proposed in clause 18 of this Bill to repeal Part IIIA. and so discontinue the imposition of that further tax. It will accordingly be unnecessary to retain in section 45 the existing reference to provisions in Part IIIA.

To this extent clause 10 is a drafting amendment to delete references to provisions which are to be repealed.

The clause will also delete a reference to sub-section (3.) of section 103, which, in accordance with clause 14, will become sub-section (1.) of section 103D. A reference to the re-numbered sub-section is inserted in order to continue the effect of the present law, insofar as is necessary.

CLAUSE 11.-REBATE ON DIVIDENDS.

By this clause it is proposed to amend the basis for ascertaining the average rate of tax payable by companies.

The average rate of tax is employed in calculating the rebate allowable in respect of dividends included in the taxable income of companies resident in Australia. It may also enter into the ascertainment of credits designed to relieve international double taxation.

It is not proposed to vary the principle underlying the existing basis of ascertaining the average rate of tax. The amendment is proposed in consequence of the contemplated repeal of Part IIIA., as proposed in clause 18, the discontinuance of super-tax in the case of public companies and the proposals in clauses 26 to 34 in respect of advance payments to be made by companies.

Sub-section (2A.) of section 46, which it is proposed to omit has granted a rebate of super-tax imposed on public companies in respect of dividends received by them out of profits previously subjected to that tax. This sub-section will cease to operate by reason of the discontinuance of super-tax and its repeal is to remove from the law a provision which will be obsolete.

The clause will apply in respect of incomes of the year of income ended 30th June, 1951.

CLAUSE 12.-DEDUCTION IN RESPECT OF LIVING-AWAY-FROM-HOME ALLOWANCES.

Section 51A of the Principal Act was enacted in 1945 to provide a measure of taxation relief to employees in receipt of living-away-from-home allowances.

A living-away-from-home allowance is, in substance, additional remuneration paid to an employee to compensate him for additional expenditure he is obliged to incur through having to live away from his usual place of abode in order to perform his duties as an employee. Apart from the special provisions of section 51A, the whole of such an allowance would be subject to income tax and social services contribution in the hands of the employee.

The principle on which section 51A is founded is that a living-away-from-home allowance should be taxed only to the extent that it represents a saving in living expenses to the taxpayer in consequence of his absence from home.

Since 1948, cash living-away-from-home allowances up to Pd2 10s. per week have not been taxed. Where the allowance is between Pd2 10s. and Pd3 5s. per week, only the excess over Pd2 10s. has been included in the taxable income of the recipient. Where the allowance exceeds Pd3 5s. per week, an amount determined by the Commissioner, but not less than a standard amount of 15s. per week, is included in the taxable income.

In considering the question of deductions allowed to an employer in respect of the cost of an employee's keep, the Commonwealth Committee on Taxation recommended an increase in the standard amount from 15s. to 20s. per week for the keep of each employee. It is proposed to adopt this recommendation, and to apply the rate of 20s. generally in the assessments of both employers and employees.

In this clause, provision is made for complementary amendments of section 51A. That section, as amended, will provide for the assessment of living-away-from-home allowances on the following basis:-

(i)

Where the weekly rate of a cash living-away-from-home allowance does not exceed Pd2 10s., the full amount of the allowance will continue to be deducted from assessable income. In effect, no part of the allowance will be subject to tax and contribution.

(ii)

Where the weekly rate of a cash living-away-from-home allowance is between Pd2 10s. and Pd3 10s. per week, a deduction calculated at the rate of Pd2 10s. per week will be allowed. In effect, only the excess of the allowance over Pd2 10s. per week will be included in the taxable income of the recipient.

(iii)

Where a cash living-away-from-home allowance exceeds Pd3 10s. per week, the amount to be included in the employee's taxable income will be determined by the Commissioner, but will not be less than 20s. per week.

(iv)

Where a living-away-from-home allowance is received otherwise than in cash, a standard amount of 20s. per week will be subject to tax and contribution.

The amendments will commence to apply in assessments upon income of the current year ending 30th June, 1952.

Provision is made in clause 21 for a complementary amendment of section 221C(6.) of the Principal Act to ensure that, where an employee is in receipt of a living-away-from-home allowance, tax instalments will be deducted on the amended basis.

CLAUSE 13.-GIFTS, CALLS TO COMPANIES, RETIRING ALLOWANCES AND PENSIONS.

Section 78(1.)(a) of the Principal Act provides for the deduction of gifts to specified institutions and funds in Australia and New Guinea. The institutions specified in this provision include public hospitals.

In paragraph (a) of this clause, it is proposed to adopt a recommendation of the Commonwealth Committee on Taxation that the concession should be extended to gifts to hospitals which are carried on by societies and associations otherwise than for the purposes of profit or gain of individual members of those societies and associations.

The societies and associations which conduct these hospitals are usually of a religious or charitable character. These hospitals are essentially public institutions, and the proposed extension of the concession will remove an anomaly from the Act.

In paragraph (b) of this clause, it is proposed to effect a complementary amendment of section 78(1.)(a)(iii), to extend the deduction to gifts to public funds established and maintained for the purpose of providing money for such hospitals, or for the establishment of such hospitals.

The amendment will apply to gifts made on or after 1st July, 1951.

The amendment to sub-section (2.) of section 78 of the Principal Act, by paragraph (c) of this clause, is a drafting amendment to correct a minor error in the original Income Tax and Social Services Contribution Assessment Bill 1950.

CLAUSE 14.-PRIVATE COMPANIES.

INTRODUCTORY NOTE:-

This clause relates to the assessment of tax and contribution on the undistributed incomes of private companies.

Private companies are, broadly, those companies which are owned and controlled by, or in the interests of, relatively few individuals.

The plan of private company taxation involves the payment, in the first instance, of tax and contribution, at primary rates, on the taxable incomes derived by private companies.

Shareholders do not pay tax and contribution on income derived by a company until that income is distributed to them as dividends. These dividends are included in the total incomes of the shareholders and taxed at the appropriate rates applicable to individuals.

A private company is required to pay an undistributed income tax if, within six months after the close of the income year, it fails to make a sufficient distribution of its distributable income. In the case of non-resident companies, the period of six months is extended to nine months.

For practical purposes, the distributable income of a private company is the residue of its taxable income after deducting therefrom the tax and contribution payable at the primary rates on that taxable income.

Provision has been made to enable a private company to retain a proportion of its distributable income free from undistributed income tax. The proportion which may be so retained depends on the amount of the distributable income. A sufficient distribution is the distributable income less the proportion which the private company may retain free from undistributed income tax.

The undistributed income tax that a private company is required to pay is the additional tax and contribution that the shareholders would have become liable to pay if a sufficient distribution had, in fact, been made to the shareholders on the last day of the year of income.

Paragraph (a).

Distributable Income.

As previously explained, the distributable income of a private company is, for practical purposes, the residue of taxable income after deducting the primary tax payable on that taxable income. The deduction of the primary tax is authorized by paragraph (a) of the definition of distributable income.

With the introduction of advance payments and the consequent credits to be allowed for those payments, it is necessary to provide that the present practice of deducting the whole of the tax payable shall be continued. Sub-clause (a) will ensure that the deduction allowable is not reduced by the amount of any credit allowed in respect of an advance payment.

Paragraphs (b), (c) and (d) of the definition of distributable income remain unchanged.

Reduced Distributable Income.

This definition is being introduced into the Act to facilitate drafting.

The expression "reduced distributable income" is used in the proposed new section 103C.

The definition of the prescribed period is retained.

The Retention Allowance.

A definition of the retention allowance is being inserted to facilitate drafting. The term "the retention allowance" appears in the amended definition of undistributed amount and in the proposed section 103C.

The definition is complementary to section 103C which provides for the calculation of the retention allowance of a private company.

Undistributed Amount.

Only drafting amendments are being made in the definition of undistributed amount. These are made necessary by amendments to the special provisions relating to private companies. The substance of the present definition is being retained.

In the interest of improved drafting the meaning of nominee for purposes of Division 7 of the Principal Act is being restated as a sub-section of 103.

Subject to drafting amendments made necessary by the amendments proposed to the special provisions relating to private companies, the provisions of the present paragraph (g) of sub-section (2.) of section 103 are being restated in sub-section (3.) of amended section 103.

Private Companies.

For taxation purposes, a private company is distinguished from a public company by means of a definition.

The present definition provides, in effect, that a company shall be classified as a private company if, on the last day of the income year, it is a company-

(a)

all the issued shares of which are held by twenty or less persons; or

(b)

which is capable of being controlled by seven or less persons.

A company is regarded as being capable of control by seven or less persons if those persons hold more than half of the voting power in the company, or if those persons, together with their nominees, their relatives and the nominees of their relatives hold three-quarters or more of the voting power.

The Commonwealth Committee on Taxation, in the course of its examination of the system of company taxation, has reported that companies, in essence private companies, have succeeded in placing themselves outside the present definition of private company. The Committee has recommended that, in order to prevent avoidance of tax by those companies, the definition of private company should be amended along the lines now proposed in section 103A.

Section 103A substantially preserves the descriptions of a private company comprised in the present definition. Three further descriptions have been added, however, and, of these, two are based on beneficial ownership of the share capital being vested in relatively few persons.

Under paragraph (a) of section 103A(1.), companies the shareholders of which are twenty or less in number will continue to be classified as private companies. These companies, to a large extent, represent the incorporation of businesses formerly carried on by sole traders or partnerships. The companies are managed and controlled in exactly the same manner and by the same persons as the businesses were managed and controlled prior to incorporation. The business of these companies could still be carried on by partnerships (the partners being identical with the shareholders) as under the laws of the States, incorporation is not obligatory, except in immaterial cases, until the persons seeking to carry on business in common exceed twenty in number.

Paragraph (b) also continues, in substance, a provision of the present definition. If more than half the voting power in the company is capable of being exercised by seven or less persons, the company is classified as a private company. For the purposes of this paragraph a person and his nominees are deemed to be one person. Provision to this effect is being made in paragraph (d) of sub-section (2.) of section 103A.

By paragraph (c), it is proposed to include a new description of a private company. Under this paragraph, a company will be classified as a private company, if shares representing more than half of the paid up capital, other than capital represented by shares bearing a fixed rate of dividend only, are held by seven or less persons. In determining the number of persons by whom the shares are held, a person and his nominees are to be deemed to be one person.

Paragraph (d) continues a provision in the present definition. This paragraph is designed for application in those cases where shares of a company are held by nominees and relatives, e.g., family groups. By the application of paragraph (e) of sub-section (2.) of section 103A, in determining the number of persons who are capable of controlling a company, the shares held by a person and the shares held by his nominees and his relatives and their nominees are regarded as being held by one person. If three-quarters of the voting power is capable of being exercised by seven or less persons, the company is classified as a private company.

By paragraph (e) it is proposed to include a new provision. Under this paragraph, a company will be classified as a private company, if shares representing three-quarters of the paid-up capital are held by seven or less persons. In determining the number of persons by whom the shares are held, a person and his nominees and his relatives and their nominees are regarded as one person. Provision to this effect is contained in paragraph (e) of sub-section (2.) of section 103A.

Paragraph (f) also is a new provision. Under this paragraph, a company is to be classified as a private company, if it is capable of being controlled by any means whatever by seven or less persons. This is a general provision for application to those companies which are essentially private companies but which technically may place themselves outside the descriptions contained in the other paragraphs of the proposed definition.

The section excludes, as does the present definition, those companies in which the public are substantially interested and subsidiaries of public companies.

It is further proposed by sub-section (3.) of section 103A to afford companies an opportunity of demonstrating that it would be unreasonable to treat them as private companies.

Section 103A will commence to apply in respect of income derived during the year ended 30th June, 1952.

Sufficient Distribution.

The proposed section 103B re-expresses the description of a sufficient distribution. Instead of referring to the aggregate of amounts which a company is required to distribute, the section in effect, defines a sufficient distribution as equal to the balance of distributable income after deducting the sum of the amounts which the company may retain free of undistributed income tax.

The percentage scale, by reference to which the retainable amounts are calculated, is included in the proposed section 103C.

The amendment does not result in any change in the amount which a private company may retain free of undistributed income tax.

Retention Allowance.

The proposed section 103C will give effect to a recommendation by the Commonwealth Committee on Taxation to remove a tax advantage resulting from the division of a private company into two or more smaller companies with similar shareholders or under similar control. Under the present provisions, the advantage gained is that, if a company is so divided, a larger amount of income may be withheld from distribution without liability to undistributed income tax.

This tax advantage may be illustrated by an example. If a private company has a distributable income of Pd3,000 the amount that it may retain without incurring a liability to undistributed income tax is as follows:-

If the company were divided into three separate companies, each with a distributable income of Pd1,000, then each company would be able to retain Pd500. In the aggregate Pd1,500 could be retained free from undistributed income tax. Thus, as a result of dividing the company, an additional Pd250 could be retained free from this tax. In the case of companies with larger distributable incomes progressively greater advantages result from the dividing of the companies into smaller companies.

To remove these advantages, the Committee has recommended that only one retention allowance should be permitted to two or more private companies that are substantially owned or controlled by or on behalf of the same persons. The Committee has recommended also that the single retention allowance should be apportioned amongst the companies concerned.

Under the proposed section 103C, the amount of income that a private company may retain free of undistributed income tax, i.e., its retention allowance, is ascertained by reference to sub-sections (1.) and (2.).

Sub-section (1.), which applies to the majority of private companies, authorizes the retention allowances at present provided under the definition of "sufficient distribution" in paragraph (e) of section 103(2.).

However, sub-section (2.) applies in the case of a private company that is one of a number of private companies owned or controlled by substantially the same group of individuals.

Under sub-section (1.) a private company may retain the aggregate of amounts ascertained by applying to parts of its reduced distributable income the percentages shown in the table incorporated in the sub-section. In section 103(1.) "reduced distributable income" is defined to be the distributable income reduced by the amount of any dividends derived from other private companies included therein. In effect, companies to which this sub-section applies may retain free from undistributed income tax the same amounts as under the present provisions.

Sub-section (2.) prescribes the amount of income that may be retained by a private company which is related to one or more other private companies. The total of the reduced distributable incomes of all the inter-related companies is ascertained and a calculation made of the amount that a single company, deriving that total of reduced distributable income, would have been permitted to retain free from undistributed income tax. It is proposed that each of the inter-related private companies shall be permitted to retain free of undistributed income tax, an amount that bears the same ratio to the retention so calculated as the reduced distributable income of each private company bears to the total of the reduced distributable incomes of the inter-related private companies.

The operation of the sub-section may be illustrated as follows:-

Retention allowance of a single private company with a distributable income of Pd3,000 (ascertained by reference to sub-section (1.)):-

Amount that may be retained by the private company (A):-

(Reduced distributable income of private company (A))/(Total of reduced distributable incomes of inter-related companies (A), (B) AND (C)) = ((1,000)/(3,000)) * retention allowance Pd1,250 = Pd417


.

A similar calculation would be made to determine the retention allowances of companies (B) and (C). Each of these companies also would be entitled to a retention allowance of Pd417.

Sub-sections (3.) and (4.) together describe the classes of private companies that are deemed to be related to each other for the purposes of section 103C. They are:-

(a)

holding and subsidiary companies;

(b)

companies in each of which the same seven or less persons and their nominees hold more than half of either the paid up capital or voting power; and

(c)

companies in each of which the same seven or less persons and their relatives and their nominees hold 75 per cent. or more of either the paid up capital or voting power.

Companies that satisfy any one or more of these descriptions are inter-related companies.

Sub-section (5.) is an interpretation clause relating to the two preceding sub-sections.

Paragraph (a) applies in determining the number of persons who have the substantial ownership or control of a private company. A person and his nominees are deemed to be one person and a nominee of a relative of a person is deemed to be a relative of that person.

Paragraph (b) specifies the circumstances under which a company is regarded as the subsidiary of another company. If a company, directly or indirectly, holds shares in another company representing half or more of either its voting power or paid up capital, the second mentioned company is a subsidiary of the holding company. Capital represented by shares bearing a fixed rate of dividend only is disregarded. Generally shares of this class do not give the shareholders an effective part in the control of a company or full participation in a division of its profits.

Paragraph (iii) of section 103C(5.)(b) applies where a private company has a substantial interest in the capital or voting power in another private company indirectly through an intervening company or intervening companies. The operation of this provision may be illustrated by an example:-

If-

Company (B) is a subsidiary of private company (A);

Company (C) is a subsidiary of company (B);

Company (D) is a subsidiary of company (C); and

Company (E) is a subsidiary of company (D);

then in succession each of the companies (C), (D) and (E) (in addition to company (B)) will be treated as subsidiaries of private company (A). In this case, the distributable incomes of all the private companies concerned would be aggregated to determine the retention allowance to be allocated proportionately amongst the companies.

These amending provisions will apply to the distributable incomes derived by private companies during the year ended 30th June, 1952.

Deduction of Taxes Paid.

Section 103D will re-enact the provisions of sub-sections (3.), (4.) and (5.) of section 103 of the Principal Act, and, in addition, will include provisions made necessary by the introduction of a system of advance payments to be made by companies.

As previously explained, the primary tax payable on the taxable income of an income year may be deducted from that taxable income in determining the distributable income of the private company for that year.

In certain circumstances section 103D will permit a private company to forego that deduction and, in its stead, to claim a deduction for primary taxes actually paid in the income year. The amount of this deduction is reduced by the amount of any refund of primary tax received by the company in the year of income.

Consequent upon the introduction of a system of advance payments to be made by companies, it is necessary to provide that a private company exercising its right to deduct primary tax actually paid shall be entitled to deduct the amount paid as advance payments of primary tax.

Sub-section (1.) of the new section 103D ensures the allowance of the appropriate deduction.

Sub-section (3.) is a new provision made necessary by the allowance of credits in respect of advance payments which have been made.

There will be cases in which a credit for an advance payment is set against an amount of tax which is not deductible in determining the distributable income of the year in which the credit is applied, e.g., in payment or part payment of private company tax. The amount of the advance payment so credited will have been previously deducted in arriving at the distributable income of the year in which the advance payment was made. If a refund, instead of a credit, of the advance payment had been made, the amount of the refund would have reduced the amount of taxes deductible in ascertaining the distributable income of the year in which the refund was made.

In order that the system of advance payments and credits shall not vary the principle underlying the present basis of deductions, sub-section (3.) provides that credits allowed in the circumstances mentioned shall be treated in the same manner as if the taxpayer had received a cash refund.

CLAUSE 15.-ELECTION THAT AVERAGING PROVISIONS SHALL NOT APPLY.

The rate of income tax payable by a primary producer is ascertained, as a general rule, by reference to his average taxable income. The operation of the averaging provisions is explained in the note to sub-paragraph (2.) of paragraph 4 of the Income Tax and Social Services Contribution Resolution. In that note, reference is made also to the proposal to limit the application of the averaging system to that part of a primary producer's taxable income which does not exceed Pd4,000.

The averaging system operates to the advantage of the taxpayer in years of high income, when he is best able to pay, and to his disadvantage in years of low income, when he is least able to pay. Clause 15 is accordingly designed to grant primary producers a right of election to withdraw permanently from the operation of the averaging provisions. The right of election will first apply to assessments upon income of the year ending 30th June, 1952.

To withdraw from averaging, the primary producer will be required to make an election in writing. This election should normally be lodged with the return of income for the relevant year or prior thereto. In special circumstances, the Commissioner will be empowered to grant an extension of time within which the right of election may be exercised.

The effect of making the election will be that, in the relevant year of income and in every subsequent year, the primary producer will be taxed on the same basis as taxpayers to whom the averaging provisions do not apply. An election, once made, will be irrevocable.

CLAUSE 16.-REBATE OF TAX PAYABLE BY VISITING INDUSTRIAL EXPERTS.

In connexion with clause 5 of the present Bill, the necessity for a drafting amendment of section 23(c)(vii) of the Principal Act is explained. The amendment proposed in that clause is the substitution of the expression "Director of the Division of Industrial Development" for an obsolete reference to the Secondary Industries Commission.

Clause 16 is designed to effect a complementary drafting amendment of section 160ABA of the Principal Act.

Like section 23(c)(vii), section 160ABA grants a special concession in respect of remuneration earned by a non-resident during a visit to Australia in the capacity of an industrial expert.

Section 160ABA, however, applies only in those cases where the remuneration is not liable to income tax in the country where the visitor is ordinarily resident. The section provides for the allowance of a rebate of Australian income tax, the effect of which is that the visitor is required to pay to the Commonwealth no more than the equivalent of the tax he would have paid if he had been taxed in his own country.

The concession under section 160ABA is allowed, during the first year of the visitor's stay in Australia, without the necessity of any formal certificate as to the purpose of his visit. The allowance of the concession during the second, third and fourth years of the visit will be conditional upon the Director of the Division of Industrial Development of the Department of National Development (in lieu of the Secondary Industries Commission) certifying, and the Treasurer being satisfied, that the retention of the visitor's services in Australia will assist in the development of Australian industry.

CLAUSE 17.-APPLICATION OF TAX CREDIT.

Clause 17 is a drafting amendment consequent upon the repeal of Part IIIA. of the Principal Act and the re-numbering of provisions relating to private companies.

CLAUSE 18.-REPEAL OF PART IIIA.-FURTHER TAX AND CONTRIBUTION ON UNDISTRIBUTED INCOME OF COMPANY.

By this clause it is proposed to repeal Part IIIA. of the Principal Act, which imposes a tax upon the undistributed profits of public companies.

The repeal is a feature of the review of company taxation which has been dealt with in the explanatory notes relating to the rates of tax for the present financial year.

The termination of the further tax on the undistributed profits of public companies was recommended by the Commonwealth Committee on Taxation.

The repeal will operate to relieve public companies of the further tax on their undistributed profits of the year ended 30th June, 1951.

CLAUSE 19.-ASCERTAINMENT OF AUSTRALIAN TAX ON DIVIDEND.

Clause 19 proposes an amendment to the provisions of the Principal Act relating to the allowance of tax credits designed to relieve international double taxation on dividends.

Article XII(2) of the United Kingdom-Australia double taxation agreement and section 45 of the Principal Act provide for the granting of credits to relieve international double taxation on dividends received by residents of Australia from companies resident in the United Kingdom and in other countries outside Australia. The amount of these credits is restricted to the amount of Australian tax imposed on the material dividend. It is accordingly necessary to provide a statutory basis for ascertaining the amount of Australian tax payable on such dividends.

In addition, it is necessary, for the purposes of Article VI(3) of the United Kingdom-Australia double taxation agreement, to ascertain the amount of Australian tax payable in respect of certain dividends paid to United Kingdom residents.

The existing section 160K of the Principal Act prescribes a basis for ascertaining the amount of Australian tax payable on dividends. In view of amendments previously made to the Principal Act, for example, the substitution of concessional deductions in lieu of rebates of tax, and further amendments now proposed, it has been necessary to revise the method by which the Australian tax payable in respect of the dividend is to be ascertained.

Clause 19 accordingly proposes the repeal of the present section 160K and the insertion of a new section 160K providing an appropriate formula for ascertaining the Australian tax on dividends.

When the present section 160K was enacted, concessional rebates were allowed in respect of dependants, medical expenses, gifts to public benevolent institutions, etc. For the purposes of ascertaining the Australian tax payable in respect of dividends, the concessional rebates were, in the generality of cases, treated as though they were deductible ratably from the tax payable on all the various classes of income comprising the taxable income.

In place of the concessional rebates, deductions (which will be referred to as deductions of a concessional nature) are now allowed in respect of dependants, medical expenses, life insurance premiums, gifts, one-third of calls to certain companies, &c. The new section 160K will provide for the ascertainment of the Australian tax on dividends on a basis which will, in effect, treat the deductions of a concessional nature as though they were deductible ratably from the different classes of income. This basis will conform with the principle previously adopted and will produce a result equitable both to taxpayers and to the revenue.

Deductions of a concessional nature allowable in the case of companies include gifts to public benevolent institutions and one-third of any calls paid to certain companies. Where it is necessary to determine the Australian tax payable on a dividend received by a resident public company, the ratable allocation of the deductions of a concessional nature will not be material. In these cases the rebate allowable in respect of the dividend will reduce the Australian tax on the dividend to nil.

In the case of a dividend received by a non-resident company, a rebate is not generally allowable and Australian tax will be payable on the dividend. Similarly, Australian tax may be payable by a resident private company which has received a dividend included in any undistributed profits derived by it and subjected to private company tax.

In these cases the gross amount of tax payable on the dividend will be ascertained by applying the average rate of primary tax payable for the year of tax to the net dividend. In the case of a private company a proportion of any private company tax payable will also be ascertained. From the sum of these amounts there will be deducted any rebate allowable in respect of the net dividend.

The net dividend will be ascertained in accordance with sub-section (5.) of the proposed section 160K. Examples below illustrate the application of this provision.

The Australian tax payable on dividends received by companies will be determined in accordance with sub-section (2.) of the new section 160K. The application of the sub-section can be illustrated by the following example:-

In these circumstances the net dividend, as defined in the new sub-section (5.), will be Pd5,000 less a proportion of the Pd1,000 deductions of a concessional nature. This proportion is-

(deductions of a concessional nature) * (dividend included in the taxable income)/(amount which would have been the taxable income if deductions of a concessional nature had not been allowed.) = Pd1,000 * (5,000)/(26,000) = Pd192


.

The net dividend is accordingly Pd5,000 less Pd192, that is, Pd4,808.

The calculation of the tax payable at the proposed rates of tax would be -

It is assumed that only Pd400 of the dividend of Pd4,400 paid by the private company was actually paid out of the dividend of Pd5,000 received from the public company and included in the taxable income of the private company. On this basis the amount of Australian tax payable on the dividend of Pd5,000 is-

Sub-section (3.) of the proposed new section prescribes the basis for ascertaining the tax payable on dividends received by individuals. For this purpose it is necessary to ascertain the net dividend subject to credit, and this is done in accordance with the definition of "the net dividend" in sub-section (5.). Generally speaking, the net dividend is the amount of dividend subject to credit which is included in the taxable income.

The application of sub-section (3.) can be considered in relation to a taxpayer who derives-

It is assumed that the taxpayer is entitled to deductions of Pd400 in respect of the maintenance of dependants, medical expenses, gifts and calls to certain companies. In these notes such deductions will be referred to as deductions of a concessional nature. It is also assumed that the taxpayer is entitled to deduct from his personal exertion income Pd400 expended in gaining that income.

The tax payable on the facts of the example can be explained as follows:-

The net dividend subject to credit is Pd400 and the application of sub-section (3.) will be as follows:-

If the ex-Australian tax on the Pd400 dividend subject to credit were, say, Pd100, the credit allowable would be the amount of the Australian tax payable on that dividend, that is, Pd82 10s.

Further aspects of the operation of sub-section (3.) of the proposed section appear from an example in which a taxpayer derives-

It will be assumed that the taxpayer is entitled to deduct Pd500 for deductions of a concessional nature and to a deduction of Pd200 for interest on money borrowed to buy the shares on which the dividend subject to credit was paid.

The allowable deductions will be allocated against the various classes of income as follows:-

The tax and contribution payable will be-

In this example, the net dividend is Pd1,000, being the dividend remaining after the allowance of deductions, other than deductions of a concessional nature.

To ascertain the Australian tax on the dividend, the proposed sub-section (3.) is applied as follows:-

If it be assumed that the dividend subject to credit bore ex-Australian tax amounting to, say, Pd300, the amount of the credit would equal the Australian tax on the dividend. The credit would accordingly be Pd149 19s. 11d.

The revised basis of ascertaining the Australian tax payable on dividends will apply in respect of dividends received during the income year ended 30th June, 1951, and subsequent years.

CLAUSE 20.-APPLICATION OF CREDIT.

Clause 20 will effect drafting amendments arising from the repeal of Part IIIA of the Principal Act and from the re-numbering of provisions relating to private companies.

CLAUSE 21.-DEDUCTIONS BY EMPLOYER FROM SALARY OR WAGES.

The purpose of this clause is to effect the necessary amendments of section 221C of the Principal Act to implement a recommendation of the Commonwealth Committee on Taxation that the standard value, for income tax purposes, of food provided to an employee by his employer should be increased from 15s. to 20s. per week.

Section 221C provides for the deduction of income tax instalments from the salaries or wages of employees.

In many cases employees receive (in addition to salaries or wages) meals, sustenance or the use of premises or quarters as part remuneration for their services.

Where, in such cases, the value of the sustenance or quarters is specified in an award of the Arbitration Court or other industrial tribunal, the employee's earnings are increased, for the purpose of tax instalment deductions, by the amount so specified-section 221C(5.). Where, however, the value of the sustenance, etc., is not specified in the relevant industrial award, the employee's earnings are increased, under the present provisions of sub-section (4.) of section 221C, by the standard amounts of 15s. per week for meals or sustenance and by 5s. per week for the use of premises or quarters.

In paragraph (a) of this clause, it is proposed to amend sub-section (4.) to increase the standard value of meals or sustenance from 15s. to 20s. per week. The standard value for the use of premises or quarters will remain unchanged at 5s. per week. Accordingly, where an employee is provided with both board and quarters by his employer an amount of 25s. will be added to his weekly earnings for the purpose of tax instalment deductions.

Paragraph (b) of this clause provides for a complementary amendment of sub-section (6.). The effect of that sub-section as at present enacted is that, where a living-away-from-home allowance received by an employee does not exceed Pd3 5s. per week, only the amount by which that allowance exceeds Pd2 10s. per week is subject to tax instalment deductions. Where such an allowance exceeds Pd3 5s. per week, it is treated, for tax instalment purposes, as increasing the employee's earnings by a standard amount of 15s. per week.

In conformity with the other amendments effected by this clause, and in conformity also with amendments of section 51A of the Principal Act which are effected by clause 12 of the present Bill, it is proposed to increase to 20s. per week the taxable element of living-away-from-home allowances in excess of Pd3 10s. per week.

CLAUSE 22.-EMPLOYERS OTHER THAN GROUP EMPLOYERS.

The purpose of this clause is to effect drafting amendments of section 221G(2.)(a)(iii) which are necessary to correct two minor typographical errors in the original Income Tax Assessment Bill (No.2) 1947.

CLAUSE 23.-EMPLOYER NOT ACCOUNTING FOR DEDUCTIONS.

It is an essential feature of the pay-as-you-earn system of taxation that an employer should deduct tax instalments from the earnings of his employees. Where such deductions have been made, the employer must either purchase tax stamps in respect of the deductions, or, in the case of a "group employer" of ten or more persons, he must remit to the Taxation Department the amounts deducted.

Section 221P of the Principal Act provides for the recovery by the Commissioner of Taxation of tax instalments deducted, if the employer fails to purchase the necessary tax stamps or to remit the tax instalments to the Department, as the case may require.

If the employer's property has become vested in a trustee, the Commissioner is empowered to recover from the trustee the amount of the tax instalments withheld by the employer. For example, where the employer has become bankrupt, the Commissioner's right of recovery lies against the trustee of the bankrupt estate.

It is further provided in such cases that the recovery of tax instalments deducted by the employer shall take priority over all other claims against the bankrupt estate. The principle justifying this absolute priority is that tax instalments deducted by an employer from the earnings of his employees are held in trust for the Commissioner.

The present provisions have been found to be defective, owing to the limited technical meaning of the term "vested". The priority given to the Commissioner does not apply, as originally intended, where the employer is a company in voluntary liquidation or a company whose assets are under the control of a receiver. In such cases the Commissioner has no priority whatever, but ranks pari passu with other unsecured creditors after the debts of preferential and secured creditors have been met.

In order to ensure an effective right of recovery of moneys held in trust for the Commissioner, it is proposed in this clause to amend section 221P. The amendment will extend the priority, now granted by the section in cases where an employer's property has been vested in a trustee, to cases where the control of that property has passed to a trustee, as, for example, on the voluntary liquidation of a company.

The amendment effected by this clause will come into operation on the date when the Bill receives the Royal Assent. To avoid the possibility of retrospective application, however, it is provided in sub-clause (2.) that the amendment will not apply in a case where an employer's property passed to the control of a trustee before that date.

CLAUSE 24.-PROSECUTIONS FOR TAX INSTALMENT OFFENCES.

The provisions relating to the collection of income tax and social services contribution by instalments specify penalties to be imposed for offences against those provisions-as, for example, for failure to deduct tax instalments from an employee's earnings.

With one immaterial exception, the penalties specified in those provisions are of a pecuniary character, or impose a term of imprisonment not in excess of six months.

Section 21 of the Commonwealth Crimes Act accordingly operates to limit the period within which prosecutions for tax instalment offences may be commenced. The combined effect of that section and of the present provisions of the Principal Act is that prosecutions for such offences must be commenced within twelve months of the commission of the offence.

Many of the offences against the tax instalment provisions are of such a nature that they may remain undetected until more than twelve months have elapsed after the commission of the offence.

It is proposed in this clause to insert a new section (221YAA.) in the Principal Act to enable prosecutions for tax instalment offences to be commenced at any time.

The amendment is in conformity with existing provisions in the Principal Act (e.g., sections 223(2.) and 227(3.)) which enable prosecutions for certain offences against the general provisions of the Act to be instituted without limitation as to time of commencement.

CLAUSES 25 TO 34.-ADVANCE PAYMENTS.

INTRODUCTORY NOTE:-

It is proposed to collect from companies during the present financial year a portion of the tax which will ultimately be payable in respect of profits being earned during the current income year. The proposal has been explained in the notes dealing with the rates of income tax and social services contribution to be imposed for the financial year ending 30th June, 1952.

Clauses 25 to 34 are machinery provisions necessary for the collection of the advance payments. Division 3 of Part VI. of the Principal Act includes machinery relating to the provisional tax payable by individuals and these provisions can, by minor adaptations, be made effective in respect of advance payments by companies. Clauses 25 to 34 accordingly include a number of drafting amendments to the sections comprising Division 3.

CLAUSE 25.-HEADING TO DIVISION 3 OF PART VI.

It is appropriate to include in the heading to Division 3 of Part VI. of the Principal Act a reference to advance payments. Clause 25 effects this drafting amendment.

CLAUSE 26.-PROVISIONAL TAX AND CONTRIBUTION AND ADVANCE PAYMENTS INTERPRETATION.

It is proposed in clause 26 to insert a definition of "advance payment", which is required in order to facilitate the drafting of the provisions relating to advance payments. Two other drafting amendments include in the Principal Act references to advance payments. These references are necessary for the adaptation of the provisional tax provisions to advance payments.

CLAUSE 27.-LIABILITY TO PROVISIONAL TAX.

This clause effects a drafting amendment necessitated by the inclusion of advance payment provisions in the Division relating to provisional tax.

CLAUSE 28.-LIABILITY TO ADVANCE PAYMENT.

The effect of clause 28 is that companies will be liable to make advance payments during the year of income in which profits are earned. The purpose of the advance payments has been explained in notes on the legislation declaring the rates of income tax and social services contribution.

Advance payments will be payable during the current financial year. So far as concerns future years advance payments will be payable only if the Parliament enacts provisions for the ascertainment of the amount of the advance payments.

In the case of freight and passage monies paid to certain overseas shipowners, tax and contribution is paid at the time income is received. In these circumstances, the collection of advance payments would not be appropriate and sub-section (3.) of the proposed section states the conditions under which advance payments will not be levied.

CLAUSE 29.-AMOUNT OF ADVANCE PAYMENT.

It is proposed in clause 29 that the amount of advance payment to be made shall be determined in accordance with the Act imposing the rates of income tax and social services contribution for the financial year in which the advance payment is to be made.

As a Bill imposing rates of tax is introduced into the Parliament annually, the adoption of this course will enable Parliament to review annually the question of the collection of advance payments.

The amount of advance payment to be made for the present financial year is accordingly prescribed in legislation relating to rates of tax and has been discussed in notes relating to that legislation.

CLAUSE 30.-WHEN PROVISIONAL TAX OR ADVANCE PAYMENT PAYABLE.

Clause 30 is a drafting amendment which will adapt, for the purposes of advance payments, the provisions relating to the payment of provisional tax by individuals.

Notices of assessment for the tax (other than private company tax) payable by companies will, in the generality of cases, notify the amount of advance payment to be made in respect of the tax to be determined finally in the succeeding year. The advance payment will be due on the same date as the tax notified in the notice of assessment, that is, at least 30 days' notice will be given of the liability to be met.

Should circumstances render it inappropriate or impracticable to give notice of the advance payment in the usual form, the Commissioner will be in a position to issue a special notice. The advance payment will not, however, become due until at least 30 days after such notice is given.

CLAUSE 31.-PROVISIONAL TAX OR ADVANCE PAYMENT TO BE CREDITED AGAINST TAX ASSESSED.

Where an assessment is made upon the profits earned by a company in any year of income, and an advance payment has been made in respect of that tax, the amount of that advance payment will be treated as a part payment of the tax assessed. Clause 31 accordingly requires credit to be allowed for advance payments.

In the event of an advance payment in respect of the income of any year exceeding the final liability for tax and contribution on that income, the excess of the advance payment will be credited against any other outstanding liability or, if no tax is due by the taxpayer, a refund will be made.

CLAUSE 32.-PROVISIONAL TAX OR ADVANCE PAYMENT NOT TO BE NOTIFIED WHERE INCOME TAX ASSESSED.

Section 221YF of the Principal Act provides that provisional tax shall not be notified in respect of any income, if the assessment of the tax on that income has been made. It is similarly unnecessary to collect an amount of advance payment from a company if liability for tax and contribution has been previously established by the making of an assessment.

Clause 32 is a drafting amendment which will cause section 221YF of the Principal Act to apply to advance payments in the same way as it now applies to provisional tax payable by individuals.

CLAUSE 33.-ALTERATION OF NOTICE OF PROVISIONAL TAX OR ADVANCE PAYMENT.

Where an assessment is amended it may be appropriate to effect a corresponding reduction or increase in the amount of advance payment to be made. Power to make such an alteration in respect of provisional tax due by individuals is contained in section 221YG of the Principal Act.

Clause 33 will amend section 221YG in order to establish the same position in respect of advance payments.

CLAUSE 34.-NOTICE OF PROVISIONAL TAX OR ADVANCE PAYMENT TO BE Prima Facie EVIDENCE.

This clause is proposed in order that the Commissioner may have the same right of recovering from companies advance payments, as exists in respect of provisional tax due by individuals.

A notice of assessment or document under the hand of the Commissioner, the Second Commissioner, or a Deputy Commissioner will not be conclusive evidence of the correctness of the amount of advance payment due. Such a notice or document will constitute prima facie evidence. A company which is being sued for the recovery of an advance payment will have the opportunity of rebutting the prima facie evidence that the amount of advance payment and related particulars are correct.

CLAUSES 35 TO 38.-TAXATION PROSECUTIONS.

The amendments proposed in these clauses are merely of a drafting nature.

The sections of the Principal Act relating to the institution of prosecutions for income tax offences have been found to be defective. Such prosecutions may be instituted in the Supreme Court of any State, but not in the Supreme Court of, say, the Australian Capital Territory.

In these clauses it is accordingly proposed to amend the relevant sections of the Principal Act to enable prosecutions to be instituted in the Supreme Court of any Territory of the Commonwealth, in the same manner as they may be now instituted in the Supreme Court of any State.

CLAUSE 39.-RELEASE OF TAXPAYERS IN CASES OF HARDSHIP.

Section 265 of the Principal Act provides for relief from the payment of income tax in cases of hardship. Applications for such relief, where the amount of tax liability involved exceeds Pd20, are examined by a special Board consisting of the Commissioner of Taxation, the Secretary to the Treasury and the Comptroller-General of Customs or their delegates. Where this Board is satisfied that the exaction of the full amount of tax will entail serious hardship, it is empowered to release the taxpayer wholly or in part from his liability to pay the tax.

In those cases where the tax liability does not exceed Pd20, the powers of the Relief Board may be exercised by the Commissioner of Taxation alone.

The Relief Board is called upon, however, to deal with a large number of relatively small cases, where the tax liability is between Pd20 and Pd50. A considerable amount of work is involved in preparing these cases for submission to the Board.

In order to eliminate unnecessary work in this connection, it is proposed in this clause to extend the Commissioner's power to grant relief in cases where the tax liability does not exceed Pd50. The amendment will assist in effecting departmental economies without prejudice or inconvenience to taxpayers seeking taxation relief on the grounds of hardship.

CLAUSE 40.-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.