House of Representatives

Explanatory Notes

(Amendments to be moved by the Minister for Defence, the Honourable J.J. Dedman.)

AMENDMENTS TO CLAUSE 9 OF THE BILL AND TO SECTION 103 OF THE PRINCIPAL ACT.

AMENDMENTS TO CLAUSE 9 OF THE BILL.

By these amendments it is proposed to modify the definition of "private company" so as to exclude certain companies in which the public are substantially interested.

By clause 9 of the Bill "private company" is defined to mean-

"a company which, on the last day of the year of income, is a company of any one or more of the following descriptions:-

(a)

a company all of the issued shares of which are held by not more than twenty persons;

(b)

a company in which the major portion of the voting power is capable of being exercised by one person or by persons not more than seven in number; and

(c)

a company (not being a company in which the public are substantially interested) the voting power in which is, to the extent of not less than seventy-five per centum, capable (having regard to the operation of paragraph (d) of the next succeeding sub-section) of being exercised by one person or by persons not more than seven in number,

but is not a subsidiary of a public company;".

By a further provision in clause 9 of the Bill, a company shall be deemed to be a company in which the public are substantially interested if-

(1)

shares of the company (other than preference shares) have in the course of the year of income been quoted in the official list of a stock exchange; and

(2)

shares carrying 75 per centum or more of the voting power of the company are not, at the end of the year of income, beneficially held by or held directly or indirectly on behalf of or for the benefit of, twenty or less persons.

It will be noted that companies in which the public are substantially interested are excluded from paragraph (c) but not from paragraph (b) of the proposed definition of "private company".

Under paragraph (b) of the proposed definition of "private company", any company (other than a subsidiary of a public company) will be a private company if, at the end of the income year, the major portion of the voting power in the company is capable of being exercised by seven or less persons. This paragraph applies irrespective of whether the ordinary (as distinct from the preference) shares of the company have or have not, in the course of the year of income, been quoted in the official list of a stock exchange.

An examination has disclosed that there are companies in which the public are substantially interested (as defined in clause 9 of the Bill) but which would be classified as private companies as the major portion of the voting power is capable of being exercised by seven or less persons.

By amendments Nos. (2) and (3) these companies will be excluded from the proposed definition of "private company".

Sub-clause (2.) is being enacted for application to those companies-

(a)

the shares of which (other than preference shares) were during the year ended 30th June, 1948, quoted in the official list of a stock exchange; and

(b)

the shares of which carrying 75 per centum or more of the voting power were, at the 30th June, 1948, beneficially held by or held directly or indirectly on behalf of or for the benefit of twenty or less persons.

In these cases, the companies would be subject to tax as private companies, in respect of income of the year ended 30th June, 1948, if sub-clause (2.) of clause 9 were not enacted. It is proposed by sub-clause (2.) that the question whether, in respect of that year, such a company is to be subject to tax as a private company or as a non-private company is to be determined by reference to paragraph (a) of sub-section (2.) of section 103 of the Income Tax Assessment Act 1936-1947. That paragraph provides, in effect, that a company shall be deemed to be a company in which the public are substantially interested if-

(1)

shares of the company (other than preference shares) carrying not less than 25 per centum of the voting power have been allotted unconditionally to, or acquired unconditionally by, and are at the end of the year of income beneficially held by the public (not including a private company); and

(2)

any such shares have in the course of that year, been quoted in the official list of a stock exchange.

If a company in respect of the year ended 30th June, 1948, is a company in which the public were substantially interested as defined in paragraph (a) of sub-section (2.) of the Income Tax Assessment Act 1936-1947, it will not be subject to tax as a private company on income derived during that year.

The purpose of sub-clause (2.) of clause 9 is to preserve to companies, the ordinary shares of which were, in the course of the year of income ended 30th June, 1948, quoted in the official lists of stock exchanges, all the rights to be taxed as non-private companies in respect of that year that those companies would have had if the amendments proposed by the Bill were not enacted.

In respect of the year ending 30th June, 1949, and subsequent years, however, it is proposed that the question whether the company is a company in which the public are substantially interested will be determined according to the defined meaning of that expression in clause 9 of the Income Tax Assessment Bill.

AMENDMENT TO CLAUSE 23 OF THE BILL.

This is a drafting amendment consequent on Amendment No.(5) to clause 14 of the Bill.