House of Representatives

Explanatory Memorandum

(Circulated by the Treasurer, the Rt. Hon. J. B. Chifley.)

Ed. Note

Notes on Clauses

SOCIAL SERVICES CONTRIBUTION ASSESSMENT BILL 1945.

INTRODUCTORY NOTE:

The Bill relates to the Imposition, Assessment and Collection of a Social Services Contribution to be measured by the annual income derived by each contributor. The income on which the Contribution is to be based is described as the "contributable income" which will be ascertained in the same manner as taxable income is ascertained for Income Tax purposes. The amount of the Contribution payable will be calculated by applying a rate to the contributable income. The rate appropriate to the contributable income is graduated subject to a maximum of eighteen pence in the Pd. The method of ascertainment of the rate is explained later in this memorandum.

The lower ranges of income which are at present subject to Income Tax will in future be free from Income Tax but subject to Social Services Contribution. In the higher ranges of income, part of the amount at present payable as Income Tax will in future be payable in the form of Social Services Contribution. Companies will not be required to pay a Social Services Contribution except as regards the undistributed profits of private companies. Private companies will be obliged to pay the aggregate additional amount of Social Services Contribution their shareholders would have paid if the undistributed profits had been released to the shareholders by way of dividend.

Machinery provisions similar to those in the existing Income Tax Assessment Act will be employed for the purposes of the assessment and collection of the contribution. Returns lodged by taxpayers for Income Tax purposes will be used for purposes of assessment of Social Services Contribution and, where the contributor is also liable to pay Income Tax, the separate amounts payable will be notified on a single notice of assessment. Correspondingly, instalment deductions made from salary and wages will be used for the dual purposes of Social Services Contribution and Income Tax.

The following are notes on the Clauses of the Bill:-

PART I.-PRELIMINARY.

CLAUSE 2.-COMMENCEMENT.

Section 5(1A.) of the Acts Interpretation Act 1901-1941 provides that every Act shall come into operation on the twenty-eighth day after the day on which that Act receives the Royal Assent, unless the contrary intention appears in the Act.

It is proposed that the Social Services Contribution Assessment Act shall come into operation on the day on which it receives the Royal Assent. The main purpose of this proposal is to facilitate the collection, in accordance with the pay-as-you-earn system of taxation, of provisional contribution during the present financial year, i.e., the year ending 30th June, 1946. Where income is derived in the form of salaries or wages, contribution instalments will be deducted from the salaries and wages as from 1st January, 1946. Where income is derived from sources other than employment, e.g., business profits, professional fees, rents, dividends, interest or other investment income, the recipient of the income will be required to pay a provisional contribution. The amount to be provisionally contributed this year will be determined by reference to the contributor's taxable income of the year ended 30th June, 1945. When the return of income of the year ending 30th June, 1946, has been furnished and the amount of contributable income and the contribution payable thereon have been finally assessed, the contribution provisionally paid will be applied in payment of the amount of contribution as finally assessed.

A delay of twenty-eight days in bringing the Social Services Contribution Assessment Act into operation would have a seriously adverse effect on the general assessing programme of the Taxation Department. In providing by Clause 2 that the Act shall come into operation on the day on which it receives the Royal Assent, the assessment and collection of provisional contribution will be facilitated.

CLAUSE 3.-SAVING.

This clause is similar to Section 3 of the Income Tax Assessment Act. The two provisions will preserve the concessions allowed by the Commonwealth Debt Conversion Act 1931 and by sub-section (2.) of section 52B of the Commonwealth Inscribed Stock Act 1911-1945 relating to the liability to tax of interest on Government Securities.

The sections in the Commonwealth Debt Conversion Act dealing with the liability to Commonwealth Income Tax are sections 14 and 20. Section 14 of that Act provides that interest on securities issued in exchange for tax-free securities shall be free of any tax for the original period of duration of the securities (as defined). Section 20 of that Act provides that the interest from securities subject to tax shall not be subject to Special Property Tax or to ordinary Income Tax to a greater extent than that imposed in 1930.

Sub-section (2.) of section 52B of the Commonwealth Inscribed Stock Act 1911-1945 provides that, if the prospectus so declares, the interest derived from Commonwealth loans issued after the 12th September, 1931, shall be subject to the same concession as is provided under section 20 of the Commonwealth Debt Conversion Act, i.e., the interest shall not be taxed to a greater extent than if the rates in force in 1930 had been imposed, and shall not be subject to Special Property Tax.

The combined effect of clause 3 and the corresponding provision in the Income Tax Assessment Act will be that the total amount of Income Tax and Social Services Contribution payable on any Commonwealth Loan interest to which the Commonwealth Debt Conversion Act or section 52B of the Commonwealth Inscribed Stock Act applies, will not exceed the Income Tax that would have been payable on that interest at the appropriate rate of Income Tax imposed by the Income Tax Acts 1930.

The rate of Social Services Contribution payable on such interest will not, therefore, exceed the 1930 Income Tax rate appropriate to a taxable income of the same amount as the contributable income. Where the relevant 1930 Income Tax rate is equal to or less than the rate of Social Services Contribution, no Income Tax will be payable on that interest. Where the relevant 1930 Income Tax rate exceeds the rate of Social Services Contribution, the rate of Income Tax payable on the interest will be equal to the excess of the 1930 Income Tax rate over the Social Services Contribution rate.

CLAUSE 4.-PARTS.

Clause 4 enumerates the Parts into which the Bill is divided.

CLAUSE 5.-DEFINITIONS.

INTRODUCTORY NOTE:-

Although the general plan of the Social Services Contribution legislation involves the adoption of the Income Tax Assessment Act with such modifications as are necessary or appropriate, it is nevertheless essential that certain words and expressions which are used in the Social Services Contribution Assessment Act should be given statutory definition. These words and expressions are collected in Clause 5. Notes explanatory of the definitions are set out hereunder:-

Contributable income

For Income Tax purposes, the taxable income of a taxpayer is ascertained by deducting from his total assessable income all allowable deductions. The effect of the definition of contributable income, therefore, is that income which is assessable for Income Tax purposes is the basis on which Social Services contributable income is ascertained. Income that is exempt from Income Tax will be likewise exempt from Social Services Contribution. Correspondingly, deductions allowable for Income Tax purposes will also be allowable in the Social Services Contribution assessment.

Contribution

The purpose of the definition is to provide that, unless a contrary intention appears, the word "contribution" shall mean the Social Services Contribution payable in respect of the amount of contributable income ascertained in accordance with the provisions of the Social Services Contribution Assessment Act and at the appropriate rate of contribution specified in the Social Services Contribution Act which imposes the contribution.

Contributor

The meaning given to this word corresponds to the meaning given to the word "taxpayer" in the Income Tax Assessment Act.

It does not mean, however, that every person who derives income will be required to pay Social Services Contribution. For example, a single person will not be required to contribute unless his annual income exceeds Pd104 and a person with dependent wife or child or mother will be free from the obligation to contribute as long as his annual income does not exceed Pd156.

Income Tax Assessment Act

As already explained, the Bill proposes that, subject to certain necessary modifications and adaptations, the provisions of the Income Tax Assessment Act shall be applied generally in relation to Social Services Contribution in like manner as they apply in relation to Income Tax.

It is also proposed that, except where express provision is made to the contrary, the provisions of the Income Tax Assessment Act which are to have application in Social Services Contribution assessments for any financial year, shall be the relevant provisions of the Income Tax Assessment Act which have application for purposes of the assessment of Income Tax for that same financial year. If, for purposes of assessment in any subsequent financial year, additional allowable deductions are provided for Income Tax purposes, those deductions will also be allowable for purposes of Social Services Contribution.

Similarly, any amendment affecting the amount of assessable income ascertainable for Income Tax purposes will also affect the amount of contributable income ascertained for purposes of Social Services Contribution.

The above definition is designed to give effect to these intentions. It will ensure that future amendments that are made to the Income Tax Assessment Act will, where necessary, also have application in the Social Services Contribution legislation.

The Commissioner

The Second Commissioner

As an integral part of the plan that the machinery for the assessment and collection of Income Tax shall be utilised, as far as practicable, for the purposes of the Social Services Contribution, it is considered to be essential that the Taxation Department should undertake the assessment and collection of Social Services Contribution. Clause 7 of the Bill accordingly provides that the general administration of the Social Services Contribution Assessment Act shall be vested in the Commissioner who, by this definition and by similar definitions in other Taxation Acts, is identified as the Commissioner of Taxation for the time being holding office under the Estate Duty Assessment Act 1914-1942.

This explanatory note applies also to the definition of "the Second Commissioner".

Year of contribution

This is an adaptation of the term "year of tax" used in the Income Tax Assessment Act and means the financial year for which Social Services Contribution is levied. The first year for which Social Services Contribution will be levied will be the present financial year ending on 30th June, 1946.

Year of income

This definition is an adoption of the definition of "year of income" appearing in section 6 of the Income Tax Assessment Act and is designed to ensure that the income year for the purposes of Income Tax will coincide with the income year for the purposes of Social Services Contribution. Although Social Services Contribution is not payable on the profits of companies, it is necessary to define the year of income in relation to companies for the purposes of the levy of the contribution on the undistributed profits of private companies. As provided by clause 16 of the Bill, a private company which does not make a sufficient distribution of its income of the year of income shall be liable to pay the aggregate additional Social Services Contribution which its shareholders would have paid if its undistributed profits had been released to the shareholders by way of dividend on the last day of the year of income.

CLAUSE 5 SUB-CLAUSE (2.).-DEFINITIONS.

The purpose of this sub-clause is to ensure that expressions used in the Social Services Contribution Assessment Act shall, unless the contrary intention appears, have the same meanings as they have in the Income Tax Assessment Act. Thus, the term "taxable income" appearing in the definition of "contributable income" in sub-clause (1.) of this clause, will have the same meaning as it has in the Income Tax Assessment Act. Similarly the expressions "Board of Review", "Board of Referees" and "Tax Agents' Board" that appear in sections of the Income Tax Assessment Act which, by clause 18 of the Bill, will be applied for purposes of Social Services Contribution, will respectively mean the Board of Review constituted under the Income Tax Assessment Act, the Board of Referees constituted under the War-time (Company) Tax Assessment Act and a Tax Agents' Board constituted under the Income Tax Assessment Act.

CLAUSE 6.-CONTRIBUTOR RESIDENT IN TERRITORIES.

The provisions of this clause are similar to the provisions of section 7 of the Income Tax Assessment Act. The substantial effect of sub-clause (1.) is to exclude from liability to Social Services Contribution the income derived by residents of the Territories mentioned from sources within those Territories.

Sub-clause (2.) will place residents of the Territories in the same position as regards the assessment and collection of contribution upon their Australian incomes as are residents of Australia.

PART II.-ADMINISTRATION.

INTRODUCTORY NOTE:-

The provisions comprising Part II. of the Bill are designed to provide that the administration of the law relating to the Imposition, Assessment and Collection of Social Services Contribution shall be undertaken by the Taxation Department. Clauses 7 to 13 (inclusive) repeat substantially the Administration provisions of the Income Tax Assessment Act.

CLAUSE 7.-COMMISSIONER.

The effect of this clause and of the definition of "the Commissioner" contained in Clause 5 (1.) is that the Commissioner of Taxation shall have the general administration of the Social Services Contribution Assessment Act.

CLAUSE 8.-POWERS OF SECOND COMMISSIONER.

The effect of clause 8 read in conjunction with the definition of "the Second Commissioner" contained in clause 5 (1.) is that the Second Commissioner of Taxation shall have and may exercise all the powers and functions of the Commissioner who retains, however, the general administration of the Social Services Contribution Assessment Act and the exclusive right of delegation of his powers and functions as provided by clause 10, and the duty of furnishing an Annual Report to Parliament as required by clause 12.

CLAUSE 9.-DEPUTY COMMISSIONERS.

This clause provides for the appointment of such Deputy Commissioners as are required for the proper administration of the proposed law. In practice, the Deputy Commissioners will be the Deputy Commissioners of Taxation appointed for Income Tax purposes.

CLAUSE 10.-DELEGATION BY THE COMMISSIONER.

In the Social Services Contribution Assessment Act as in the Income Tax Assessment Act and other Taxation Acts, powers and functions are expressed to be the powers and functions of the Commissioner of Taxation. Because of the large number of contributors and taxpayers and the multiplicity of these powers and functions, it is necessary that the Commissioner should be authorized to delegate some of his powers and functions to Deputy Commissioners and others to be exercised by the delegates within a State or other part of the Commonwealth. This clause provides the necessary authority for delegation by the Commissioner.

CLAUSE 11.-REFERENCES TO COMMISSIONER.

This clause is complementary to clauses 8 and 9. The Social Services Contribution Assessment Act and those provisions of the Income Tax Assessment Act which are to be adapted and applied for the purposes of the Social Services Contribution describe the powers and functions of the Commissioner. Where any such power or function is exercised by the Second Commissioner or by a Deputy Commissioner under delegation, the reference in the legislative provisions to the power or function of the Commissioner shall be deemed by clause 11 to be a reference to the power or function of the Second Commissioner or a Deputy Commissioner. The practical effect is that where, for example, any power is conferred upon the Commissioner, that power may, with equal force, be exercised by the Second Commissioner or by a Deputy Commissioner under delegated powers.

CLAUSE 12.-REPORT BY THE COMMISSIONER.

The several Acts administered by the Commissioner of Taxation require that he shall furnish an annual report to the Treasurer for presentation to Parliament. In future, the annual report will include particulars relating to the Social Services Contribution.

CLAUSE 13.-OFFICERS TO OBSERVE SECRECY.

This clause substantially repeats the secrecy provisions of the Income Tax Assessment Act. Its purpose is to ensure the preservation by officials of secrecy in respect of information acquired by them officially. It is necessary, however, to except from the secrecy provisions communication by an official of information where that communication is essential for the purpose of his official duties. Authority is also provided for the communication of information to Governmental authorities to assist in the administration of certain other legislation and avoid duplication in official activities. Where information is communicated by the Taxation Department to other Governmental authorities, the secrecy provisions apply with equal force to the officials to whom the information is communicated. A breach of the secrecy provisions exposes the official to a fine of Pd250 or imprisonment for twelve months.

PART III.-LIABILITY TO CONTRIBUTION.

INTRODUCTORY NOTE:-

Part III. of the Bill contains a number of provisions imposing liability for Social Services Contribution upon individuals and, in certain special circumstances, upon partnerships and trustees of trust estates.

Public companies are excluded from the operation of the Act. As previously explained, private companies are liable for the contribution in respect of their undistributed profits only.

CLAUSE 14.-SOCIAL SERVICES CONTRIBUTION.

Sub-clause (1.) of this clause corresponds with section 17 of the Income Tax Assessment Act and provides the general authority for the levying and payment of the Social Services Contribution. The Contribution commences to be payable for the current financial year ending 30th June, 1946, and will continue to be payable for subsequent financial years. In the case of individual contributors and companies acting in the capacity of trustees, the Contribution is payable at the rates declared in the Social Services Contribution Act with which the Social Services Contribution Assessment Act is incorporated. In the case of private companies the contribution is payable as provided by clause 16. That clause does not impose a liability upon the annual profits of a private company but requires a private company to pay on its undistributed profits the Social Services Contribution that the shareholders would have paid on those profits if they had been distributed as dividends. The liability of private companies under this Bill is more fully explained in the Note to clause 16.

Sub-clause (2.) provides limitations upon the levy of the contribution. Paragraph (a) of the sub-clause prohibits the levy of the contribution where the recipient of a contributable income of Pd156 or less is eligible for a rebate of Income Tax in respect of a dependant. Paragraph (b) of sub-clause (2.) prohibits the levy of the contribution where the contributable income does not exceed Pd104.

As already stated, public companies will not be subject to Social Services Contribution.

CLAUSE 15.-PARTNERSHIPS, TRUSTEES AND CERTAIN NON-RESIDENTS.

The purpose of this clause is to provide that, where certain special circumstances exist, partnerships and trustees of trust estates shall be required to pay Social Services Contribution. It will also impose liability for Social Services Contribution upon certain non-resident individuals who derive income in Australia and who are assessed for Income Tax purposes under special provisions of the Income Tax Assessment Act.

Division 5 of Part III. of the Income Tax Assessment Act contains provisions relating to the assessment of income derived by partnerships. A partnership is required to furnish an income tax return but it is not, generally speaking, required to pay Income Tax. Each partner's share of the net income of the partnership is included in his assessable income, and, therefore, in his individual assessment. It is proposed to adopt the partnership provisions of the Income Tax Assessment Act and to follow the same procedure for purposes of Social Services Contribution. As each partner's share of the partnership net income will be included in his taxable income it will automatically be included in his contributable income.

Division 5 of Part III. of the Income Tax Assessment Act contains a special provision (section 94) which is designed to prevent the evasion of tax by the formation of a partnership in which any of the partners has not the real and effective control of his share of the partnership income. In such a case, section 94 authorises the assessment of the additional tax that would have been payable on the basis that the share of the partnership income of which a partner is merely the nominal owner is included in the assessable income of the real owner of that share of the partnership income. The partnership is liable to pay the additional amount of tax so assessed.

It is proposed to adopt this provision for Social Services Contribution purposes and to impose upon the partnership a liability to pay the additional contribution assessable.

Division 6 of Part III. of the Income Tax Assessment Act relates to the assessment of the income of trust estates. The general effect of this Division is that each beneficiary in a trust estate is required to include in his assessable income his share of the net income of the trust estate. The adoption of this Division for Social Services Contribution purposes will mean that, in the generality of cases, each beneficiary's share of the net income of the estate will be included in his contributable income.

Exceptions to this rule, however, occur where a beneficiary is under a legal disability, e.g., a minor, or where there is a part of the estate income to which no person is presently entitled.

In such cases, the trustee is liable to be assessed and to pay tax in respect of the relevant share of the estate income as if it were the income of an individual. The effect of clause 15 will be that these provisions will have similar effect for Social Services Contribution purposes; consequently, in the circumstances recited above, the trustee will also be liable to be assessed and to pay contribution in respect of that part of the estate income which is not included in the assessable income of the beneficiary.

Division 6 of Part III. of the Income Tax Assessment Act also contains provisions relating to a beneficiary under disability deriving income from other sources, discretionary trusts, income of deceased received after death, revocable trusts, and payments to a fund providing benefits to persons on war service. These will likewise be applied for purposes of Social Services Contribution.

Division 12 of Part III. of the Income Tax Assessment Act is comprised of special provisions for the assessment and collection of Income Tax payable by owners and charterers of overseas vessels. In particular, it provides that five per cent. of the amount paid or payable to an owner or charterer of a vessel in respect of the carriage of passengers, livestock, mails or goods shipped in Australia, shall be deemed to be taxable income derived by him in Australia.

By clause 15 it is proposed that, where the owner or charterer of the vessel is an individual, he shall also be required to pay Social Services Contribution in respect of freight and passage moneys. In such cases, his contributable income will be deemed to be of the same amount as his taxable income, that is, 5 per cent. of the freight and passage moneys. The clause also proposes that the several machinery provisions relating to the assessment and collection of Income Tax, contained in Division 12 of Part III. of the Income Tax Assessment Act be adopted for the purposes of the Social Services Contribution.

Where the owner or charterer of the vessel is a public company, no contribution will be payable and, where it is a private company, liability will extend only to its undistributed profits. However, as explained in the Note to clause 16 hereunder, private companies which do not carry on business in Australia by means either of a principal office or a branch, will not be liable to Social Services Contribution.

Division 13 of Part III. of the Income Tax Assessment Act is a special provision relating to the assessment of businesses which are carried on in Australia but are controlled or owned principally by non-residents of Australia. The effect of this provision is that, if the Commissioner of Taxation is of opinion that the business produces either no taxable income or less than the amount of taxable income which might be expected to arise from that business, he may determine the amount of taxable income upon which tax might fairly be levied. In such event, the taxpayer is liable to pay Income Tax on the amount of taxable income so determined.

It is proposed that this provision shall also have application for Social Services Contribution. If, therefore, the taxpayer is an individual or a member of a partnership, his contributable income will be equal to the taxable income determined by the Commissioner for Income Tax purposes and Social Services Contribution will be based upon that amount. As already explained in relation to Division 12, if the taxpayer is a private company, liability to Social Services Contribution will be determined according to the provisions of clause 16.

Division 14 of Part III. of the Income Tax Assessment Act is comprised of provisions relating to the assessment and payment of Income Tax upon income derived in Australia by non-residents of Australia under contracts relating to the distribution, exhibition, or exploitation of motion picture films in Australia. Under this Division, an amount equal to ten per centum of the gross income so derived is included in the taxable income of the non-resident.

The Division also contains provisions designed to ensure the payment of any tax due by the non-residents.

It is proposed that the provisions of Division 14 be also applied for Social Services Contribution purposes. Where they are applicable, liability to contribution will be determined in a manner similar to that described in the paragraphs relating to cases coming within Division 12 of the Income Tax Assessment Act as applied for Social Services Contribution purposes.

Division 15 of Part III. of the Income Tax Assessment Act contains special provisions relating to non-resident insurers deriving income in Australia from insurance contracts. Under these provisions, the non-resident insurer is deemed to have derived a taxable income equal to ten per centum of the total amount of the income derived by him in Australia under such contracts. Where, however, the insurer can establish, to the satisfaction of the Commissioner, the actual profit or loss derived or made by him in respect of the contracts, his taxable income is calculated by reference to the accounts furnished by him. The Division also contains other special provisions relating to the collection of the tax payable by the non-resident insurers.

A further provision relates to re-insurances with non-residents. The substantive effect of this provision is that where a person carrying on the business of insurance in Australia re-insures the whole or any part of any risk with a non-resident insurer, the re-insurance premium paid to the non-resident shall not be an allowable deduction to the Australian insurer, nor shall it be included in the assessable income of the non-resident. It is also provided that amounts recovered from the overseas re-insurer in respect of the re-insurance contract shall not be included in the assessable income of the Australian insurer. In the result the whole of the profit or loss on the particular insurance contract is calculated for the purposes of the assessment of the Australian insurer on the basis that the re-insurance of part of the risk with the non-resident insurer had not been made. Corresponding provisions will apply for the purposes of Social Services Contribution.

CLAUSE 16.-PRIVATE COMPANIES.

Under this clause, private companies will be liable to pay Social Services Contribution in respect of their undistributed profits. The amount of Contribution they will be liable to pay will be the aggregate additional amount of Contribution the shareholders would have been liable to pay if the undistributed profits had been distributed as dividends on the last day of the year of income.

Sub-clause (1.) provides that a private company, as defined in Division 7 of Part III. of the Income Tax Assessment Act, shall be liable to pay Contribution in respect of the undistributed amount of its taxable income. In that Division, "private company" is defined to mean a company which is under the control of not more than seven persons, and which is not a company in which the public is substantially interested or a subsidiary of a public company.

Sub-clause (2.) provides that the liability of a private company to Social Services Contribution shall be determined in accordance with the private company provisions of the Income Tax Assessment Act except that the words "social services contribution" shall be substituted for the word "tax" wherever occurring in sections 104 and 105 of that Act. The effect of section 104, as so modified, is that where a private company has not, before the expiration of six months after the close of the year of income (or, if the company is not a resident of Australia, before the expiration of nine months after the close of that year) made a sufficient distribution of its income of the year, the Commissioner of Taxation may assess the aggregate additional amount of Social Services Contribution which would have been payable by the shareholders if the company had, on the last day of the year of income, paid the undistributed amount as a dividend. The company will be liable to pay the amount so assessed.

The amount of Social Services Contribution payable by the company will be calculated by reference to the rate of contribution that would be payable by the individual shareholders if their respective shares of the deemed distribution were added to their contributable income.

Section 105 is a special provision designed to protect the Revenue in a case where a company, trustee or partnership is interposed between the private company and any person who would, otherwise than as a shareholder of the private company, be entitled to share in the deemed distribution of the company's profits.

The amount of undistributed profits in respect of which a private company will be liable to pay Social Services Contribution will be the same as that ascertained for Income Tax purposes. It will be the amount (if any) remaining after deducting from the taxable income--

(a)

all dividends paid out of that taxable income before the expiration of six months after the close of the year of income or, in the case of a non-resident private company, before nine months after the close of that year;

(b)

Commonwealth income tax paid during the year of income or, if the company has made an election in the prescribed manner, Commonwealth income tax payable (other than tax on undistributed profits) in respect of the income of the year of income;

(c)

any amount of State income tax which is paid in the year of income and is not allowable as a deduction in ascertaining the taxable income of the company;

(d)

Social Services Contribution paid during the year of income;

(e)

income taxes paid to any country outside Australia in respect of income liable to Commonwealth income tax; and

(f)

business losses of a revenue nature incurred by the company during the year of income in carrying on its business out of Australia.

The liability of a private company to Social Services Contribution will first arise in respect of any undistributed profits which are deemed to have been distributed to shareholders during the year of income ending on the 30th June, 1946, or the accounting period adopted by the shareholder in lieu thereof.

By sub-clause (3.) of clause 16, the provisions of section 107 of the Income Tax Assessment Act will also be applied for Social Services Contribution purposes subject to the modifications specified in paragraphs (a) and (b). As modified and applied, the section will read as follows:--

"A person shall be entitled to a rebate of the amount by which his social services contribution is increased by the inclusion in his assessable income of--

(a)

dividends paid to him by a company; or

(b)

amounts in respect of dividends paid by a company to any company, trustee or partnership interposed between that person and the company paying the dividends,

where the dividends are paid wholly and exclusively out of any amount or amounts in respect of which, under this Division, under section twenty-one of the previous Act or under Division 2 of Part III. of that Act, the company paying the dividend has paid or is liable to pay tax or in respect of which the company has paid or is liable to pay social services contribution."

The principle applicable to the taxation of private companies is that, where tax has been paid at shareholders' rates on undistributed profits, the shareholders shall not be required to pay tax on dividends subsequently distributed out of the taxed profits. This principle will also be applied for the purposes of Social Services Contribution and is expressed by sub-clause (3.). This immunity from Social Services Contribution will operate in respect of all dividends which are paid wholly and exclusively out of profits which have been subjected to private company tax in any year since the inception of Commonwealth Income Tax.

The application of section 109A of the Income Tax Assessment Act for the purposes of Social Services Contribution will have the effect of excluding from the Social Services Contribution liability, those private companies that do not carry on business in Australia by means of a principal office or a branch.

CLAUSE 17.-FURTHER REBATE IN CERTAIN CASES.

Section 127 is included in Division 11 of Part III. of the Income Tax Assessment Act. That Division places a liability to Income Tax on the company where interest is paid or credited by the company to a non-resident--

(a)

on money secured by debentures of the company and used in Australia, or used in acquiring assets for use or disposal in Australia; or

(b)

on money lodged at interest in Australia with the company.

The company is authorized, however, to deduct and retain for its own use so much of the interest as is necessary to pay the tax.

Section 127 provides that where the interest is included in the assessment of the debenture-holder or depositor, the tax paid by the company shall be deducted from the tax payable by the debenture-holder or depositor.

The effect of clause 17 is that, if the debenture-holder or depositor does not receive full credit for the tax paid by the company by way of abatement of Income Tax, the excess will be offset against Social Services Contribution.

PART IV.-APPLICATION OF INCOME TAX ASSESSMENT ACT.

CLAUSE 18.-APPLICATION OF CERTAIN PROVISIONS OF INCOME TAX ASSESSMENT ACT.

The object of Part IV. of the Bill is to adapt and apply for the purposes of Social Services Contribution those provisions of the Income Tax Assessment Act relating to Returns and Assessments, Objections and Appeals, Collection and Recovery of Tax, Penal Provisions and Prosecutions, Registration of Tax Agents and miscellaneous matters.

For the purposes of Social Services Contribution, however, the income tax provisions referred to are to be read as if they were altered in the manner specified in paragraphs (a) to (j) of clause 18 of the Bill.

As "contributable income" has been so defined as to correspond with "taxable income" ascertained for Income Tax purposes, it has not been necessary to apply those provisions of the Income Tax Assessment Act which relate to the ascertainment of the amount of assessable income and the allowable deductions.

Sections 23A, 53E, 59A to 59E, and 72B, contain special provisions which give taxpayers a right of reference to the Board of Referees.

Section 23A of the Income Tax Assessment Act, in effect, exempts from Income Tax 20 per cent. of the profit derived from mining operations carried on in Australia for copper, tin, tungsten, nickel, mercury, and certain other prescribed metals and minerals. This exemption is reflected in the taxable income of the taxpayer and so applies automatically for Social Services Contribution purposes. Sub-sections (2.) to (8.) of section 23A, however, provide that a taxpayer may, if he so desires, apply to the Board of Referees to have some amount greater than 20 per cent. of the profit exempted from Income Tax. Although it will be open to taxpayers to take such action under the Income Tax Assessment Act, it is considered desirable to provide that contributors shall have a similar right of reference to the Board for the purposes of Social Services Contribution.

Sections 53A to 53D of the Income Tax Assessment Act relate to the allowance of deductions in respect of deferred maintenance expenditure and of expenditure upon altering and re-altering plant for purposes connected with the war. Section 53E provides that a taxpayer who is dissatisfied with any decision of the Commissioner under those sections may have his case decided by the Board of Referees. A similar procedure is provided for the purposes of Social Services Contribution.

Sections 59A to 59E of the Income Tax Assessment Act grant to taxpayers special concessions in regard to depreciation of plant and buildings acquired for war purposes. In these cases also, claims of taxpayers are to be determined by the Board of Referees for the purposes both of Income Tax and Social Services Contribution.

Section 72B of the Income Tax Assessment Act provides for the deduction of expenditure upon the construction and demolition of enemy raids precautions structures. As in the case of other special war-time provisions of the Income Tax Assessment Act, this section places upon the Board of Referees, the obligation of finally determining certain claims made by taxpayers under this section. Clause 18 proposes that this procedure be retained for purposes of Social Services Contribution.

Part IV. of the Income Tax Assessment Act relates to the lodgment of returns and the issue of assessments and amended assessments. It is proposed that these provisions be applied, with necessary modifications, for Social Services Contribution purposes. Returns lodged for Income Tax purposes will also be used for Social Services Contribution. It will be noted that clause 19 of the Bill provides that, where returns furnished by a person for Income Tax purposes are also used for purposes of Social Services Contribution, those returns shall be deemed to be returns furnished for the purposes of the Social Services Contribution Assessment Act.

Notification of the amount of Social Services Contribution will be given on a composite notice which will show particulars of both the Income Tax and Social Services Contribution payable.

Part V. of the Income Tax Assessment Act refers to objections and appeals against assessments and decisions of the Commissioner. These provisions will also be applied for purposes of Social Services Contribution. A contributor will, therefore, have a right of appeal to a Court or a Board of Review except in regard to those matters which are to be referred to the Board of Referees.

Division I. of Part V. provides for the constitution of Boards of Review. That Division will not be applied as it is proposed, for Social Services Contribution purposes, to utilise the Board of Review established under the Income Tax Assessment Act, and it will be unnecessary to constitute a separate Board for the purposes of the Social Services Contribution.

Part VI. of the Income Tax Assessment Act is concerned with the collection and recovery of tax. These provisions will be adapted and applied, for Social Services Contribution purposes, subject to the modifications specified in paragraphs (a) to (j) of Clause 18 of the Bill.

Section 221 of the Income Tax Assessment Act, which gives Commonwealth Income Tax priority over State Income Taxes during the war period, is being incorporated as a permanent provision of the Social Services Contribution Assessment Act. Section 221 is being extended so that Social Services Contribution shall be given absolute priority over all other taxes.

Clause 18 will also enable the Income Tax provisions relating to the collection of tax instalment deductions from salary and wages to be applied for purposes of Social Services Contribution. Specific reference, however, is made to sections 221B and 221N of the Income Tax Assessment Act in paragraphs (g) and (h) respectively.

Under section 221B arrangements have been made with the States whereby the States deduct instalments from the salaries or wages of their employees, for Income Tax purposes. The object of paragraph (g) is to provide that those arrangements will apply to instalments to be deducted for Social Services Contribution purposes. In the absence of this provision, it would be necessary to make separate arrangements with the States to cover instalments for Social Services Contribution purposes.

The object of paragraph (h) is to enable the instalment stamps, now used for Income Tax purposes, to be used for the purposes of Social Services Contribution. The use of the stamps for both purposes will avoid imposing additional work on employers and will simplify procedure for employees as well as for the Taxation Department.

Paragraphs (i) and (j) relate to the ascertainment and collection of a Social Services Provisional Contribution.

The principle of pay-as-you-earn taxation introduced in the Income Tax Assessment Act as from the first day of July, 1944, is extended to Social Services Contribution by the definition of "year of income" as set out in clause 5 of this Bill.

In respect of income other than salary or wages, the payment of tax on current income is effected by means of a provisional tax ascertained in accordance with Division 3 of Part VI. of the Income Tax Assessment Act. The following sections are included in the Division, namely--

221YA.--Interpretation.

221YB.--Liability to provisional tax.

221YC.--Amount of provisional tax.

221YD.--When provisional tax is payable.

221YE.--Provisional tax to be credited against tax assessed.

221YF.--Provisional tax not to be notified where income tax assessed.

221YG.--Alteration of notice of provisional tax.

221YH.--Notice of provisional tax to be prima facie evidence.

As Social Services Contribution is to be imposed on income of the financial year ending on the thirtieth day of June, 1946, it is necessary to provide for provisional contribution to be payable in respect of the income of that year. As modified by paragraph (i), sub-section (2.) of section 221YB will provide that provisional contribution shall be payable in respect of the income of the year ending on the thirtieth day of June, 1946, or the accounting period (if any) adopted in lieu of that year, and in respect of the income of all subsequent years.

The paragraph further modifies section 221YB by providing that sub-section (3.) shall be omitted from the section as proposed to be applied by this Bill.

Sub-section (3.) of section 221YB, as it appears in the Income Tax Assessment Act, provides that provisional tax shall not be payable in respect of the income of any year of income unless the Act declaring the rates of income tax payable upon taxable income of that year provides that provisional tax shall be payable. As the Act declaring the rates of Social Services Contribution will declare the rates at which the Contribution shall be payable for the financial year ending on 30th June, 1946, and for the immediately succeeding financial year commencing on 1st July, 1946, it is unnecessary to adapt and apply sub-section (3.) of section 221YB of the Income Tax Assessment Act for the purposes of Social Services Contribution.

Paragraph (j) provides that, for purposes of Social Services Contribution, a new section, 221YJ, is to be inserted at the end of Division 3 of Part VI.

Section 221YC of the Income Tax Assessment Act sets out the manner in which the amount of provisional tax payable is to be ascertained. The plan of the section is, broadly, that the provisional tax payable in respect of the income of any year shall be equal to the tax payable on the income, other than salary or wages, of the immediately preceding year.

As the basis of ascertainment of provisional contribution will be identical with that adopted for provisional tax, it is necessary to make special provision for ascertaining provisional contribution in the first year of operation of the new levy since there is no Contribution payable on the income of the immediately preceding year to which provisional contribution can be related. Sub-section (1.) of section 221YJ accordingly provides that Social Services Contribution shall be deemed to have been assessed on the income of the year which ended on the thirtieth day of June, 1945. As the amount of Contribution otherwise payable is halved in the first year, the Contribution deemed to have been assessed on the income of the immediately preceding year is--

(a)

43 3/4 per cent. of the income tax payable on the income of that year; or

(b)

9d. for every Pd1 of income,

whichever is the less.

Provisional contribution ascertained on this basis takes into account the reduced rates of Income Tax for the current financial year ending 30th June, 1946.

A special provision is also necessary for purposes of ascertaining provisional contribution payable in respect of income of the year ending on the thirtieth day of June, 1947. Whereas the full amount of provisional contribution should be paid in respect of that income, only half the amount of contribution will be payable on income of the preceding year, i.e., year ending on the thirtieth day of June, 1946. Sub-section (2.) of section 221YJ accordingly provides that, for purposes of provisional contribution in respect of income of the year ending 30th June, 1947, the full amount of contribution shall be deemed to have been payable on the income of the immediately preceding year.

As the Social Services Contribution Assessment Bill provides for provisional contribution to be payable in respect of income of the year ending on the thirtieth day of June, 1946, a consequential adjustment must be made in ascertaining the amount of provisional tax payable under the Income Tax Assessment Act in respect of that income.

It is proposed that for purposes of ascertaining provisional tax the Income Tax payable on the income of the year which ended on the thirtieth day of June, 1945, shall be regarded as having been decreased by--

(a)

an amount equal to--

(i)

6 1/4 per cent of the tax; and

(ii)

9d. for every Pd1 of income; or

(b)

50 per cent. of the tax,

whichever is the lesser.

The combined effect of the proposed provisions relating to provisional tax and provisional contribution is the collection of an amount equal to 93 3/4 per cent. of the Income Tax payable on the income of the year ending on the thirtieth day of June, 1945, as follows:--

PART V.-MISCELLANEOUS.

CLAUSE 19.-USE OF INCOME TAX RETURNS.

Section 161 of the Income Tax Assessment Act authorises the Commissioner of Taxation to require the lodgment of annual returns of income. These returns will be used for the purposes of both Income Tax and Social Services Contribution.

CLAUSE 20.-GROUP CERTIFICATES IN RESPECT OF DEDUCTIONS FROM SALARY OR WAGES.

This clause will allow the amount of instalments deducted from an employee's wages for both Social Services Contribution and Income Tax purposes, to be shown in one certificate. As explained in connection with paragraph (h) of clause 18, it is designed to enable the two instalments to be collected as one and to enable the two levies to be paid by the presentation of one group certificate.

CLAUSE 21.-DEDUCTIONS FROM SALARY OR WAGES UNDER THIS ACT AND THE INCOME TAX ASSESSMENT ACT.

The effect of sub-clause (1.) is that, if the amount deducted by an employer, from the salary or wages of an employee, is insufficient to cover instalments for both Social Services Contribution and Income Tax, by the application of this sub-clause, the deficiency will, in the first instance, be treated as a deficiency in Income Tax instalments. Any remaining deficiency will be a deficiency in Social Services Contribution instalments.

If there is any deficiency in the amount paid to the Commissioner by an employer who has deducted instalments from the salaries or wages of his employees, the deficiency will, under sub-clause (2.) be treated in the first instance as a deficiency in Income Tax instalments.

CLAUSE 22.-PUBLIC OFFICERS.

Under section 252 of the Income Tax Assessment Act, a company is required, for the purposes of that Act, to be represented at all times by a public officer residing in Australia.

Under clause 22, a public officer appointed by a company for Income Tax purposes shall be deemed to be the public officer appointed for the purposes of Social Services Contribution.

CLAUSE 23.-TREATMENT OF AMOUNTS RECEIVED BY COMMISSIONER.

This clause has been inserted in the Bill to authorize the Commissioner to keep one set of accounts covering both Social Services Contribution and Income Tax. A corresponding provision--clause 8--is included in the Bill to amend the Income Tax Assessment Act.

If separate accounts were kept for the two levies, the present recording of accounts would be almost doubled and a very considerable number of additional staff would be required. Moreover, it would be necessary to arrange for separate instalments to be deducted by employers from salaries and wages and to provide separate stamps and separate group certificates for each levy in order to permit separate accounting to be undertaken.

The effect of paragraph (c) of the clause will be that the Commissioner will not be required to account separately for the Income Tax and Social Services Contribution payable by each individual taxpayer and contributor. The Commissioner will, however, record separately the total amount of Income Tax and the total amount of Social Services Contribution payable each year, and in accounting for Social Services Contribution in a particular financial year will treat the total amount of contribution payable as having been collected in that year.

Social Services Contribution will be collected on the basis of pay-as-you-earn and, as in the case of Income Tax, will not be assessed until after the close of the year in which it is collected. For the financial years ending 30th June, 1946, and 30th June, 1947, therefore, the provisions of paragraph (c) of the Clause will not provide a suitable basis of accounting because--

(a)

in the financial year ending 30th June, 1946, amounts becoming payable will take into account only the amounts payable in respect of provisional contribution imposed in that year; and

(b)

in the financial year ending 30th June, 1947, the Social Services Contribution payable will be based on income of the year ending 30th June, 1946. The Contribution payable in respect of income derived in the year ending 30th June, 1946, will be imposed at half rates only.

In these circumstances it has been necessary to make estimates of the amounts that will be collected in the financial years ending 30th June, 1946, and 30th June, 1947. The amount estimated in respect of the financial year ending 30th June, 1946, is Pd20,000,000 and in respect of the financial year ending 30th June, 1947, is Pd51,000,000.

CLAUSE 24.-REGULATIONS.

This is the customary provision authorising the making of Regulations for the purposes of the Act.

SOCIAL SERVICES CONTRIBUTION RESOLUTION 1945.

PARAGRAPH 1.

The Schedule of Rates is similar to the present graduated Income Tax rates, subject to the qualification that the contribution per pound of income, after taking into account any rebates to which the contributor would be entitled for Income Tax purposes, is not to exceed eighteen pence. The Schedule also takes into account the proposed reduction in the Income Tax rate, i.e., the contribution rate does not exceed the present Income Tax rate reduced by 12 1/2 per cent.

If the Contribution ascertained in accordance with the Schedule does not exceed eighteen pence in the pound, the benefit of the present Income Tax rebates is reflected in the assessment of Social Services Contribution. There is no Income Tax payable in such cases, and a contributor will not be required to contribute any amount greater than 87 1/2 per cent. of the Income Tax that would be payable at current rates.

If the rate of Contribution is the maximum of eighteen pence in the pound, concessional rebates for dependants, life assurance premiums, medical expenses, etc., will not be allowed in the Social Services Contribution Assessment. The full benefit of these concessions will be allowed, however, in ascertaining the amount of income tax (if any) payable by the contributor. For Income Tax purposes, concessional rebates in respect of dependants, etc., are ascertained at the personal exertion rate appropriate to the total taxable income of the taxpayer. This rate for rebate purposes is being increased by eighteen pence.

The practical effect of the addition of eighteen pence to the rate for rebate purposes is that, where a person is liable to pay both Income Tax and Social Services Contribution, the rebate is allowed at the combined rates of the two separate levies and the rebate so calculated is allowed in the Income Tax assessment.

The following examples illustrate the operation of the Schedule:--

Example A--

Person without dependants, with income of Pd130 and not entitled to any rebates or allowances--

In this case, income tax will not be payable. Clause (1.) will operate, however, to cause Social Services Contribution Pd6 to be payable by the contributor.

Example B--

Person without dependants, with income of Pd170 and not entitled to any rebates or allowances--

In this case, income tax will not be payable. Clause (2.) will operate, however, to cause Social Services Contribution Pd12 15s. to be payable by the contributor.

Example C--

Person without dependants, with income of Pd250 from property and entitled to rebate of tax at 2s. in the Pd on Pd20 interest from war loans--

In this case, Social Services Contribution of Pd18 15s. will be payable and, in addition, the person would be required to pay Pd12 14s. income tax calculated in the following manner:--

Example D--

Person without dependants, with income of Pd250 from property and entitled to rebate of tax at 2s. in the Pd on Pd200 interest from war loans--

In this case, income tax will not be payable. Clause (1.) will operate, however, to cause Social Services Contribution Pd15 2s. to be payable by the contributor.

Example E--

Married person, with income of Pd250 from personal exertion and entitled to rebate for spouse only--

In this case, income tax will not be payable. Clause (1.) will operate, however, to cause Social Services Contribution Pd16 1s., to be payable by the contributor.

Example F--

Married person, with income of Pd350 from personal exertion and entitled to rebate for spouse only--

In this case, Social Services Contribution of Pd26 5s. will be payable and, in addition, the person would be required to pay Pd19 7s. Income Tax calculated in the following manner:--

Division B.-Rate of Contribution Payable by a Trustee.

This Division, which prescribes the basis upon which a trustee shall pay Social Services Contribution, will operate only in isolated cases. Ordinarily, a beneficiary will be required to pay the Contribution on his share of the trust income. In those cases, however, where there is no person presently entitled to the trust income, or part thereof, the trustee will be required to pay the Contribution as if the share of the income to which no person is presently entitled were the income of one individual. Liability to pay the Social Services Contribution will also rest on the trustee in respect of a beneficiary's share where the beneficiary is under some legal disability.

Division C.-Contribution Payable on Certain Incomes of less than Pd 200.

This Division applies--

(a)

where the contributor would be entitled to an income tax rebate in respect of a dependant and his income exceeds Pd156 but is less than Pd200; and

(b)

where the contributor has no dependant and his income exceeds Pd104 but is less than Pd113.

The Division ensures that the Contribution payable shall not be greater than one-half of the excess of the contributable income over Pd156 in Class (a) nor more than one-half of the excess of the contributable income over Pd104 in Class (b).

Division D.-Contribution Payable Where Amount Would Otherwise be Less than Ten Shillings.

This Division provides that where a Contribution is payable, the minimum amount to be paid shall be 10s. The Division is comparable with the present income tax requirement that, where Income Tax is payable, the minimum amount to be paid shall be 10s.

As the Social Services Contribution will be payable in priority to Income Tax, it is appropriate that the minimum amount payable should be the Social Services Contribution. It is proposed to delete from the Income Tax Rating Measure, which will be operative for the financial year beginning on the 1st July, 1946, the provision requiring the payment of a minimum amount of 10s., as Income Tax.

In respect of income derived during the current financial year, the liability for both Income Tax and Social Services Contribution will arise at the same income level, i.e., at an income of Pd105 in the case of a person without a dependant, and at Pd157 in the case of a person with a dependant. As the Social Services Contribution for the current financial year is one-half of the contribution payable for a full year, the minimum amount of contribution for the current financial year will be 5s. Correspondingly, provision is being made in the Income Tax Rates Resolution for the payment of a minimum amount of 5s. Income Tax for the current financial year. Consequently, the combined minimum payment of Social Services Contribution and Income Tax will be 10s. for the current financial year.

Division E.-Contribution Payable where Amount would otherwise include Odd Pence.

This Division is comparable with a provision in the present Income Tax (Rates) Act that requires the elimination of pence in determining the amount of tax. Amounts of sixpence and less are disregarded and amounts in excess of sixpence are regarded as one shilling.

PARAGRAPH 2.

This paragraph provides for the application of the Social Services Contribution rates commencing with the current financial year ending 30th June, 1946, for which year, however, half rates only will be applied.

PARAGRAPH 3.

This paragraph will authorize the application of the Social Services Contribution Rates until those rates are altered.

PARAGRAPH 4.

This paragraph limits the rate for the current financial year ending 30th June, 1946, to one-half of the rates applicable for a full year.

PARAGRAPH 5.

This paragraph formally authorises the imposition of the Social Services provisional contribution in conformity with the provisions of the Social Services Contribution Assessment Act.

INCOME TAX ASSESSMENT BILL (NO. 2) 1945.

INTRODUCTORY NOTE:-

The provisions of the Social Services Contribution Assessment Act will necessitate some amendments, of a complementary nature, to the Income Tax Assessment Act. These amendments are included in the Income Tax Assessment Bill (No. 2) 1945. The following is a statement showing the amendments proposed to be made to the Income Tax Assessment Act 1936-1944, as amended by the Income Tax Assessment Act 1945.

CLAUSE 1.-SHORT TITLE AND CITATION.

CLAUSE 2.-COMMENCEMENT.

As explained in the Note to Clause 2 of the Social Services Contribution Assessment Bill, Section 5(1A.) of the Acts Interpretation Act 1901-1941 provides that every Act shall come into operation on the twenty-eighth day after the day on which the Act receives the Royal Assent, unless the contrary intention appears in the Act. For purposes similar to those applying in relation to Clause 2 of the Social Services Contribution Assessment Bill, it is being enacted that the Income Tax Assessment Act (No. 2) 1945 shall come into operation on the day on which it receives the Royal Assent.

CLAUSE 3.-INCOME TAX.

The effect of this clause, combined with Clause 9, is that Income Tax will not be payable for the financial year commencing on the 1st July, 1946, in any case where the taxable income of a taxpayer (other than a company) does not exceed Pd200.

As indicated in sub-section (2.) which is now being repealed, Income Tax is at present levied and paid--

(a)

in the case of a taxpayer who is eligible for a rebate of tax in respect of a dependant--if his taxable income exceeds Pd156; and

(b)

in the case of a taxpayer without dependants--if his income exceeds Pd104.

These levels are being raised so that, in consequence of the allowance of concessional rebates of tax, Income Tax will not be payable unless the income exceeds, in the case of a--

CLAUSE 4.-PRIVATE COMPANIES. Division 7.-Private Companies.

Under Division 7 of Part III. of the Principal Act, a private company is required to pay the aggregate additional amount of tax that its shareholders would have paid, if the undistributed profit had been released to the shareholders by way of dividend.

The undistributed profit on which private company tax is payable is ascertained by deducting from the distributable income, the dividends paid by the company out of the taxable income of the year of income. In order to obtain the deduction of the dividends so paid, it is necessary that the distribution be effected before the expiration of six months after the close of the year of income or, in the case of a non-resident private company, before the expiration of nine months after the close of that year.

Section 103 provides the basis upon which the distributable income of a private company shall be ascertained. In calculating the distributable income, amounts of taxes paid during the year of income are deducted from the taxable income of the private company.

This provision recognises that the fund of profits available for distribution to the shareholders is depleted by the amounts of taxes that the private company is obliged to pay.

In conformity with this principle, provision is now being made that Social Services Contribution paid by a company shall be added to the amounts of taxes to be deducted in ascertaining the distributable income of the company.

CLAUSE 5.-AMOUNT OF REBATES IN CERTAIN CASES.

This clause is being enacted in consequence of the proposed reduction in the Income Tax rates for the current financial year ending 30th June, 1946. The provision is also necessitated by the separation of Income Tax into two levies, one of which is the Social Services Contribution.

It is essential that any assessment for purposes of Income Tax should be based upon the income derived during the period of twelve months ending 30th June. It is impracticable to divide the assessment so as to apply different rates to income derived in separate half years ending 31st December and 30th June respectively.

The objective of the combined Income Tax and Social Services Contribution legislation is that, for the current financial year, the total liability shall be--

(a)

Income Tax calculated at half the present rates on the income of the full year;

(b)

Income Tax calculated at half the reduced rates on the income of the full year; and

(c)

Social Services Contribution calculated at half rates on the income of the full year.

With a view to achieving this objective, the one-half of the present rates of Income Tax, and the one-half of the reduced rates of Income Tax are combined in the amending Income Tax Rating Resolution. The one-half rates of Social Services Contribution are specified in the Contribution Rating Resolution.

For Income Tax purposes, concessional rebates of tax are calculated at the personal exertion rate appropriate to the total taxable income of the taxpayer. For purposes of determining the rebates allowable for the current financial year, this rate is being increased by 9d., i.e., by one-half of the maximum Social Services Contribution rate for a full year.

Thus the rebates will be calculated at half present rates of Income Tax and half the reduced rates of Income Tax, plus 9d. It is essential that the rebate should not be allowed at a rate in excess of the rate applied in the assessment of the taxpayer. Clause 5 is being enacted to ensure that any excess of the rebate at a rate greater than that applied in the assessment of the contributor-taxpayer shall not be allowed.

CLAUSE 6.-RATE OF TAX FOR REBATE PURPOSES.

Section 160AE of the Principal Act specifies the rate of tax at which concessional rebates for spouse, children, medical expenses, etc., shall be calculated. The rate so specified is the rate of tax appropriate to a personal exertion income equal to the taxpayer's total taxable income.

Under the plan for the separation of Income Tax into Social Services Contribution and Income Tax, the rates of tax will be decreased not only by the proposed 12 1/2 per cent. reduction, but also by the rate of Social Services Contribution. A further proposal is that in cases where the maximum rate of Social Services Contribution applies, concessional rebates shall not be allowed in the Social Services Contribution assessment. Unless special provision is made in the Income Tax Assessment Act in regard to the rate of tax to be applied for rebate purposes, the introduction of the Social Services Contribution legislation will have the effect of reducing the rebates of tax previously allowable. It is therefore considered that section 160AE should be amended to provide that the rate of tax for rebate purposes shall be equal to the total of the rate of Social Services Contribution and the appropriate Income Tax rate.

Clause 6 will achieve this result. Its effect will be to increase by eighteen pence the rate at which concessional rebates are calculated. The rate of eighteen pence is the maximum rate of Social Services Contribution.

However, as only half rates of Social Services Contribution are to be applied for the current financial year, the amount to be added for purposes of the rebate calculations for the financial year ending 30th June, 1946, will be nine pence.

CLAUSE 7.-RELEASE OF LIABILITY OF MEMBERS OF DEFENCE FORCE ON DEATH.

Section 265A authorises the remission of unpaid tax attributable to the inclusion of service pay and allowances in the assessments of deceased members of the Forces. The Section applies in the case of any person who has been a member of the Forces if the circumstances of his service and the circumstances of his death are such that the Commonwealth would be liable to pay pensions under the Australian Soldiers' Repatriation Act 1920-1943 to the dependants of the deceased member of the Forces.

The amount of tax remitted is the outstanding tax attributable to service pay and allowances, less any tax instalment deductions that have been made from service pay and allowances and have not been credited in payment of the tax assessed.

Following the establishment of the Social Services Contribution, it is proposed that, in calculating the amount to be remitted, instalment deductions made for the dual purposes of Income Tax and Social Services Contribution shall be applied in payment of outstanding tax.

CLAUSE 8.-TREATMENT OF AMOUNTS RECEIVED BY COMMISSIONER.

This provision is to be read in conjunction with Clause 23 of the Social Services Contribution Bill. As explained in the Note to that clause, the Commissioner is authorized to keep one set of accounts covering both Social Services Contribution and Income Tax.

CLAUSE 9.-APPLICATION OF AMENDMENTS.

The effect of this clause is to cause the provisions of Clause 3 to commence to be operative in assessments for the financial year beginning the first day of July, One thousand nine hundred and forty-six. In those assessments the exemption from Income Tax of incomes of Pd200 and under will become fully operative.

INCOME TAX RESOLUTION (No. 2) 1945.

INTRODUCTORY NOTE:-

The principal purpose of this Resolution is to effect a reduction in the income tax rates for taxpayers other than companies. The reduced rates will apply in assessments for the current financial year ending 30th June, 1946. Alterations to the rates are also necessary in consequence of the introduction of the Social Services Contribution.

The reduction made by the Schedules shown in the Resolution will, when compared with the present rates of income tax, amount to-

(a)

an average of twelve and one-half per cent. of the present rate; and

(b)

eighteen pence which will be collected as a separate Social Services Contribution.

For the current financial year one-half of these reductions will be effective and one-half only of Social Services Contribution will be assessable.

PARAGRAPH 1.

Division A.-Rate of Tax in respect of Taxable Income Derived from Personal Exertion.

The effect of this Division is that half the present rates imposed by the Income Tax Act 1945 and half the reduced rates shown in the above scale will be applied to income derived from personal exertion during the current financial year ending 30th June, 1946.

As indicated in the above scale, no Income Tax rate applies if the taxable income does not exceed Pd200. This does not, however, remove a liability to Income Tax on all of those incomes for the current financial year as one-half of the rate prescribed by the Income Tax Act 1945 will continue to have application in cases where the liability to Income Tax exists at present. In future, the only liability of incomes of Pd200 and less will be in the form of Social Services Contribution.

In the following examples a comparison is made between the Income Tax for the last financial year ended 30th June, 1945, and the Income Tax and Social Services Contribution for the current financial year ending 30th June, 1946, and the Income Tax and Social Services Contribution for the next financial year ending 30th June, 1947. (In respect of the last-mentioned year, the amounts of Income Tax have been calculated at the rates shown in the above new scale.)

Case 1.-Person who in future will not be liable to Income Tax but will pay Social Services Contribution at present income tax rates reduced by 12 1/2 per cent.:-

Case 2.-Person who will continue to be liable to Income Tax in addition to Social Services Contribution at 18d. in Pd1:-

In the new scale the principle of a progressive rate has been preserved.

Where the taxable income exceeds Pd200, the rate according to the scale commences at 3d. in the Pd1 and increases gradually until a maximum of 15s. 2d. in the Pd1 is applied to that part of the income in excess of Pd5,000. This maximum rate, combined with the Social Services Contribution of 18d. in the Pd1, imposes a total levy of 16s. 8d. in the Pd compared with the present Income Tax rate of 18s. 6d. in the Pd1.

Division B.-Rate of Tax in Respect of Taxable Income Derived from Property.

This Division prescribes the rate of tax to be applied to income derived from property. The Note explanatory of Division A has equal application to Division B.

The rate of tax applicable to Pd201 income from property is slightly in excess of the rate applicable to Pd201 income from personal exertion. The excess of the property income rate over the personal exertion income rate reaches its maximum at a taxable income of approximately Pd1,000, at which point the property income rate (including Social Services Contribution) exceeds, by approximately 25 per cent., the personal exertion rate (including the Social Services Contribution). The difference in the rates gradually diminishes until the rate of tax on that part of a taxable income in excess of Pd5,000 is the same for both property income and personal exertion income.

Division C.-Rates of Tax in Respect of Taxable Income Derived Partly from Personal Exertion and Partly from Property.

This Division prescribes the rates to be applied in those cases where taxpayers derive taxable income from personal exertion and from property.

In these cases of composite income from personal exertion and from property, the rate of tax on the separate amounts of each class of taxable income is ascertained as if the total income were derived wholly from personal exertion and wholly from property, respectively. The effect of the application of Division C is that the taxpayer pays tax on his taxable income from personal exertion and property at the rate attributable to his total taxable income. For example, if the total composite income were Pd5,000 made up of Pd3,000 personal exertion income and Pd2,000 property income, the rate to be applied to both the Pd3,000 and the Pd2,000 is the rate applicable to Pd5,000.

Division D.-Rates of Tax by Reference to an Average Income.

This Division is operative where the averaging provisions of Division 16 of Part III. of the Income Tax Assessment Act are applied in the assessments of taxpayers. The application of the averaging provisions is limited to the assessments of primary producers. The rate of tax on the primary producer's taxable income is ascertained by averaging his taxable income over the year of income and the preceding four years. The rate that is attributable to the amount of the taxpayer's average income over the five year period is the rate of tax prescribed by Division D to be paid by a taxpayer on his taxable income of the year of income.

Division E.-Rate of Tax by Reference to a Notional Income.

In Division E a special basis is provided for the calculation of the tax payable by a taxpayer who receives a premium upon the grant or assignment of a lease. These lease premiums have the income character of commuted rent and accordingly the premiums are included in assessable income under the provisions of Division 4 of Part III. of the Income Tax Assessment Act. As the net premium, i.e., the total premium less expenses, is included in taxable income of the year in which the premium is received, the graduated rate of tax would cause a taxpayer to pay a greater amount of tax than he would be 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 Income Tax Assessment Act provides that in these cases the net premium shall be divided by one-half of the number of years of the lease term in order to ascertain what is described as a notional income for rating purposes. Any taxable income which may be derived by the taxpayer in addition to the lease premium is aggregated with the lease notional income to determine the rate of tax payable on the total taxable income. The application of a rate in accordance with this formula is authorized by Division E.

Division F.-Rates of Tax Payable by a Trustee.

As explained in the Note to Division B of paragraph 1 of the Social Services Contribution Resolution, liability for assessment rests upon a trustee only in isolated cases, i.e., where there is no person presently entitled to the income (or part thereof) of the trust estate, or where a beneficiary entitled to a share of the trust income is under a legal disability. In these cases it is necessary to prescribe the rate that shall be applied in the assessment of the trustee. This rate is prescribed by Division F.

Division G.-Tax Payable on Certain Incomes of less than Pd200.

This Division corresponds with Division C of paragraph 1 of the Social Services Contribution Resolution. In effect, this Division applies--

(a)

where the taxpayer would be entitled to an Income Tax rebate in respect of a dependant and his income exceeds Pd156, but is less than Pd200; and

(b)

where the taxpayer has no dependant and his income exceeds Pd104 but is less than Pd113.

The Division ensures that the tax payable shall not be greater than one-half of the excess of the taxable income over Pd156 in Class (a) nor more than one-half of the excess of the taxable income over Pd104 in Class (b).

Division H.-Tax Payable Where Amount Would Otherwise be Less than Five Shillings.

As explained in the Note to Division D of paragraph 1 of the Social Services Contribution Resolution, the minimum payment for the current financial year will, as in previous years, be 10s. This minimum amount will be comprised of 5s. Social Services Contribution and 5s. Income Tax. The Income Tax payment of 5s. is prescribed in this Division.

Division I.-Tax Payable where Amount would otherwise include Odd Pence.

This Division repeats the provisions of section 4(10.) of the Income Tax Act 1945. The purpose of the Division is to authorize the elimination of pence in determining the amount of tax. Amounts of sixpence and less are disregarded and pence in excess of sixpence are regarded as one shilling.

PARAGRAPH 2.

This paragraph repeats the provisions of section 6(1.) of the Income Tax Act 1945 authorising the levying and payment of tax for the current financial year which commenced on the 1st July, 1945. The rates prescribed by this Resolution will apply in the assessments of taxpayers other than companies. The rates prescribed by the Income Tax Act 1945 will continue to apply in the assessments of companies. The assessment of all taxpayers will be based on the income of the year of income which is defined in section 6 of the Income Tax Assessment Act to mean--

(a)

in relation to a company (except a company in the capacity of a trustee)--the financial year next preceding the year of tax, or the accounting period, if any, adopted under this Act in lieu of that financial year; and

(b)

in relation to any other person--the financial year for which income tax is levied, or the accounting period, if any, adopted under this Act in lieu of that financial year.

PARAGRAPH 3.

This paragraph provides authority for the application of rates of tax in assessments for the next financial year commencing 1st July, 1946, until the rates imposed for that financial year are enacted. A provision of this nature is necessary in order that assessments may be made in special cases, e.g., a taxpayer leaving Australia before the rates applicable for the next financial year are enacted. The rates that will be applied in these assessments will be the rates shown in the scales set out in Divisions A and B of paragraph 1 of this Resolution. In the rates to be applied in these assessments the combined reduction of 12 1/2 per cent. and the Social Services Contribution of eighteen pence will be reflected.

PARAGRAPH 4.

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

Paragraph 4 of the Resolution repeats the provisions of section 7 of the Income Tax Act 1945 authorising the imposition of provisional tax in respect of income of the year ending 30th June, 1946.

The amounts of provisional tax payable in the current financial year will be determined on the basis of the taxable income derived during the year ended 30th June, 1945. The rates that will be applied to the taxable income of that year for provisional tax purposes, will take into account the reductions already explained and the separation of income tax into two levies, one of which is the Social Services Contribution. As explained in the Note to paragraph (j) of Clause 18 of the Social Services Contribution Assessment Bill, provisional contribution will be separately determined.

PARAGRAPH 5.

In view of the proposed amendments to the Income Tax Assessment Act 1936-1945, it is necessary to provide that the Assessment Act for the purposes of this Resolution will be the Assessment Act after the proposed amendments are effected. This result is achieved by paragraph 5.