Explanatory Memorandum
(Circulated by authority of the Treasurer, the Rt. Hon. William McMahon.)Introductory Note
The purpose of this memorandum is to explain the provisions of four Bills relating to taxation.
Income Tax Assessment Bill (No. 4) 1967
The first Bill - the Income Tax Assessment Bill (No. 4) 1967 - is designed to give effect to a number of proposals affecting the bases on which income tax is imposed, assessed and collected. The main features of this Bill are -
- Interest paid to Non-residents (Clauses 4 (1.), 6(1.), 12 to 17, 19, 20(1.), 22 to 28 and 30 to 36).
- A withholding tax is to be introduced for interest derived by non-residents on and after 1st January, 1968. In broad terms, the withholding tax will apply to interest paid on moneys used in an Australian business. Existing provisions governing the deduction of Australian tax from interest paid by companies to non-residents will cease to apply as from 1st January, 1968.
- Dividends paid to Non-residents (Clauses 4(1.), 6(1.), 17 and 29).
- The exemption from dividend (withholding) tax now available for dividends paid to certain foreign superannuation funds, charitable institutions, etc. will be made conditional upon the funds or institutions being exempt from tax in their home country.
- Distributions by Companies (Clauses 4(2.) and (3.), 8, 10, 11, 20(2.), 25(2.) and 37).
- Where a distribution is made by a company as a consequence of a reduction of paid-up capital, the distribution is to be taxed to the extent that it exceeds the reduction in nominal paid-up capital and the amount of any distribution out of a share premium account. Income distributions made in an informal winding-up of a company are to be taxed in the same way as such distributions made by a liquidator in the course of a formal liquidation.
- Dividends received by Australian Residents from Non-resident Companies (Clauses 5, 6(2.), 7, 9 and 18).
- Where an Australian resident receives dividends paid by a non-resident company through a trust the dividends are to be treated, for the purposes of relieving double taxation, on the same basis as dividends received directly from a non-resident company.
- Exemptions (Clause 6(3.)).
- Payments under a grant by the Australian-American Educational Foundation from funds made available under the agreement dated 28th August, 1964 between the Australian and United States' Governments are to be exempt from income tax.
- Taxation Boards of Review (Clause 21).
- The limit imposed on the amount that may be appropriated to provide for remuneration of members of the Taxation Boards of Review is to be removed.
More detailed explanations will be found at pages 4 to 48 of this memorandum.
Income Tax (International Agreements) Bill (No. 2) 1967
The second Bill - the Income Tax (International Agreements) Bill (No. 2) 1967 - proposes amendments of a minor nature that are consequential upon the introduction of a withholding tax on interest paid to non-residents.
More detailed explanations are to be found at pages 49 and 50 of this memorandum.
Income Tax (Non-resident Dividends and Interest) Bill 1967
The third Bill - the Income Tax (Non-resident Dividends and Interest) Bill 1967 - is necessary to declare the rate of withholding tax on interest paid to non-residents. It is proposed that this will be 10 per cent of the amount of interest so paid. Because it is convenient for both rates of withholding tax to be dealt with in the one measure, the Bill will also re-declare the rate of dividend withholding tax, which has hitherto been declared by the Income Tax (Non-resident Dividends) Act. This rate is not being changed.
More detailed explanations will be found at pages 51 to 53 of this memorandum.
Pay-roll Tax Assessment Bill (No. 2) 1967
The fourth Bill - the Pay-roll Tax Assessment Bill (No. 2) 1967 - will exempt from pay-roll tax wages paid by the Australian-American Educational Foundation.
More detailed explanations are at page 54 of this memorandum.