Second Reading Speech
by the Minister for Business and Consumer Affairs, the Hon. J.C. Moore, M.P.This Bill will amend the income tax law in a number of respects.
It will give effect to proposals announced in detail on 16 July 1980 to deal with the threat to company tax revenues posed by the growing practice of public company groups reorganising their affairs so as to eliminate company tax on some of their income.
The practice involves the transfer of profitable assets, particularly investment in property, to unit trusts.
The Bill will also implement two budget announcements - one to change the basis on which friendly society dispensaries are taxed and the other to reduce the rate at which capital expenditures on the development of a mine or oil field may be written off for tax purposes.
Some extension of the gift provisions of the income tax law is also to be made by the Bill and - finally - it will also provide the method for calculating provisional tax for the 1981-82 income year.
The main concern of the Government in this respect is to prevent ad hoc erosion of the so-called classical system of company taxation through the use of unit trusts by public companies.
Accordingly, the broad thrust of the amendments is to remove the taxation advantage sought by companies from placing income producing property in the hands of unit trusts.
This is to be achieved basically by treating unit trusts evolving from the practice as if they were companies for tax purposes.
Broadly, the taxable income of a public unit trust to which the amendments apply is to be subject to tax at the rate applicable to companies generally, now 46 percent, and distributions to unit holders out of income and profits of such trusts are to be taxed in the same way as they would be if they were dividends paid to shareholders of a company.
These rules will apply to unit trusts formed as part of a reorganisation of a company or group of companies where, as part of the reorganisation, a business or other property of a company is transferred to the trust and shareholders in the company are given preference as regards taking up units in the trust.
To confine the scope of the amendments closely to the kinds of practices referred to in the Treasurer's statements on the matter, the amendments will apply only if it is part of the reorganisation arrangement for the unit trust to be a "public unit trust" as defined in the Bill.
In broad terms a "public unit trust" is defined as one the units in which are listed on a stock exchange, are held by 50 or more persons, or are available for investment by the public. For this purpose, a person and his or her relatives or nominees will be counted as one person.
In harmony with the broad objective of equating public unit trusts with public companies it is proposed by the Bill that, where the income of such a trust includes dividends from companies, a rebate of tax is to be allowed in the same way as would be the case for dividend income received by a company.
Unit trust distributions made by a public unit trust to a unitholder that is a company will qualify for rebate on a comparable basis in the unitholder's hands.
A number of safeguarding measures are contained in the Bill to support the objectives of these proposals.
The new basis for taxing public unit trusts and their unitholders will first apply in relation to the 1980-81 income year where the trust is established after 11 July 1980.
In recognition of special problems presented for unit trusts established, in some cases, out of company reorganisations a number of years ago, the amendments will apply from the commencement of the 1983-84 income year for trusts established on or before 11 July 1980.
As announced in the Budget speech, the Government has decided to remove the present special basis of taxing the dispensaries.
In future they are to be taxed in the same way as other non-profit companies.
The effect of this decision as implemented by the Bill is that normal company tax rates will apply to the net income of dispensaries arising from investment income, from receipts from the Commonwealth for the supply of any pharmaceutical benefits and from charges paid by non-members for the supply of pharmaceutical goods and other products and services.
These changes will first apply to income derived by dispensaries in the 1982-83 income year.
This will allow the dispensaries time to adapt their accounting methods to the change.
Amendments proposed by the Bill will further extend the existing gift provisions of the income tax law which confer deductions for gifts of the value of $2 or more to specified funds, authorities or institutions.
One extension will authorise deductions for gifts made after 30 June 1981 to the Victorian Arts Centre Trust.
The second will authorise deductions for gifts made during the current financial year to a public fund established for the purpose of observance of the International Year of Disabled Persons by a committee appointed by the Commonwealth, a state or the Northern Territory for that purpose.
Capital Expenditure on the Development of a Mine or Oil Field
The Bill contains the amendments necessary to give effect to the proposal announced in the Budget speech to increase from six to ten years the maximum statutory life by reference to which deductions allowable for capital expenditure on the development of a mine or oil field are determined.
The new basis of deduction will apply generally to expenditure incurred after 18 August 1981.
However, where the expenditure is incurred after 18 August 1981 under a contract entered into on or before that day, or in respect of work carried out by the taxpayer which was commenced on or before that day, it will continue to be deductible by reference to a maximum statutory life of six years as at present.
As I think is generally understood, provisional tax is that part of the pay-as-you-earn system designed to collect tax on income other than salary or wages within the year in which it is derived.
That being so it is only reasonable that the amount charged should closely approximate the amount of tax actually imposed for the year.
In this way, the provisional tax arrangements are able to achieve a desirable measure of consistency between the treatment of salary and wage earners and of persons who derive income from a business or from property.
In the absence of provisions to the contrary, provisional tax for 1981-82 would be calculated by applying 1980-81 rates of tax to 1980-81 taxable income and taking into account rebates at their 1980-81 levels.
It is, however, expected that incomes for 1981-82 will generally be higher than for 1980-81.
As against this, due to the application of half-indexation the effective rates of tax for 1981-82 are lower than for last year and, of course, dependant rebates for 1981-82 are greater than those for 1980-81.
In the circumstances, it is appropriate that a varied basis be applied in calculating provisional tax for 1981-82 where taxpayers do not exercise the right to have the tax calculated on the basis of their own estimates of taxable income for the year.
The Bill provides that provisional tax for 1981-82 is to be calculated on the basis of taxable income for 1980-81 increased by 10 percent and applying to this adjusted income the lower effective rates of tax applying for 1981-82.
Dependant rebates are to be allowed for in the calculations at the higher values set for 1981-82.
I add that the notional increase of 10 percent for 1981-82 incomes over 1980-81 is less than the estimated average rise between the two years in taxable incomes of people subject to provisional tax.
This will provide a buffer against any excessive provisional tax.
And, of course, taxpayers who consider their taxable income for 1981-82 will increase by less than the notional 10 percent have the option of "self-assessing" and thus having the provisional tax for 1981-82 recalculated on the basis of their own estimates of taxable income for the year.
Mr Speaker, a memorandum containing more detailed explanations of technical aspects of the Bill is being made available to honourable members and, at this stage, I think there is no need for me to further address the matters covered by the Bill.
I commend the Bill to the House.