Second Reading Speech
by the Treasurer, the Hon. John Howard, M.P.This Bill will amend the income tax law in a number of respects, primarily to give effect to a number of the government's budget proposals.
Included in the Bill are the measures necessary to allow a rebate of tax on up to $1000 of certain dividends, to increase the sole parent rebate and the rebate for a spouse, daughter-housekeeper or housekeeper where there is a dependent child or student and to introduce a rebate of tax for those in receipt of taxable Australian social security and repatriation pensions.
The Bill will also reflect the announced reduction in the standard rate of personal tax from 32 per cent to 30 per cent from 1 November 1982 by making consequential adjustments such as to the rate used to calculate various rebates.
Other budget measures given effect by the Bill include a new rebate of tax for home buyers for the top slice of their interest payments on home loans of up to $60,000, together with a further easing of the dividend distribution requirements for private companies.
It also contains provisions to exempt from tax the rehabilitation allowance payable from 1 March 1983 to persons under treatment or training with the Commonwealth Rehabilitation Service and to authorise income tax deductions for gifts of $2 or more made to certain public funds and organisations.
The calculation of provisional tax for the 1982-83 year of income is also provided for.
As announced in the budget speech, the rebate for a dependent spouse and the rebate available for a daughter-housekeeper or a housekeeper are to be increased by $200 - from $830 to $1030 - where there are dependent (including student) children.
The increased rebate will be available to a taxpayer who would have been entitled to a dependant rebate in respect of a child under 16 years of age or a student less than 25 years of age but for the replacement of such rebates by family allowances.
The sole parent rebate will also be increased by $200 from $580 to $780.
Because the increased rebates are to apply from 1 November 1982, the increases for the 1982-83 income year will be $133 - representing two-thirds of the full year increase of $200.
As zone rebates are partly based on dependant rebates, entitlement to an increased dependant rebate will mean a higher zone rebate.
These measures will provide additional help to single income families with dependent children - particularly when combined with other personal income tax reductions which I will mention shortly.
Another budget decision to be implemented by this Bill is the introduction of a special pensioner rebate for income tax purposes.
The rebate, together with the increase in the tax-free threshold to $4,595 to be effected by the Income Tax (Rates) Bill 1982 that will be introduced shortly, will ensure that persons wholly or mainly dependent on a taxable social security or repatriation pension do not bear tax.
More specifically, the maximum rebate of $167 for 1982-83 (reflecting a 1 November 1982 commencement date for this concession) and $250 in subsequent years will mean that no tax will be payable on taxable incomes of up to $5,007 for 1982-83 and up to $5,429 in subsequent years. The rebate will shade out above these income levels, but the shading arrangements will result in some rebate being available where taxable income exceeds the above levels but is less than $6,343 nc 1982-83 and $7,429 in subsequent years.
Honourable Members will recall that on 18 March 1982 I made a statement in this House following a detailed review by the government of housing policy.
In that statement I made it clear that the government is committed to preserving the highest practicable level of private home ownership in Australia and announced a tax rebate for home loan interest to alleviate the burden of housing mortgage payments.
The rebate is available from 1 July 1982 to individuals in the first five years of owner-occupancy of a sole or principal residence in Australia.
As further evidence of the government's concern I announced in my budget speech an alternative rebate of tax for interest payments made on or after 1 July 1982.
The existing rebate will continue to be available and can be used by eligible taxpayers where it offers a larger rebate than the new scheme does in a particular year of income.
The new rebate, which is authorised by this Bill, is to be available to an individual taxpayer resident in Australia in respect of interest paid in a year of income that is attributable to such part of the interest rate as exceeds 10 per cent per annum, calculated on a reducing balance basis, in respect of the first $60,000 of a loan or loans on a dwelling.
Unlike the existing rebate scheme the new rebate will not be restricted to the first years of home ownership or by specified upper limits of rebate.
The rebate will be at the standard rate of tax and will not exceed the tax otherwise payable on assessment.
The rebate is to be allowed on interest paid to the extent to which the interest exceeds 10 per cent per annum of the average balance of a home loan in a year of income.
Adjustments may be made to the amount calculated as the average loan balance to account for unusual or additional repayments during a year or for increases in the balance of the loan at a particular time in the year.
The proposal to limit the rebate to the first $60,000 of a loan or loans on a dwelling will result in the amount otherwise subject to rebate in a year of income being reduced proportionately if the balance of the moneys owing on the home exceed $60,000 at the end of the year of income.
Interest will be within the scheme if it is paid on moneys lent to a taxpayer and applied for certain specified purposes connected with a dwelling used by the taxpayer as his or her sole or principal residence.
Those purposes include the acquisition of land on which a dwelling is subsequently constructed, the construction of a dwelling or the acquisition of land on which there is already a dwelling.
Interest on moneys used to extend a dwelling may also qualify.
Where moneys are borrowed partly for the purpose of acquiring or constructing a dwelling and partly for other purposes, so much only of the interest as is attributable to the part of the moneys applied to acquire or construct the dwelling will qualify for the rebate. Moneys borrowed on the security of a dwelling will not qualify unless they are expended for a qualifying purpose.
Interest payments that attract income tax deductions under ordinary rules will continue to be deductible and will not attract the rebate.
A taxpayer who is entitled to a rebate under either the new scheme or the existing home loan interest rebate scheme will be able to elect to transfer that benefit to his or her spouse.
The rebate is to be incorporated in the paye tax instalment deduction scheme as from 1 November 1982. Taxpayers taking advantage of the rebate by this method will be required to complete a declaration form and lodge it with their employers.
In my budget speech I announced that the government had decided to allow a rebate at the standard rate of tax on up to $1,000 of dividends, included in taxable income, that are received by resident individuals from resident companies.
The rebate will not apply to dividends paid by co-operative companies that are accorded special income tax treatment, dividends that are taxed at special higher rates of tax and certain amounts that are deemed to be dividends for income tax purposes.
Since the earlier announcement, it has been decided that the rebate should be extended to dividends paid by the limited number of foreign companies that are listed on Australian stock exchanges.
This Bill will give effect to these decisions.
The new rebate will first apply in income tax assessments for the 1982-83 year of income.
This measure will provide some relief from what some see as the double taxation of dividend income, while at the same time giving encouragement to small investors.
Retention Allowance of Private Companies
The Bill also gives effect to the budget proposal to further ease the dividend distribution requirements for private companies under Division 7 of the Income Tax Assessment Act.
It is proposed to increase - from 70 per cent to 80 per cent - the proportion of after-tax business income that a company may retain without becoming liable to pay the undistributed profits tax.
This measure will further assist small businesses in maintaining adequate working capital and mean that this government has increased the retention allowance from 50 per cent to 80 per cent since it came to office.
Private companies will benefit from the increased retention allowance in respect of income of the 1981-82 and subsequent income years.
It is not proposed to vary the 10 per cent retention allowance for property income or the rule that dividends received by one private company from another must be distributed in full if undistributed profits tax is to be avoided.
The gift provisions of the income tax law allow deductions for gifts of the value of $2 or more to specified funds, authorities and institutions.
Details of each of the proposed extensions of this concession have been the subject of previous statements and I need mention them only briefly now.
One extension will authorise deductions for gifts made during the 1981-82 and 1982-83 financial years to a public fund established and maintained exclusively for the relief of civilian victims of the conflict in Lebanon.
Another will authorise deductions for gifts made after 17 August 1982 to the United Nations Association of Australia Decade of Trees Greening Australia and to a range of conservation organisations.
Details of this particular proposal, including the names of the eligible organisations, were announced in my statement of 17 August 1982.
Since that announcement the government has decided that the concession should extend to a further conservation body - the National Parks Foundation of South Australia.
The final amendment to the gift provisions proposed by the Bill will authorise deductions for gifts made after 26 August 1982 to the Centre for Independent Studies, The Playford Memorial Trust, The Boy Scouts and Girl Guides associations in Australia and Amnesty International in Australia.
Mr Speaker, Honourable Members will recall my announcement on budget night that, from the first pension payday in March 1983, persons undergoing treatment or training with the Commonwealth Rehabilitation Service who would otherwise be eligible for a social security pension or benefit will be eligible to receive a non-taxable rehabilitation allowance.
The allowance will be equivalent to the invalid pension and subject to the same income test conditions of eligibility as the invalid pension.
Legislation providing for the payment of the new allowance was introduced into the partliament on 23 September 1982.
Under the existing income tax law, the tax treatment of allowances received by persons undergoing treatment or training with the Commonwealth Rehabilitation Service depends upon whether the pension or benefit to which the allowance relates is subject to tax.
This Bill, by ensuring that the new rehabilitation allowance and associated training and living away from home allowances are exempt from tax, will introduce uniformity of tax treatment for all persons under treatment or training with the service.
The Bill also makes a number of consequential amendments so that no taxpayer will be disadvantaged as a result of a person, who would otherwise be eligible to receive an invalid pension, becoming instead eligible to receive a rehabilitation allowance.
The amendments will apply in relation to payments made on or after 1 March 1983.
As a consequence of the reduction in the standard rate of tax from 32 per cent to 30 per cent from 1 November 1982, the Bill provides for the adjustment of the rate at which various rebates are allowable, the rate of tax on certain lump sum payments and the rate of withholding tax on mining payments made to Aboriginal groups.
The rebates in question are the General concessional Rebate, the Health Insurance Rebate and the Existing Home Loan Interest Rebate.
These rebates will be allowed at the rate of 30.67 per cent for 1982-83 and 30 per cent in subsequent years.
The rate of tax on certain lump sum payments for accrued annual and/or long service leave made on retirement or termination of employment similarly will be limited to 30.67 per cent for 1982-83 and 30 per cent for subsequent years.
The rate of withholding tax on mining payments made to Aboriginal groups on or after 1 November 1982 will be reduced from 6.4 per cent to 6 per cent - representing tax at the new standard rate of 30 per cent on 20 per cent of the gross payments.
As provisional tax is part of the broad pay-as-you-earn system and is designed to collect tax on incomes consisting of or including non-salary-or-wage income within the year in which it is derived, it is generally accepted as reasonable that the amount charged should approximate as closely as practicable the amount of tax actually imposed for the year.
This achieves a desirable measure of consistency with the treatment of salary or wage earners.
Incomes for 1982-83 are expected to be higher than for 1981-82 and, of course, due to the changes to the personal income tax rate scale, effective rates of tax for 1982-83 will be lower than for last year.
Accordingly, as in past years, it is proposed to vary the basis of calculating provisional tax for 1982-83 to be notified in assessment notices to issue this year.
The Bill thus provides for 1982-83 provisional tax to be calculated on the basis of 1981-82 taxable income as increased by 10 per cent and applying to the adjusted amount the lower rates of tax to apply for 1982-83.
Generally, rebates allowed in 1981-82 will be taken into account in the calculation.
However, where it appears from the information available in the taxpayer's 1981-82 return of income that he or she will be entitled in 1982-83 to an increased spouse, daughter-housekeeper, housekeeper or sole parent rebate, the relevant rebates (including zone rebates where appropriate) allowable in 1981-82 will be increased accordingly.
The new dividend and pensioner rebates will also be taken into account in the 1982-83 provisional tax calculation where it appears, from the information available in the taxpayer's 1981-82 return of income, that he or she will be entitled to one or both of these rebates.
It is, or course, open to taxpayers who consider that their taxable income for 1982-83 will increase by less than the notional 10 per cent, or who consider that sufficient rebates have not been taken into account, to "self-assess" and have the provisional tax for 1982-83 recalculated on the basis of their own estimates.
Finally, Mr Speaker, the Bill makes a number of formal amendments to the Income Tax Assessment Act necessitated by the change in title of, and other formal amendments to, the Social Services Act 1947 made recently by the Social Services Legislation Amendment Act 1982.
Mr Speaker, a memorandum explaining in some detail the technical aspects of this Bill will be made available to Honourable Members.
I commend the Bill to the House.