House of Representatives

Explanatory Memorandum

(Circulated by the Treasurer, the Honourable J. B. Chifley.)

Ed. Note

Notes on Clauses

CLAUSE 1.-SHORT TITLE AND CITATION.

CLAUSE 2.-COMMENCEMENT.

The object of this clause is to authorize the application of the provisions of the Bill, except the sections specified in sub-clauses (2.) and (3.), immediately upon their enactment.

The excepted sections specified in sub-clause (2.) relate to contributions to employees' pensions funds. It is intended that the amended provisions shall apply to contributions made after 30th June, 1943.

The excepted sections specified in sub-clause (3.) relate to the collection of income tax by deductions from the salaries or wages of employees. These sections will come into operation on 1st July, 1944, i.e., the commencement of the first complete deduction year under the plan for an altered basis of liability to tax to which effect is given in this Bill. Section 21 will come into operation immediately upon enactment, in order to allow employers to be registered as group employers and to receive notification of their obligations before 1st July, 1944.

CLAUSE 3.-PARTS.

Section 5 of the Principal Act enumerates the Parts and Divisions into which the Act is divided.

Division 18 which is being inserted in Part III. of the Act contains the provisions relating to partial liability to tax on income derived by taxpayers during the year ending on 30th June, 1944, or during the accounting period, if any, adopted by the taxpayer in lieu of that year.

Division 3 which is being inserted in Part VI. of the Act contains the provisions relating to provisional tax which is to be collected during each year of income.

These new divisions relate to taxpayers other than companies and constitute substantially the provisions necessary to give effect to the plan for basing the liability for income tax for each financial year on the income of that year instead of the present system of basing liability for income tax for a financial year on the income of the previous year.

CLAUSE 4.-DEFINITIONS.

Under Section 17 of the Principal Act, income tax is levied and paid for each financial year upon the taxable income derived by a taxpayer during the year of income preceding the financial year for which the tax is levied and paid. Thus, the levy of income tax for the present financial year 1943-1944 is based on taxable income derived during the year from 1st July, 1942, to 30th June, 1943 (or the accounting period, if any, adopted by the taxpayer in lieu of that year).

Paragraph (a) of the proposed definition of "year of income" will preserve this basis in the case of a company, except a company in the capacity of a trustee.

With regard to taxpayers other than companies, paragraph (b) of the proposed definition will have the effect of advancing by twelve months the year of income on which the tax is based. Except in those isolated cases where accounting periods have been adopted in lieu of the year from July to June, the year, on the income of which the tax is based, will coincide with the financial year for which the tax is levied. Thus, the levy of income tax for the forthcoming financial year 1944-1945 will be based on taxable income derived during the year from 1st July, 1944, to 30th June, 1945.

An accounting period adopted in lieu of the year from July to June will also be advanced twelve months. For example, where income tax for the present financial year 1943-1944 is levied on the taxable income derived during the period from 1st October, 1942, to 30th September, 1943, income tax will be levied for the financial year 1944-1945 on the taxable income derived during the period from 1st October, 1944, to 30th September, 1945.

By Clause 28(1) of the Bill, this amendment will commence to apply to assessments for the financial year beginning on 1st July, 1944.

The levy of income tax on taxable income derived during the year ended 30th June, 1944, or the accounting period, if any, adopted in lieu of that year, is the subject of Division 18 which is being inserted in Part III. of the Act.

CLAUSE 5.-EXEMPTIONS.

The purpose of this amendment, which is complementary to the amendment which is being made by sub-clause (d), is to restate the provisions of section 23(c)(vi) of the Principal Act in the form in which they were expressed prior to the amendment of the sub-paragraph by section 5 of Act No. 22 of 1942.

By Act No. 22 of 1942 the Principal Act was amended to exempt from income tax the remuneration earned in Australia by persons who visit this country for the purpose primarily and principally of assisting the Commonwealth Government in the defence of Australia. The exemption applies principally to remuneration derived by visiting civilians of the United Kingdom from occupations connected with the defence of Australia. The individuals are usually engaged under contracts of employment by the Commonwealth for two or more years or for the duration of the war. The remuneration is not, as a general rule, subject to income tax in the United Kingdom or the country in which the visitor ordinarily resides so, when exemption is granted by the Commonwealth, no income tax whatever is paid on such income either in Australia or elsewhere. These individuals thus enjoy a substantial monetary advantage over Australians with whom they are working.

It is, therefore, proposed that the exemption provided for visiting civilians assisting in the defence of Australia shall be limited to those cases where the remuneration is subject to income tax in the country in which the taxpayer ordinarily resides. This proposal is given specific expression in sub-clause (d) of this clause.

A further proposal is that the amendment shall apply in respect of remuneration derived on and from 1st July, 1942. Exemptions already granted will continue in respect of income derived up to 30th June, 1942, but not to income derived subsequent to that date.

The present exemption will continue to apply to the remuneration derived in Australia by the other classes of visitors described in section 23(c)(vi). Usually, these visitors remain in Australia for short periods only and their Australian earnings are liable to income tax in the respective countries in which they reside.

SUB-CLAUSE (b).-EXEMPTIONS-PAY AND ALLOWANCES OF MEMBERS OF DEFENCE FORCE.

Section 23(s) of the Principal Act in its present form exempts the pay and allowances earned outside Australia by a member of the Defence Force.

In addition, the pay and allowances earned in Australia during any year are exempt if, within twelve months after the close of that year, the member embarks for service outside Australia (or in the case of naval personnel, serves in a sea-going ship) and remains on service outside Australia or is borne in a sea-going ship for a period of, or for periods aggregating six months during the twelve months immediately following the date of embarkation.

The exemption also applies if, prior to serving the specified period of six months, the member is returned to Australia owing to injury or illness. In such cases, the exemption extends to the pay and allowances earned in Australia during the period of three months after the member's resumption of duty in Australia.

Owing to the proximity of the fighting to the Australian mainland, units of the Forces have been brought back for rehabilitation before the expiration of six months from the date of their departure; consequently, the members of these units have not qualified for the retrospective or prospective exemption of pay and allowances earned by them in Australia.

It is accordingly proposed that the qualifying period during which a member of the Defence Force should serve outside Australia or be borne in a sea-going ship should be reduced from six months to a continuous period of three months. The existing qualifying aggregate period of six months will continue to operate in the case of broken periods of less than three months duration. The amending sub-clause maintains the existing exemption in respect of pay and allowances earned in Australia during the period of three months after the member's resumption of duty in Australia.

Sub-clause 5(b) also extends the concessions to members of air crews of squadrons stationed at operational stations in Australia and engaged in operational flights outside Australia. Members of these squadrons do not in the normal course of their operations serve outside Australia for the proposed requisite continuous period of three months or broken periods aggregating six months. The pay and allowances earned by them in Australia are accordingly not exempt from income tax.

It is proposed that the members of the air crews of R.A.A.F. squadrons stationed in Australia who are engaged in operational flights outside Australia and who have been attached to the squadron for a continuous period of three months or broken periods aggregating six months shall receive the same exemption from income tax in respect of their pay and allowances earned in Australia as that granted to members of R.A.A.F. squadrons who are on service in New Guinea and other places outside Australia.

For the purpose of this exemption "air crew" is defined to include photographers and members of the ground staff whose duties require them regularly to take part in flights out of Australia. The exemption, however, will not apply to members of reserve squadrons unless those squadrons take part in operations as operational squadrons for a continuous period of three months.

The amendments made by this sub-clause will apply in respect of pay and allowances earned during the year ended 30th June, 1942, and subsequent years.

SUB-CLAUSES (c) AND (d).-EXEMPTIONS-VISITING CIVILIAN PERSONNEL ASSISTING IN DEFENCE OF AUSTRALIA AND MERCHANT SEAMEN OF ALLIED NATIONS.

As explained in the Explanatory Note to sub-clause (a) of this clause, the insertion of a new paragraph (v) in section 23 of the Principal Act will replace the previous provision in section 23(c)(vi) for the exemption of the remuneration derived by visiting civilians from the carrying on of occupations directed to assisting the Commonwealth government in the defence of this country. Exemption, however, is made dependent on the Treasurer being satisfied that the remuneration is not exempt from income tax in the country where the visitor ordinarily resides.

This amendment will apply to assessments for the financial year 1943-1944 and all subsequent years.

Since the outbreak of war an increasing number of seamen of British and Allied Nations have been employed on British and Allied vessels operating in Australian waters. British, American, Norwegian, Dutch, Chinese and Javanese seamen have derived in Australia income which, under the existing law, is subject to Commonwealth income tax. Many of these seamen are also liable to pay tax to their own government on their Australian earnings. Clause 5 (d) will insert in Section 23 of the Principal Act a new paragraph (w) exempting the Australian earnings of sea-going members of the mercantile marine of any British or Allied country provided that the taxpayer's earnings are subject to income tax imposed by the government of any of those countries. This exemption will avoid double taxation of such earnings by the Commonwealth and other Allied governments.

This amendment will apply to assessments for the financial year 1943-1944 and all subsequent years.

CLAUSE 6.-ACQUISITION OF DEPRECIATED PROPERTY.

This is merely a drafting amendment consequent upon the insertion in the Principal Act in 1942 of a series of new sections, viz., sections 59A to 59E, between sections 59 and 60.

CLAUSE 7.-CONTRIBUTIONS TO PENSION FUNDS.

Section 66 is being repealed and a new section inserted in its stead in order to provide for the deduction of those amounts only which were in contemplation when the section was enacted.

The object of section 66 is to encourage the establishment and maintenance of provident funds for the benefit of the general body of the employees of the taxpayer.

Recently, however, there has been a growing tendency on the part of companies to establish funds for the benefit of a limited number of senior executive officers for whom inordinately large benefits are provided to the exclusion of the general body of employees. In one case recently, a public company has paid into a fund sums of Pd20,000 for the benefit of its managing director, Pd10,000 for its general manager and sums ranging from Pd4,000 to Pd1,000 for each of several departmental managers.

It is accordingly proposed to limit the deduction permitted by the section to the sum of Pd100 in respect of each employee or five per centum of the employee's annual remuneration, whichever deduction is the greater.

This limitation will not adversely affect those contributions to funds which section 66 was designed to allow. Where, however, this limitation would have the effect of disallowing a part of any contribution to a fund, the Commissioner is authorized to increase the deduction if, in his opinion, the special circumstances of the case warrant a higher allowance.

Sub-section (1.) of section 66 which is being inserted in the Act preserves substantially the conditions under which a contribution to a fund will be an allowable deduction.

In order to give effect to the proposal to limit the deduction to be allowed by the section, the Commissioner is authorized to determine, in respect of any contribution to a fund, the number of employees for whom, at the date of the contribution, benefits are provided. This determination will be made under sub-section (2.)(a).

Paragraphs (b) and (c) of sub-section (2.) repeat in substance provisions of the repealed section 66. These provisions prohibit the deduction of contributions to provident funds for the benefit of employees who are not engaged in the production of assessable income and, in the case of private companies, for the provision of benefits for shareholder-employees or shareholder-directors if, in the opinion of the Commissioner, those benefits are provided for the employees or directors as shareholders of the company.

Sub-section (2.)(d) authorises the Commissioner to determine the proportion of the contribution to the fund, or the part thereof not allocated under paragraphs (b) and (c), which is attributable to the provision of benefits for each employee.

The procedure to be adopted under sub-section (3.) will be to exclude from the contribution to the fund--

(a)

the part of the contribution attributable to the provision of benefits for employees who are not engaged in the production of assessable income; and

(b)

in the case of a private company, the part of the contribution attributable to the provision of benefits for shareholder-employees and shareholder-directors.

The contribution to the fund, or the balance remaining after excluding the amounts described in (a) and (b) of the preceding paragraph, will be allocated on the determination of the Commissioner amongst the employees benefiting from the contribution. The excess of the allocation in respect of each employee over Pd100 (or, if greater, 5 per cent. of the employee's annual remuneration) will also be excluded and the balance of the contribution will be allowed as a deduction.

By sub-section (4.) it is recognised that there will be cases where the limitation of the allowable deduction may be inequitable. For example, an employer may contribute to a fund a sum of Pd500 in respect of an employee who has rendered service to him over a period of ten years and in respect of whom a contribution to a provident fund has not previously been made by the employer. In such a case, and in any other comparable case, the Commissioner is empowered to exercise a discretion to allow a higher deduction than that allowed by sub-section (3.).

The altered provisions of section 66 will apply to contributions made to provident funds after 30th June, 1943. Where a part of a contribution to a fund is disallowed owing to the operation of the limitation to Pd100 (or 5 per cent. of the employee's annual remuneration) sub-section (5.) will entitle the taxpayer to recover from the fund the amount by which his income tax and any War-time (Company) Tax has been increased by the disallowance.

If, however, on 2nd March, 1944, the fund is insufficient to meet the amount that the taxpayer is entitled to recover from the fund, sub-section (6.) provides that the amount of the insufficiency will be an allowable deduction.

Sub-section (7.) will apply in those cases where the taxpayer is under a legal obligation to contribute to a fund for the provision of benefits for employees. The sub-section will release the taxpayer from his legal obligation to the extent to which the contribution would have been allowed as a deduction under the repealed section but is not allowed under the section as altered.

The purpose of sub-section (8.) is to preclude the allowance under any other provision of the Act of any amount that is not allowed under section 66.

Sub-section (9.) repeats substantially the provisions of sub-section (3.) of the repealed section 66.

Provident Funds frequently provide benefits for directors and employees. The purpose of sub-section (10.) is to ensure that contributions made to funds to provide benefits for directors shall be subject to the same concessions and limitations as are contributions to funds for the benefit of employees.

CLAUSE 8.-GIFTS AND CONTRIBUTIONS.

Section 78 of the Principal Act provides for the allowance of a deduction in respect of gifts to public benevolent institutions, etc., voluntary contributions to employees' pension funds and amounts paid as pensions or retiring allowances to employees or ex-employees who are residents.

The effect of the introductory part of sub-section (1.) is that the aggregate of deductions allowable under the section shall not exceed the amount of income remaining after deducting from the assessable income all other allowable deductions, except the deduction of losses of previous years.

It is proposed to amend the provisions relating to the allowance of deductions in respect of voluntary contributions to pension funds and to embody the amended provisions in a new section--section 79--which will be inserted by clause 9 of the Bill.

The amendments proposed by clause 8 are designed to effect the transfer to the proposed new section 79 of the provisions relating to voluntary contributions to employees' pension funds and, at the same time, to preserve, by the insertion of a new sub-section (3.) in section 78, the existing limitation of the deductions allowable in respect of gifts, voluntary contributions to pension funds and retiring allowances and pensions paid to employees or ex-employees.

CLAUSE 9.-VOLUNTARY CONTRIBUTIONS TO PENSION FUNDS.

Section 79 replaces the repealed section 78(1)(b) and accords in general principle with the amended provisions of section 66. The two sections apply, however, in different cases. Section 66 is designed for application to sums set apart or paid by the taxpayer under legal obligation as or to a fund for the benefit of his employees. Section 79, however, provides a deduction in respect of contributions that are voluntarily made to funds for the benefit of employees in any business or class of business or for the benefit of the dependants of those employees.

The sub-sections of section 79 are comparable with the sub-sections of section 66 and the explanatory notes to those sub-sections have equal application to the corresponding provisions of section 79.

CLAUSE 10.-LOSSES OF PREVIOUS YEARS.

Section 80 of the Principal Act provides, inter alia, that the business losses incurred by the taxpayer in the four years next preceding the year of income shall be allowed as a deduction in arriving at the taxpayer's taxable income of the year of income.

Sub-section (4.) of that section, however, provides that if a taxpayer is adjudicated bankrupt, any loss incurred by him prior to that adjudication shall not be an allowable deduction. This sub-section, however, does not apply to companies because section 5 of the Bankruptcy Act excludes companies from the operation of the Bankruptcy Act.

As a company is a legal entity separate and distinct from its shareholders, the position under section 80 of the Income Tax Assessment Act is that it is entitled to a deduction in respect of losses incurred during the four years prior to the year of income, even though the shareholders in the years in which the losses were sustained are an entirely different set of persons from the shareholders in the year in which the profits are made.

There is in existence, evidence showing that in order to avoid income tax, some people are acquiring the shares of companies which have sustained losses in previous years and have ceased to carry on business but have not formally gone into liquidation.

In one instance, a company which had suffered losses entered into an arrangement with its creditors to accept 12s. 6d. in the Pd1 in full satisfaction of their claims. After payment of this amount the company had no assets and it ceased to function. It was never formally liquidated, however, and its shares were acquired by other persons for a nominal price. No existing shareholder, director or officer of the company had any connexion with the company in the years in which the losses were made. The company and, therefore, the existing shareholders are entitled to the benefits of the existing provisions of section 80 in respect of losses of past years.

Whilst a company is an entity separate and distinct from its shareholders, the shareholders are the real owners of the business carried on by the company and there is no justification for the allowance of a loss sustained by an entirely different set of shareholders in earlier years.

In order to overcome this legal means of tax avoidance, it is proposed by clause 10 to insert in section 80 of the Principal Act a new sub-section providing that in the case of a private company, no loss incurred in any year prior to the year of income shall be an allowable deduction unless the company establishes to the satisfaction of the Commissioner that at the end of the year of income, seventy-five per centum of the shares were held by persons who also held seventy-five per centum of the shares at the end of the year in which the loss was incurred.

In applying the new provisions, however, no change of ownership of shares shall be deemed to have taken place where--

(a)

a person has died and the shares are held by his trustee or by a person who received them as a beneficiary in his estate;

(b)

the shares are transferred to a company, the majority of the shares of which are held by the transferor or, if he is deceased, by his heirs.

Clause 28 provides that this amendment shall apply retrospectively to assessments for the financial year 1942-1943 and all subsequent years.

CLAUSE 11.-DEDUCTION FOR MEMBERS OF DEFENCE FORCE OR ACCREDITED PERSONS OR MERCHANT SEAMEN.

Sub-clause (a) re-expresses and extends the introductory portion of sub-section (1.) of section 81 of the Principal Act. It is designed to bring within the section representatives of such institutions as the Red Cross Society, Australian Comforts Fund, Salvation Army and Y.M.C.A., members of broadcasting units established by the Australian Broadcasting Commission and war correspondents and photographers employed by the Department of Information and camouflage officers of the Department of Home Security, where such persons are accredited by the Defence Force and are attached to and accompany a body, contingent or detachment of that Force serving outside Australia.

This amendment is made retrospective to income derived during the year ended 30th June, 1942.

Sub-clause (a) also embodies a drafting correction designed to ensure that a member of the Forces, an accredited person, or a mariner shall not be disqualified from the allowance of the special deduction provided by section 81 because of the fact that he has ceased to be a member of the Forces, an accredited person, or a mariner, before the close of the year of income. In this respect it merely expresses more clearly the construction placed on the words that are being omitted.

A member of the Defence Force serving in Australia is entitled to a special deduction of Pd250 which gradually diminishes until it finally vanishes where the income exceeds Pd586. At present, the deduction applies to certain attested members of the Forces who are not engaged in continuous full-time defence duties, e.g., Lines of Communication (Signallers and Bulk Installation of Oil and Petrol Depots), University Rifles and some members of the Volunteer Defence Corps. The effect of the existing law is that the earning of a few pounds of military pay entitles the taxpayer to the Pd250 exemption with a very substantial tax reduction.

The deduction allowed to merchant seamen, however, is limited to the amount of the actual sea-going earnings of the taxpayer.

The object of sub-clause (b) is to impose a similar limitation in the case of part-time members of the Forces and to limit the special deduction, allowable for purposes of assessments for the financial year 1943-1944 and subsequent years, to the amount of service pay and allowances earned by them during the year of income. It also provides that the deduction allowable to the representatives of the philanthropic organisations and the other accredited persons aforementioned shall not exceed the remuneration derived by them while associated with the Forces outside Australia.

Sub-clause (c) is a machinery provision defining the meaning of "accredited person" and "Australia" for purposes of section 81 of the Principal Act.

CLAUSE 12.-DEFINITIONS (IN RELATION TO PRIVATE COMPANIES).

Under section 148 of the Principal Act, an insurance company carrying on business in Australia is not allowed a deduction of re-insurance premiums paid by it to a company which does not carry on the business of insurance in Australia. On the other hand, the ex-Australian company is not assessable upon the re-insurance premiums so received and the Australian company is not required to include in its return sums recovered from the ex-Australian company in respect of any risk so re-insured.

The effect of section 148 is to cause the local insurance company to be assessed in respect of the full profit or to be allowed the full loss arising from the risk insured, although part of that profit or loss is, in fact, derived or sustained by the ex-Australian re-insurer. The profit on the overseas re-insurance business forms part of the taxable income of the local insurance company although it is, in fact, not profit derived by or available for distribution as dividends by the company.

The general object of clause 12 is to place outside the scope of the undistributed income taxes, profits derived by overseas re-insurance companies from re-insurance business effected with them by insurance companies carrying on business in Australia.

Corresponding to the exclusion of this profit from distributable income, any loss arising from overseas re-insurance business is to be added to the taxable income in ascertaining the distributable income of the Australian company.

As the Australian company is allowed a deduction of the Commonwealth income tax paid or payable in respect of the full profit arising from the risk insured, and as there are cases where it is reimbursed, by the non-resident re-insurer, the amount of the tax attributable to the re-insurance profit, it is also proposed that the amount of any such reimbursement should be included in the Australian company's distributable income of the year of reimbursement.

This amendment will apply to assessments for the financial year 1943-1944 and all subsequent years.

CLAUSE 13.-DIVISION NOT TO APPLY TO CERTAIN NON-RESIDENTS.

The general effect of the private company provisions of the Act is that a private company which does not, within the prescribed time, distribute the whole of its distributable income shall be liable to pay the additional tax which the shareholders would have had to pay if the undistributed amount had been distributed as a dividend. If, however, the company subsequently distributes a dividend wholly and exclusively out of profits that have borne undistributed profits tax, a shareholder is entitled to a rebate of the amount by which his income tax is increased by the inclusion of this dividend in his assessable income.

Section 109A of the Principal Act provides that the provisions of the Act relating to private companies shall not apply to a non-resident private company which does not carry on business in Australia by means either of a principal office or a branch.

Section 109A was inserted in the Principal Act by Act No. 58 of 1941. The view taken was that as the Commonwealth does not collect tax in respect of dividends distributed by non-resident companies to non-resident shareholders, the principle underlying the imposition on companies of income tax on undistributed profits has no application in the case of a non-resident company which does not carry on business in Australia by means either of a principal office or a branch.

As now expressed, however, section 109A also has the effect of excluding non-resident private companies from the benefit of the rebate provided by section 107 in respect of dividends paid by a resident private company to a non-resident private company.

As it was not intended to deny such non-resident companies the benefit of this rebate, it is proposed to amend section 109A to exclude from its operation the provisions of section 107 of the Principal Act.

This amendment is to be made retrospective to assessments for the financial year 1940-41, i.e., the first assessment to which section 109A was made to apply.

CLAUSE 14. Division 18.-Partial Liability to Tax on Income of a certain Period.

INTRODUCTORY NOTE:-

The provisions comprising Division 18 which is being inserted in the Principal Act are designed to determine the measure of tax which taxpayers (other than companies) will be required to pay in respect of income derived during the year ending on 30th June, 1944 (or the accounting period, if any, adopted in lieu of that year).

The year ending 30th June, 1944, marks the transition from taxation for the financial year 1943-44 (based on income derived during the year ended 30th June, 1943) to taxation for the financial year 1944-45 (based on income derived during the year ending 30th June, 1945).

In general, the effect of Division 18 will be to require taxpayers to pay one quarter of the tax that would be payable on income of the transition year if no change in the basis of assessment had occurred. Three-quarters of the tax so calculated will be cancelled.

The procedure contemplated by Division 18 is that an amount of gross tax will be ascertained by applying current rates of tax to the taxable income derived during the transition year. From the gross tax so calculated there will be deducted all rebates of tax allowed at present, except the rebate of tax granted by section 159 of the Act.

The rebates of tax to be deducted from the gross tax are those in respect of the wife, children under sixteen years and other dependants of the taxpayer, life assurance premiums and superannuation contributions, medical expenses, gifts to charitable institutions, &c.

The liability for payment will be reduced to one-quarter of the net tax by the allowance of a rebate of three-quarters of the net tax.

This rebate of tax will be allowed in those cases where the taxable income of the transition year-

(a)

does not exceed Pd500;

(b)

exceeds Pd500 but does not exceed by more than one-fifth the taxable income of the year preceding the transition year.

In these cases where the taxable income of the transition year exceeds Pd500 and exceeds by more than one-fifth the taxable income of the preceding year, the rebate of tax to be allowed will be the greater of the two following amounts:-

(1)

three-quarters of the tax calculated at current rates on a taxable income equal to the taxable income of the preceding year increased by one-fifth of that taxable income; or

(2)

Pd125.

The object of determining the rebate by reference to the taxable income of the year preceding the transition year in the cases covered by the preceding paragraph is to avoid the cancellation of an unduly high amount of tax where the taxable income of the transition year is abnormally high owing to such causes as unusual receipts of income or the manipulation of stock values, deferment of expenditure, &c.

Where, however, the Commissioner of Taxation is satisfied that the taxable income of the year preceding the transition year was, from any cause, abnormally low, he is authorized to determine the amount of taxable income that might be expected normally to be derived in a year by the taxpayer and, for purposes of the rebate, to substitute the amount determined for the taxable income actually derived by the taxpayer. A taxpayer who is dissatisfied with the Commissioner's decision may approach the War-time (Company) Tax Board of Referees to review the Commissioner's decision.

The following are the sections which are being inserted in the Act to give effect to the plan as outlined above.

INTERPRETATION.

"The current year's tax" is the tax which would be payable at full current rates on the taxable income of the transition year after the allowance of all rebates of tax other than--

(a)

the rebate allowed under section 159 of the Act; and

(b)

the rebate allowed under this Division.

Section 159 provides for a rebate where income is taxed both in the United Kingdom and in Australia. As the rebate under section 159 is allowable after and not before the ascertainment of the Commonwealth tax, it is excluded from the calculation of tax for the purposes of this Division.

In calculating "the current year's tax", the rebate allowable under Division 18 is also excepted from the rebates to be deducted from the gross tax. This exception is necessary as "the current year's tax" is the basis for determining the rebate under Division 18.

The definition of "year of income" is complementary to the definition of "year of income" in section 6 of the Principal Act which, as now amended by clause 4, does not include the transition year.

The effect of sub-section (2.) of section 160AF is to bring into operation all provisions of the Act in which a reference is made to a "year of income". This sub-section is necessary for such purposes as the lodgment of returns, the making of assessments in respect of income of the transition year and the collection and recovery of tax assessed.

INCOME TAX OF PERSONS OTHER THAN COMPANIES ON INCOME OF YEAR ENDING ON THE 30TH JUNE, 1944.

Sub-section (1.) is the customary provision connecting the Assessment Act with the Income Tax Act which imposes the tax.

The tax payable in respect of the income of the transition year is payable for the financial year 1944-45 and is additional to the tax levied in pursuance of section 17 of the Act in respect of income of the year ending on 30th June, 1945 (or the substituted accounting period). This tax also is payable for the financial year 1944-45.

The tax levied under section 160AG(1.) does not apply to companies (except in the capacity of a trustee) or to any person whose taxable income derived during the transition year does not exceed Pd104.

The purpose of sub-section (2.) is to ensure that each of the two assessments for the financial year 1944-45 shall be separate and distinct.

REBATE OF TAX.

This section provides for the cancellation of part of the tax on the income of the transition year. The cancellation is effected by means of the allowance of a rebate of tax in the assessment of the taxpayer.

The rebate provided by sub-section (2.) will be allowed in those cases where the taxable income of the transition year--

(a)

is Pd500 or less; or

(b)

exceeds Pd500 but does not exceed by more than one-fifth the taxable income of the preceding year, i.e., the year ended 30th June, 1943, or the accounting period, if any, substituted for that year.

The rebate in these cases is three-quarters of the tax assessed on the income of the transition year. This rebate will be allowed in the assessments of approximately 98 per cent. of individual taxpayers.

Sub-section (3.) applies to cases that do not come within the provisions of sub-section (2.), i.e., to cases where the taxable income of the transition year exceeds Pd500 and exceeds by more than one-fifth the taxable income of the preceding year.

In these cases the rebate will be the greater of the two following amounts:--

(a)

three-quarters of the tax calculated at current rates on a taxable income equal to the taxable income of the preceding year increased by one-fifth of that taxable income; or

(b)

Pd125.

It is estimated that the rebate under sub-section (3.) will be limited in its application to not more than 2 per cent. of individual taxpayers.

In calculating the rebate, the taxable income actually derived by the taxpayer will be reduced to an amount equal to the taxable income of the preceding year and one-fifth of that taxable income. The reduction will be effected in the order described in sub-section 3(a).

The amount of the reduction will be subtracted firstly from income from personal exertion, as, in most cases, the difference between the taxable income of the transition year and the taxable income of the preceding year will be due to a variation in this class of income.

In the remaining cases, it will be necessary to subtract the whole or part of the reduction from income from property and this reduction will be made successively from any Commonwealth Loan Interest that is taxed at the 1930 rates; from other Government and semi-Government Loan Interest on which a rebate of tax of 2s. in the Pd1 is allowed; from dividends and from other income from property.

The method of reduction will avoid the complications of apportionment between the classes and sources of income, and, so far as income from property is concerned, will provide to taxpayers generally a slightly greater rebate of tax than would be allowed if an apportionment were made.

The alternative amount of rebate of Pd125 is approximately 75 per cent. of Pd167 18s.--the tax that is payable on a taxable income of Pd500 from property--before the deduction of any rebate of tax. The amount of Pd167 18s. is, in general, the highest amount of tax which is payable on an income of Pd500, i.e., the lowest income before sub-section (3.) may become applicable.

The following is an example of the application of sub-section (3.):--

Rebate in Certain Cases

This section is designed to afford equitable treatment in those cases where the taxable income of the transition year exceeds Pd500 and exceeds by more than one-fifth the taxable income of the preceding year and where, owing to some unusual circumstance or set of circumstances, the taxable income of the previous year is not the taxable income of a normal year. The excess of the taxable income of the transition year by more than one-fifth of the taxable income of the preceding year may arise, not because the taxable income of the transition year is abnormally high but because the taxable income of the preceding year is abnormally low. For example, the normal taxable income derived by a storekeeper may be approximately Pd2,000 annually but in the year preceding the transition year he may have suffered a loss of Pd1,200 of uninsured trading stock, reducing his taxable income of that year to Pd800. In this case, the rebate would be Pd252 17s., i.e., three-quarters of Pd337 3s.--the tax on a taxable income of Pd960 from personal exertion. If the rebate were based on the tax of the transition year, the rebate would be Pd713 9s., i.e., three-quarters of Pd951 5s.--the tax on a taxable income of Pd2,000 from personal exertion.

Section 160AJ will authorize the Commissioner of Taxation in such cases to determine the amount of the taxable income which might be expected normally to be derived by the taxpayer in a year. The Commissioner will allow a rebate by reference to the normal taxable income so determined.

Sub-section (2.) permits the Commissioner to regard as the normal income of a year assessable income of a recurring nature received in the transition year from a source from which assessable income was not derived in the previous year. For example, a taxpayer may, in the transition year, have derived assessable income for the first time, or may have acquired additional income producing assets.

Reference to Board of Referees.

This section will enable the Commissioner, either before or after an application has been received from the taxpayer, to make a determination of a normal taxable income as provided by the last section. The general purport of the section is that, when the assessment is being made, the Commissioner may make a determination, after considering representations by the taxpayer or before receiving such representations, and may give effect to his determination in the assessment.

If the Commissioner has not made a determination or, if having made a determination, the taxpayer is dissatisfied with the determination, the taxpayer may apply to the Commissioner for a determination or for a review of a determination already made. This application must be made within sixty days after service of the notice of assessment.

After considering the application, the Commissioner may make a determination or alter or confirm a previous determination.

If the taxpayer is then dissatisfied with the Commissioner's decision, he may request the Commissioner to refer the decision to the Board of Referees constituted under the War-time (Company) Tax Assessment Act. This request must be made in writing and within sixty days after service of the notice of decision.

The Board of Referees is empowered by sub-section (2.) to confirm, increase or reduce the rebate allowed by the Commissioner and, having done so, the decision of the Board is final and conclusive.

A reference to the Board of Referees replaces the procedure permitted by Division 2 of Part V. of the Act whereby a taxpayer is entitled to object to an assessment and, if dissatisfied with the decision of the Commissioner on the objection, to appeal to the High Court or the Supreme Court of a State or to the Board of Review constituted under the Income Tax Assessment Act.

Maximum Amount of Rebate.

This section limits the rebate that may be allowed on the determination of the Commissioner or of the Board of Referees to three-quarters of the tax assessed in respect of income of the transition year. In effect, the section provides that a taxpayer whose taxable income of the transition year exceeds Pd500 and exceeds by more than one-fifth the taxable income of the preceding year shall not be placed by a determination of the Commissioner or of the Board of Referees in a better position than a taxpayer whose taxable income of the transition year exceeds Pd500 but does not exceed by more than one-fifth the taxable income of the preceding year.

Payment of Tax on Income other than Salary or Wages.

Sub-section (1.) provides for the division by the Commissioner of the tax payable in respect of income of the transition year into two classes, viz.:--

(a)

tax attributable to salary and wages as defined for the purposes of income tax deductions from salary or wages; and

(b)

tax attributable to other income, if the amount thereof exceeds Pd50.

The tax in respect of salary or wages will, in most cases, be paid substantially by applying the deductions made from the salary or wages during the three months of April to June, 1944.

If a taxpayer earning salary or wages during the transition year derives a taxable income of Pd50 or less from other sources, the tax attributable to that other income will be payable in full on the due date specified in the notice of assessment to be issued to the taxpayer.

If, however, the taxable income derived from sources other than salary or wages exceeds Pd50 or if the taxable income is derived exclusively from sources other than salary or wages, the tax (excluding the part, if any, attributable to salary or wages) will be payable in three equal instalments.

Sub-section (2.) of section 160AM provides that the first of these instalments shall be payable on the date specified in the notice of assessment issued for the purposes of the Division. This instalment of tax will not be payable earlier than thirty days after service of the notice. In actual practice it is proposed that this instalment will be payable on the due date for payment of the provisional tax in respect of income of the year ending 30th June, 1945.

The effect of sub-sections (3.) and (4.) is that the second and third instalments respectively will become due and payable on the due dates for payment of the assessments based on income derived during the years ended 30th June, 1945, and 30th June, 1946. Alternatively, these instalments will become due and payable on dates specified on notices served on the taxpayers. However, the due date of payment of the second instalment shall not be earlier than 30th June, 1945, or, in the case of the third instalment, earlier than 30th June, 1946.

It is proposed in effect that when notice of the assessment finally determining the tax based on the income of the year ending 30th June, 1945, is served on the taxpayer, he will be required to pay the second instalment with that assessment.

Similarly, the third instalment will be payable at the same time that the tax as finally assessed in respect of income of the year ending 30th June, 1946, is payable.

In those cases where there is no amount of tax assessable in respect of income of either or both of the years ended 30th June, 1945, or 1946, the second and third instalments will be payable on the date notified in writing by the Commissioner to the taxpayer.

Sub-section (5.) specifies the cases where it may be essential in the interests of the collection of revenue that the instalments should become due and payable on dates earlier than those specified in sub-sections (2.), (3.) and (4.). The Commissioner is authorized in these cases to notify the taxpayer or the trustee of the date on which the instalment becomes due and payable and that date replaces the date that otherwise would be the due date of payment.

CLAUSE 15.-INTERPRETATION (IN RELATION TO FURTHER TAX ON UNDISTRIBUTED INCOME OF COMPANY).

As explained in the Explanatory Note to clause 12 the object of this amendment is to exclude from the undistributed profits tax assessments of certain insurance companies, amounts which have been brought into their normal income tax assessments through the operation of section 148 of the Principal Act. The broad effect of the proposed amendment is to exclude amounts representing the profits derived or the losses sustained by overseas re-insurers from re-insurance business effected with Australian companies.

Commonwealth income tax attributable to the inclusion of amounts brought into the local company's normal income tax assessment by the operation of section 148 will be allowed as a deduction for undistributed profits tax purposes, but if the company is re-imbursed the whole or part of that tax, the amount of such re-imbursement will be included for the purpose of ascertaining the company's distributable income of the year of re-imbursement.

CLAUSES 16 TO 25. AMENDMENTS PROPOSED TO BE MADE TO PROVISIONS RELATING TO COLLECTION OF INCOME TAX BY INSTALMENTS.

INTRODUCTORY NOTE:-

Division 2 of Part VI. of the Principal Act contains the provisions relating to the collection of income tax by deductions from salaries and wages. The amendments to those provisions contained in this Bill are designed to give effect to the plan for basing the liability for income tax for each year on the income of that year instead of on the income of the previous year.

Deductions will be made from salary or wages as at present but the deductions will be designed to pay the tax on the current income instead of the tax on the income of the previous year.

A return will be lodged by an employee after the close of each year of income, and an adjustment will be made between the tax payable on the income shown in that return and the deductions already made. An employee may thus receive a cash refund or be required to make a cash payment in the adjustment.

Deductions made from salary or wages between the 1st July, 1944, and 30th June, 1945, will be used to pay tax on the income earned in that period of twelve months. Deductions made during the next period of twelve months will be reserved to pay the tax on the income of that period.

To facilitate the allocation of a particular year's deductions to pay the tax on the income of that year, employers with more than ten employees will be required to operate group schemes and to give their employees group certificates instead of stamps.

An employee who produces stamps delivered to him after the end of the year for which he is at the time paying tax will not be permitted to use those stamps to pay that tax but will be given an Interim Stamps Receipt in exchange for the stamps. This Interim Stamps Receipt will be accepted at face value in payment or part payment of the following year's tax.

CLAUSE 16.-DEFINITIONS (IN RELATION TO COLLECTION OF INCOME TAX BY INSTALMENTS).

The definition of Certificate of Credit is being omitted and the definition of Interim Stamps Receipt inserted so that there will be no confusion between the Certificate of Credit issued prior to the commencement of this new plan and the documentary receipts issued for stamps deposited with the Commissioner after the commencement of the plan. A Certificate of Credit bears interest at the rate of two per cent. per annum whereas an Interim Stamps Receipt will not bear interest.

The number of employers operating group schemes and the number of Group Certificates issued by them will be greatly increased under the new plan, and a greater number of references to them is entailed in this Bill. To simplify drafting, definitions of "Group Certificate" and "Group Employer" have been inserted.

CLAUSE 17.-VARIATION OF DEDUCTIONS.

Paragraph (c) of the repealed sub-section related to group schemes established by arrangement between the Commissioner and certain employers in accordance with the provisions of section 221K. By clause 21 of this Bill, it is proposed to repeal section 221K of the Principal Act, and employers will operate group schemes in accordance with provisions described in the notes to clause 21 of the Bill.

Paragraph (c) of section 221D is now unnecessary. The sub-section as now re-drafted gives effect to the provisions of paragraphs (a) and (b) of the repealed sub-section.

CLAUSE 18.-EMPLOYER TO DELIVER STAMPS TO EMPLOYEE.

This amendment to section two hundred and twenty-one F will be necessary as an employer who is required to be registered as a group employer will not be required to deliver tax stamps to his employees.

CLAUSE 19.-EMPLOYEE TO AFFIX AND INITIAL STAMPS IN BOOK.

The effect of the amendment proposed by this clause will be to relieve employees, who do not receive stamps from their employers, from the necessity to keep stamp books.

CLAUSE 20. APPLICATION OF DEDUCTIONS IN PAYMENT OF TAX.

Section 221H provides for an employee to produce his tax stamps or his Group Certificate to the Commissioner in payment of his assessment and sets out the extent to which the value of those stamps or the certificate may be applied in payment of tax or refunded to the employee by the Commissioner. As this Bill provides for the payment of current tax on current earnings, it has been necessary to re-express the provisions of the section to ensure that the stamps or Group Certificate denoting the deductions made from the earnings of an employee in a particular year will be applied in payment of the tax on the earnings of that year and that a cash adjustment of the difference between those deductions and the tax will be made.

The provisions which are being repealed required a Certificate of Credit to be issued for any excess stamps produced to the Commissioner if the employee did not request a refund of the excess. The provisions which it is now proposed to insert will authorize an automatic refund of any excess which arises from the value of deductions made from the earnings on which the tax is based. In cases where the employee produces all the stamps in his possession, those stamps which denote deductions made from his earnings subsequent to the end of the year on which the tax is based will be accepted in exchange for an Interim Stamps Receipt to be later produced by him and accepted in payment of the tax on the earnings to which they relate.

INTERIM STAMPS RECEIPTS.

The section being repealed provided that a Certificate of Credit would bear interest at the rate of 2 per cent. per annum and would, together with the accrued interest, be accepted in payment of tax. The new section inserted by the Bill provides that an Interim Stamps Receipt will be accepted by the Commissioner as though it represented stamps for which it was originally exchanged. No interest will accrue on the value of an Interim Stamps Receipt as there is no element of pre-payment of tax such as there was in the case of a Certificate of Credit.

SUB-CLAUSE (2.) of clause 20 of the Bill.

The right of the employee to obtain credit for a Certificate of Credit and the interest on that certificate is retained by the Bill, notwithstanding the repeal of the section.

SUB-CLAUSE (3.) of clause 20 of the Bill.

The right of the employee to receive any refund of excess instalments accumulated by him before the 31st March, 1944, is retained by this sub-clause.

CLAUSE 21.-GROUP EMPLOYERS.

Under the system of collecting income tax by deductions from salaries and wages a group employer does not deliver tax stamps to his employees to denote the amounts deducted. He forwards the amounts deducted to the Commissioner of Taxation and at the end of the year issues each employee with a certificate setting out the total of the deductions made from the employee's salary or wages during the year.

Under the section which is being repealed an employer could operate a group by arrangement with the Commissioner and the conditions which he was required to observe were set out in the arrangement made. Under the new section an employer with more than ten employees is required to operate a group and the conditions which he must observe are set out in this section. These conditions are substantially the same as those which were set out in arrangements made under the section being repealed. The new section will permit an employer who is not required to operate a group to arrange with the Commissioner to register him as a group employer. It retains the provisions of the old section whereby the Commissioner may require any employer to operate a group.

PENALTY FOR LATE PAYMENT BY GROUP EMPLOYER.

This provision is being inserted to ensure that a group employer will forward to the Commissioner all amounts deducted by him from the salary or wages of his employees and that the amounts will be forwarded when due.

ARRANGEMENTS WITH AUTHORITIES OF GOVERNMENTS.

This new section is being inserted to permit the Commissioner to enter into an arrangement with the representative of the Government of another country for deductions to be made from the salary or wages of persons employed by that representative. The section requires any person, employed by the representative with whom such an arrangement is made, to give a written authority for deductions to be made from his salary or wages.

These provisions are already included in National Security (Supplementary) Regulation No. 110 which it is now proposed to repeal. The provisions are necessary in order to cover an arrangement which has been made with the American Army authorities whereby deductions are made from civilians employed by them. As the American Army authorities could not be required by law to make deductions, any deductions made must be covered by an arrangement between those authorities and the Commissioner. The section also repeats the provisions of the existing section under which the Commissioner is authorized to make an arrangement with Commonwealth and State Government authorities.

RECOVERY OF AMOUNTS BY COMMISSIONER.

This section preserves a provision previously included in section 221K which is being repealed by this Bill. The wording has been modified to conform with the new plan for group employers and is now similar to that of sections 208 and 209 of the Principal Act, which relate to tax payable under the Act.

CLAUSE 22.-CERTIFICATE OF EXEMPTION.

The effect of the amendment proposed by this clause is to require an employee to append his signature to a certificate of exemption before exhibiting it to his employer. Such a provision will give greater protection to both the employee and the Commonwealth in relation to the certificate as it will act as a deterrent against impersonation of the certificate holder.

CLAUSE 23.-PURCHASE OF TAX STAMPS BY PERSONS OTHER THAN EMPLOYEES.

The amendments proposed to be made by this clause are consequential upon the insertion of amended provisions in section 221H. They will preserve the right of a non-employee to pay his tax by means of tax stamps and to receive a refund for any excess stamps produced by him when paying his tax.

CLAUSE 24.-DESTROYED TAX STAMPS MAY BE TREATED AS IF PRODUCED.

This clause proposes a drafting amendment, made necessary by the earlier clauses which provide for the issue of an Interim Stamps Receipt.

CLAUSE 25.-OFFENCES.

The amendments contained in the Bill propose that group certificates will be much more widely used than at present. It thus becomes important to guard against the misuse or falsification of certificates. The new paragraph inserted in section 221V by this clause is designed for that purpose.

CLAUSE 26. Division 3.-Provisional Tax.

INTRODUCTORY NOTE:-

The payment of provisional tax is an essential feature of the proposal to base the income tax for a financial year upon the income of that financial year. As part of the plan to advance by twelve months the year on the income of which the assessment is based, taxpayers will be required to make a payment during the year in anticipation of the assessment of tax after the close of the year. This interim payment, called the provisional tax, will be applied in payment of the tax which will be finally assessed when the actual amount of the taxable income of the year has been ascertained.

Provisional tax will be payable by all taxpayers except companies and those taxpayers whose incomes consist solely of salaries or wages.

Companies are excluded from the application of the provisions of this Division and their assessments for a financial year will continue to be based as at present on the income derived during the year of income immediately preceding the financial year for which the tax is payable.

The Division does not apply to salary or wages as these are subject to deductions made under Division 2 of Part VI. of the Principal Act.

The provisional tax payable in respect of income other than salary or wages corresponds broadly with the deductions made from salary or wages.

The following are the sections comprising Division 3:-

INTERPRETATION.

In sub-section (1.), a defined meaning has been given to the term "provisional tax" and the term bears this meaning wherever used throughout the Division. "Salary or wages" as defined means salary or wages which are subject to deductions made by the employer at the time of payment of the salary or wages to the employee.

The object of sub-section (2.) is to cause, inter alia, the general provisions of Division 1 of Part VI. of the Principal Act and also of Part VIII. of the Act, relating to the collection and recovery of income tax or tax to apply with equal force to provisional tax. The main effect of the sub-section is that provisional tax will be a debt due to the Commonwealth and may be sued for and recovered from the taxpayer. Provisional tax will be subject to extension of time for payment, if allowed by the Commissioner, and will bear additional tax, if not paid by the due date, unless the additional tax is remitted by the Commissioner.

As provisional tax is merely an interim payment, sub-section (3.) provides that the process of ascertaining the amount of the provisional tax shall not be an assessment of the tax. Accordingly, provisional tax will not be subject to objection and appeal as is an assessment. The taxpayer may exercise his full rights of objection and appeal after notice of the tax as finally assessed has been served on him.

LIABILITY TO PROVISIONAL TAX.

Sub-section (1.) of this section expresses the purpose for which provisional tax is levied and states the taxpayers who will be liable to pay the provisional tax.

Sub-section (2.) of the section ensures that the first year of income in respect of which provisional tax will be payable will be the year of income ending on the 30th June, 1945. By virtue of sub-section (3.) of this section, no amount of provisional tax will be able to be collected under the Assessment Act unless the relevant Rates Act states that provisional tax shall be payable.

AMOUNT OF PROVISIONAL TAX.

Under sub-section (1.) of this section, the amounts of provisional tax payable by taxpayers are specified.

Paragraph (a) of the sub-section relates to taxpayers whose assessable income does not include salary or wages. Included in this category are taxpayers who derive their income from businesses, rents, interest, dividends, etc. These taxpayers will be required to pay provisional tax equal to the tax assessed in respect of the taxable income derived during the year immediately preceding the year in which the provisional tax is payable.

Paragraph (b) relates to taxpayers whose incomes are derived partly from salary or wages and partly from other sources, e.g., rent, interest or dividends. In these cases, the amount of provisional tax will be estimated by the Commissioner and will be based on the tax assessed in respect of income of the preceding year. The estimate to be made by the Commissioner will be that part of the tax for the preceding year that is attributable to the income derived from sources other than the employment of the taxpayer. The provisional tax so estimated when combined with the deductions made from the taxpayer's salary or wages will, in most cases, approximate the amount of tax that will be finally assessed on the total income of the taxpayer.

Sub-section (2.) will apply when the rates of tax applicable to the taxable income of individual taxpayers are varied. While the rates of tax remain constant from year to year, provisional tax based on the amount of tax payable by taxpayers on the income of the preceding year will approximate the tax ultimately payable, except in cases where considerable fluctuations in income occur or where alterations are made in the rebates of tax to which the taxpayer is entitled in respect of dependants, etc.

Where, however, rates of tax are increased or reduced, corresponding increases or reductions will be made in the amounts of provisional tax payable. These increases or decreases will be effected by means of a regulation which will be made on each occasion that a variation of the rates occurs. A comparable procedure is now followed in respect of variations in deductions made from salary or wages.

Sub-section (3.) will apply in those cases where the taxpayer commenced to derive assessable income (other than salary or wages) during the year preceding the year in which the provisional tax is payable. In these cases, the assessment for the preceding year will include the income for part only of a year, i.e., from the date of commencement of business or of the derivation of income (other than salary or wages) to the close of the income year. It is necessary that the provisional tax for the immediately following year should be based upon an estimated amount of income for a complete year. The sub-section authorises the Commissioner to make an estimate of the income of a full year and to calculate the amount of tax that would be payable on that income. The amount of tax so calculated will be the provisional tax payable by the taxpayer in the year next following the year in which he commenced to derive assessable income (other than salary or wages).

Sub-section (4.) is complementary to sub-section (3.) and applies to the year of income in which a taxpayer commences to derive assessable income (other than salary or wages) in excess of Pd104. In these cases, the taxpayer will be required to furnish on or before 15th April of that year an interim return of the income derived by him to 31st March, and an estimate of the income which he will derive during the balance of the year. This will enable the Commissioner to estimate an amount of provisional tax payable in the year in which the taxpayer commences to derive assessable income (other than salary or wages) and to base the amount of provisional tax payable in the next year on an estimate of the income of a complete year.

The Commissioner is empowered to extend the date for the lodgment of the return beyond 15th April. A return lodged after 15th April, or the extended date allowed by the Commissioner, will not be subject to the penalty provided by the Act for late returns. Power is retained, however, for a prosecution of a taxpayer who fails to lodge the return. This power will be exercised only in exceptional cases.

Sub-section (5.) authorises the Commissioner to estimate the amount of provisional tax payable by a taxpayer referred to in the preceding paragraph. The estimate of the Commissioner will be based on the return furnished by the taxpayer and from any other information that may be in the possession of the Commissioner.

Sub-section (6.) applies to the provisional tax payable in respect of income derived during the year ending 30th June, 1945, or the accounting period substituted for that year. This provisional tax will be based on the tax assessed in respect of income of the year ending 30th June, 1944, or the accounting period adopted in lieu of that year. This is the transition year in respect of the income of which the tax payable will, in most cases, be one-quarter of the amount of tax assessed--the balance of the tax being cancelled by the allowance of a rebate of three-quarters of the tax. In ascertaining the provisional tax payable in respect of income derived during the year ending 30th June, 1945, it will be necessary to disregard this rebate, so that the provisional tax will be the full tax assessable on income of the preceding year. Sub-section (6.) authorises this course to be followed.

Correspondingly, where a taxpayer commenced to derive assessable income (other than salary or wages) during the transition year, the estimate of the provisional tax to be made by the Commissioner and payable by the taxpayer in the next year is not to be diminished by the rebate allowed in the assessment for the transition year.

WHEN PROVISIONAL TAX PAYABLE.

This section provides that the provisional tax may be notified either on or separately from the notice of assessment, based on income of the year of income preceding the year in which the provisional tax is payable. Where the provisional tax is notified on this notice of assessment, it will become due and payable on the date on which the tax assessed is due and payable.

Provisional tax which is notified separately from a notice of assessment will become due and payable on the date specified in the separate notice. This date shall not be earlier than thirty days after service of the notice.

PROVISIONAL TAX TO BE CREDITED AGAINST TAX ASSESSED.

This section provides for the crediting of provisional tax paid during the year firstly in payment of the tax later assessed in respect of income derived during that year, secondly in payment of any arrears of other income tax assessed, and thirdly in payment of any provisional tax notified to the taxpayer in respect of the succeeding year. Any balance of provisional tax not so credited will be refunded to the taxpayer.

PROVISIONAL TAX NOT TO BE NOTIFIED WHERE INCOME TAX ASSESSED.

The purpose of the section is to absolve the taxpayer from the payment of provisional tax, if the Commissioner has made an assessment based on income of the year in respect of which the taxpayer has been notified to pay the provisional tax. The section will be operative in those cases only where before the date of notification of provisional tax, a notice of assessment is issued to the taxpayer.

ALTERATION OF NOTICE OF PROVISIONAL TAX.

This section authorises an alteration in the amount of provisional tax where an alteration has been made in the assessment of the preceding year on which the provisional is based. The alteration in the amount of provisional tax will be notified by the Commissioner who will specify a date for payment of any increase in the amount of provisional tax payable. This date shall not be earlier than thirty days after service on the taxpayer of the notice of the increase in the provisional tax.

If the provisional tax is reduced the appropriate refund of provisional tax overpaid will be made by the Commissioner on or after the date on which notice of the reduction is given to the taxpayer.

NOTICE OF PROVISIONAL TAX TO BE PRIMA FACIE EVIDENCE.

This section is being enacted for application in connexion with proceedings for the recovery of provisional tax. The section is comparable with section 177(1) of the Principal Act which provides that the production of a notice of assessment, or of a document under the hand of the Commissioner, Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct.

In the case of provisional tax, however, the production of a notice or other document shall be prima facie evidence that the amount of provisional tax and all particulars relating thereto are correct.

This distinction between section 177(1) and 221YH has been made for the reason that provisional tax is not subject to objection and appeal as is income tax assessed. It is equitable, therefore, that a taxpayer who is being sued for the recovery of provisional tax should have the opportunity of rebutting the prima facie evidence that the amount of provisional tax and related particulars are correct.

CLAUSE 27.-RELEASE OF LIABILITY OF MEMBERS OF DEFENCE FORCE ON DEATH.

The proposed new section 265A provides for the remission of unpaid tax attributable to the inclusion of service pay and allowances in assessments of deceased members of the Forces. The provision will apply to 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 deceased members of the Forces.

Where the taxpayer's income consists solely of service pay and allowances the amount to be remitted will be the amount of tax outstanding less any tax instalment deductions which have been made from his service pay and allowances and have not been credited in payment of tax assessed.

Where the income of the deceased includes income other than pay and allowances the amount to be remitted will be the amount remaining after deducting from the lesser of the following amounts, the amount of tax instalment deductions made from the service pay and allowances of the deceased which have not been credited in payment of tax assessed :--

(a)

The amount of tax outstanding; or

(b)

The amount by which the income tax payable by the deceased has been increased by the inclusion of service pay and allowances in his assessment.

This section is to apply to amounts of income tax outstanding at the date of the commencement of this section or becoming payable thereafter.

CLAUSE 28.-APPLICATION OF AMENDMENTS.

The amendments proposed to be made by the Bill will commence to apply to assessments for the financial years as indicated in this clause.