House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. J.F. Cairns, M.P.)

Introductory Note

The provisions of this Bill propose to amend the Income Tax Assessment Act as a consequence of Papua New Guinea's projected independence, and in certain other important respects.

The proposals contained in the Bill are outlined below:

Papua New Guinea (Clauses other than clauses 8, 10, 20, 37, 39, 40, 41, 48, 49 and 50)

The Australian income tax law is to apply in relation to income from sources in, and residents of, independent Papua New Guinea in the same general way as it applies in relation to other countries. However -

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double taxation relief for income, other than salary and wage income, derived from Papua New Guinea by Australian residents will continue to be provided by way of allowance of a credit for Papua New Guinea tax against the Australian tax on that income, salary and wage income being exempted in Australia if taxed in Papua New Guinea;

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subject to reciprocity by Papua New Guinea for pensions derived from that country, pensions derived from Australia by residents of Papua New Guinea are to be exempt from Australian tax; and

the existing arrangements for the exchange of information between the taxation authorities of Australia and Papua New Guinea are to be continued.

Exemption of Employment Security Scheme payments (Clause 8)

Certain employment security scheme payments to members of the Australian Staffing Assistance Group and other former expatriate officers of the Public Service of Papua New Guinea upon termination of their services in Papua New Guinea are to be exempt from tax.

Special depreciation (Clause 20)

A new provision will enable taxpayers to claim tax deductions for depreciation, at double normal rates, in respect of eligible manufacturing or primary production plant that is first used or installed ready for use for the purpose of producing assessable income on or after 1 July 1974 and before 1 July 1975. The accelerated rates will apply in the income year in which the plant first becomes depreciable and will continue as long as the plant is used in the production of assessable income until the cost of the plant has been fully written off for tax purposes. Plant that would have qualified for an investment allowance but for the withdrawal of those allowances in 1973 will be eligible for the concession. A taxpayer will be able to elect not to claim depreciation at double rates.

Exemption from withholding tax (Clauses 37, 39-41)

Interest paid by the Australian Industry Development Corporation in respect of loans raised by the Corporation outside Australia is to be exempt from withholding tax.

Taxation of allowances paid under the NEAT System (Clauses 7(1)(f), 7(5) and 50)

Amendments are to be made to remove any possible doubt that allowances paid under the National Employment and Training System are subject to tax and tax instalment deductions.

Company Cars (Clause 10)

Section 26AAB of the Principal Act, a provision dealing with the taxation of employment benefits given in the form of an entitlement to use an employer's car for private purposes, is to be repealed. The provision was designed to require an employee enjoying such a benefit during 1974-75 or a subsequent year to include as assessable income an amount calculated by reference to the cost price of the vehicle. The repeal of section 26AAB will mean that, as formerly, an employee's liability to income tax on a benefit consisting of the use of an employer's car will be determined in accordance with the provisions of section 26(e). This provision, which relates to the taxation of employment benefits generally, measures the benefit for income tax purposes as the value of the benefit to the particular employee.

Company tax collection arrangements (Clauses 48 and 49)

Provisions of the Principal Act relating to the collection of company tax by instalments are to be amended to delete the requirement for payment in February 1975 of a second instalment of tax in respect of income of the 1973-74 year.

The individual provisions of the Bill are explained in more detail in the following notes.