House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Rt. Hon. William McMahon.)

Introductory Note

This memorandum explains the provisions of two Bills concerning income tax. The first Bill is the Income Tax (International Agreements) Bill 1968 and the second Bill, the Income Tax Assessment Bill 1968. The main purposes of the Bills are:

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to give the force of law in Australia to a new double taxation agreement between Australia and the United Kingdom that was signed in Canberra on 7 December 1967 (an outline of the main features of the agreement is at pages 27 to 29 of this memorandum) - clause 5 of the first Bill;

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to provide that the previous agreement between Australia and the United Kingdom that was signed in 1946 will cease to have the force of law in Australia - clause 5 of the first Bill;

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to insert a definition of 'royalty' for the general purposes of the income tax law; the definition will include such things as know-how payments and machinery and film rentals - clause 3 of the second Bill;

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to provide that royalties derived by non-residents have a source in Australia when the property or rights in respect of which they are paid are used in an Australian business - clause 4 of the second Bill;

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to specify that interest and royalties derived by residents of Australia from the United Kingdom and subject to the reduced United Kingdom tax of 10% will not, by reason of the payment of United Kingdom tax, be exempt from Australian tax (credit for the United Kingdom tax will be allowed against the Australian tax on the interest and royalties) - clause 6 of the first Bill;

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to ensure that the amount of dividends, interest and royalties from the United Kingdom that is subject to Australian tax is the amount of that income before deduction of United Kingdom tax - clause 6 of the first Bill;

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to provide a basis for ascertaining the Australian tax on interest and royalties for purposes of the new United Kingdom agreement and to revise the basis on which, for purposes of all double taxation agreements entered into by Australia, the Australian tax on dividends will be ascertained - clause 6 of the first Bill.

More detailed explanations of the first Bill will be found at pages 2 to 26 of this memorandum, pages 27 to 58 providing notes on the provisions of the new agreement with the United Kingdom. Explanations of the second Bill are at pages 59 to 67.