Explanatory Memorandum
(Circulated by authority of the Treasurer, the Rt. Hon. Harold Holt.)General Outline
The purpose of this memorandum is to explain the provisions of five Bills concerning taxation. Three of the Bills relate to income tax, one to estate duty and the fifth to gift duty.
Income Tax and Social Services Contribution Bill 1963
The first Bill - the Income Tax and Social Services Contribution Bill 1963 - declares the rates of income tax and social services contribution payable by individuals and companies for the current financial year 1963-64. Features of the Bill are:
Rates of Tax (Clauses 6 and 10).
The rates of tax applicable for the 1963-64 financial year are to be the same as those that applied for the preceding year 1962-63.
Rebate of 5% on the Tax Payable by Individuals (Clause 8).
The rebate of 5% of the tax payable by individuals for the 1962-63 financial year is to be continued for the 1963-64 financial year.
Minimum Taxable Income (Clause 5(3.)).
The minimum amount of taxable income subject to tax in the hands of an individual or a non-profit company will be increased from Pd105 to Pd209.
The exemption level for persons qualified by age - 65 years for men and 60 years for women - and not assessed under the married couple provisions will be increased from Pd455 to Pd481.
The age allowance provisions relating to married couples will be extended so as to apply to a taxpayer qualified by age whose spouse is not so qualified.
More detailed explanations will be found at pages 8 to 10 of this memorandum.
Income Tax and Social Services Contribution Assessment Bill (No. 2) 1963
The second Bill - the Income Tax and Social Services Contribution Assessment Bill (No. 2) 1963 - is designed to give effect to various proposals amending the basis upon which tax is assessed. In broad terms, the main points of this Bill are:
Special Deduction for Investment in New Plant and Equipment (Clause 15)
An investment allowance of 20% of the cost of new plant and equipment for use wholly and exclusively in a business of primary production is to be authorised. The allowance will be additional to depreciation allowances which are otherwise available.
Cost of Extending Telephone Lines (Clause 21).
Deductions are to be allowed in equal instalments over ten years for the capital cost of extending telephone services to land used in a business of primary production.
Forest and Timber Operations (Clauses 4(c) and (g), 10, 12, 24 and 51).
The planting, tending and felling of trees in a plantation or forest for the purposes of a business will be classified as primary production.
Capital expenditure on buildings used in a business of milling timber or as housing for employees in such a business will be an allowable deduction in instalments over the estimated period of their use if they are situated in a forest and are adjacent to the area in which the timber is felled.
Expenditure on Fences (Clause 24).
Existing provisions are being extended so that the full expenditure on constructing or altering a fence to prevent animal pests entering land used in primary production will be allowable as an outright deduction. Similar provisions will apply to fences constructed or altered to mitigate the effects of deposits of mineral salts.
Deductions for Maintenance of Dependants (Clause 31).
A uniform basis for adjustment of the maintenance deduction for dependants in receipt of separate net income is to be adopted. The maintenance deduction for a dependant will, in future, be reduced Pd1 for every Pd1 by which the dependant's separate net income exceeds Pd65.
Government assistance in educating a child will be treated as separate net income only to the extent that it is provided for maintaining the child.
Medical, Dental, etc. Expenses (Clause 35).
The existing limit of Pd150 per person on the deduction for medical expenses is being removed.
Expenditure on the maintenance of a guide dog for a blind person will be an allowable deduction.
Deductions are to be authorised for payments made to a dental mechanic registered under a Commonwealth, State or Territory law for the supply, alteration or repair of artificial teeth, if the payments are permitted by that law.
A deduction will be authorised for medical expenses paid by a trustee of an estate on behalf of a beneficiary.
The deduction for medical expenses paid by a taxpayer will not extend to any amount received or receivable by him or another person from a government or from a hospital or medical benefits fund in respect of those expenses.
The maximum deduction for funeral expenses is to be increased from Pd30 to Pd50 in respect of a deceased dependant.
Education Expenses (Clause 37).
The maximum deduction for education expenses is to be increased from Pd100 to Pd150.
Education or Funeral Expenses Paid by More than One Taxpayer (Clauses 36 and 37).
The aggregate deductions for payments by more than one taxpayer in respect of the one person are to be limited to the maximum applicable where these payments are made by one taxpayer - education expenses, Pd150 per person; funeral expenses, Pd50 for each bereavement.
Medical, Education or Funeral Expenses Paid by a Trustee (Clause 38).
Expenses of this kind incurred by a taxpayer before his death and paid by the trustee of his estate will be deductible from income derived by the deceased during the income year in which he died.
Housekeeper Caring for Invalid Spouse of Taxpayer (Clause 33).
Where the spouse of a taxpayer is in receipt of an invalid pension, a deduction of up to Pd143 is to be allowed for a housekeeper wholly engaged in keeping house for a taxpayer and in caring for the taxpayer's spouse.
Gifts of Pd1 and Upwards (Clause 26).
Deductions are to be allowed for gifts to -
- Australian Institute of International Affairs;
- Australian National Travel Association;
- National Safety Council of Australia;
- certain public funds established and maintained for the purpose of providing money etc. for other funds and institutions gifts to which are allowable deductions.
Retention Allowance for Profits of Private Companies (Clause 40).
The retention allowance in respect of non-property income deductible in calculating the undistributed income tax payable by private companies is to be increased.
Prescribed Period for Payment of Dividends by Private Companies (Clause 39).
Private companies will, in specified circumstances, be entitled to a further period in which to pay dividends deductible for the purposes of the additional tax payable on undistributed income.
Dividends paid wholly and exclusively out of capital profits arising from the sale of assets and satisfied by the issue of bonus shares are to be exempt from income tax.
If the taxpayer so elects, the value of certain classes of trading stock on hand at the end of an income year will be determined by the Commissioner of Taxation.
A special provision will enable a deduction of up to Pd25 to be allowed for legal expenses (not of a private or domestic nature) incurred in carrying on a business for the purpose of gaining or producing assessable income. The deductibility of other legal expenses will be considered under the general deduction provisions of the law.
Expenses of Preparing Income Tax Returns (Clause 20).
Fees paid to a registered tax agent for preparation of an income tax return will be an allowable deduction.
Payment for Non-compliance with Covenant to Repair (Clauses 6(c) and 9).
An amount paid by a lessee to a lessor in respect of a breach of a covenant to repair property the subject of a lease held by him for income producing purposes is to be an allowable deduction to the lessee and included in the assessable income of the lessor.
The specific restriction of deductions for bad debts to those debts that have been included in assessable income will be removed.
Expenses of Borrowing (Clause 18).
Expenses, not exceeding Pd50, of borrowing money used in producing assessable income will be deductible in full when incurred instead of over the period of the loan or five years as at present.
Expenses of Discharge of a Mortgage (Clause 18).
A deduction is to be granted for costs incurred in discharging a mortgage given as security for money borrowed to produce assessable income.
Expenses Relating to Lease Documents (Clause 19).
A deduction will be available for expenses incurred in the preparation, registration or stamping of an assignment or surrender of a lease of property held for income producing purposes.
Losses by Embezzlement, etc. (Clauses 6(c) and 22).
The deduction for losses of business income by the embezzlement or larceny of an employee is to be extended to cover other forms of defalcation of assessable income and to include losses attributable to an agent of the taxpayer. Recoveries of amounts stolen etc. will be included in assessable income.
PROSPECTING AND MINING FOR PETROLEUM
Capital Expenditure on Exploration and Mining (Clauses 43 and 46).
The scope of the provisions governing the allowance of capital expenditure on petroleum exploration and mining in Australia or the Territory of Papua and New Guinea is being expressed with more precision and the provisions will be brought into line with present-day conditions.
Subsidies for Oil Search (Clauses 6(a) and 46).
Petroleum search subsidies paid by the Commonwealth are not to be assessable income and capital expenditure on oil search will not be deductible in so far as it is recouped by subsidies received.
Depreciation on Pipe-lines for Transporting Petroleum (Clause 13).
Expenditure on the construction of a pipe line for the transport of petroleum from a well in Australia or the Territory of Papua and New Guinea to a refinery or a terminal, together with expenditure on ancillary plant, will be deductible in equal annual instalments over five years (or a longer period if the pipe line owner so elects).
Losses of Previous Years (Clause 30(a)).
The deduction allowable to a taxpayer for losses incurred in relation to assessable income will not be reduced by the value of exempt bonus shares received.
Agreements with United States of America (Clause 5).
The exemptions required by the North West Cape Naval Communication Station Agreement and the Status of Forces Agreement with the United States of America are being authorised.
An owner of an "own-your-own-flat" or home unit is to be entitled to a deduction in respect of his proportion of the rates and taxes applicable to the property.
The clauses of the Bill are explained at pages 11 to 77 of this memorandum.
Income Tax (International Agreements) Bill 1963
The third Bill - the Income Tax (International Agreements) Bill 1963 - proposes minor amendments to the law concerning contractors to whom the North West Cape Naval Communication Station Agreement relates.
Explanations are given at pages 78 to 79 of this memorandum.
Estate Duty Assessment Bill 1963
The fourth Bill - the Estate Duty Assessment Bill 1963 - is designed to implement two proposals. These are:
Statutory Exemption (Clause 6).
The existing statutory exemption of Pd5,000 for estates which pass to the widow, widower, children or grand-children of the deceased is being increased to Pd10,000. In other cases the exemption will be increased from Pd2,500 to Pd5,000. The amount of the exemption will be reduced by Pd1 for every Pd4 by which the value of the estate exceeds the amounts mentioned.
Agreements with United States of America (Clause 3).
The exemptions required by the North West Cape Naval Communication Station Agreement and the Status of Forces Agreement with the United States of America are being authorised.
Explanations of the clauses are provided at pages 80 to 84 of this memorandum.
Gift Duty Assessment Bill 1963
The fifth Bill - the Gift Duty Assessment Bill 1963 - will effect amendments in the gift duty law, corresponding to those to be made for estate duty purposes, for the implementation of the Agreements with the United States of America concerning the North West Cape Naval Communication Station and the Status of Forces in Australia.
Explanations will be found at pages 85 to 87 of this memorandum.
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