House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Phillip Lynch, M.P.)

Introductory Note

The purpose of this memorandum is to explain the provisions of four Bills.

The first Bill - the Income Tax Assessment Amendment Bill (No. 3) 1976 - will amend the Income Tax Assessment Act 1936 (the Principal Act), mainly to give effect to proposals made as part of the 1976-77 Budget.

The second Bill - the Loan (Income Equalization Deposits) Bill 1976 - contains provisions governing the making and repayment of income equalization deposits.

The third Bill - the Loan (Drought Bonds) Amendment Bill 1976 - will amend the Loan (Drought Bonds) Act 1969 to provide that, for drought bonds converted into income equalization deposits, interest is to be payable until the end of the month in which the application for conversion is made.

The fourth Bill - the Income Tax (Companies and Superannuation Funds) Bill 1976 - will declare the rates of tax payable by companies and superannuation funds for the 1976-77 financial year.

The main features of the Bills are:-

Income Tax Assessment Amendment Bill (No. 3) 1976

Definition of resident (Clause 3)

The provision treating as Australian residents contributors to the Commonwealth superannuation fund is being amended to reflect the fact that Commonwealth officers now contribute to a differently-constituted fund.

Exemption of income of Thalidomide Foundation (Clause 4)

Income of the Thalidomide Foundation, to which children who have been afflicted by the drug, thalidomide, are beneficially entitled, is to be exempt from income tax and is to retain its exempt character when received by the children.

Visiting industrial experts (Clause 5)

Transitional provisions under which special taxation concessions for visiting industrial experts were being phased out over a period ending on 30 June 1978 are now to be terminated as from 1 July 1976.

Income equalization deposits (Clauses 6-8, 31-36)

Deposits lodged by primary producers with the Commissioner of Taxation under the income equalization scheme are to be allowable as tax deductions, while withdrawals of deposits for which deductions have been allowed will be included as assessable income for income tax purposes.

Private companies (Clauses 9, 10 and 35)

The retention allowance in respect of trading or business income, available to private companies for undistributed income tax purposes, is to be increased from 50 to 60 per cent, the increase first applying in respect of the 1975-76 year of income.

Provisions under which a private company may treat as a dividend for an income year the amount by which its dividend distributions in relation to a previous income year exceeded the minimum distribution necessary to avoid imposition of undistributed income tax are to be terminated. The termination will first have effect in determining the level of a private company's sufficient distribution out of income of the 1976-77 year.

Capital expenditure on prospecting and mining for minerals other than petroleum (Clauses 11 to 16)

Deductions under Division 10 of the Principal Act, for allowable capital expenditure incurred after 17 August 1976 that is allowable over the estimated life of the mine, will be subject to a maximum life of mine of 5 years instead of the present 25 years. Thus, the rate of deduction will be increased from 4 per cent per annum to 20 per cent per annum on a reducing balance basis.

Capital expenditure on facilities for the transport of certain minerals (Clauses 17 to 21)

Deductions under Division 10AAA of the Principal Act for capital expenditure incurred after 17 August 1976 on eligible transport facilities is to be deductible over either 10 years or 20 years at the option of the taxpayer.

The classes of capital expenditure for the purposes of Division 10AAA are to be widened to include certain capital expenditures on port facilities related to the transport of minerals.

Capital expenditure on prospecting and mining for petroleum(Clauses 22 to 30)

Deductions under Division 10AA of the Principal Act for petroleum exploration expenditure and for allowable capital expenditure incurred on developing a petroleum field are, in respect of expenditure incurred after 17 August 1976, to be allowable against income derived from any source.

Deductions for allowable capital expenditure incurred in carrying on petroleum mining operations that are currently allowable over the estimated life of the field subject to a maximum life of 25 years on a reducing balance basis are, in respect of expenditure incurred after 17 August 1976, to be deductible by reference to a maximum life of field of 5 years on a reducing balance basis.

Mineral exploration in Papua New Guinea (Clauses 2 and 37)

Transitional provisions enacted in 1975 to allow deductions for mineral exploration expenditure in Papua New Guinea by Australian companies after Papua New Guinea became independent on 16 September 1975 but before 1 July 1976 are to be extended, broadly, to such expenditure incurred before 1 July 1978 by companies which, at 16 September 1975, held prospecting authorities or other rights for exploration in Papua New Guinea.

Loan (Income Equalization Deposits) Bill 1976

Deposits (Clauses 4, 11)

Amounts lodged on deposit by or on behalf of individual persons or companies with the Commissioner of Taxation are to bear interest, initially at the rate of 5 per cent per annum.

Drought bonds (Clause 12)

Drought bonds for which tax deductions have been allowed may be converted to income equalization deposits.

Trust Account (Clauses 7, 8)

Moneys deposited are to be credited to the Income Equalization Deposits Trust Account and withdrawals of deposits are to be repaid out of moneys in that Account.

Withdrawals (Clauses 16, 20)

Deposits may not be withdrawn within 12 months of lodgment except on grounds of serious financial difficulty. On death or bankruptcy, deposits will be immediately repayable.

Loan (Drought Bonds) Amendment Bill 1976

Conversion to income equalization deposits

Drought bonds that are converted into income equalization deposits will be deemed to have been redeemed on the date of application for conversion. Interest will, however, be payable on the drought bonds until the end of the month in which the application for conversion is made.

Income Tax (Companies and Superannuation Funds) Bill 1976

Rates of tax

Income tax is imposed for the 1976-77 financial year, at the rates declared in the Bill, on the incomes of companies and superannuation funds. (The rates of income tax payable by individuals and trustees for the 1976-77 financial year were declared earlier this year.)

The rates of tax declared by the Bill are the same as those declared for the 1975-76 financial year, the general rate of company tax being 42.5 per cent of taxable income.