House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. John Howard, M.P.)

General Outline

The purpose of this memorandum is to explain the main features of the enabling Commonwealth legislation that will permit the Commonwealth, where any State so wishes, to collect for the State an income tax levied by the State on its residents or to allow, at the cost of the State, a rebate under State law of the Commonwealth income tax levied on residents of the State.

The proposed legislation will fulfil, on the Commonwealth's part, "stage 2" of the tax sharing arrangements between the Commonwealth and the States. Under "stage 1" of those arrangements the States are to be paid in a year 39.87 per cent of the amount collected in the previous year as personal income tax levied by the Commonwealth.

Legislation, under "stage 2", to impose a State income tax or for a State to allow a tax rebate, will of course need to be passed by the Parliament of each State that wishes either to impose a tax or to allow a rebate. This Bill therefore does not introduce either State taxes or rebates. All that it does is to enable the Commissioner of Taxation to administer, on behalf of a State (and in conjunction with his administration of Commonwealth income tax laws) a tax or rebate law of that State if that law meets certain criteria set out in the Bill. These have been designed to maintain the essential uniformity of the Australian personal tax system and to enable Commonwealth and State laws to be applied with as much simplicity, and as little cost, as is practicable.

The Bill is in four main parts - Parts II, III, IV and V - Part I being devoted to definitional and other formal provisions. In brief, Part II sets out the criteria that State tax and rebate laws must meet if they are to be administered by the Commissioner of Taxation, Parts III and IV contain technical and machinery amendments to the Income Tax Assessment Act and other Commonwealth Acts, while Part V authorises the Commissioner of Taxation to exercise powers conferred on him by State tax and rebate laws and provides for payment to the States of amounts collected by the Commonwealth on their behalf. It also provides for equalisation assistance to be paid to the less populous States and deals with a range of other miscellaneous matters.