Income Tax and Social Services Contribution Assessment Bill (No. 2) 1953
Income Tax and Social Services Contribution Assessment Act (No. 2) 1953
Notes for Treasurer's Second Reading Speech.
This Bill is one of a number of measures to give effect to proposals outlined in the Budget Speech which I delivered last night.
Important features of the Bill are the proposed increases in the concessional allowance for a dependent wife and for the expenses of educating children. The maximum concessional deductions for medical and dental expenses also are being increased.
The wife allowance is being raised by Pd26-that is, from Pd104 to Pd130. This increase will apply also to the deduction allowed for a dependent father or mother, a daughter keeping house for a widowed taxpayer, and a housekeeper having the care of children under the age of 16 years.
The increased allowances will apply in assessments based on income of the current year 1953-54, and will be reflected as from 1st November next in the reduced tax instalments to be deducted from salary and wages.
The increase in these concessions is estimated to be worth Pd5,550,000 to taxpayers in a full assessment year.
Concurrently with this increase in the maximum amount of concessional deductions allowed for a wife or daughter-housekeeper, it is proposed to grant more liberal allowances where such dependants derive separate net income.
Under the present law, the concessional deduction for a wife or daughter-housekeeper is diminished by Pd2 for every Pd1 by which the dependant's separate income exceeds Pd52. Under the proposed allowances, the normal deduction of Pd130 will not be diminished unless the dependant's separate net income exceeds Pd65. Where the separate income is between Pd65 and Pd130, a partial deduction will be allowed to the taxpayer. This is a more liberal provision than the present law, which provides for no deduction whatever where the dependant's income exceeds Pd104.
This further concession will be worth Pd450,000 in a full year.
As I have already indicated, the Bill provides for increased allowances in respect of expenditure incurred by taxpayers in the education of children. When this concession was introduced for the first time last year, I promised that it would be kept under review and that, when circumstances permitted, it would be increased and enlarged wherever possible to meet other types of inescapable expenditure incurred by parents in connection with the education of their families. The fulfilment of that promise is found within the present Bill.
It is proposed, in the first place, to increase from Pd50 to Pd75 the maximum amount which may be deducted in respect of each child receiving full-time education.
The conditions attaching to the concession are also to be made more liberal.
For example, under the present law the concession has been restricted to payments made directly to the school at which the child was receiving full-time education. This restriction will be removed and the deduction extended to all expenses (up to a maximum of Pd75) necessarily incurred in connection with the child's education. The allowance will now cover, in addition to school fees, such expenditure as the cost of board and accommodation, fares incurred in travelling to and from the school or university, and the purchase of text-books, stationery and equipment.
A further extension of the allowance will permit a deduction in respect of expenses incurred in the education of any of the taxpayer's own children who is under 21 years of age but who, by reason of receiving government assistance or earning separate income, is not classed as dependent upon his parent for the purpose of income tax allowances. Under the present law, a parent who incurs expenditure on the education of his child has been excluded from the benefit of any deduction for that expenditure if the child was in receipt of, say, a government scholarship to the value of Pd78 or more.
These amendments will apply as from 1st July, 1953, at an additional cost to revenue, in a full assessment year, of Pd1,950,00.d
The Government has given careful consideration to representations made on behalf of taxpayers who have had the misfortune to incur medical expenses in excess of the present maximum deduction of Pd100 allowed for each member of the family.
With the introduction of the Commonwealth Medical Benefits Scheme, such instances will be less common in future.
Nevertheless, in consonance with the government's policy of extending tax concessions where more liberal allowances are merited, it is proposed to raise to Pd150 the maximum medical, dental and optical expenses in respect of which a deduction is allowable, and to increase the maximum dental expenses subject to the concession from Pd20 to Pd30 for each person.
These amendments also will apply as from 1st July, 1953, and, in a full year, the cost would be about Pd100,000.
Other provisions in the Bill are designed to give effect to concessions which were announced by the government some time prior to the introduction of the Budget.
One of these concessions is the allowance of a deduction in respect of contributions of Pd1 or more to the Queen Elizabeth the Second Coronation Trust Fund for Mothers and Children. As Honourable Members will recall, this fund has been established to commemorate the special occasion of Her Majesty's Coronation, and it is fitting that citizens who desire to contribute to the fund should receive the same tax concession as would apply to gifts to public hospitals caring for mothers and babies.
The other concession which has previously been announced relates to the exemption of profits earned from certain mining operations.
For some years the law has provided that a proportion of profits earned from certain base metals or rare minerals should be free from income tax. This exemption ceased to apply, in the case of companies, as from 1st July, 1952 and, in the case of individual taxpayers, as from 1st July, 1953.
Provision is made in the Bill for a continuation of the exemption, in all cases, until 30th June, 1960. Shortly stated, one-fifth of profits earned from mining operations for the prescribed metals and minerals will be exempt from tax. Dividends paid by mining companies wholly and exclusively out of the exempt profits will also be tax-free in the hands of the shareholders.
Associated with this extension of the period of the concession, it is proposed to extend the exemption to one-fifth of the profits from mining operations for certain other minerals which will be specified in a regulation to be gazetted after the Bill becomes law. The extension will be operative as from 1st July, 1953.
As a result of these exemptions, the mining industries concerned will receive additional tax relief to the extent of about Pd500,000 annually.
The Bill provides also for a relaxation in some of the conditions relating to the undistributed income tax payable by private companies.
As Honourable Members are aware, a private company may retain a proportion of its distributable income free from liability to undistributed income tax. This provision is known as the retention allowance. Under the present law it applies to business income only.
It is now proposed to grant a retention allowance in respect of income from property, such as rent, interest and dividends, except dividends received from other private companies. One-tenth of distributable income received by a private company from rents, interest and dividends from public companies will now be free from undistributed income tax. Although this retention is on a lower scale than the percentages allowed to be retained from business income, it will assist private companies to build up necessary reserves for such purposes as modernising rent-producing premises.
This retention allowance will apply to income of the year 1952-53, and will reduce the undistributed income tax payable by private companies to the extent of about Pd350,000 annually.
It will be recalled that the private company tax legislation enacted last year specified a period of five years up to 31st December, 1957 for the distribution of tax-free dividends to shareholders of private companies. This period was then considered adequate to enable private companies to distribute, free of tax, accumulated funds on which tax had been paid at shareholders' individual rates.
Further information supplied to the government indicates that there will be cases in which the period of five years may not be sufficient and may result in hardship. It has been decided therefore that the extension of this period by a further five years is warranted. The period during which tax-free distributions may be made will accordingly be extended to 31st December, 1962.
Last, but not the least important of the amendments to be mentioned in connection with this Bill, is a new concession in regard to income earned by authors, artists, dramatists, composers and inventors.
By reason of the system of graduated rates of income tax, the receipt in one year of abnormally high amounts of income may involve the recipients in taxation at unduly high rates. As abnormal receipts of this nature frequently represent the fruits of several years' work, these taxpayers are disadvantaged in comparison with other taxpayers.
In order to minimise this disadvantage, it is proposed to apply a concessional rate of tax to income which includes such abnormal receipts. Shortly stated, the taxable income (including the abnormal receipt) will be taxed at the rate appropriate to the taxpayer's normal income plus one-third of his abnormal receipt.
For the purposes of this concession, abnormal income is defined in the Bill. Broadly, it includes all such lump sums as consideration received by an author for the sale of the copyright of his work or by an inventor for the sale of the patent of his invention, advance payments of royalties received by the author or inventor, and prizes won in literary or artistic competitions.
Recurrent payments such as royalties will also be regarded as abnormal income when received by the author or inventor, to the extent that those royalties exceed the taxpayer's annual averaea from these sources over the three preceding years, or the amount of Pd500, whichever is the greater.
However, salary, wages or other forms of remuneration derived by an author or inventor for services rendered will not be regarded as abnormal income. Such remuneration will be taxed at the usual rates.
The concession I have mentioned, which should provide substantial encouragement to cultural and inventive activities, is estimated to cost revenue about Pd50,000 in a full assessment year. It will apply as from 1st July, 1953.
The only other amendments proposed in this Bill are consequential upon the abolition of the further tax upon property income, which proposal I have already explained. These amendments are of minor drafting character only, and may be more appropriately discussed, if Honourable Members so desire, in the Committee stages.
I commend the Bill to Honourable Members.