House of Representatives
29 July 1930

12th Parliament · 1st Session

  1. House of Representatives
  2. 12th Parliament
  3. 1930

Mr. Speaker (Hon. Norman Makin) took the chair at 2.30 p.m., and offered prayers.

page 4840

QUESTION

SUGAR EMBARGO

Mr NAIRN:
PERTH, WESTERN AUSTRALIA

– I ask the Prime Minister whether the Government intends to come to a decision regarding the request for a renewal of the sugar embargo with-‘ out affording the House an opportunity to express its opinion? On two previous occasions I sought information on this subject, but was not able to get an answer.

Mr SPEAKER:

– Order! The honorable member may not argue the matter.

Mr NAIRN:

– Will the Government afford to those who are opposed to a renewal of the embargo the same opportunity to state their case as has been already given to those who are interested in maintaining it?

Mr SCULLIN:
Minister for External Affairs · YARRA, VICTORIA · ALP

– I propose to make a statement to the House on this subject at a later hour to-day, or to-morrow.

Mr E RILEY:
SOUTH SYDNEY, NEW SOUTH WALES · ALP

– Will the Government, before announcing its policy in regard to the sugar embargo, consider the advisability of appointing a committee of this House to inquire into and report upon it?

Mr SCULLIN:

– When my statement is before the House that proposal canbe considered.

page 4841

QUESTION

NAVAL ADMINISTRATION

Mr WHITE:
BALACLAVA, VICTORIA

– Will the Minister for Defence lay on the table before the Defence estimates are debated the chart showing the cost of naval administration prepared by the department?

Mr A GREEN:
KALGOORLIE, WESTERN AUSTRALIA · ALP; FLP from 1931; ALP from 1936

– If too much expense is not involved, I shall be glad to do so.

page 4841

QUESTION

FEDERAL CAPITAL TERRITORY

Rural Lessees

Mr R GREEN:
RICHMOND, NEW SOUTH WALES · CP

– Some time ago the Public Accounts Committee recommended the establishment of an appeal board for rural lessees in the Federal Capital Territory. I ask the Minister for Home Affairs whether such a board is yet functioning, and does the Government propose to evict certain lessees without affording to them an opportunity to present their case to the appeal board?

Mr BLAKELEY:
DARLING, NEW SOUTH WALES

– A land advisory board has been created, and will function in the near future. Notices of eviction are at present being reconsidered.

page 4841

QUESTION

DUTIES ON GLASS

Mr ARCHDALE PARKHILL:
WARRINGAH, NEW SOUTH WALES

– I ask the Assistant Minister for Trade and Customs whether his department has yet come to a decision on the request for a reduction or alteration of the duties on plate glass, which is not manufactured in Australia ?

Mr FORDE:
Assistant Minister assisting the Minister for Customs · CAPRICORNIA, QUEENSLAND · ALP

– About a week ago a deputation waited upon me in regard to this matter. So many deputations have been waiting on Ministers that the departmental stenographers have not yet had an opportunity to transcribe their notes. As soon as the transcript of the representations of the deputation regarding it is available the points raised by it will receive full consideration.

page 4841

QUESTION

GRAFTON TO SOUTH BRISBANE RAILWAY

Mr FRANCIS:
MORETON, QUEENSLAND

– I have received a letter in which the following passage occurs -

At a meeting of the Kyogle Border Railway League, held at Kyogle on Saturday, 9th instant, the following motion was passed - “ that a request be made to the Railway Council for the official opening of the KyogleSouth Brisbane railway to be held at the border or adjacent thereto.”

We consider this an appropriate place for the opening, seeing that it is the first step in the unification of railway gauges between States.

Will the Minister for Markets and Transport take that request into consideration, and, if possible, accede to it?

Mr R GREEN:
RICHMOND, NEW SOUTH WALES · CP

– I desire to associate myself with the question.

Mr PARKER MOLONEY:
HUME, NEW SOUTH WALES · ALP

– The matter is receiving attention at the present time, and I hope to be able to give to the honorable member an answer to-morrow.

page 4841

QUESTION

PETROL TAX

Mr MORGAN:
DARLING DOWNS, QUEENSLAND

– Will the Minister for Trade and Customs consider a revision of the tariff schedule, with a viewto affording relief to those who use petrol in machinery employed in the agricultural and dairying industries?

Mr FENTON:
Minister for Trade and Customs · MARIBYRNONG, VICTORIA · ALP

– The question raises a matter of Government policy, which it is not usual to announce by way of answer to a question.

page 4841

QUESTION

UNIFORM CUSTOMS DUTIES

Mr D CAMERON:
BRISBANE. QLD · NAT

asked the Minister for Trade and Customs, upon notice -

With reference to the questions asked by the honorable member for Brisbane on the 5th December last, and the Minister’s reply thereto, regarding the question of uniform customs duties, will he inform the House whether this matter has been further considered, and, if so, with what result?

Mr FENTON:
ALP

– Customs duties are at present uniform in that at any given time the same rate of duty applies to any particular class of goods all over Australia. The proposal, if adopted, would have the effect of making the duties noi uniform and at present I see no sufficient reason to suggest an alteration of the law.

page 4841

QUESTION

OLIVE OIL

Mr PRICE:
BOOTHBY, SOUTH AUSTRALIA

asked the Minister for Trade and Customs, upon notice -

  1. What were the quantity and value of olive oil imported into the Commonwealth “for the year ended 30th June, 1930?
  2. What arc the customs duties on imported British and foreign olive oil?
  3. Is it a fact that there are no olive trees grown in Great Britain?
  4. Is it a fact that foreign olive oil merchants ship vin British ports, and are obtaining the benefit of the preferential tariff?
  5. Will the Minister ask the Tariff Board to expedite their report on the olive oil industry in Australia and the duty on imported olive oil ?
Mr FENTON:
ALP

– The answers to the honorable member’s questions are as follow : -

  1. Two hundred and forty-nine thousandfive hundred and eleven gallons, valued at £73,970.
  2. The rates of duty on olive oil are as follow : -
  1. I believe such is the case.
  2. No. The practice laid down in departmental instructions is that where entry at British preferential tariff is claimed duty must be collected at general tariff rate, and copies of invoices forwarded to the ComptrollerGeneral for reference to the departmental representative in London for investigation.

page 4842

QUESTION

WINE BOUNTY

Mr JONES:
INDI, VICTORIA

asked the Minister for Trade and Customs, upon, notice -

What are the names of exporters of wine to whom wine export bounty was paid during the twelve months from 1st July, 1929, to 30th June, 1930, and the total amount paid in each instance ?

Mr.FENTON. - The information is as follows: -

page 4843

QUESTION

UNEMPLOYMENT STATISTICS

Mr ARCHDALE PARKHILL:

asked the Minister representing the AttorneyGeneral, upon notice -

What was the extent of unemployment in Australia as recorded by the , Commonwealth Statistician on the returns supplied to him for the quarters ending -(a) 30th September, 1929; (b) 31st December, 1929; (c) 30th March, 1930; and (d) 30th June, 1930?

Mr BLAKELEY:

– The information is contained in the following table: - (Based on returns from Trade Unions.)

page 4843

PATENTS OFFICE

Transfer to Canberra

Mr WHITE:

asked the Minister for

Home Affairs, upon notice -

  1. Is it the Government’s intention to move the Commonwealth Patents Office to Canberra; if so, when, and what is the estimated cost of removal ?
  2. In case of removal, is it intended to retain a sub-office in Melbourne for the convenience of local patent agents; if so, what is the estimated cost of such sub-office?
Mr BLAKELEY:

– This matter is receiving consideration.

page 4843

QUESTION

TARIFF EMBARGOES

Retaliatory Action by France.

Mr PROWSE:
FORREST, WESTERN AUSTRALIA

asked the Prime Minis ter, upon notice -

  1. Whether his attention has been drawn to the press statement that the French Government proposes granting permission to increase the percentage of foreign wheat imported into France for mixture with French wheat, but that this permit will not apply to Australian wheat owing to Australian penal duties against France?
  2. In view of the seriousness to Australia of this proposed action, will he make special representation to the Government of France and endeavour to secure to Australia some portion of this trade?
Mr SCULLIN:
ALP

– The answers to the honorable member’s questions are as follow : -

  1. No; but I have noticed a press statement to the effect that the French Government has issued a decree permitting the use of 10 per cent. instead of 3 per cent. of foreign flour in the manufacture of bread. As far as the information goes it appears to refer to a domestic provision governing the proportions of imported and French flour to be used in bread. Australia exports no flour to France.
  2. Representations have been made through the Consul-General for France in regard to discriminating duties which have been placed by France on Australian wheat.

page 4843

QUESTION

BASIC WAGE AND STANDARD HOURS

Mr ARCHDALE PARKHILL:

asked the Minister representing the AttorneyGeneral, upon notice -

What are the present rates of the basic wage and the standard hours to which they relate in the following cities: (a) Sydney; (b) Melbourne; (c) Adelaide; (d) Brisbane; (e) Perth; (f) Hobart; and (g) Canberra?

Mr BLAKELEY:

– The information is being obtained.

page 4843

QUESTION

TIMBER

Duty - Exports

Mr FENTON:
ALP

– On the 24th July the honorable member for Swan (Mr. Gregory) asked, upon notice -

Whether I would supply a return showing the rate of customs duties on imported timbers in 1919 and in 1930, also the tonnage and value of Australian timbers exported in 1919-20 and in 1928-29?

I am now able to inform the honorable member that most of the information sought in relation to rates of duty is available in printed form and is lengthy - the balance has been typed. A statement giving the full particulars will be handed to the honorable member. The tonnage of timber is not recorded in the exports statistics. The values for the periods mentioned are as follow : -

page 4843

ADDITIONAL TEMPORARY CHAIRMEN OF COMMITTEES

Mr. SPEAKER laid on the table his warrant nominating Mr. Chifley, Mr. Francis, and Mr. Keane, to act as additional Temporary Chairmen of Committees when requested so to do by the Chairman of Committees.

page 4844

BUDGET PAPERS, 1930-31

Mr. SCULLIN laid on the table the final issue of the budget papers for t he year 1930-31.

Ordered to be printed.

page 4844

PAPERS

The following papers were presented: -

Commissioner-General forthe Commonwealth in the United States of America - Report for 1920.

New Guinea Act - Ordinances of 1930 -

No. 12- Supply (No. 1) 1930-31.

No. 13 - Prisons.

No. 14 - Companies.

Seat of Government (Administration) Act - Regulations amended - Statutory Rules 1930, No. 79.

page 4844

LOAN SUBSCRIPTION

Mr SCULLIN:
Prime Minis ter and Treasurer · Yarra · ALP

– by leave. - I have pleasure in informing the House that the £10,000,000 loan issued recently in Australia has been substantially oversubscribed. The approximate total amount of subscriptions is £12,250,000, and the number of subscribers 32,000. As the borrowing programme of the Loan Council is in arrears, the Government proposes to accept the full amount subscribed.

The Government greatly appreciates the splendid response of such a large number of subscribers to the appeal that it made for the success of this loan.

page 4844

INCOME TAX ASSESSMENT BILL

Second Reading

Debate resumed from 4th July (vide page 3729) on motion by Mr. Theodore -

That the bill he now reada second time.

Dr EARLE PAGE:
Cowper

– The Income Tax Assessment Bill is a hardy annual in this Parliament. About fifteen years have elapsed since the first of these measures was introduced, and almost every year since then it has been found necessary to amend this law.

In point of size, the measure that we are now considering is practicaly equal to the original act. Because of the detail that it contains, consideration must necessarily be given to it chiefly in committee.

I congratulate the Treasurer upon having printed an explanation of the provisions of the bill. Although such explanations do not always clarify the position, they at any rate make possible a certain understanding of the legal phraseology that is adopted. But after all it is the text of the act that governs the collection of taxation, not the explanations that accompany the measure.

I accept the general principles of most of the amendments made by this bill, which, to a large extent, were laid down by the Bruce-Page Government. During the last two years the necessity for making these amendments has gradually become more urgent. The proposed amendments naturally group themselves into six sections. First, there are amendments that are designed to express clearly the concessions that have been granted in the past by the Commonwealth Parliament to certain taxpayers, which, . on account of some legal technicality, it has not been found possible to grant. That applies particularly to co-operative societies. Other amendments are designed to tighten up the law, and to prevent concessions that have been given for a specific purpose from being used by taxpayers to whom they were never meant to apply. There is a series of amendments for the correction of anomalies that have crept into the law because consequential alterations that were rendered necessary by other amendments were not made. By other amendments an attempt is to be made to guard against the evasion of taxation, which causes a considerable loss of revenue to the Commonwealth. The provisions relating to the taxation of profits derived from the sale of leases are being revised. That principle was accepted by this House in 1924, but was rejected by the Senate, and it has not made its appearance in Commonwealth legislation since that time. Finally, it is proposed to bring ex-Australian income within the provisions of the taxation law in certain circumstances.

This last; amendment raises the most important considerations of all, because it changes fundamentally the whole character of the Commonwealth taxation law. Up to the present, that law has always been confined to iiic taxation of income that is derived within Australia. In 1927, this Parliament gave expression to its opinion that in certain directions the ex-Australian income of Australian residents should be subject to income tax. In arriving at that decision, it, undoubtedly, was influenced by the hope that a wide field of taxation and a considerable source of revenue were available for exploitation. The Bruce-Page Government promised to communicate with the other Governments of the Empire, so as to ascertain the posilion that was likely to arise in regard to double taxation if the Commonwealth should tax income derived from overseas. Its investigations proved that the only hope of augmenting substantially the revenues of the Commonwealth was by the imposition of double taxation on Australian citizens. The last Government was faced with this difficulty also. A few years previously a very satisfactory arrangement bad been made with the Government of Great Britain for the elimination of double taxation on. Australian residents, and the question arose as to the extent to which any new and different arrangement made with other dominions of the Empire, or with other countries, might affect the existing arrangement with the British Government, leading to its possible termination. According to the present arrangement, the British Government grants a rebate of taxation on doubly-taxed incomes to the extent of the tax levied by the Commonwealth, hut not exceeding half the British tax. Any further relief desired must be granted by the Commonwealth Government. In the majority of the cases the whole of the rebate is granted in the United Kingdom, because the Commonwealth ‘ rates are usually lower than those of Great Britain. The concessions made by the British Government run into several hundreds of thousands a year. Under the present system, if the Commonwealth were to tax Australian residents on income already being taxed by the British Government, that Government would have to allow rebates to the Australian taxpayers. This would involve a definite entrance on. the British field of taxation. The last Government, after discussing the matter fully with the Government of Great Britain, arrived at a conclusion which was set out in my budget speech of August of last year, as follows:-

It was stated in the budget speech of 1928-29, that, in accordance with an undertaking given to Parliament in the preceding session, the Government was communicating with other governments in relation to the taxation in other countries of residents of Australia for the purpose of examining all the facts connected with the taxation of that income in those countries, and of considering the difficulties to be overcome to eliminate double taxation in the event of the Commonwealth taxing its residents on income derived from sources outside Australia.

The present income tax laws of the Commonwealth provide for the taxation of. income derived from sources within Australia, whether by residents of the Commonwealth or by persons who reside beyond the Commonwealth. Persons who derive income from sources external to Australia arc subject to the taxation laws of the countries from which the income is derived. The major portion of income derived by Australian residents from external sources is derived from the United Kingdom, where this income is subject to taxation. In certain cases income derived from sources within the Commonwealth is also subject to British taxation. An arrangement has been made with the British Government for the diminution of the hardship arising from the imposition of double taxation in such cases. The “arrangement is embodied in Commonwealth and British legislation. It is an arrangement which is regarded by the Commonwealth as fair and equitable, but which, owing to the higher rates of taxation operating in the United Kingdom, is favorable to Commonwealth revenue. It is not desired to prejudice the continuance of this arrangement unless it is reasonably certain that the adoption of a new system would not result in diminishing federal revenue and inflicting undue hardship upon Australian citizens.

In reply to the communication from the Commonwealth Government, the British Government has stated that any expansion of the scope of dominion taxation to income derived from the United Kingdom will tend to diminish the revenues of the British Exchequer, and that action in the direction of taxation of ex-Australian income will raise the question of the necessity of revising the basis upon which relief from double income tax is now allowed. The reply of the British Government invites attention to the report recently presented to the League of Nations by the Government experts on double taxation and tax evasion. It is also suggested that the subject might appropriately be reviewed’ at an Imperial Conference.

In anticipation of the possibility of the question being raised at the next Imperial Conference, the Commonwealth Government isseeking further information from the governments of other dominions before finally reaching a decision on the matter.

Before adopting the system laid down in this bill, and applying to the other dominions of the Empire, or to other countries, a different standard from that which we apply to Great Britain in regard to double taxation, we should again discuss the matter fully with the British Government, which has met us with, such consideration in the past. The Prime Minister will shortly visit Great Britain to attend the Imperial Conference, and I suggest that this matter might well be held over until his return. While he is away he could take the opportunity of discussing it with the British authorities. There would still be time after bis return to deal with it by legislation before the end of the present financial year, as I presume he will be back by February or March at the latest.

Mr Scullin:

– The honorable member is referring to double taxation?

Dr EARLE PAGE:

– Yes. This bill provides that, on income which is taxed in any of the specified countries, even if it be only to the extent of Id. in the fi, no Australian income tax will be collected.

Mr Scullin:

– That is so; and, therefore, the bill has nothing to do with double taxation.

Dr EARLE PAGE:

– But we have already entered into a different arrangement with the Government of Great Britain in regard to double taxation, and we should not make more favorable arrangements with other countries without at least consulting the British Government. I. suggest that we should take every precaution to pass the clauses of the bill which relate to this subject in a form which will not cause them to be considered unfriendly or showing lack of consideration by the British Government.

Mr Scullin:

– We are simply proposing to exempt from taxation Australian income which is already subject to taxation in other countries. The provisions which apply to New Zealand and Canada in this respect will be made to apply to other countries.

Dr EARLE PAGE:

– People should certainly not have to pay taxation in Australia on incomes which are taxed in Great Britain.

Mr Scullin:

– It is not proposed to tax any income twice.

Dr EARLE PAGE:

– In that case 1 question whether the Government will receive as much revenue as it expects from this source. Only a little more than twelve months ago, during my term of office as Treasurer, it was estimated that the total amount of revenue that could be obtained from taxation of exAustralian income was about £200,000, of which £100,000 would be obtained at the expense of the British Government.

Mr Scullin:

– We estimate that £200,000 will be received, but not any of it at the expense of the British Government.

Dr EARLE PAGE:

– I suggest that the class of income upon which this taxation is to be levied should be defined much more clearly than it is at present. Insofar as the Government is endeavouring to impose taxation on income which is not being taxed anywhere at present, I am at one with it. I do not think that any person should be able to avoid taxation on income above the amount exempted by statute simply by investing in some other country. Every one should bear his burden of taxation in proportion to the amount, of income which he receives, irrespective of the sources from which it is derived. I ask the Prime Minister (Mr. Scullin) to take every possible step to see first that, no misunderstanding occurs between the British Government and the Commonwealth Government in this matter; and, secondly, that banks which are using portion of their funds in London at present, or may do so at any time, shall not have to pay taxation on the profit so made, seeing that it is taxable by the British authorities. It is desirable that the banks shall be given the fullest opportunity of meeting the exchange position in the most satisfactory way at present. It would of course be very much to the advantage of Australia if they had more money in London than they have at present. I am anxious that no income shall be taxed twice> but that every possible step shall be taken to impose reasonable taxation upon persons who are at present deliberately avoiding their obligations in this regard. I trust that the Prime Minister will discuss these matters with the British authorities when he is in London, in order that there may be no possibility of misunderstanding.

Mr Scullin:

– While I am in London I shall discuss the subject of double taxation with the British authorities, quite apart from any proposals made in this measure.

Dr EARLE PAGE:

– I have not very much to say in regard to the other provisions of the bill. The position of certain co-operative societies in Australia has undoubtedly been anomalous; but that has been due to accident. The fact that the shares of such societies have been quotable on the stock exchange by the terms of their articles of association has prevented them from taking advantage of certain exempt provisions of the act. I agree with the action that the Government is proposing to take to meet the position of such societies. I had given an undertaking that the previous Government would take similar steps. The organizations which are not co-operative bodies in the full sense, but are taking advantage of the co-operative exemption provisions of the act which were intended to apply only to proper co-operative organizations, should be obliged to pay taxation on the profits which result from their business.

My long experience in the Treasury has caused me to be somewhat pessimistic as to the possibility of dealing effectively with tax-evaders, but I hope that the efforts of the present Government in that regard will be more succesful than those of previous governments. It would he a good thing for the country if the legal profession could devise a means of drafting two sets of taxation laws, one of which would be flexible and apply equitably to those persons in the community who desire honorably to meet their taxation obligations, and the other so rigid and comprehensive as to enable the Commissioner of Taxation to deal effectively with all tax-dodgers. Unfortunately, we are subject to a constitutional limitation which prevents more than one subject of taxation being dealt with in one act, and that makes it difficult in Commonwealth legislation to deal with these people. In the past, when we have attempted to patch one hole in the wirenetting fence which surrounds our field of taxation - if I may speak in this figurative way - we have made another break in it near the old one which has been mended, and this has often allowed more and bigger rabbits to get through than were able to get through the old one. Unfortunately, every honorable person who endeavours to meet his taxation obligations, has to bear a heavier burden because of dishonorable persons who escape their liabilities in this regard. lt is the privilege and duty of citizens to make their fair contributions towards the expenses of government.

The ‘ subject of the taxation of the profits on the sale of leases is, of course, difficult to deal with. We had a big discussion on it in 1924, and, after considerable difficulty, a measure was passed through this House with the object of imposing what was considered to be reasonable taxation upon profits from this source; but it was incontinently thrown out in another place. Unfortunately, because of the manner in which the Senate dealt with the taxation measures that year, an anomaly created at that time has remained up to the present by which a’ deduction has been given for the amortization of the lease while no tax has been levied on profits of sale. It seems reasonable that this provision should be reinserted. But I should like to sound a note of warning as to whether this is the right and proper way to do what is desired. The two hills were brought down together in 1924, because of the doubt that had been cast on the constitutional validity of this taxation if included in the Income Tax Assessment Act. It was held to be a taxation of capital rather than of income. I trust that in this instance the Government is absolutely certain of its ground. It seems to me that leases for agricultural or pastoral purposes should also be excluded from the provisions of the act. They are in quite a different position from hotel leases. In connexion with clause 16h, I have already circulated an amendment to the effect that any realization of capital as a result of drought, fire, flood, or any other act of God, is not to be taken as income. I think that that amendment might readily be accepted by the Government. The other points which I wish to raise in connexion with this bill can be dealt with in committee.

Mr ARCHDALE PARKHILL:
Warringah

– I wish to make only one or two observations on the second reading of this bill, because I realize that most of the matters to which I wish to refer can be dealt with in committee. I have before in this chamber stressed the importance of simplifying, if possible, our system of taxation. Since 1915 fifteen income tax assessment bills have been introduced, and five other amendments have been made. Some little time ago the Chamber of Commerce in America made special reference to this subject in remarks which are particularly appropriate to our system of taxation. Dr. Adams, the president of the American Chamber of Commerce, is reported as follows : -

Dr. Adams urged the committee to simplify ‘ the tax laws for two reasons: First, because such simplification would ensure a greater and more thorough collection: and, secondly, because it would make the administrative work easier and more efficient.

Then, referring to the complexity of laws, Secretary Houston made the following statement, which is equally applicable to our own laws: -

Complexity in tax laws violates the most fundamental canon of taxation - that the liability shall be certain and definite. . . . At present the taxpayer never knows when he is through.

The following is a statement by Mr. Otto H. Kahn, of Kahn, Loeb, and Company:

One of the essentials of wise taxation is simplicity of method. Nothing tends more to create a sullen animosity against fiscal measures, nothing is more apt to cause a man to feci justified in his own conscience to give himself the benefit of any doubt or technical loop-hole, than to be compelled, in addition to paying heavy taxes, to sit down and grapple with complicated tax forms and intricate schedules or to spend money for the employment of lawyers and accountants to tell him what he has to pay.

Many men in this country who are in receipt of reasonable incomes which necessitate the setting out of more than a few items in their schedules, have to employ an expert to prepare their returns. Mr. Kahn, in respect of tax-complexity experts, says -

The army of “ tax experts,” “ income specialists.” “ tax-trained accountants a,nd auditors,” &c., which during the last few years have invaded this country from coast to coast, are the legitimate offspring of the complexities, ambiguities, and actual contradiction of the provisions of the excess profits and income tax laws, and of the rulings, interpretations and regulations administratively provided for the enforcement of the said laws.

Mr Scullin:

– America has its taxation troubles, also.

Mr ARCHDALE PARKHILL:

– The troubles of the taxpayers of that country appear to be almost identical with our troubles. The income tax system of this country is not clear and definite, and leaves in the hands of the commissioner far too much power, a power that should never be in the hands of any one person. Mr. Kahn continued -

The fees charged by these tax-complexity experts are by no means modest. Were the provisions of the tax laws simple and understandable this new profession would not be so popular as a vocation. Therefore, as a direct result of the law’s complexity, taxpayers an1 forced to pay these tax-complexity experts substantial sums which are in the nature of tax surcharges, but which never reach thi’ Treasury vaults.

Let me repeat the appeal that I have made previously in this chamber for a simplification of our income tax system, under which the taxpayer would, even in the most unpleasant circumstances, have at least the feeling that his tax had been arrived at on a fairly reasonable basis.

I wish to refer to three or four other matters, one of which is noi dealt with to any extent in the bill, and is more a matter of administration; .1 refer to the interminable time which the department takes in returning to the taxpayers amounts which they have overpaid. The judges of the High Court have animadverted upon this practice because of the serious annoyance that it causes the taxpayers. If one day late in paying their tax, these are subject to a 10 per cent, fine; yet the department may retain their money for years and years, and the taxpayers can obtain no redress whatever. I suggest that as the taxpayer is subject to a 10 per cent, fine for late payment of taxes, it is only fair that he should be paid at least a bank overdraft rate of interest on money that is withheld from him by the department. I commend that suggestion to the Prime Minister.

There is in this measure a clause dealing with private companies. A further measure is to be introduced for the purpose of increasing the assessment of these private companies in certain circumstances. I propose at a later stage to suggest an amendment to fix definitely the amount of taxation which may not be exacted in cases of that kind.

Then, under section 23 of the act certain deductions are permitted, such as State income tax. In New South Wales there are three additional taxes which I submit should be deductions in respect of Commonwealth taxation; I refer to motor taxation, the tax payable in respect of family endowment, and the taxpayable under the Prevention andRelief of Unemployment Act. I suggest to the Treasurer that it is reasonable that those taxes should be deducted in the same way as is State income tax, because they are paid in exactly the same way. If they are not to be deducted, the taxpayer will be paying taxation on money that he is contributing to the Crown. I suggest that in the circumstances the amendment that I have suggested is fair and reasonable.

There seems to be some uncertainty as to whether the holders of certain loan stock, particularly the gold bond loans in America, are adequately protected, and I shall submit an amendment to safeguard their interests if the Treasurer thinks such a course necessary. In the United Kingdom, income from companies is taxed at the source. If a shareholder in an English company has been allotted £100 byway of dividend, taxation at the rate of 4s. in the £1 is deducted at the source ; consequently, he actually receives only £80.I suggest that, where British income tax is deducted from a shareholder’s dividend, the net amount ho actually receives should be the amount assessable for the purposes of Commonwealth income taxation.

Mr PROWSE:
Forrest

.- Any government that will introduce a consolidated and simplified income tax assessment act will deserve well of the people. It should be possible also by conference between the Commonwealth and the States to make the incidence of the two taxes more uniform. Although the rates of taxation of the Commonwealth and the States may differ, the taxpayer should pay on only one profit. But, because of the varying incidence of Commonwealth and State income taxation, the amount of profit on which a man is assessed for Commonwealth purposes is different from that assessed for State purposes. It almost seems as if the departments fake the taxpayers’ balance-sheet to suit the taxation legislation they are administering; that is quite wrong.

The various amendments made by the last Government, supplemented by those now proposed, create in the mind of the taxpayer a great deal of confusion as to what the law actually is. Therefore, a consolidation of the Income Tax Assessment Acts is urgently necessary. This bill is mainly one for consideration in committee, but there are two or three features to which I propose to draw attention now. Organization seems to be the order of the day; unionism has been particularly approved by this Parliament; but organization costs something. In the past fees paid to such bodies as the Graziers Association, the Wheat Pooling Association, the Fruit-growers Association, &c, were regarded as necessary expenditure either to secure or maintain revenue. But this bill proposes that such fees shall no longer be deducted.

In regard to other provisions, Parliament should express its mind more definitely, and not leave so much to the discretion of the Commissioner. One amendment provides that profits derived from the sale of a property may be taxable as income if, in the judgment of the Commissioner, it was purchased for sale at a profit. Who is to determine that a property has or has not been purchased with a view to selling for a profit? A man may purchase with the honest intention of retaining the property and working it. But after he has improved it, somebody offers him a profitable sale, and he parts with it for more money than he paid for it. The profit on the transaction is not income ; at most it is an accretion of capital. I recognize that a man who earns his livelihood by buying and selling property - an estate agent or a land dealer - must pay tax on his profits. But the man who bona fide buys a property for use and subsequently disposes of it, thereby depriving himself of the means by which he earned his livelihood, is in a different category. One result of the present complicated income taxation legislation is that the taxpayer often has to pay an expert accountant more for making up his returns than he has to pay in income taxation. I have known men to pay five guineas and ten guineas to have their returns made out by an expert, and the amount of tax for which they were liable was only £2 or £3. I ask the Government seriously to consider the desirability of introducing a consolidating act as early as possible.

Debate (on motion by Mr. West) adjourned.

page 4860

POST AND TELEGRAPH RATES BILL

Bill returned from the Senate with amendments.

In committee (Consideration of Senate’s amendments) :

Mr.SCULLIN (Yarra- Prime Minister and Treasurer) [3.31]. - Two amendments have been made in another place. The first is the deletion of “ sixteen “ from Part I. of the schedule in clause 8, and the insertion of “ twenty “ in lieu thereof. The effect of that is to restore the present rate on newspapers in bulk. The second amendment is consequential. I move -

That the amendments be agreed to.

Mr ARCHDALE PARKHILL:
Warringah

– Naturally I am pleased that the Government is accepting the amendment made in another place, but I regret that it has not seen fit to restore the old rate on business catalogues.

The TEMPORARY CHAIRMAN (Mr Mackay:
LILLEY, QUEENSLAND

– Order ! The honorable member must confine his remarks to the subject of the amendments actually before the committee.

Motion agreed to.

Resolution reported; report adopted.

page 4860

INCOME TAX ASSESSMENT BILL

Second Reading

Debate resumed.

Mr WEST:
East Sydney

.- So far as I can discover, the main purpose of this bill is to remove anomalies and to close loopholes, whereby people have been escaping taxation. Every measure of income taxation is bound to meet with opposition; no government could devise a bill that would please all sections of the community. I remember that when the first Federal Income Tax Bill was introduced, I was engaged for about six months in trying to placate the various bodies who were protesting against it. Yet I came to the conclusion that the Commissioner was more often right than wrong. A widely-practised method of escaping taxation is the formation of private companies. By allotting one share each to a doorkeeper or a liftman and one or two others it is possible for a person to float the whole of his assets into a private company, and thus obtain the benefits that are derivable under the act. The proposal to bring Lloyds within the scope of the act meets with my approval. That company makes considerable profits in Australia, but so far has been able to avoid the payment of taxation to the Commonwealth Government, although it is exempted in Great Britain in respect of the income that it derives in Australia. All sorts of ingenious devices are employed in the attempt to escape taxation, and a great deal of ingenuity is displayed in the process.

The right honorable member for Cowper (Dr. Earle Page) referred to the difficulty that is experienced by many persons in the preparation of their income tax returns. I have never had any trouble in making out my return, and I have not paid a penny to another person to assist me to do so.

Dr Earle Page:

– The honorable member has probably paid the Commissioner more than he need have done.

Mr WEST:

– Merely because I am a member of Parliament, I have been approached by people who were under the impression that I could point to some loophole in the act that would enable them to escape taxation.

I am quite satisfied that the Taxation Commissioner considers this measure to be absolutely necessary. Its provisions will be readily understood if honorable members will study the printed explanation that accompanies it. It is the type of measure that one would naturally expect from a Labour Government. Many of the amendments that it proposes to make are probably opposed to the principles of the party that occupied the treasury bench for such a lengthy period prior to the advent of the present Government last October, and that may account for the delay that has occurred in the making of simple alterations that ought to have been made years ago. Australia has reached such a position that we cannot afford to adopt the suggestion of the right honorable member for Cowper to refrain from taxing ex-Australian income until the Prime Minister has had an opportunity to discuss the matter with the Chancellor of the Exchequer. This Government is viewing the matter from an Australian stand-point, and if an alteration is subsequently found to be necessary, it can easily be made. I can assure the right honorable member for Cowper that if there is any loophole it will be found by Ministers of the Crown in Great Britain.

Any assistance that I can give the Treasurer to make the. bill as nearly perfect as possible will be willingly given. This is an honest attempt to improve the law, and good effects are likely to accrue from it. Those who are entitled to a remission of taxation will have their claims fairly met, but every effort will be made to see that those who are wrongfully evading the payment of taxation at the present time are prevented from doing so in the future. I trust that the bill will have a speedy passage.

Mr LATHAM:
Kooyong

.- I address myself to this bill mainly because of a remark that was made by the last speaker. The fact is that a majority of its provisions were prepared by the last Government, and are to be approved. Taken as a whole, the amendments that it is proposed to make are directed to the protection of the general taxpayer. There are in the community many individuals who devote themselves with a natural enthusiasm to the avoidance of the payment of income tax, and it is necessary that the law should keep up with the skilful endeavours that are so consistently and continually made in that direction.

Mr Archdale Parkhill:

– It is perfectly right to avoid payment where the law permits.

Mr LATHAM:

– It is. But the collection of revenue is also legal, and it has resolved itself into a contest between the Commonwealth, which desires to collect revenue, and a considerable number of persons who devote themselves to the finding of a way through the meshes of the income tax law. I can speak with a considerable degree of knowledge on this matter, because for many years I have been professionally connected with these nefarious activities. I use the term “ nefarious “ in a Pickwickian sense. There are, however, other cases of an entirely different character; cases of evasion in a dyslogistic sense; evasion that is practically equivalent to fraud, or that actually amounts to fraud. The difficulty that arises in those cases is that of drawing the line between the honest avoidance and the dishonest evasion of taxation. Those difficulties are very well illustrated by the provisions of this bill that make certain matters determinable in the first instance, at least, by the opinion of the commissioner. I have received many representations objecting to the provisions that relate to the opinion of the commissioner, and with some of them I have every sympathy. But it has to be remembered that some years ago the taxpayers themselves asked for the institution of a board of review, or of some other body, that would not consist of judges or of men skilled in the law, for the purpose of determining questions relating to liability to taxation. That propaganda was successful, and as a result a board of review was set up. Now I find that many taxpayers are by no means enthusiastic concerning the activities of that body. It is quite impossible, of course, to satisfy everybody. The board of review was introduced for the purpose of reviewing particularly questions of fact or opinion which in the first instance are determined by the commissioner and his officers. Some matters must, according to the act, be determined by the commissioner or by such a board. If they were not, either there would be no opportunity for review, or all matters would have to be decided by the courts. It is proper that the taxpayers should understand that the alternative is that these matters would hu subject to appeal to legal tribunals in in the ordinary way.

Although the bill is primarily u committee measure, there are one or two matters that I wish to discuss now. The taxation of ex-Australian income may be necessary owing to the condition of the revenue, but I regard it as wrong in principle. At the same time, however, we have to frame our taxation laws in relation to those of other countries. If other countries do what I think is wrong iu principle, I, as an Australian, have to regard that as one of the facts of the case that must be taken into account in determining the nature of our legislation. When I say that it is wrong in principle for any country to tax income that is derived from sources other than those that are within its own borders, I mean that it would be far better for all concerned if it were a universal rule that each country should impose taxation only upon such income as was derived from sources that were within its borders. Such a practice would simplify taxation tremendously. It is a far better principle, and by its adoption very serious injustices which now occasionally arise out of double or even treble taxation would be avoided. But that is not the general view of other countries, and accordingly we are quite within our rights in imposing taxation upon ex-Australian income. If other countries were to adopt a different principle, we might be prepared to follow them. At the same time, I view with some apprehension the introduction of these proposals, because it appears to me that one of the first results will be that the States of Australia will begin to tax income that is derived from sources beyond their own boundaries. Each State has the same power to tax what we may call extraState income, “as this Parliament has to tax extra-Commonwealth income. If each State were to tax extra-State income, and the Commonwealth were to tax extra-Commonwealth income, heigh ho for the accountants and the lawyers for a few years to come. 1. am not satisfied that the bill does not subject to taxation extra-Australian income derived prior to the 1st July of this year. It is possible that income derived even before the 1st July of last year from sources outside Australia may not become payable here until after the 1st July of this year. This might apply to company dividends earned and derived before the specified date, but not coming to hand until later.

The final point I wish to raise is in relation to the taxation of leaseholds, and what are generally loosely referred to in the legal sense as private companies. No doubt there has in the past been a great deal of avoidance of taxation in regard to leasehold transactions, and in regard to transactions based on the formation of private companies. It is possible, however, that endeavours to close up those loop-holes may inflict hardship on innocent people, and result in collecting from them more taxation than they ought to pay. I presume that the Government has been advised of the legal position, and of the risk of incorporating in a taxation act provision for the taxation of moneys derived on the actual transfer or assignment of a lease. The Treasurer is familiar with the history of the matter, and should well remember the proposal brought forward in 1924 for the taxation of leasehold transactions. It would be unfortunate if the present proposal were to raise a question as to the validity of the whole bill.

Mr R GREEN:
RICHMOND, NEW SOUTH WALES · CP

.- I agree generally with the purpose of thi* legislation, which is to compel those who have been evading their income tax payments to meet their obligations. The collection of income tax on extraCommonwealth incomes is a. very difficult matter, and it is well known that many persons have deliberately invested their funds overseas for the purpose of evading Australian taxation. I know of several welltodo men who believe that, at the present high rate of the State and Federal taxation, it pays them better to invest their funds abroad. In regard to such incomes it is only fair that, if the taxation to which they are subject in the country from which they are derived is less than similar incomes have to pay in Australia, the difference should be collected by the Australian Government.

The Government has issued an explanatory booklet dealing with’ taxation, and it is regrettable that some of the statements contained in it are inaccurate. For instance, it states that the assumed income of insurance companies which have no registered office in Australia is to he fixed at 10 per cent. for taxation purposes. As a matter of fact, the net profit of insurance companies working in Australia averages slightly under 6½ per cent., and it is rather arbitrary to fix a profit at 10 per cent. for taxation purposes. In the case of film-distributing companies, the assumed profit is 30 per cent. ; but in their case there is provision for appeal to the Commissioner, and if a company can show that its profits are less than 30 per cent., its assessment is reduced accordingly. I suggest that insurance companies should be placed on the same footing as other companies, and taxed on their actual net profit. Most of the insurance companies operating in Australia are registered here, the outstanding exception being Lloyd’s.We have no power at present to tax this company, because it is not a corporate body. I understand, however, that it is quite agreeable to pay its share of taxation. No difficulty should be experienced in determining the profits of an insurance company. Full information regarding premium incomes and claims may be obtained from the insurance and banking record in respect of all classes of business, whether marine, accident, motor, or any other form of insurance.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

.- I thank honorable members for having dealt with the hill so briefly. I agree with them that it is a measure the discussion of which should be reserved for the committee stage. The right honorable member for Cowper (Dr. Earle Page) raised a number of points which can be dealt with in committee. I assure him that we are carefully watching the position in regard to our arrangements with Great Britain covering double taxation of income. I have been discussing the matter with the Commissioner of Taxation, and I shall go into it further when I am in London. Nothing in this bill deals with extra. Australian income taxed abroad, whether earned in Great Britain or elsewhere. Some one raised the question of Australian banks employ ing accumulated funds in London for the purpose of profit-making. This bill does not provide for levying taxation on such profits. Exception has also been taken to conferring such extensive powers on the Taxation Commissioner. That objection was answered by the Leader of the Opposition (Mr. Latham). No one desires to give arbitrary or autocratic powers to any individual, but it is unavoidable in a matter of this kind. I am sure that honorable members on both sides of the House will agree that we are placing these great powers in the hands of a very reliable and trustworthy officer. The honorable member for Forrest (Mr. Prowse) suggested that we should endeavour to simplify our taxation legislation. That has always been our dreamy but, in practice, the more we seek to do it the more complicated the legislation becomes. Commonwealth taxation legislation has already been consolidated, but there seems little prospect of consolidating Commonwealth and State taxation. It has been found impossible to get the States to agree to uniform methods.

Mr Prowse:

– Have we really tried ?

Mr.SCULLIN.- Well, . we might try again; it is true that some little progress has been made. Many of the complications of our legislation arise from our efforts to catch those persons who endeavour to defraud the revenue. I agree with the. right honorable member for Cowper (Dr. Earle Page) that it would be very desirable to have one law for the honest people, and one for the rogues, but that is impossible. Another source of complication is the discrimination made by the law between companies and private persons, with the idea of giving relief where relief is considered necessary.

The subject of the taxation of leasehold transactions has been well thrashed out by the Crown Law authorities, and it has been agreed that this is not a tax on capital, but on income. All profit derived from the sale of a leasehold is classified as commuted rent. It is treated as such, and deductions allowed in respect of it, when assessing taxation for other purposes, and so it must be treated as rent, and, therefore, as income for income taxation purposes. “We must be consistent. The Leader of the Opposition suggested that a date should be fixed in regard to the taxation of extraAustralian income. An amendment will be brought in fixing the date at the 1st July, 1929. New Zealand and Canada already have legislation dealing with the taxation of such incomes, and their legislation is similar to that we are proposing. An amendment has been framed, and will later be introduced, dealing with the point raised by the honorable member for Richmond (Mr. R. Green). I regret that these amendments have not yet been circulated. The Taxation Department has been working at high pressure, framing bills in connexion with the sales tax, but I hope to have the amendments to this bill circulated to-day. When we come to the clauses which it is proposed to amend, I shall ask that consideration of them be deferred until honorable members have had an opportunity of studying the amendments. One of the amendments is for the purpose of giving insurance companies the option of deciding whether they will be taxed on an assumed profit of 10 per cent., or whether they will show what their actual profits are.

Question resolved in the affirmative.

Bill read a second time.

In committee:

Clause 1 agreed to.

Clause 2 -

Section 4 of the principal act is amended -

Mr NAIRN:
Perth

.- I had hoped that the Commissioner of Taxation would exercise his ingenuity with the object of dealing a little more effectively, for taxation purposes, with persons who derive their income from Australia, but live abroad. There is, of course, a very great distinction between the different classes of absentees. There is the bona fide overseas resident who invests his money in Australia. This class of person deserves every encouragement. But there are many Australians who are enjoying overseas incomes made in Australia from wealth which they have inherited but have not made. These should pay taxation in this country on such incomes. I trust that when the next Income Tax Assessment Bill is intro duced it will contain an improved definition to meet these cases.

  1. by inserting in the definition of “Income”, after paragraph (b), the following paragraph: - “; and (ba) any profit arising from the sale by any person of any property acquired by him for the purpose of profitmaking by sale or from the carrying on or carrying out of any profit-making undertaking or scheme “ ;
Mr LATHAM:
Kooyong

.- The memorandum which has been circulated in explanation of the provisions of this bill, and for which honorable members are indebted to the Government and the Commissioner of Taxation, indicates that paragraph c of this clause, which is designed to amend the definition of “income”, has been introduced with the object of preserving the effect of the decision of the High Court in Blockey’s case, reported in 31 Commonwealth Law Reports, 503, and to prevent a decision given by the English courts in the case of Jones v. Leeming, reported in 46 Times Law Reports, 296, from being applied to the income tax legislation of Australia. I appeared in Blockey’s case and am very familiar with that decision of the court. I should be much surprised if it were ever overruled. It has been stated that this amendment has been inserted in order to make the position absolutely secure, and to maintain the law as it was declared in Blockey’s case. But it is proposed in another provision of the bill to make the amendment retrospective as far back as 1922. I do not know why it should be made retrospective, nor why its retrospectivity should go back to 1922. Retrospective legislation may be justified in some cases, though they are very rare. Generally speaking, it is a “ fair go “ between the taxpayer and the revenue collector when it comes to a question of interpreting our taxation legislation. Each side takes the points which the law allows him to take. But the revenue collector has the tremendous advantage of being able to come to Parliament after a decision has been given to secure an alteration in his favour if he considers that that course is necessary. There is a very great objection to retrospective legislation; it can be justified only in very special cases. Taxpayers and other persons who take advantage of the law to remedy their troubles are entitled to any benefits which they can properly secure in that way, and it is not desirable that we should prevent them from obtaining such redress by making our legislation retrospective.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– The reason why it is proposed to make this provision retrospective is that a certain number of undetermined objections are still outstanding which involve a considerable amount of revenue. As the Leader of the Opposition has said, an amendment is being made in the definition of “ income “ to insure that the decision of the High Court in Blockey’s case will be maintained, and to prevent the decision given in the case of Jones v. Leeming under the English income tax act, from being applied to Australia. Unfortunately our High Court does not always follow its previous decisions, and it may decide to adopt the principles followed in the English case.

Mr Prowse:

– I take it that it is not intended that genuine sales of property by an owner shall be deemed to have been to secure a profit ?

Mr SCULLIN:

– It is not proposed to make any alteration in the law or the practice, but only to insure that the decision of the High Court in Blockey’s case shall be adhered to, and to meet any possible difficulties that may arise in consequence of the decision of the English Court in the case of / ones v. Leeming.

Mr Prowse:

– Will the Treasurer inform me how many cases have occurred of taxation evasion in this respect?

Mr SCULLIN:

– I do not know that there have been any ; but it was considered desirable to protect the position.

Mr LATHAM:
Kooyong

.- As a lawyer, I consider that there is very little ground for any apprehension that the Commissioner of Taxation may have that the decision in Blockeys’ case will be reversed. As a legislator, I am of the opinion that the making of legislation of this nature retrospective more than anything else makes the general taxpayers angry with the Commonwealth Parliament and the Commissioner of Taxation. If a man has taken ob jection in the proper way to the manner in which his income has been assessed,, he has the right to have his objection determined by the court or by a board of review, and Parliament should not deprive him of it. In giving judgment in the case of J ones v. Leeming, some of the learned lords referred to the phrase “ annual profits and gains “ and used it, in part, at any rate, to justify their decision. That phrase is not used in our legislation. I hope that the Treasurer will reconsider the fairness of making this provision retrospective.

Dr EARLE PAGE:
Cowper

.- I associate myself with the remarks of the Leader of the Opposition in regard to the objectionableness of making legislation of this kind retrospective. The honorable member has said that, as a lawyer, he does not consider that this provision is necessary.

Mr Latham:

– I have said that I think it is doubtful whether it is necessary.

Dr EARLE PAGE:

– It is a very great pity, in my opinion, that any legislation should be given a retrospective effect unless it is absolutely necessary; Occasionally it is desirable in the interest of the general community to give an amendment to an act a retrospective application, but it does not appear that that is necessary in this case. I hope, therefore, that the Government will agree to the elimination of that provision from this bill.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– I cannot remember an income tax assessment measure which contained a retrospective provision passing through this Parliament without some objection being taken to it.

Dr Earle Page:

– The right honorable gentleman always objected to such provisions when he was in opposition.

Mr SCULLIN:

– Not at all; I was always an enthusiastic supporter of such provisions whenever I was satisfied that they gave expression to what was the real intention of Parliament when the original provision was passed. Every case of this kind must be considered on its merits. If Parliament passes a certain bill and the people generally honour the intention of Parliament in that regard, we should not permit a mere handful of people to escape honouring it through a mere technicality.

Mr Latham:

– The whole thing is technical.

Mr SCULLIN:

– But there is surely something bigger to be considered than mere technicalities. Whenever Parliament makes its intentions known with reasonable clarity, and the people in general honour those intentions, we should not permit a few people, by the employment of skilled, paid agents, to defeat the intention of Parliament, and avoid the payment of their reasonable dues in taxation. If one such case happens, I submit that Parliament is perfectly entitled to amend the law, and to give the amendment a retrospective effect, so that no other cases of the kind may occur. In doing so it is only acting justly by the general body of taxpayers. Almost every amendment of our taxation legislation that has been introduced into this House for many years has contained s retrospective provision of some kind. There is no injustice in taking steps to insure that the decision that the High Court has already given on this point hall not be reversed. Honorable members will, of course, be familiar with the distinction between accretion of capital and income in respect of profit arising out of a sale. It has been held by the House of Lords that profit from an isolated sale, although it is a sale for the purpose of profit making - a matter of buying and selling - is not income. But the High Court has said that it would regard profit made from* the buying and selling of properties, as income, and taxable as such. ‘ Mr. West. - There would he no sale unless there were a profit.

Mr SCULLIN:

– Sometimes a property is sold at a loss. There is this distinction. If a man buys a farm to work it and, after holding and working it for a number of years, sells it, any profit on the sale is regarded as an accretion of capita!1 and is not taxable as income. Such profit has never been taxed as income, and no alteration of that practice is contemplated under this bill. What we do tax as income - and we follow the practice of Great Britain - is profit made by the sale of a property which was deliberately bought for speculative purposes, in the same way as boots and shoes are bought and sold at a profit. The House of Lords held the sale in the case of J ones v. Leeming to be isolated, and that, therefore, the profit could not, under the English act,

Be regarded as income. That decision has raised a doubt in the mind of the officers of the Taxation Department, and of our legal advisers, because it is possible that the High Court might adopt the decision of the House of Lords. To prevent that, this amendment has been brought down.

Mr MCTIERNAN:
PARKES, NEW SOUTH WALES

– If the amendment is passed, no one will raise this question in the court.

Mr SCULLIN:

– Under the position as it is at present, some one has been tempted to test the decision of the House of Lords in respect of Australia, because » number of objections have been lodged which, if upheld, would seriously deplete our revenue. No case has been made out against the amendment. There is sometimes an unreasonable feature about retrospective legislation, but I can soo none in regard to this legislation.

  1. by inserting, after the definition o”Person”, the following definition: - “ ‘ Resident ‘ or ‘ Resident of Australia ‘ means -

  2. n person, other than a company, who resides in Australia and includes a person- -

    1. whose domicile is in Australia unless the Commissioner is satisfied that his permanent place of abode is outside Aust Iia ; or
    2. who has actually been in Australia, continuously or intermittently, during more than one-half of Unfinancial year in which f luincome the subject of as:sessment was derived unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he doe.-; not intend to take up residence in Australia; and (fi) a company which is incorporated in Australia, or which, not being incorporated’ in Australia, carries on business in Australia and hu? either its central management and control in Australia, or itf voting power controlled, by share- holders who are residents of Aus tralia;”.
Mr D CAMERON:
BRISBANE. QLD · NAT

. -In sub-paragraph a i, appears the words “ the Commissioner is satisfied.” I should like to have the assurance of the Treasurer that an appeal will lie from the Taxation Commissioner to the Board of Review in cases dealt with under this provision.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– I have no” doubt that on all questions on which the Commissioner has to be satisfied, there is an appeal to the Board of Review.

Mr LATHAM:
Kooyong

.- 1 agree with what the Prime Minister has said that the effect of section 42 and other sections of the act is that, after an assessment has been made, the taxpayer is able to lodge objection against it, and, if he so desires, his objection, if disallowed by the Commissioner, may be reviewed by the board of review under section 44. The board of review, in dealing with the objection, has all the powers of the Commissioner with respect to the making of assessments, decisions, and determinations, and, accordingly, any opinion of the Commissioner can be reviewed by the board of review. At the same time, that leaves this particular question for decision by the committee. It is possible to legislate upon such a subject as this in one of two ways. One way is that which has been adopted under paragraph i a i, which applies to a person whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia, and under paragraph i, a ii, which applies to a person who has actually been in Australia, continuously or intermittently, during more than one-half of the financial year in which the income which is the subject of the assessment was derived unless the Commissioner is satisfied that his usual place of abode is outside Australia, and that he does not intend to take up residence in Australia. In that case the matter has first to be determined- this being a question of exception - by the Commissioner. The other way of legislating would be to legislate by reference, not to the opinion of the Commissioner, but to the facts of the case. In that case paragraph i, a i would read - “ whose domicile is in Australia unless his permanent place of abode is outside of Australia.” The reference to “ the satisfaction of the Commissioner “ would then be omitted from paragraph i, a ii. The actual distinction in respect of our legislation is this: Where a matter is left to be determined by the opinion of the Commissioner, that opinion is final unless the board of review is of a different opinion. Where, however, the legislation is founded, not upon the opinion of the Commissioner, but upon the fact, then the decision of the Commissioner upon the fact is appealable, either to the board of review or to the court. The question which arises in each case is whether it is desirable that there shall be an opportunity for a full review by the court. In this case, these particular matters are matters of exception, and the opinion of the Commissioner is effective in excluding a person from the liability imposed by the section. It therefore may be thought that the Commissioner could act only in favour of the taxpayer. But, of course, it is obvious that if the Commissioner refuses to be satisfied as desired by the taxpayer, then the decision is against the taxpayer. I recognize that it is necessary to have some matters determined by an opinion. For example, the most difficult section of the act is section 21, which must depend upon a matter of opinion as distinct from a question of fact in the ordinary sense. It appears to me that under this clause there is a great deal to be said for giving the taxpayer the right of having these matters determined on the facts of the case, and for deleting all the references to the opinion of the Commissioner or to the Commissioner being satisfied. I am unable to see any particular reason for removing the power of determining these facts and circumstances from the court. It may be said against me that 1 believe overmuch in courts, but f do believe in the citizen who is subjected to a liability under the law of the land, having the right, as a general nile, to the adjudication of his case by a properly constituted legal tribunal. That does not involve any reflection upon the character or the capacity of the administrative officers of any Commonwealth department. I regard that right as one of the inherent civic rights of our people. Accordingly, my view is that only cases in which the question which arises is obviously a matter of opinion, and not determinable by evidence as a question of fact, speaking generally, should be determined by the opinion of the Commissioner or of the board in order to remove *hem from the possible adjudication of the court. It seems to me that under this -attempt to tax extra-Australian income under this clause which defines the term resident “ or “ resident of Australia “, some difficult- questions will arise. One of the elements introduced - I think I am right in saying for the first time - -into our legislation relating to income tax is the element of domicile. That conception is familiar in matrimonial law, but not usually in taxation law. It appears to me that we are opening up a new and, to my profession, a lucrative field in introducing the idea of domicile into income tax legislation. The domicile of most of us is probably a domicile of origin. We have the domicile of our fathers. There is also the domicile of choice. When a woman marries a man, she acquires his domicile. It would be rather remarkable if the liability of a woman to taxation turned out to be dependent upon the man whom she happened to marry, even though she continued to spend her life in the country in which she was at the time resident. That is one set of questions which will arise, and in respect of which the individual should have the right to have the actual facts reviewed by the court.

Mr Scullin:

– By the court or by the board i

Mr LATHAM:

– By the court as well as by the board, on the facts. The distinction between the two cases is this: When, under our Income Tax Assessment Act, a matter is determined by the opinion of the Commissioner, ‘there may be an appeal to the Board of Review, and the Board of Review may review the Commissioner’s finding; but upon any proceedings before the court the opinion, if it is really an opinion, reached by the Commissioner or board is final, and there can be no inquiry into the facts. Where there is no reference to the opinion of the Commissioner the court, upon an appeal, can deal with the whole matter. It appears to me in regard to all these questions of the actual liability to be included within the scope of our income tax legislation, it would be proper to allow them to be determined by a court and not by an administrative officer or by a tribunal. Let me illustrate what will arise under this provision. In the case of a person who is obviously resident, in the ordinary sense, in Australia, no difficulty will arise. Obviously, he will be subject to taxation upon intra-Commonwealth and extra-Commonwealth income. Difficulties will arise in doubtful cases as, for instance, when a person, who has affiliations or connexions outside Australia, is taxed as a resident. He may contend that he is not a resident, but his liability will be determined by the .Commissioner, with the possibility of review by the board, which the High Court has declared to be a departmental administrative tribunal. In such cases it is wise to allow the liability to taxation to be determined, as the taxpayer will regard it, by a department, without the right of appeal to a court? This definition does not affect the amount to be paid in taxation by a person who is obviously within the scope of the law ; but it involves the determination of whether a person is or is not within the law. It is, therefore, a matter which the Government should consider carefully, for although it is small, it may create bad international feeling unnecessarily.

Sub-paragraph .2 is awkwardly phrased. It refers to “ a person who has actually been in Australia, continuously or intermittently, during more than one-half of the financial year “, &c. The first part of the phrase is clear enough, but what is meant by “ a person who has been in Australia intermittently during more than one-half of the financial year”? Apparently it means a person who, during six months, has been in Australia from time to time.

Mr Scullin:

– For more than half the year.

Mr LATHAM:

– The word “ during “ refers to a period of time; “intermittently “ refers to points of time. Intermittently during six months means from time to time during six months. The clause does not clearly cover a man who intermittently is in Australia for periods aggregating six months.

Mr Scullin:

– I do not think that that is intended. A commercial traveller may be travelling in New Zealand and come home only once in three months.

Mr LATHAM:

– Why use the words, “ during more than one-half of the financial year “ ? Why not say, “ during half the financial year “ ? lt would be difficult to distinguish between the commercial traveller mentioned by the Treasurer and a man who visits the Commonwealth twice a year. I am convinced that difficult questions of fact will arise which might be avoided by redrafting. Sub-paragraph b attempts to define the residence of a company. It is deemed to be resident in Australia if it is incorporated in Australia or, if not incorporated in Australia, carries on business here and has either its central management and control in Australia or its voting power controlled by shareholders who are residents of Australia. Obviously, it would be to the interests of companies which are sufficiently large to have branches outside Australia, to avoid incorporation here. That is important in relation to its actual effect upon the revenue of the Commonwealth and the States. It may be unavoidable, but we must bear in mind the possibility that large companies which have prospects of extending their operations beyond Australia will be driven to incorporate themselves outside Australia. The second part of the definition will encourage companies to remove their central management and control from Australia and arrange to be controlled by persons abroad, instead of by Australians paying taxation within the Commonwealth. The qualification relating to the control of voting power by Australian resident shareholders will be easily evaded. In order to escape the tax, a company will merely require to ensure that a bare majority of its shareholders are resident outside the Commonwealth; two companies may be identical in every respect, except that one has one less Australian resident shareholders than the other. One will escape the taxation and the other will be taxable upon its extra-Australian income, although the additional resident shareholder may hold only one share. I am aware that I am stating an extreme case, but the committee must remember that if the law provides possibilities of legitimate avoidance of taxation they will be utilized.

Mr MCTIERNAN:

– Does the honorable member think that the word “ central “ might be omitted?

Mr LATHAM:

– If that word were omitted a company might be held to be resident in Australia, although there was no real and genuine control of it in the Commonwealth. On the other hand, the clause might be construed to mean that the whole management and control should be in Australia; if that were done, the majority of those companies which this definition is designed to catch would escape. ‘ Therefore, the omission of the word “central” would be dangerous. Some of the difficulties to which I have referred may be unavoidable with this system of extended legislation, and they raise the question whether it will be worth while, in the long run, to impose this new taxation, having regard to the fact that the bill proposes to tax only extra-Australian incomes, which are not subject to taxation in other countries.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

, - The points raised by the Leader of the Opposition are interesting and important. He has raised the old question whether the taxpayer should have the right to appeal to a court on questions of fact. This Parliament long ago determined to avoid unnecessary litigation by having these matters determined by the Commissioner, subject to review by a board. Of course, there may be borderline cases in regard to which it is difficult to determine what is fact and what is law. What is considered law may not always be fact. Incidental to the determination of domicile, to which the Leader of the Opposition (Mr. Latham) has referred, the question of nationality may arise.

Mr Latham:

– No; not in regard to domicile.

Mr SCULLIN:

– I understand that a married woman takes the domicile of her husband.

Mr Latham:

– But domicile is distinct from residence and nationality, though residence enters into domicile to some extent.

Mr SCULLIN:

– The question may arise as to whether a woman’s nationality was that of her husband, and that would be a question of law.

Mr Latham:

– Nationality does not arise at all in connexion with this matter.

Mr SCULLIN:

– If a legal issue were involved, there would be an appeal to the court, but whether a person does or does not reside in Australia is as much a question of fact to be determined by the Commissioner and the board of review as is any , other. ‘ I agree with the Leader of the Opposition that the wording of sub-paragraph 2 is somewhat ambiguous. That can be read in two different ways. The phrase “continuously during more than half a year “ is quite plain ; but “ intermittently during half a year “ may apply to a man whose home is in Australia, who travels outside of Australia, and who comes back intermittently for not more than half a year. On the other hand, however, the intention may be that at least the aggregate term of his stay in Australia shall be more than half a year. I shall ask the Crown Law authorities to look into the matter, and, if necessary, the phrasing can be altered in another place. I should imagine that the intention is that the aggregate shall be six months ; but it may apply to a person who, although his home is in Australia, being a traveller, does not live at home.

Mr Latham:

– I do not think so. I suggest to the Prime Minister (Mr. Scullin) that sub-paragraph i covers practically all, if not all, of those cases.

Mr SCULLIN:

– -One gives the Commissioner the right to determine that a person’s domicile is in Australia, and the other that it is out of Australia. A slight re-drafting of the paragraph may meet the case. The wording in regard to companies must also be considered, although in that case I do not think that the same objection applies.

Dr EARLE PAGE:
Cowper

.- There is no doubt that, in its proposal to tax ex-Australian income, the Government has embarked on a stormy sea, in which, apparently, there are few lighthouses, but many rocks that may cause its bark to founder.

Mr Scullin:

– There are also sharks.

Dr EARLE PAGE:

– The revenue to be gained is variously estimated at between £100,000 and £200,000. The remarks of the Leader of the Opposition indicate that the one thing certain is that the Commonwealth will have a very big crop of litigation, that may or may noi be successful. If it be unsuccessful, the cost to the Commonwealth will be nearly as. great as the amount of revenue obtained. The cost of administration will be considerably increased by the intrusion of this new principle in our taxation legislation. It looks, also, as though companies that are incorporated in Australia will be penalized as against companies incorporated outside Australia. At the present time, our taxation laws discriminate against absentees. It appears to me that this new principle discriminates in favour of absentees and against residents of Australia, whether they be companies or individuals. Is that a wise principle to adopt? If the revenues were going to benefit handsomely as a result of this activity, the trouble might be worth while; but, as the gain is limited, we should hasten very slowly. Careful consideration should be given to the suggestion of the Leader of the Opposition (Mr. Latham) regarding the withdrawal of the stipulation that the commissioner must be satisfied as to the existence of certain facts, If persons of foreign nationality, who are accustomed to laws that differ from those of Australia, find that their only recourse is, not to a court of law in Australia, but to a commissioner or a departmental board of review, they will probably regard as very unsatisfactory the legal enactments of this country. I urge the Prime Minister (Mr. Scullin) to give very careful consideration to this question, and . to ponder whether the return will be adequate compensation for the difficulties that are likely to be encountered or created.

Mr NAIRN:
Perth

.- A very important question was raised by the honorable member for Brisbane (Mr. Cameron) when he asked whether the exercise of discretions, decisions or determinations by the Commissioner are subject to review by the board of review. The discussion has wandered away from that point to the wider question that has been raised by the Leader of the Opposition (Mr. Latham) ; but I wish to return to it. The Prime Minister (Mr. Scullin) gave an assurance that any exercise of discretion, any opinion, or any decision of the Commissioner is subject to review by the board of review. But he gave it rather diffidently. According to the latest work on the subject, it is by no means certain that there is a right of appeal from the Commissioner to the board of review. This is a very important matter, because it affects many sections of the act. The opinion is that, looking at the legislation as a whole, there, appears to be a right of appeal; but the learned authors of this work indicate that that is by no means certain, and they suggest that, if it is intended that there shall be a right of appeal from the Commissioner to the board of review, it would be better that that should be stated clearly in the act. I should like to sec that done, because it is not desirable that either the Commissioner or any other person shall have absolute power, and that there shall not be a right of appeal from . his decision. According to a judgment of the High Court of Australia, an appeal court is not entitled to interfere with the discretion of , a Commissioner unless his decision is utterly and palpably erroneous. The question, whether an appeal court can interfere with a decision of a. Commissioner depends very largely on the wording of the act. Section 52 of the New South Wales Income Tax Management Act of 1928 contains the following provision: -

Notwithstanding anything contained in this Act a taxpayer who is dissatisfied with any opinion, decision or determination of the Commissioner under this Act (whether in the exercise of a discretion conferred upon the Commissioner or otherwise) and who is dissatisfied with the assessment made pursuant to or involving such opinion, decision or determination shall, after the assessment has been made, have the same right of objection in respect of such opinion, decision or determination and assessment as is provided in section forty-eight, and also the same right of appeal against any decision of the Commissioner upon any such objection, except that such appeal shall be made to a Court of Review only.

A similar provision might very properly be inserted in the Commonwealth act; it would set at rest ‘the doubts that now exist regarding what right of appeal there is, if any, from the decision of the Commissioner.

Mr LATHAM:
Kooyong

.- The position is clearly set out in Commonwealth taxation law. Section 50 of thcact provides that a taxpayer who is dissatisfied with an assessment may make an objection, and ,the Commissioner shall consider the objection and give to the objector written notice of his decision upon it. A taxpayer who is dissatisfied with such a decision may request the Commissioner to refer it to a board of review or to a court. Section 51 provides that the Commissioner shall refer the decision to the board, if so required Section 44 specifies the powers of the board, and states that it shall have the power to review such decisions of the Commissioner as are referred to it. These necessarily include all the decisions which the Commissioner is bound, by virtue of section 51, to refer to the board, because the taxpayer has asked them to be so referred. Section 44 goes on to provide that the board, for the purpose of reviewing such decisions, shall have all the powers and functions of the Commissioner in making assessments, determinations, and decisions under the act. Therefore, the power of the board of review i3 equal to that of the Commissioner, not only in regard to the making of assessments, but also with respect to the making of determinations and decisions apart from assessments. Those words have been construed as entitling the board of review to review any matter which, by the act, is. left to the opinion of the Commissioner. In the case of Moreau v. the Federal Commissioner of Taxation, section 37 was applied by the Commissioner. At that time its form was slightly different from what it is now. It then provided that the Commissioner might re-open an assessment in any case where he had reason to believe that there had been fraud or evasion. The decision of the court turned upon the interpretation of the words, “ reason to believe “. That decision showed that the board of review would have been able to review the belief of the Commissioner, although the court itself could not do so. I understood the Prime Minister to say definitely and clearly that, wherever a matter is left to the opinion, the decision, or the deter- mination of the Commissioner, and wherever the determination of any liability depends upon the Commissioner being satisfied with reference to a certain matter, or upon his having a certain belief, it is the intention of the Government that there shall be an opportunity for review by theboard of review.

Mr Scullin:

– That is so.

Mr LATHAM:

-Accordingly, if there should be any interpretation of the act other than that which I have outlined, the Government will,I should think, bring down legislation to deal with the matter.

Mr PROWSE:
Forrest

– I think that it is a mistake for the Government to bring in legislation pf this kind., It will merely have the effect of giving us a bad name, and we shall not get1d. from it. It isnot proposed that we shall tax twice, money made outside Australia by residents in Australia, and there is no country that does not to-day impose fairly heavy taxation on money made in that country. I suggest that the Government should withdraw this provision, I am glad, to. have, had; the explanation regarding what constitutes a. domicile within Australia.

Mr.NAIRN (Perth) [5.7].- Regarding; theCommissioner’s, discretion, I. have no doubt that the. legal opinion quoted is, the better one..,However, even lawyers are not. satisfied onthe point, and. that is. why, an amendment, was made to the New SouthW ales, act in 1928.,Mention has been made ofthe- case of Moreau. v. the Federal. Commissioner of,Taxation in connexion with, which the judge remarked -

It has been established by numerous, cases that, where, a discretion, is given to. the Commissioner a Court in Appeal will not set aside his decision unless it is so irrational that no honest man exercising his judgment- could have come to such a conclusion.

If it is to. be accepted that the board of’ review is to act only on the lines laid down in that pronouncement, not many cases will come before it. That- is why a section was inserted in the New South Wales act providing that in all cases appeal should, lie to the Board of Appeal.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

. -I cannot account for the. persistence of the honorable member forPerth, (Mr. Nairn).

In this matter I agree with the Leader of the Opposition (Mr. Latham) : It is quite clearly laid down that taxpayers have the right of appealing to the board of review in every case in which a decision is left to the discretion of the Commissioner. It was the intention of the last Government, as it is of the present, that there should be some form of appeal from the decisions of the Commissioner. With that end in view, a board of appeal was set up. That authority was declared to be illegal, and in its place we now have the board of review. I know of no case in which the right of appeal has been denied, and until the difficulty arises, I see no need to amend the law.

Mr McTIERNAN:
Parkes

.- There is one method of avoidance which might be adopted to defeat the purpose of this clause. The paragraph contains the words. “ or its voting power controlled by shareholders who are residents of Australia “. For the purpose of’ avoiding taxation, shareholders who are resident in Australia might agree to transfer their shares to persons who are resident outside Australia, who would hold the shares as trustees.

Mr Scullin:

– The Australian shareholders would, receive dividends from the trustees, and that income would, be taxed..

Mr McTIERNAN:

– The income received might be taxable, but the company itself might- be- exempt from taxation. As the Treasurer has intimated his intention of reviewing, this clause,. I suggest that he might also look into the point I have raised;

Clause agreed to.

Clauses- 3 and 4 agreed to.

Clause 5-

Section 14 of theprincipal act is amended: - by inserting at the end of sub-section 1 the following paragraphs: -

Section proposed to be amended - 14. (1.) The. following incomes, revenues and funds shall be exempt from income tax: -

Mr LATHAM:
Kooyong

.- I rise for the purpose of expressing’ my satisfaction and pleasure that it is pro-1 posed to extend the list of exemptions as here set out. This matter was worked out very carefully by the last Government) and.I thinkthat.thepresent revision isan improvement in the courtesies of legal.. administration. Varying opinions have been expressed regarding the probable effect of paragraph b if it becomes law. The object of the amendment is quite clearly set out in the explanation that has been circulated -

The income of any society or association, not carried on for the purpose of profit or gain to the individual members thereof, established for the purpose of promoting the development of agricultural, pastoral, horticultural, viticultural, stock-raising, manufacturing, or industrial resources of Australia.

It is proposed to impose a limitation on that exemption by adding the words -

To the extent to which the income is not derived from a trade or business carried on by a society or association or from services rendered by the society or association to any person for reward.

It is very difficult to quarrel with the principle of the amendment. Those societies formed, not for the purpose of profit or gain, but to assist producing or manufacturing industries, may well have their incomes exempt; but, if they go into trade or business, or engage in any form of trading enterprise, it is difficult to see what right they have to exemption. The particular example given, and that to which, I understand, the measure is directed, is the business of insurance carried on in association with chambers of manufactures. Under the section as it stands at present the income of chambers of manufactures is exempt. It is stated, however, that these chambers have formed separate companies, which are distinct legal entities, for the purpose of carrying on the business of insurance. The notes circulated with this bill state that these chambers have, through separate legal companies, entered into the business of insurance, and the chambers of manufactures, per se, render active business assistance to chamber of manufactures insurance companies. The insurance companies are taxable on their profits just as any other company is taxable; but the chambers of manufactures, which render active business assistance to insurance companies, receive remuneration for those services. The insurance companies concerned receive a deduction, of their payments in their assessments; but the chambers of manufactures do not pay any income tax on the amounts so received, although these are actually remuneration for services rendered. I am informed, however, that under the proposed amendment, it may actually work out that the Commonwealth will suffer a loss of revenue. Certain representations in this .regard have been forwarded to me. I do not ally myself with every thing contained therein, but it is set forth that in one case a certain association receives from an associated insurance company a lump sum per annum for payment of rent, services of a secretary, office assistance, and standing charges such as rates, telephone, stationery, &c. The act, as it stands at present, does not tax the association at all; but the insurance company pays taxation in accordance with the law. The insurance company confines its business entirely to the members of the particular trade in connexion with which it has been formed, and, owing to the mutual system and low expense rate of obtaining business, is able to give large rebates to policy-holders. The effect of these rebates is to increase the profits of the policy-holders to the extent of the saving in premiums paid. The taxation revenue benefits as a result of these increased profits. If, in future, the insurance company pays its expenses direct, instead of to the association, its profits will be reduced, the premiums of members will be increased because of the reduction in rebates, and, in the long run, it is contended, the revenue will suffer. I mention those things without referring to the name of the particular association, in order that they may receive the consideration of the Government. As regards the general principle of this proposed legislation, it seems difficult to object to the proposal that any one making profits from trade should pay income tax on those profits, subject to just exemptions. The exemption of income of associations for the purpose of assisting the progress of manufacture and industry is limited by this paragraph; but if the result will be that less revenue will be derived in the future than has been obtained in the past the matter should be reconsidered.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– I agree with the Leader of the Opposition (Mr. Latham) that the principle involved in this provision is just, and cannot be challenged I will certainly look into the points that he has raised. If the honorable member will make available to me, without disclosing the name of the company concerned, the memorandum from which he has quoted, I shall be obliged to him. Wo do not, of course, desire to lose revenue in the endeavour to obtain more.

Mr PROWSE:
Forrest

– I should like the Government to take into consideration the desirableness of permitting taxpayers to claim exemptions in respect of certain amounts which they pay aged relatives for their maintenance. Many people feel that they should support their aged parents, for instance, by paying them a regular amount of money, and it is laudable that they should do so. Some of our old people are diffident about applying forthe old-age pension, and if a relative is prepared to relieve the country of the responsibility of paying one he should be given credit for doing so. I trust that the Government will give this matter earnest consideration.

Mr LATHAM:
Kooyong

.- It is proposed under this clause to exempt from taxation -

  1. income derived from sources outside Australia -

  2. i ) by a resident of Australia to the extent to which that income is proved to the satisfaction of the Commissioner -

    1. ) to be chargeable with income tax in any country outside Australia ; or
    2. to be derived from the sale of any produce which is chargeable in the hands of the person deriving that income with royalty or export duty by the Government of any country outside Australia; and
    1. by a person who derives income from sources in Australia which is subject to exemption under paragraphs (g),(h),(l), or (p) of this subsection.

The first point I make in regard to this provision is that it proposes to remove from the scope of taxable income certain income derived from sources outside Australia. The principle upon which this exemption is based is that if income is taxed in the country of its origin, it should not be taxed in Australia. The effect of this legislation will be that if the person resident in Australia, as prescribed in the act, has income within Australia, he will pay taxation upon it; but if he has income from outside Australia which is already subject to taxation in the country of its origin, he will not pay taxation upon it here. The words “ to the extent to which that income is proved to the satisfaction of the Commissioner “ to be taxed elsewhere are, I presume, intended to mean that if an Australian resident derives an income of, say, £1,000, from outside Australia which is subject to income taxationat any rate whatever in the country in which it is derived, it will not be subject to taxation in Australia under this legislation.

Mr Scullin:

– That is so.

Mr LATHAM:

– It has been suggested to me that the phrase “ to the extent to which “ may cause some difficulty, and should be altered. The object of the words is to exclude the whole of the income which is taxed. It is said that the words exclude the income “ to the extent to which” it is taxed elsewhere, and that, therefore, the question may arise whether the actual effect of them is not merely to grant an exemption in regard to the amount by which the income is diminished by such taxation ; but I. am not impressed by the point.

The words, “ in the hands of the person deriving that income “, and, “ from the sale of any produce which is chargeable in the hands of the person deriving that income with royalty or export duty by the Government of any country outside of Australia,” which appear later in the paragraph, require to be carefully considered. These provisions will require the taxpayers, in some cases, to make extensive inquiries to ascertain how the income tax laws of some foreign countries operate, and how far a sales tax or other device of taxation, which may fall within the meaning of the words quoted, is imposed. It may, therefore, be a long time before any information can be obtained which will justify a’ taxpayer in claiming an exemption under this provision. That, however, is a difficulty which is incidental to legislation of this character. The provisions of theclause in regard to the payment of royalty or export duty also appear to me to make ambiguous the exact intention of the legislation. At any rate, they do not seem adequately to express it. I should think that this exemption as now expressed could apply to only a very few cases. What ordinarily happens is that a royalty or export duty is paid by a company in which, the Australian resident is a shareholder. I understand that an export duty or royalty is chargeable on all the tin mined by the companies operating in the Malay States: but this is chargeable against the companies which win, export, or deal with the tin. In that case, the Australian shareholder receiving a dividend from such a company would not be able to claim the benefit of this exemption because the tin would never have been in his hands; it would only have been in the hands of the company in which he is a shareholder. In this connexion, the explanatory notes on the bill circulated by the Treasurer (Mr. Scullin), say -

New paragraph q, which amendment e, of clause 0 seeks to incorporate in the Principal Act is a provision of the Act subject to which the amendment made in section 13 by clause i of the bill must be applied. When the two provisions arc taken together the result is that a resident who derives income from a source outside Australia is taxable upon it only when that income is not chargeable with income tax to him outside Australia or when it is derived from the sale of produce which is not taxed by way of royalty or export duty in any country outside Australia.

That, statement is perfectly clear and intelligible: but the introduction of the words, “ in the hands of the person deriving that income “ appears to me to cause ambiguities which could be avoided. The illustration that I used in regard to the Malay tin minims: companies puts my point clearly. If it were intended that the Australian residents who’ hold shares in these companies should be taxed on the dividends they derived from such sources, notwithstanding that export duty or royalty had already been paid on the tin, 1 could understand why the words had been used; but. we have been told that that is not the intention of the Government. The Government is seeking to avoid, in these provisions, the imposition of double taxation on any income, but to ensure that all Australian income not taxed abroad shall be taxed here. I do not desire to move an amendment to this provision, but I ask the Treasurer to consider whether the use of these particular words, is desirable. *

The third point that I take in connexion with this provision is that as the amendment is drafted this extra- Australian income, from whatever source it is derived, would be subject to taxation if received by a taxpayer in this or any previous or future financial year. I understand that it is proposed to introduce a limitation somewhere, confining the taxability of such income to that which has been derived since the 1st July, 1929.

Mr Scullin:

– That is so.

Mr LATHAM:

– I do . not know whether it is proposed to introduce the necessary amendment of this clause, or elsewhere; but I mention the matter so that it may not be overlooked.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– Of the two points to which attention has been drawn by the honorable the Leader of the Opposition (Mr. Latham), one relates to the . words “ to the extent to which “. The words of the proposed new paragraph are - i .

Income derived from sources outside Australia by a resident of Australia to the extent to which that income is proved to the satisfaction of the Commissioner.

The words “ to the extent to which “ do not indicate that the income may be taxed after deducting from it any extraAustralian tax. They mean that part of an income may be taxed and part may noi be. If part of an extra-Australian income is taxed, then to the extent’ to which the whole or part of it is taxed it will be exempt from taxation by the Commonwealth.

Mr Latham:

– I think that is a fair interpretation of the meaning of the paragraph; but the question has been raised by competent persons whether the words carry out that intention.

Mr SCULLIN:

– I think the intention is clear. If the whole of an income ie not taxed outside Australia, to the extent to which it is so taxed it will not be taxed by this bill.

In regard to the second point, to which attention was drawn by the Leader of the Opposition, I refer the committee to clause 6, which proposes to insert in the principal act the following proviso: -

Provided that where the company distributes, to a member or shareholder who is » resident, any income upon which it is exempt from income tax under paragraph q of subsection 1 of section 14 of this act as dividends, bonuses, or profits among its members or shareholders, the income so distributed shall not be assessable income of the member or shareholder.

  1. think that the proviso removes the doubt raised by the honorable member.
Mr LATHAM:
Kooyong

.- I am not quite satisfied that the Prime Minister’s reply to the second point I raised is an effective one. In the case of a company which is subject to income tax, there may be income exempt under clause 6 ; but in the case of a company which is not itself subject to income tax, it appears to me to be difficult to say that its income is exempt if it never comes within the Australian domain at all. In the case of an Asiatic company, can one say that its income is exempt income? It appears to me to be income which is not subject, either as exempt or as non-exempt income, to Australian income tax legislation.

Mr Scullin:

– If the company is taxed the resident Australian deriving dividends from it will not be taxed.

Mr LATHAM:

– I think it is probable that the proviso may go as far as that, owing to the words, “ whether a resident or an absentee “, which appear elsewhere in the section.

Mr Scullin:

– Yes.

Mr LATHAM:

– I should like an opportunity to consider whether the effect of those words is to support what the right honorable gentleman has said.

Mr R GREEN:
RICHMOND, NEW SOUTH WALES · CP

.- When I was speaking on the second reading of this bill I referred to this portion of it, and suggested that the difference between the tax chargeable overseas, on any particular income and the tax which that amount of income Would bear in Australia if the latter should be higher, was a perfectly legitimate charge upon that income. Of course, I realize that any bank credits obtained overseas by residents of Australia are beneficial to the country in more ways than one, and we should have no desire to prevent their creation; but many Australians have invested in bonds or stock of the United States of America, and the Government of the United States of America does not charge income tax on the interest derived from those bonds or stock.

Mr SCULLIN:
YARRA, VICTORIA · ALP; FLP from 1931; ALP from 1936

– Those are the principal people who will be affected by this legislation.

Mr R GREEN:
RICHMOND, NEW SOUTH WALES · CP

– They are the people I particularly want to reach; but, as the Leader of the Opposition (Mr. Latham) has pointed out, there may be small taxes imposed in countries overseas upon profits derived by Australian investors in those countries, and it appears now that, to the extent to which that taxation is imposed, the incomes of the Australian investors become automatically exempt from income taxation in Australia. That would be all right if the income tax chargeable in Australia were less than the amount of taxation actually paid overseas, but if the amount of taxation paid overseas is less than the amount that would be collectable in Australia, I consider that the difference would be a perfectly legitimate charge for the Commonwealth to make.

Mr NAIRN:
Perth

.- Apparently there is a difference of opinion on this point between the present Treasurer (Mr. Scullin) and the exTreasurer (Mr. Theodore). When the latter was moving the second reading of this bill, the right honorable member for Cowper (Dr. Earle Page) asked -

Does that apply whether the taxation overseas is as heavy as the Australian tax or not?

Mr. Theodore’s reply was

No matter what may be the difference of the tax, or the progressive amount of tax applicable to an Australian, income, the fact that an income is subject to income tax overseas will exempt the Australian resident who enjoys it from paying Australian taxation on it.

I thought that the Prime Minister took a rather different view.

Mr SCULLIN:
YARRA, VICTORIA · ALP; FLP from 1931; ALP from 1936

– No; I quite agree with that.

Mr NAIRN:

– Take the case of a man whose taxation on the Australian standard, having regard to an income derived from overseas, would be ?90, but whose taxation in. the country where the * income is earned is ?50. What tax would he pay in Australia?

Mr SCULLIN:
YARRA, VICTORIA · ALP; FLP from 1931; ALP from 1936

– The man who is taxed overseas on an ex-Australian income will not pay any taxation upon that income under this bill.

Mr NAIRN:

– The wording of the provision does not carry that interpretation.

Mr Scullin:

– It is made clear by the proviso in paragraph a of clause 6.

Dr EARLE PAGE:
Cowper

.- The real point is the actual collection of the tax. The Prime Minister has said that income on which tax of any sort has been paid, whether by means of a royalty, export tax, or income tax in any other country, will not be taxed in Australia, and that applies equally to the company and the shareholder of the company. But I want it to be made absolutely clear that income which is exempt from taxation will not be taken into account in estimating the graduated rate of tax upon the total Australian income. If an Australian derives an income of £1,000 from Malaya, what is to be the future practice of the Taxation Department? It will probably require the taxpayer to show in his taxation return the income derived from overseas, and the Taxation Commissioner will then satisfy himself that the £1,000 is exempt from taxation, because income taxation, or royalty, or export tax upon it has already. been paid in Malaya. But every one will be anxious to have an assurance that the income thus derived from overseas, and exempt from taxation here, will not be included in the assessable income, so as to raise the general rate of the tax on the taxable income of the taxpayer. If that is not so, there will really be taxation in respect of overseas income that is already taxed. I think it would be wise for the Prime Minister to make a definite statement on the point.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– The point the right honorable member makes is that if a resident of Australia is in receipt of income derived from outside Australia, and tax is paid on that income outside Australia, it is not taxable in Australia, but the income derived from outside might be added to the Australian income so as to increase the rate of the tax. That will not be so. The proviso of clause 6, which I have already read, declares that “where a company distributes to a member or shareholder any income upon which it is exempt, as dividends, bonuses, or profits, among its members or shareholders, the income so distributed shall not be assessable income of the member or shareholder.” What is not assessable income cannot be added to a person’s income, and, therefore, cannot be included so as to increase the rate of his tax.

Dr Earle Page:

– There is now provision for the deduction of losses against future profits, but a clause in the bill takes away the right to take exempt income into account in that connexion. Will that also apply to profits made overseas ?

Mr SCULLIN:

– Although we can deal better with that point under a subsequent clause, I may say at once that the losses must first be set against exempt income.

Dr Earle Page:

– And for that purpose this is to be regarded as exempt income ?

Mr SCULLIN:

– I think so.

Mr GREGORY:
Swan

.- Do I understand that Australians who invest money in tin mines in Asia and pay royalty there are not to be charged income tax in Australia upon profits they derive from their investments abroad?

Mr Scullin:

– That is so.

Mr GREGORY:

– I brought up this matter a couple of years ago. I was able to point out that many Australians had invested their money in foreign countries, and that among them were many of our protectionist friends, Mr. Ambrose Pratt, Mr. Hume Cook, the late Mr. Pratten and others, all leading lights in the movement for imposing tariffs to build up industries in Australia. I pointed out that money they had made in Australia they had sent out of the country to earn profits by the employment of cheap foreign labour, a practice which is soundly condemned by honorable members on the other side of the chamber. I gave a list of the dividends they had drawn, and I was under the impression that our present Prime Minister agreed with me that Australia ought to be levying income tax on those profits.

Dr Earle Page:

– That was the great field of taxation which the honorable member opened up at the time.

Mr GREGORY:

– Of course!

Dr Earle Page:

– Apparently it has shrunk to £100,000 now.

Mr GREGORY:

– I find now that special privileges are to be given to people who make big money in Australia and who, instead of trying to develop the tin resources of Queensland or the Northern Territory, or the copper mines of Australia, invest it in mining activities outside Australia. A bill has been brought in to tax people on the profits they derive in Australia, but no tax is to be imposed on those people who, while advocating the building up of industries in Australia by the imposition- of heavy customs duties, invest their own money overseas. I am surprised at this, because I remember how heartily the then Leader of the Opposition (Mr. Scullin) endorsed my remarks when I drew attention to the fact that people, after enjoying the benefits of the laws of Australia and the wonderful liberties afforded by its protection policy, were sending their money out of the country. Now the Government is introducing legislation which will enable those people to evade the payment of income tax in Australia. The Government has fallen down on its job, and I cannot but express complete surprise at its action.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– -The honorable member is quite right in saying that on a previous occasion we supported an amendment to tax extra-Australian incomes, so that those people, who invest their money outside Australia, and by that means evade the payment of taxation in this country which shelters’ and protects them, should contribute to the Commonwealth revenue. I am now pioneering legislation with that object in view. With regard to the proposal to exempt from taxation residents of Australia who are taxed in other countries, I point out this to the honorable member: The first obstacle in the way of taxing extraAustralian incomes is that referred to by the right honorable member for Cowper (Dr. Earle Page) during the second reading of the bill. That is the arrangement that we have with the United Kingdom in respect of double taxation. So as not to interfere with that arrangement, we have been forced to exempt from income taxation all extra-Australian incomes derived in Great Britain.

Mr GREGORY:

– Why not exempt a proportion of the income?

Mr SCULLIN:

– If we did that, we should be making serious inroads on our agreement with Great Britain. We therefore, have found it; necessary to exempt from taxation income earned in Great Britain and subject to taxation there. We were faced with this question : Should and could we discriminate in the imposition of income taxation between various countries? That would, indeed, be a serious thing to do. We were thus forced into the position of exempting all incomes on which income tax had been levied in other countries. Then we were faced with this anomaly. Take, for instance, Burma, which has certain tin mines. That country levies an income tax as well as a royalty tax.

Dr EARLE Page:

– What is the position in Fiji?

Mr SCULLIN:

– I have not that information. In Burma both income and royalty taxes are paid, so that if we make exemption in respect of extraAustralian incomes, Burma must be included in the list. When we come to compare the position of Malaya and Siam with that of Burma, we find that although no actual income tax is levied in those countries, there is imposed a tax infinitely greater in the form of export duties and royalties. Much heavier taxation is imposed upon the shareholders of companies in Malaya and Siam than upon the shareholders of companies in Burma. Therefore, any discrimination between the incomes from those countries would be unjust. The honorable member for Forrest (Mr. Prowse) asked where is -there any extra-Australian income that is not taxable. He will find the great bulk , of it lies in the investments in Australian loans made in Great Britain, the United States of America, New Zealand, and other countries. Those investors should pay their fair share of taxation, as do others who invest in Commonwealth loans in Australia.

Mr Latham:

– Subject to the terms of the loan.

Mr SCULLIN:

– Of course.

Mr Latham:

– It would be unfortunate if the idea gained ground abroad that the Commonwealth Government now proposed to alter the terms on which the existing loans were issued.

Mr SCULLIN:

– There is no question of altering the terms of the existing loans. That, of course, would mean repudiation. Lot me inform the honorable member for Forrest (Mr. Prowse) that there are other directions in which we expect to obtain revenue under this legislation.

Mr LATHAM:
Kooyong

.- I am unable to resist the opportunity to express my pleasure at seeing the Prime Minister (Mr. Scullin) struggling with the difficulties with which his predecessors struggled, and using exactly the same arguments that they used.

Mr Scullin:

– With this difference, that we are doing something while the previous Government did nothing.

Mr LATHAM:

– Not what the Prime Minister said he would do when in Opposition.

Mr ARCHDALE PARKHILL:
Warringah

– I move -

That the following new paragraph he added : - “ Interest received by a resident of the Commonwealth from Commonwealth loans, State loans, and loans issued .by public authorities of the Commonwealth shall, if such interest would not have been subject to tax under any act in force prior to tho passing of this act, not be subject to tax unless such’ securities were acquired by a resident of tho Commonwealth after the date of the commencement of this paragraph “.

That amendment applies more particularly to the Australian gold bonds issued in America, and other Commonwealth and State loans issued abroad, which prior to the introduction of this legislation were not subject to taxation. One condition of the issue of the gold bonds by the Commonwealth Government in America was to the effect that “ the interest would be paid without deduction of any tax now, or at any time hereafter, imposed by the Commonwealth of Australia, or by any taxation authority thereof or herein “. I do not know whether that condition applies to other loans, but it would be safe to assume that some such condition applies to most of our loans overseas.

Mr Scullin:

– Not to all loans. Those conditions, where imposed, will be honoured.

Mr ARCHDALE PARKHILL:

– The amendment, if passed, would safeguard the position of those who have invested in Commonwealth loans on the understanding that their income therefrom would not be subject to federal taxation.

Mr Scullin:

– To which loan does the condition mentioned by the honorable member apply?

Mr ARCHDALE PARKHILL:

– To the gold bonds issued by the Commonwealth Government in America. The condition was that the interest shall be paid without deduction of any tax now or at any time hereafter imposed by the Commonwealth of Australia or by any tax authority thereof or therein.

Mr Scullin:

– I have some doubt whether the word “ taxation “ is included in that condition, but any loans issued on that condition would be tax free.

Mr. ARCHDALE PARKHILL.That is all that the amendment provides for.

Mr Scullin:

– Not at all; it provides for something more than that. It would exempt the very people whom we are proposing to tax.

Mr ARCHDALE PARKHILL:

– The amendment would ensure no alteration under this legislation of the conditions under which tax-free loans were issued.

Mr LATHAM:
Kooyong

.- I understand that there is in this bill no clause which proposes to amend subsection le of section 14 of the act which reads -

The following incomes, revenues and funds, shall be exempt from income tax - the income derived from the bonds, debentures, stock or other securities pf the Commonwealth issued for the purpose of Commonwealth war loans the interest on which is declared by the prospectus to be free from Commonwealth, income tax.

That section is being left untouched.

Mr Scullin:

– That is so.

Mr LATHAM:

– It applies only to war loans.

Mr Scullin:

– No other Commonwealth loan has been issued tax free.

Mr LATHAM:

– The honorable member for Warringah (Mr. Parkhill) has referred to loans issued since the war in Great Britain and America. I understand that the condition that the honorable member read is contained in the prospectus of the gold dollar loan, which was not a war loan. It is important that- nothing should be said, during a debate in this Parliament, which might give even the slightest impression to anybody that there is an intention on the part of the Government or Parliament to impose taxation on interest payable on any loan in respect of which the prospectus promises that interest shall not be subject to Commonwealth taxation. Accordingly, I suggest that careful inquiry should be made by the Treasurer as to the position in respect of the gold dollar loan. As I understand the suggestion of the honorable member for Warringah (Mr. Parkhill), he proposes to exempt from taxation the income of certain stock, acquired before the passing of this measure, but to make the same stock, if acquired subsequently to the passing of the bill, subject to taxation. I suggest that he should reconsider that proposal. If the prospectus of a loan states that the interest upon the stock subscribed for will be free from Commonwealth and State taxation, that contract must be honoured. This Parliament is at liberty to legislate in regard to all loans in connexion with which there is no such contract; but to determine to impose liability to taxation upon interest payable in respect of Commonwealth or State loans, which hitherto have been free from taxation, would be, I suggest, a very doubtful, and indeed, wrong act of policy at thiB juncture. No distinction should be drawn between an original subscriber to a loan and any person who acquires stock in it subsequently. These bonds are negotiable securities. It is of the essence of the contract that the transferees should be in identically the same position as the transferors. It would produce a profound disturbance of Australian credit abroad if it were discovered that upon the same loan “ A “, receiving let us say, 6 per cent, interest, was untaxed, and “ B “ holding stock in the same loan, and under the same prospectus, had to submit to taxation on his interest. All the bond or stock holders in a loan should be in the same position under the law; no distinction should be drawn in respect of the date when their interest in it was acquired. It must be remembered that people in the United States of America do not follow the legislation of this Parliament. They look at the contract inscribed on their bonds, and that contract ought to be absolutely inviolate.

Mr E RILEY:
SOUTH SYDNEY, NEW SOUTH WALES · ALP

– There is no suggestion in the bill that such contracts will be violated.

Mr LATHAM:

– It is important also that there should be no doubt as to the position of persons in Australia who own bonds in a Commonwealth loan floated in New York. Although they are deriving income from outside Australia, in common with all the subscribers to that loan, they are entitled to have the terms of their contract, whatever it may be. honoured.

Mr SCULLIN:
Prime Minister and’ Treasurer · Yarra · ALP

– I thought that I had made it clear and definite that there is no proposal in this bill that even remotely suggests any form of repudiation. The Government has no intention of introducing legislation to tax loans that were issued in the Commonwealth free from taxation. When, in a loan prospectus, it is laid down that interest shall be paid without deduction, that means that the interest will be paid in full at the due date; it does not mean that that interest will be exempt from taxation. I am inclined to think that the quotation made by the honorable member for Warringah was not quite accurate. If a loan were issued tax free, this Parliament would be doing a wrong thing in saying “we will not tax the interest if the stock is held by the original subscriber, but if it has changed hands then, after the passing of this measure, it will no longer be regarded as a tax-free loan.” The suggestion of the honorable member that the Government might make a discrimination between the original and a subsequent holder indicates that he has in mind loans that are not tax free. The effect of this amendment would be to prevent the taxation of interest received by a person who had invested in a loan that was not tax free, but was floated outside Australia. Clearly such people, if residents of Australia, ought to pay taxation if the loan was not issued tax free. The Government cannot accept this amendment. If it did so, it might as well abandon the greater part of the bill.

Dr EARLE PAGE:
Cowper

.- Parliament should make the position on this issue very clear and definite, as it could materially affect the credit of Australia. Australian loans have been floated at a .very favorable rate of interest because of certain attractive features incorporated in the prospectuses. One of those features was that there would be no deduction for taxes imposed by the Commonwealth of Australia. That exemption enabled us to float loans both in London and in New York at rates of interest very much below what has been current in Australia.

Mr Scullin:

– The right honorable gentleman must keep it well in mind that the Government does not propose to tax people residing in Great Britain or the United States of America.

Dr EARLE PAGE:

– I am not suggesting that. I am dealing with the contract at present under consideration. We must bear in mind clearly that these bonds should be negotiable in the freest possible sense. There should be no limitation on their negotiation as instruments of credit, either in Australia or elsewhere. We can deal with them in no other way. Any future loans that are issued may have applied to them the terms of any law that we may make now or hereafter, but those conditions must not be retrospective.

Quite a different position would arise if an Australian acquired New Zealand stock that was tax free in the country of issue. Any contract made on behalf of the dominion is not binding upon the Commonwealth of Australia, and the Australian investor purchases such stock entirely at his own risk. It is quite competent for this Parliament to place a new tax on that instrument of credit in the same way as it might impose a sales tax, land tax, or other taxation. But those who have a definite contract with the Commonwealth are differently situated. The terms under which their loan was issued must apply throughout its whole life. Perhaps the Treasurer may be able to obtain during- the dinner adjournment the exact conditions under which the New York loan referred to by the honorable member for Warringah was issued. [Quorum formed.]

Mr ARCHDALE PARKHILL:
Warringah

– I do not propose to press my amendment. The Prime Minister (Mr. Scullin) has given a full and definite assurance that, in the case of loans that have been issued with the condition that the interest is to be free of income tax, either State or Federal, or both, that condition is to be observed in all circumstances. That is all that I wanted. It was not my intention to make provision for other than that class of loan; I did not propose that the amendment should apply to loans that have been issued with the mere statement that interest will be paid in full.

Amendment - by leave - withdrawn.

Clause agreed to.

Clause 6 postponed.

Clause 7 agreed to.

Clause 8 (Taxation of companies).

Mr LATHAM:
Kooyong

.- This clause proposes to deal with certain co-operative companies that have experienced difficulty because of the nature of their rules in relation to the quotation of their shares on the Stock Exchange. The general idea has been that, in order to obtain the advantages which are conferred by the act, a co-operative company must be a genuine company of cooperators, and that its shares must not be sold in the ordinary way to the general public. Effect is sought to be given to that idea by the amendment of section 20 of the act. It is proposed to substitute two provisos for the existing proviso. The first of those provisos is in the following terms : -

Provided that a company which, before the 31st December, ]930, has altered its rules to meet the requirements of this section relating to the prohibition of the quotation of the shares for sale or purchase at any stock exchange or in any other public manner whatsoever, shall be regarded as a co-operative company as from the date of the commencement of this section.

The question has been raised, does not the phrase “or in any other public manner whatsoever “ go rather further than is intended? I understand that, when a co-operative company is being formed, it is a common practice to send men round to induce members of the public who are engaged in the industry concerned to take up shares. That practice is similar to the quotation of shares for sale or purchase in a public manner. Et may be perfectly harmless, but, nevertheless, it may prevent a company from obtaining the benefits that are intended to be conferred by these provisions. I suggest that the Prime Minister look into the matter to see whether it is possible to invent a phrase that will permit an employee or an agent of a co-operative company to endeavour to persuade individuals who are interested in the industry concerned to buy shares in it, without running the risk of depriving the company of the benefits of the legislation.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– The intention is that which is so clearly apparent to the Leader of the Opposition (Mr. Latham), [n my opinion, the term “ in any other public manner “ does not apply to canvassing for shares privately, even by a paid official of a co-operative society. But L shall look into the matter, and if there is any doubt about it the phrasing can be altered in another place.

Clause agreed to.

Clause 9 (Taxation of companies where distribution not reasonable).

Mr LATHAM:
Kooyong

.- This clause goes a very long way. It proposes that, in cases where the Commissioner is unable to ascertain who are the shareholders in a particular company, he shall be empowered to levy taxation upon the basis that it has only one shareholder. Such a practice, of course, may result in a very high rate of tax being imposed. I recognize the existence of the problem with which the clause is intended to deal; but I suggest that it will be worth while to examine the possibility of dealing with it in another way. In the case to which paragraph b refers, the Commissioner should be at liberty to tax in the way indicated, unless the company shows that it has more than one shareholder - in which case, of course, the tax would be imposed in accordance with the facts. I am aware that the clause as it stands may be thought to make that procedure possible; but when it is examined it will be seen that the position is this: The Commissioner makes his assessment at a point of time. At that point of time he determines whether or not he is to applythis provision. At that stage he is unable to ascertain the various facts to> which reference is made in the clause.. He issues his assessment upon that basis, and it is final; there is no provision entitling those concerned to show that the facts are otherwise. The Commissioner may, as a concession, reconsider the matter and amend the assessment; but there is no right in the individuals concerned, upon showing that the assumption upon which the Commissioner had proceeded was inaccurate, to obtain a revision of the assessment. There should be such a right.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– We are now dealing with one of the most difficult clauses of the bill, and so far as I can see, it is necessary for the protection of the revenue that the Commissioner should have the power to assume the existence of only one shareholder. If that provision were not made, there would be no power to compel an ex-Australian company to furnish the information required. No hardship is involved. If it be assumed that there is only one shareholder, the company is forced to give the names ; and unless it shows that there is more than one shareholder, the Commissioner mus assume that there is only one. A company should state the names of its shareholders, not merely say that it has more than one.

Clause agreed to.

Clause 10-

After section twenty-one of the Principal Act the following section is inserted: - “21a. - (1.) Notwithstanding anything contained in this act, where the Commissioner is of the opinion that any company formed after the commencement of the Income Tax Assessment Act 1915, being a company wherein not less than ninety per centum of the paid-up capital is represented by shares held by or on behalf of - not more than ten individuals, or a company having such a company as its principal shareholder, has been formed for the purpose, inter alia, of relieving any person or persons specified by the Commissioner (other than a company) from any liability to which he or they would have been subject under this act if the company had not been, formed, .and that purpose is, in the opinion of the Commissioner, effective in the year in which the income was derived, that company shall -

where there is in the opinion of the Commissioner only one such person - be deemed to be an individually owned private company; or

where there are in the opinion of the Commissioner two or more such persons - be deemed to be a severally owned private company. (2.) For the purposes of this section the expression shares held by or on behalf of’ or any expression of similar import, includes any share held by or in the name of -

any person who is a relative by blood, marriage or adoption, of a shareholder, if that relative has acquired the share by gift from that shareholder or by means of money received from that shareholder; and

The income tax payable by companies to which this section applies shall be at such rates as are declared by the Parliament.

Mr LATHAM:
Kooyong

.- This clause is designed to deal with difficulties that have arisen in the administration of the law owing to the formation of companies with the object of circumventing the law. Accordingly, speaking generally, its purpose has my complete sympathy. There are various methods by which this circumvention of the law can be attained, but I cannot see that I should be rendering a particular service to the public if I were to advertise the details. As has already been stated in the course of the debate upon this bill, it is important that, in the endeavour to catch persons who are dishonest, fraudulent, or tricky, the law should not be altered in such a way as to impose severe burdens upon honest and honorable citizens. According to the marginal note, this clause relates to the taxation of what are called private companies. There is no general legal definition of “private company,” or any generally recognized category in which private companies are included. This is a category proposed to be provided for the purpose of this provision. Companies to which it is to apply are those in which not less than 90 per centum of the paid, up capital is represented by shares held by or on behalf of not more than ten individuals, or a company having such a company as its principal shareholder which has been formed for the purpose inter alia of relieving from tax liability any person or persons specified by the Commissioner. The words “principal shareholder “ mean, I presume, holding the largest number of shares in such a company. The line of demarcation between the companies to which this drastic provision can be applied and other companies is entirely artificial.I can see that this legislation when brought into operation can readily be evaded. The proposed new section refers to companies wherein not less than 90 per centum of the share capital is represented by shares held by or on behalf of not more than ten individuals. That provision can readily be evaded by a company holding less than 90 per centum of the share capital. Reference is also made to shares held by or on behalf of not more than ten individuals. That can also be evaded by increasing the number of individuals to eleven. In these circumstances I doubt whether the proposed new section will be effective. It will be easy to prevent its application to a particular company. There are further provisions in the proposed new sub-section 2 which are designed to meet some of the obvious objections which I have mentioned; but I doubt very much whether they will do so. This provision has been drawn up in the most extensive form and applies to such companies as I have mentioned. The words “has been formed for the purpose inter alia of relieving any person or persons specified by the Commissioner give it a tremendous scope, and make it possible for it to apply with indefinite retrospectivity. The proposed new section is not limited in its application to companies to be formed; but applies to any company heretofore formed or which may be formed if the Commissioner is of the opinion that it was formedinter alia for the purpose of relieving persons from taxation. When a company is formed, one of the matters taken into consideration is the effect of taxation legislation upon the interests of the individuals concerned. That is a perfectly proper and legitimate thing; but if the Commissioner is to form the opinion that such a circumstance as that I have mentioned results in the company being formed inter alia for the purpose of relieving persons from taxation the proposed new section will have a very wide application. The complaints which some honorable members have made, who are interested perhaps in spite of themselves with respect to clause 21, will hardly be a circumstance as compared with those that will pour forth if this new section becomes operative. It is so far-reaching that if the Commissioner is able to find a suggestion that an alteration of the incidence of taxation was considered when a company was formed^ this provision may be applied. Such companies may have been formed at any time subsequent to 1915, when the Federal Income Tax Act was first passed. The Commissioner will be able to treat a company in effect as if it were an individual. This matter requires very careful consideration. The Prime Minister should determine whether the legislation will not over-reach itself, and if the provision is not too extreme to meet any evils, which, in fact, may exist. Proposed new sub-section 2 reads -

For the purposes of this section the expression “ shares held by or on behalf of “ or any expression of similar import, includes any share held by or in the name of - (a) any nominee.

I ask the Prime Minister to include in the measure a definition of nominee, or to add the words “ other than a bona fide transferee for value.” A “ nominee “ is a person nominated. When a transfer is made to a specific person, that person is in a sense the nominee of the transferor.- Of course this provision is not intended to cover such cases; but ian ordinary transferee comes within that classification. In order to make the provision quite clear, the words “ other than a bona fide transferee for value “ should be inserted. The provision would then be in accordance with the true intention of the legislation.

Mr Scullin:

– The insertion of those words may mean opening other loopholes.

Mr LATHAM:

– That indicates the difficulties associated with effectively administering this proposed new subsection. Let us take the case of an ordinary sale, for what would be regarded as full value. If I sold shares on my own account for 20s., which was their market value, presumably that would be all right and the transferee would not be the nominee. But if I sold such shares for 15s., the Commissioner could say that they were worth 20s. I might be able to persuade the Commissioner that 15s. was all I could get for them. Some one else might sell similar shares for 7s. and the Commissioner could say that a portion of their value at least was a gift. That indicates the difficulty which will arise in connexion with a provision of this nature. Paragraph 7; of proposed new sub-section reads -

For the purposes of this section, the expression “ shares held by or on behalf of “ or any expression of similar import includes any shares held by or in the name of - (b). any person who is a relative by blood, marriage or adoption, of a shareholder, if that relative has acquired the share by gift from that shareholder or by means of money received from that shareholder.

I suggest to the committee that this paragraph can apply to many cases which it is not intended to cover by this legislation. I know of important companies in Australia which would be covered, and where there have been straight-out bona fide gifts of shares by a father to members of his family, and where it was not intended that such persons should act other than as full and independent shareholders. Such cases would be covered by the paragraph I have quoted. The provision also applies to cases where shares have been purchased with money received from a shareholder. A man could make a gift of £1,000 to his son, who a little later might purchase shares in his father’s company from a non-relative. Who is to say whether such shares have been acquired by that person with money received from his father? It appears to me that the conception is too vague to include in legislation. The qualification which I suggest could, I submit, be accurately expressed by inserting after the word “ shareholder “ at the end of paragraph b the words “ and where the purchase of that shareholder in the transaction is to relieve himself of any liability to which he would have been subject under this act if he had continued to hold that share.” It appears that the cases it is desired to cover are those in which shares are transferred with intent to alter the incidence of ‘taxation, and, indeed, to affect the proper operation of legislation. I, therefore, move -

That after the word “ nominee “ in paragraph a of sub-section 2, proposed new section 21a, the words “ other than a bona fide transferee for value “ be inserted.

A sale under value for an indirect purpose would then be excluded. I am not prepared to deal off-hand with the case of a legatee. I am inclined to think that the position would be met in law by the consideration that the existence of a person in the capacity of a legatee depends on the death of a benefactor who would, therefore, be no longer a shareholder. I should like time to consider that matter before stating an opinion.

Dr EARLE Page:

– I desire to move an earlier amendment to this clause.

The TEMPORARY CHAIRMAN (Hon R A Crouch:
CORANGAMITE, VICTORIA

– That can be done only if the amendment now before the Chair is withdrawn.

Amendment - by leave-temporarily withdrawn.

Dr EARLE PAGE:
Cowper

.- I move -

That the words “ inter alia “, sub-section 1 of proposed new section 21a, be omitted.

At present sub-section 1 reads as follows : -

Notwithstanding anything contained in this act, where the Commissioner is of the opinion that any company formed after the commencement of the Income Tax Assessment Act 1915, being a company wherein not less than ninety per centum of the paid-up capital is represented by shares held by or on behalf of not more than ten individuals, or a company having such a company as its principal shareholder, has been formed for the purpose, inter alia, of relieving any person or persons specified by the Commissioner. . . .

Although I agree with the object of the proposed new section, which is to prevent the evasion of taxation, there is a possibility of injustice being done unless it is limited to deal specifically with those companies formed for the purpose of evading taxation. Many of the companies which might be held to be affected by this section were not formed for that purpose at all. They were formed for the purpose of limiting personal liability, and many of them came into existence before section 21 was added to the Income Tax Act in 1922. The section might be held to apply to companies formed by primary producers and storekeepers for quite legitimate purposes. In New South Wales the minimum number of persons who can form themselves into a company is seven. In some such companies a certain number of higher employees hold shares, and the effect of this clause will be to make their incomes taxable at the property or company rate, even though there may not be the slightest suggestion of impropriety associated with the formation of the company. Such an employee earning a salary of £1,000 a year would be required to pay, at the personal exertion rate, income tax amounting to £27 a year ; but if he were one of seven shareholders of a company, he would have to pay £41 a year in taxation. That, I understand, is not the Government’s intention, but it would be the result of this legislation. No doubt, one of the ideas at the back of the minds of those who form such a company might be to reduce the amount of taxation payable; but it might not be the determining reason in the formation of the company. The universal instinct of mankind is to pay as little in the way of taxation as the law allows. One case which came under my -knowledge was that of a man who desired to make a disposition of his property among his family. He actually submitted his scheme to the Commissioner of Taxation in New South Wales, and asked his opinion as to whether it was a suitable arrangement to make. Years afterwards he found that he came within the ambit of a provision of this kind that was later inserted in the Taxation Act. It is proposed in this bill that companies formed since 1915 shall be subject to the provisions of this section. That is retrospective legislation of too drastic a kind. I approve of the amendment proposed by the Leader of the Opposition (Mr. Latham). As the bill now stands, restrictions of too severe a nature will be imposed upon the disposition of property, even though there has been no intent to evade taxation. If this wide power is to be allowed there should be some provision for exercising control over the discretion of the Commissioner regarding the purposes for which dispositions of property are made.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– I cannot accept the amendment of the honorable member. If it were accepted, a company formed to evade taxation would, in order to escape the provisions of the section, merely have to prove to the court that it had other objects in view as well. This clause provides that the Commissioner must be of the opinion that a company has been formed for the purpose of evading taxation. It may have been, formed for other reasons also, but if one of them is to evade taxation the Commissioner may take action. He is to use his own judgment.

Amendment negatived.

Amendment (by Mr. Latham) proposed -

That afterthe word “nominee” in paragraph a of sub-section 2, proposed new section 21a, the words “ other than a bona fide transferee for value “ bo inserted.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– What is meant by “ value “ in the honorable member’s amendment? Value may be love and affection. It may be a penny, or some other nominal sum. No doubt the honorable member means full value, but “ transferee for value “ is a meaningless term. A nominee is a person nominated to hold shares.By no stretch of imagination could it be said that a transferee is a nominee if he is a bona fide transferee. This, again, is a matter for interpretation by the Commissioner. If a bona fide sale has been made, and it can he shown that fair value has been given for the shares, though not necessarily full market value, the transferee cannot be regarded as a nominee.

Mr LATHAM:
Kooyong

.- My amendment is that the word “nominee “ in paragraph a of sub-clause 2 shall be followed by the words “ other than a bona fide transferee for value “. Those words have a well recognized legal meaning. The word “nominee” has no legal meaning at all.It has a meaning in ordinary speech, and, as the Treasurer correctly pointed out, it means a person nominated. In that sense it includes volunteers, that is to say, persons who give no value; it includes persons who give value large or small; includes transferees who give value in the ordinary course of market transactions. A transferee, who for a penny received shares worth £1, would not be a bona fide transferee for value. The inclusion of the words “ bona fide “ safeguards the position, and eliminates the possibilities referred to by the Treasurer. As the proposed new section at present stands, it refers to any person nominated to hold shares whether as a result of a commercial transaction, or in consideration of love and affection, or in pursuance of a scheme of tax evasion. The Commissioner cannot make any distinction in favour of the bona fide nominees, for there is nothing in the sub-section about the opinion of the Commissioner. Subsection 2 of proposed new section 21 provides that for the purposes of that section the expression “shares held by or on behalf of “ a person includes any share held by or in the name of any nominee. It does not matter what the Commissioner thinks about it; he has to administer the law as passed by Parliament. I regret that it is proposed to retain these vague words, which can only work upon the assumption that the Commissioner will not administer the law as passed by Parliament.

Question - That the words proposed to be inserted be so inserted (Mr. Latham’s amendment) - put. The committee divided. (TemporaryChairman - Hon. R. A.Crouch.)

AYES: 17

NOES: 38

Majority…… 21

AYES

NOES

Question so resolved in the negative.

Amendment negatived.

Mr LATHAM:
Kooyong

.- I move -

That after the word “shareholder,” third occurring in paragraph b of sub-section 2, proposed new section 21a, the words and where the purpose of that shareholder in the transaction is to relieve himself of any liability to which he would havebeen subject under this act if he had continued to hold that share” be inserted.

This amendment would have the effect of confining the operation of this part of the measure to cases in which it was the object of the shareholder to relieve himself of taxation liability. That question would, in the first instance, be determined by the Commissioner. If his decision were disputed, the taxpayer could appeal either to the Board of Review or to the court. The court would then determine whether the circumstances brought the case within the words of the paragraph as amended. If, however, the paragraph is left in its present form, it is so wide that I confidently, but sorrowfully, predict that it will cause endless trouble and a great deal of litigation.

Mr SCULLIN:
Prime Minis ter and Treasurer · Yarra · ALP

.- The whole of this proposed new section is subject to the provision that, in the opinion of the Commissioner, the companies are formed for the purpose, inter alia, of relieving any person or persons specified from any liability to taxation. Then we have in sub-section 2 various explanations. If we were to insert the words which the Leader of the Opposition wants inserted, it would be impossible to prove before the court the purpose of the shareholder. If the words are inserted where proposed by the Leader of the Opposition, the discretionary power of the Commissioner wouldnot apply. The honorable gentleman said that the matter would go, first, to the Commissioner, and then, if his decision were disputed, to either the appeal board or the court. If there were a provision that, in the opinion of the Commissioner, the purpose was to avoid taxation there would be a discretionary power from which there would be an appeal to the appeal board or to the court. But here there is no discretion for the Commissioner to exercise, so that all the promoter of a company would have to do would be to deny that that was the purpose, although, in fact, the purpose of forming the company was the evasion of taxation.

Mr LATHAM:
Kooyong

.- The Treasurer has misapprehended the position. Every section in the act has to be applied by the Commissioner in the course of his administration. I turn to a section of the principal act which happens to be open before me. Section 14 provides -

The following incomes, revenues and funds shall be exempt from income tax: -

the income of a religious, scientific, charitable or public educational institution.

In that case it is not what the Commissioner thinks is a charitable institution, but what the institution really is. What happens is that the Commissioner either allows or disallows a claim for exemption on the ground that the institution is or is not a charitable institution.

Mr Scullin:

– In that case, a definite exemption is laid down; but in the case before us there is a doubt of purpose or motive.

Mr LATHAM:

– I was illustrating the principle. If, in the opinion of the Commissioner, the institution is not a charitable institution, there may be an appeal to the Board of Review or to the court. The court determines whether the institution is, or is not, a charitable institution. The purpose is a question of fact just as much as many other matters are questions of fact, although, in the case of an adjudication by any tribunal as to the purpose, the conclusion must be drawn by inference. There is no foundation whatever for the statement that the mere allegation by an individual that he had not such a purpose is conclusive. Of course it is not. Every day the courts are determining questions of intent, purpose, motive, object and the like. I find almost immediately to my hand in section 21 of the existing act another example of the use of the word “ purpose.” Sub-section 4 of the section provides -

For the purpose of this section, the following sums snail be regarded as income which could reasonably have been distributed: -

any part of the taxable income of the company expended or applied or retained for the purpose of being expended or applied . . .

But in paragraph b the words “in the opinion of the Commissioner was made for the purpose of avoidance or reduction of any liability to income tax “ are inserted.

Mr Scullin:

– But the word “purpose” has different shades of meaning in those connexions.

Mr LATHAM:

– It has exactly the same meaning.

Mr Scullin:

– In one case it indicates an act and the other a motive.

Mr LATHAM:

– If the Treasurer intends to adopt that attitude it is useless to argue the matter. There may be different opinions as to a purpose as there may be as to questions of fact ; and it may he more difficult to arrive at a conclusion as to the purpose of an individual than as to a fact. Authorities can be produced, going back over many hundreds of years of English law, to show that questions of purpose are questions of fact. In this case the Treasurer does not suggest that, even if my amendment were adopted, the opinion of the Commissioner would be conclusive; it would be subject to the decision of the Board of Review. I can only hope that the criminal law of this country, which depends, in very many of its branches, upon the determination of purposes, will never be interpreted against citizens in the way that the Treasurer suggests that this provision shall be determined against them. It must be apparent to the right honorable gentleman that, even if a company were formed for the purpose of evading taxation, say, ten years ago, and a transfer of shares were now made to “ any person who is a relative by blood, marriage, or adoption, of the shareholder, if that relative has acquired the share by gift from that shareholder or by means of money received from that shareholder,” it does not follow that the company is still a company for the purpose of evading taxation and that these extreme powers should be exercised in respect of it. The original purpose of the formation of a company may have nothing whatever to do with a subsequent transfer of shares; yet the person to whom the shares are transferred may be seriously affected.

Amendment negatived.

Mr ARCHDALE PARKHILL:
Warringah

– I object to sub-section 3 of this proposed new section, for it will have the effect, in my opinion, of penalizing other companies than those formed for the purpose of avoiding taxation. In any case, the Commissioner may erroneously decide that a company formed for a legitimate purpose has been formed for the purpose of taxation evasion. A considerable number of companies have been formed by persons in order to satisfactorily administer their affairs during their lifetime and to conserve their estates after death. The Commissioner of Taxation will, unquestionably, give the department and not the taxpayers the benefit of any doubt in matters of this kind. I do not think that the Commissioner, with all the multifarious duties which he has to discharge, will have time to give adequate consideration to subjects like this; nor do I think that the companies concerned will always have the fullest opportunity to submit their views on the subject to the Commissioner. A decision on such a matter should not rest entirely with the Commissioner, who is not, we may presume, a superman. I am puzzled to know how this officer can possibly discharge efficiently all the duties that are being placed upon him by the Government. We are rapidly reaching the position in this country that private individuals and companies are not able to conduct their business without the intervention of the Commissioner of Taxation. It seems to me that the Commissioner is being made a sleeping partner in every business in Australia, which is quite improper. The taxpayers should be permitted to conduct their business within the law without interference from the Commissioner. The all too frequently used words “ in the opinion of the Commissioner “ are not a sufficient protection of the interests of the general community. I therefore move -

That after the word “ Parliament “, subsection 3 of proposed new section 21a, the following proviso be inserted: -

Provided that a greater amount of tax shall not be assessable under this subsection than that which would be payable under either of the following paragraphs : -

The aggregate amount of tax that would be payable on the company’s income by the persons who are shareholders of the company if the company had not been formed.

The aggregate amount of tax that would be payable on the company’s income by the company and the individuals assuming that a reasonable salary was paid to those persons who are shareholders of the company.”

Mr Scullin:

– What does the honorable member mean by reasonable salary of shareholders?

Mr ARCHDALE PARKHILL:

– Some shareholders may be called upon to perform some definite service for the company for which they should receive a salary. The object of my amendment is to avoid penalizing companies which are formed for legitimate purposes.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– As it is not proposed to penalize companies which, in the opinion of the Commissioner, have been formed for legitimate purposes, the amendment is unnecessary and should be rejected. If it is accepted it will assist all companies formed for the purpose of tax evasion to carry on their illegal operations without hindrance.

Mr LATHAM:
Kooyong

.- The amendment, which has been moved as a proviso to proposed new sub-section 3 must be read in conjunction with proposed new sub-section 4 which reads as follows -

In computing the taxable income of a company to which this section applies no deduction shall be allowed in respect of any remuneration paid to any of the individuals referred to in sub-section 1 of this section by whom or on whose behalf not less than90 per cent. of the paid up capital of the company is held.

The amendment is designed to limit the effect of that provision. Unless it is inserted in the bill, proposed new subsection 4 will affect not only the ten individuals referred to in proposed new sub-section 1, but also a company having such a company as its principal shareholder, or any person or persons specified by the Commissioner, whether they are shareholders or not, and also the persons whom the company is designed to relieve of income taxation. It may happen, therefore, that although a perfectly honest shareholder may be paid for doing work which he is allowed to do under the law, the company will not be allowed to deduct from its income the amount it pays him for his service.

Mr Scullin:

– I remind the Leader of the Opposition that before these provisions can become operative in any way, the Commissioner of Taxation must be satisfied that the company has been formed for the purpose of evading taxation.

Mr LATHAM:

– If the secretary of such a company happens to be one of the ten shareholders concerned, the company will be unable to deduct from its income the salary it pays to him. Surely that situation is unfair?

Mr Scullin:

– The amendment goes a great deal further than that.

Amendment negatived.

Dr EARLE PAGE:
COWPER, NEW SOUTH WALES · FSU; CP from 1920

.-I make a final appeal to the Government to reconsider this provision which, although designed with the laudable object of preventing the evasion of taxation, has been drawn so wide as to make it an engine of inquisition of exaction and commercial destruction. I sincerely trust that the Treasurer will agree to redraft the subsection so that the taxation authorities will be able to encompass with their net only those persons who are attempting to evade the law. I urge the Government to postpone the clause and to reconsider it, otherwise I must vote against it, although I should like to see some provision in the act to prevent tax evasion.

Mr HUNTER:
Maranoa

– I hope that further consideration will he given to the taxation of family partnerships or family companies, because,- after all, people do not always form these ‘companies for the purpose of tax evasion. Usually, by the time a young fellow has reached 21 or 22 years of age he has not saved sufficient money to buy into any concern, and if he does so with money provided by his father, or if his father gives him a share in a family company, that consideration is not to be regarded by the Commissioner of Taxation. There are many grazing companies in which the management is left to the sons, while the fathers live in the cities. It is quite natural for these sons to want some money of their own. They do not want to be always treated as jackeroos, drawing the pay of a jackeroo. It is, therefore, only natural for the father to attempt to provide in some way for their future by giving them shares in a family company. In many cases moneyed men, instead of giving their daughters money, have given them shares in family companies. When one of these daughters marries, she may wish to dispose of her share to one of her brothers. An original shareholder may hold half-a-dozen properties and divide them among his sons, or he may give some of the properties to his daughters, but because the recipients are flesh and blood of the original shareholder, such a distribution is to be. regarded as a tax evasion. If a young man is being paid for work done for a family company, either as secretary or manager, his salary is not to be allowed as a legitimate deduction by the company. I trust that the Treasurer will give consideration to these points.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

.- The object, of the clause is to get at people who are deliberately and definitely endeavouring to defraud the revenue. The Government has no desire to deal with those legitimate cases, such as have been referred to, and I should say that there would be no difficulty in regard to any genuine case in which it can be proved to the commis sioner or to the appeal board that there has been no intention to avoid taxation. I have discussed the matter with the commissioner, and am satisfied that the provision will be administered without hardship, and interpreted in a generous way. Although it seems to be harsh, there are many provisions in taxation laws the terms of which are harsh, but they are administered with discretion.

Dr Earle Page:

– The provision will be harsh in its application to innocent persons.

Mr SCULLIN:

– Only if it is administered in a vindictive and harsh spirit. But if we commence to legislate with consideration for cases of hardship that may arise we may allow people to cut right through the net of our legislation. We have to legislate for those with deliberate intent to defraud. Like previous governments the present Government has had experience of people with criminal minds who adopt every ingenious method to evade legitimate taxation. They are the class of people for whom we must frame our legislation. I agree with the right honorable member for Cowper (Dr. Page) that if we could distinguish in the application of our legislation between people- of that class and those who form genuine companies for the purpose of dividing property among the members of a family, we should do so. But as we cannot make that distinction, our only course is to leave the matter to the discretion of the Commissioner of Taxation, and after consultation with that gentleman I am satisfied that he will apply this provision in the proper spirit. If subsequently it is found that it is working with the harshness suggested, I undertake to bring down legislation for the protection of the legitimate cases.

Mr LATHAM:
Kooyong

.- 1 am unable to support any taxation legislation which imposes liabilities upon the people of Australia on the promise that it will be administered in a kindly spirit and not harshly. We ought to so frame our legislation that it will apply only in the cases in which it should apply. I know of cases in which without intention of evading taxation honestly duc, family arrangements have been made for the control of businesses by the forming of companies, and the result has been to alter the liability to taxation of the members of the company. It is. however, easy in such a case for the Commissioner to form the opinion that the company has been formed for the purpose inter aiia of so adjusting the taxation liability and then this provision would apply. I feel that, rather than invent an engine so powerful and so indiscriminating in its action as to a large extent this section must be, I must oppose the clause. It is going too far in the direction of embarrassing entirely innocent and honest persons in attempting to catch dishonest persons. Other means should be adopted for that purpose.

Mr Hunter:

– Having heard what the Prime Minister has said, I shall now lodge an objection on behalf of two clients whose partnership has been disallowed and apply for a refund of the taxation they have paid.

Mr SCULLIN:
Prims Minister and Treasurer · Yarra · ALP

– I do not wish to allow the clause to go with the interpretation on my remarks which seems to have been put on them by the Leader of the Opposition, that in the administration of this provision there will be a kind of discrimination and favoritism.

Mr Latham:

– I, did not suggest that it would not be an entirely honest discrimination, so far as the Commissioner is concerned.

Mr SCULLIN:

– I do not think that that was suggested, but the suggestion has been made that there are two ways of looking at the matter. This provision, along with many other provisions of the taxation law, gives to the Commissioner of Taxation the discretion to exercise his opinion as to the motive of the taxpayer. It is indeed a matter that must be left to his discretionary power, and in coming to his decision as to the motive of the taxpayer he will not treat harshly those companies which in his opinion have been formed for a legitimate purpose. I do not know how we can have legislation that will not give the Commissioner strong powers if we are to deal with fraudulent cases. I do not anticipate that this provision will be applied harshly in legitimate cases. I find in the records of the Treasury that the previous Government approved this very clause and proposed to bring it before Parliament. Circumstances appear to be quite different when one is not charged with the responsibility of protecting the revenue of the country. The present Government is now charged with the responsibility of so protecting the revenue that those who pay their legitimate’ taxation will not have to pay more because others evade their legitimate’ share.

Dr EARLE PAGE:
Cowper

.- I give an emphatic denial to the statement made by the Prime Minister that this clause was prepared by the BrucePage Administration.

Mr Scullin:

– I said that it was approved.

Dr EARLE PAGE:

– It was neither prepared nor approved by the> previous Government. What was approved was a proposal to do something to prevent tax evasion, and I have said to-night, and on many occasions, that something should be done to prevent tax evasion. No honorable members have been more moderate in their criticism of the bill than the Leader of the Opposition (Mr. Latham) and myself.

Mr Scullin:

– I am not complaining on that score.

Dr EARLE PAGE:

– We have tried to facilitate the passage of the bill to the utmost of our ability, but, at the same time, we have endeavoured to see that it will give fair and equal justice to all iu the community, and especially that it will catch those who are trying to escape their just taxation. There is nothing in the records of the Treasury or elsewhere to 3how that either of us approved of this particular provision. All that there is in the Treasury is a record that we were anxious to prevent tax evasion, and were prepared to draft a provision that would enable effect to be given to our desire. The Leader of the Opposition, who would have been responsible ultimately for the drafting of that provision, has given his view to-night as to how it should have been drafted. If his view were adopted, I should be prepared to accept it, and I am sure the party which I have the honour to lead would accept it, but as that cannot be done, I have no alternative but to oppose the clause.

Question - That clause 10 be agreed to - put. The committee divided. (Chairman - Hon. R. A Crouch.)

AYES: 40

NOES: 17

Majority.. 23

AYES

NOES

Question so resolved in the affirmative.

Clause agreed to.

Clauses 11 and 12 postponed.

Clause 13 (Deductions of business losses).

Mr LATHAM:
Kooyong

.- This clause provides for certain amendments in respect of deductions of business losses. I wish to submit a point which has hardly yet been considered, but which arises out of an earlier amendment. Honorable members who have been following this debate attentively will remember that an amendment was made to clause 2 to include specifically in “income “, any profit arising from the sale by any person of any property acquired by him for the purpose of profit-making by sale or from the carrying on or carry ing out of any profit-making undertaking or scheme. The object of that amendment was to include isolated profitmaking transactions which did not amount to the carrying on of a business. The clause under discussion relates to deductions. Deductions may be made for losses incurred by persons in carrying on a business. There are quite a number of provisions for such losses. If profits from an isolated transaction are tobe included in income for the purposes of the act, then . losses on isolated transactions should be deducted. The deductions of losses should not be limited to losses on business. I have not had an opportunity to look thoroughly into this matter since clause 2 was passed, but it is obvious that when the profits of a profitmaking scheme are included in income, its losses should be deducted from income. The Commissioner cannot have it both ways. I speak of the Commissioner as an abstract person representing the Commonwealth. There should be a definite provision to that effect. It appears to me that the provisions in respect of losses are unduly limited in these amendments, which are provisions relating to losses in carrying on a business. . An isolated profit-making transaction is distinct from carrying on a business, otherwise it would not have been necessary to insert an amendment under clause 2.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– I quite follow the point raised by the Leader of the Opposition (Mr. Latham). I shall discuss it with the Commissioner of Taxation, and, if necessary, have the bill amended when it is before another place. I agree that if profits from a transaction are to be regarded as income, then any losses on a transaction should be deducted from income.

Clause agreed to.

Clause 14 (Taxation of film businesses controlled abroad).

Mr LATHAM:
Kooyong

.- New clause 28a has the desirable object of compelling persons abroad who make large profits out of the exhibition of films in Australia or the sending to Australia of films for exhibition to pay income tax or something of that character. The payment is made by charging the agent here. I wish only to say that I hope that in preparing this legislation the Government has taken into account the decision in the case of Spiller versus Turner some years ago, and a more recent decision of Mr. Justice Tomlin, in a case in which the British-Australasian Tobacco Company was concerned. It might very well happen that the persons in Australia who, under this legislation would, as agents, have to pay this tax for other persons or companies in America, would be quite unable to recover from those persons or companies the moneys which they pay in the form of taxation in Australia. I suggest that careful consideration should be given to that aspect, otherwise it may be that this taxation will fail to reach the persons against whom it is directed.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– I ask that this clause be postponed to enable me to bring down an amendment dealing with insurance companies on the lines that I indicated this afternoon.

Clause postponed.

Clauses 15 to 17 agreed to.

Clause 18 (Alteration of Assessments).

Mr LATHAM:
Kooyong

.- Clause 18 proposes to amend section 37, which is one of the most difficult and important provisions of the act. At one time the taxation authorities were able to re-open assessments without regard to when the assessment was made or tax paid. Then a limitation was introduced under which section 37 provided that the Commissioner may re-open assessments at any time subject to a time limit of three years, except in cases where the Commissioner is of opinion that there has been an avoidance of tax, and that the avoidance was due to fraud or evasion. That provision is being retained. Where the Commissioner is of opinion that there has been an avoidance of taxation due to fraud or evasion, the Commissioner may re-open assessments at any time. In normal cases there is still a limit of three years. The proposed new sub-section 1a reads -

Whore the Commissioner is of opinion that there lias been an avoidance of tax in the assessment owing to the failure or omission of the taxpayer to keep books, accounts or records, from which the income of a taxpayer might reasonably be ascertained, and that the avoidance is not due to fraud or evasion - within six years from the date when thu tax payable on the assessment was originally due and payable;

I draw specific attention to this considerable extension to six years. I, myself, think that it is reasonable that the taxpayer should keep books, accounts or records. A citizen knows full well that he is liable to be taxed and, therefore, he should be prepared to keep proper books, accounts or records. At present if the Commissioner is not satisfied with a return he is able to assess as he thinks proper, and the taxpayer has to prove that the assessment is wrong. The assessment is prima facie evidence, in all cases, of its accuracy, and except in respect of appeal or review is exclusive evidence. The Commissioner has already a very extensive power, and it is doubtful whether this amendment is necessary. At the same time, so long as it is understood that this provision is limited to cases of failure to keep hooks and not to the absence or loss of books which have been kept, it seems to me that it is reasonable.

Dr EARLE PAGE:
Cowper

– I offer no opposition to this clause. It is only reasonable that the Commissioner should have the privilege of review in the case of culpable negligence over a period of six years. Taxpayers who have kept books, accounts or records are protected, because in their case the Commissioner may review over a period of three years. There is no question that the Deputy Commissioners throughout Australia are definitely of the opinion that there is probably £100,000 a year being lost in respect of this source of taxation. y

Mr PROWSE:
Forrest

.- If the department has the privilege of review over six years, then the taxpayer should have the privilege of obtaining refunds over a similar period, particularly as they involve the rectification of mistakes on the part of the department. What is sauce for the goose is sauce for the gander. This extension of the period of review should apply to both the department and the taxpayer. It should cut both ways.

Mr. SCULLIN (Yarra- Prime Minis difference between the periods of review is that one applies in the case of fraud.

Mr PROWSE:

– It would apply to a mistake in book-keeping.

Mr SCULLIN:
ALP

– No ; the law already provides for cases in which the payment of tax has been evaded by fraud. This proposed new section is to apply in the case of a taxpayer who fails to keep books, accounts or records from which his income might reasonably be ascertained, but there is sufficient evidence to show that the avoidance was not due to fraud or evasion.

Mr PROWSE:

– The right honorable gentleman will recognize that a citizen > who does not keep books might well make a mistake against himself.

Mr SCULLIN:

– The onus is on the taxpayer to keep proper books or records. 1 believe that this is a very reasonable amendment.

Clause agreed to.

Clause 10-

Section fifty of the principal nut is amended by omitting from paragraph (6) of sub-section (4.) the words “either to the High Court or to the Supreme Court of a State” and inserting in their stead the words “to the High Court”.

Mr LATHAM:
Kooyong

.- The object of this and the following clauses is to force all appeals to the High Court of Australia, ana to prevent the Supreme Courts of the States dealing with them. In the notes that have been circulated in support of these proposals, the author has pointed out that some taxpayers, and the legal advisers of other taxpayers, are displaying a preference to have their appeals heard by the State Supreme Courts. That preference has always been very marked in South Aus.tralia. Needless to say I do not intend to enter upon any comparisons, invidious or otherwise, of the Supreme and High Courts. No one can question the competence of the Supreme Courts of the States of Australia. The High Court sits only very occasionally in certain States - for instance, once a year in Brisbane, Adelaide, Perth and Hobart - while in Sydney and Melbourne it sits twice or thrice a year. This clause is all very fine for the taxpayers of Sydney and Melbourne, and for the bar of those cities. It will mean that rather than wait to have their cases heard in the more distant States appellants will have them transferred to the High Court sittings in Sydney or Melbourne. Consequently, either Sydney or Melbourne barristers and solicitors will be employed in the cases, or others will have to be brought from other States at considerable expense. Is it a fair thing to submit the citizens of four of the States of the Commonwealth to that delay or the alternative expense if the cases are heard in Sydney or Melbourne ?

Mr E RILEY:
SOUTH SYDNEY, NEW SOUTH WALES · ALP

– If appellants go before the Supreme Court, do they not forfeit their right of appeal to the High Court?

Mr LATHAM:

– No. However, that is the lookout of the parties concerned. I suggest that we need not spend any sympathy in that matter. They have the right of an appeal to the High Court, with a single judge. He may hear the case, and, if he desires, state a case that will be sent on at once to the full High Court. The same procedure applies to the Supreme Court of a State. But we should give some consideration to the smaller States where the High Court sits only once a year. This amendment will inevitably mean that if the taxpayer is not debarred altogether from appealing, which would be very undesirable as a man has the right to appeal if he is aggrieved, he will either be subjected to long periods of delay, or to considerable additional expense. No one can question the competence of the State courts which have been dealing with these matters. Why should not the individual go to his own Supreme Court if he so desires? I believe that I am on safe ground in assuring the Government that if this amendment is passed - which would be very convenient for the Taxation Department, as it will have its headquarters in Melbourne and Sydney, handy to the counsel and solicitors that it desired to engage - it will impose a burden upon the taxpayers that will, in some cases, be very severe indeed.

Mr M CAMERON:
BARKER, SOUTH AUSTRALIA · LP; NAT from 1925; UAP from 1931

.- I desire to support strongly all that the Leader of the Opposition has said on this subject. I know that in my own State it is desired that the opportunity should be afforded taxpayers to submit their appeals to the South Australian Supreme Court. If people are compelled to wait for twelve months until the High Court sits they will have imposed upon them a distinct hardship. If they desire to expedite the hearing of their appeals by going either to Melbourne or Sydney they will probably be subjected to the additional expense of taking with them their own counsel and solicitors, men conversant with their affairs. I hope that the Treasurer will not persist in these amendments.

Mr PROWSE:
Forrest

– I support the suggestion of the Leader of the Opposition (Mr. Latham), on the grounds of economy. The Treasurer should not persist in these amendments. Taxpayers in far-distant States, such as Western Australia, would find it extremely difficult to obtain a hearing of t heir appeals before the High Court. Personally, I consider that the States’ Supreme Courts are highly qualified to hear appeals. If it were necessary to lake a case fromWestern Australia to Sydney or Melbourne it would involve the taxpayer in tremendous expense. I remind the Treasurer that this is a time when we should conserve the financial interests of the taxpayers, as well as their rights.

Dr.EARLE PAGE (Cowper) [9.54]. - I trust that the Government will not press this amendment. Magna. Charta says that the Crown shall neither deny nor delay justice.

Mr E RILEY:
SOUTH SYDNEY, NEW SOUTH WALES · ALP

– How long ago was that?

Dr EARLE PAGE:

– A little over 700 years, but it is still the keystone of British liberty, and it should be our guiding beacon to-day. The High Court visits remote States only once a year, but the Supreme Court is at all times readily available to the taxpayers. J suggest that this is an inopportune time to make these amendments to the principal act, as there is already a good deal of dissatisfaction in some of the States with regard to federal administration. I do not think that the innovation would be of very great value from the point of view of administrative economy. Certainly, it would accelerate a nd cheapen departmental activities to some extent, but that would be more than counterbalanced by the disadvantages placed upon the taxpayers generally. I remind the Government that this is not the time that we should choose to subject remote States to additional irritation.

Mr.SCULLIN (Yarra- Prime Minister and Treasurer) [9.56]. - The only reason for the introduction of these amendments was economy in administration. I see a good deal of force in the point made with regard to the disadvantages that they may inflict upon distant States. No question has been raised as to the relative efficiency of the State Supreme Courts and the High Court, but experience has proved that usually in an important case the Supreme Court does not hear the appeal, but states a case for the High Court.

Mr Latham:

– And the High Court does precisely the same thing.

Mr SCULLIN:
ALP

– Certainly, if a case goes against the department in a vital matter involving large sums of money, it would not rest with the decision of the Supreme Court, but would be taken to the High Court. That would add to thecosts of the taxpayers as well as of the department. However, because of the force of the reasoning that it would inflict hardship upon remote States because of the infrequency of the sittings of the High Court, and of the point made by the right honorable member for Cowper (Dr. Earle Page), that that disadvantage would irritate those States, I am not prepared to press the amendment. Wo shall continue as in the past, and see how we get on.

Clause negatived.

Clause 20 negatived.

Clause 21 (Date of payment of tax).

Mr ARCHDALE PARKHILL:
Warringah

– This clause provides - “ (4c.) The owner, charterer, or the representative of the owner or charterer, of every ship which takes passengers on board at any port shall on the first working day after the advertised date of departure of the ship from the port in Australia at which the certificate mentioned in this section is required to be presented, lodge all certificates so presented at the office of the Deputy Commissioner of Taxation for the State in which that port is situated, together with a list showing thename and last-known address in Australia of every person (other than mem- bers of the crew and staff of the ship) who sailed on the ship. “(4d.)Every owner or charterer of a ship or his representative who fails to comply with the provisions of the last precedingsub-section shall be guilty of an offence.

I can gee no reason why the Government should make shipping companies do work that really should be don<” by the Government. Is this not a matter of government supervision ? I submit that it is not reasonable to ask a commercial institution to police the Income Tax Act. Apparently the officers of the Taxation Department can attend to everything else. Why should an endeavour be made to shoulder their responsibilities on to private institutions? Shipping companies will be submitted to a certain amount of labour and expense to do work which properly belongs to the Taxation Department. I protest against such a procedure.

Clause agreed to.

Clause 22 postponed.

Clause 23 (Public officer of company).

Mr LATHAM:
Kooyong

.- This is a very far-reaching amendment. It provides not only for the service of processes and proceedings, but also for the taking of proceedings against any director, secretary, or other officer of a company. Certain obligations are imposed upon directors, secretaries and officers of companies, and upon their attorneys and agents. The clause is designed to provide that if the public officer of a company makes default in a duty that has been imposed upon him, for that default the Commissioner may, if he should think fit, take proceedings against a director, the secretary, or any officer, agent or attorney of the company. I venture to doubt whether it is really intended that it should go so far as that. It is quite right that there should always be some person who is responsible for the observance by a company of the provisions of the Income Tax Assessment Act, and who can be held liable for any evasion of the law. Section 88 of the act, with which this clause deals, provides that a company shall be represented by a public officer, who of course is liable for any default that is made by it. If such an officer is not appointed, the company is liable for failing to appoint him. Section 89 deals with the liability of agents and the like, including the agents of a company. It may be that if the officer against whom proceedings have been taken shows that he has had nothing to do with the evasion of the law, he will escape a penalty; but that is not clear. Under the clause as it now stands, if the Commissioner thinks fit, proceedings may be taken against any director for the default of, let us say, a public officer. It may be argued that the Commissioner may not succeed. If that is bo, the clause means nothing. I suggest that in regard to this aspect it should be reconsidered.

Mr SCULLIN:
Prime Minister and Treasurer · Yarra · ALP

– The purpose of the clause is to enable action to be taken against the principals of a company in cases where fraud has been discovered, instead of against a paid officer who may be merely a man of straw.

Mr Latham:

– That is not the effect of it.

Mr SCULLIN:
YARRA, VICTORIA · ALP; FLP from 1931; ALP from 1936

– So that I may look into the matter, I ask that the clause he postponed.

Clause postponed.

Clause 24 postponed.

Progress reported.

House adjourned at 10.6 p.m.

Cite as: Australia, House of Representatives, Debates, 29 July 1930, viewed 22 October 2017, <http://historichansard.net/hofreps/1930/19300729_reps_12_126/>.

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