Senate
20 May 1936

14th Parliament · 1st Session



The Deputy President (Senator Sampson) took the chair at 11 a.m., and read prayers.

page 1867

QUESTION

RETURNED SAILORS AND SOLDIERS

Control of Wireless Station

Senator GUTHRIE:
VICTORIA

asked the PostmasterGeneral, upon notice -

  1. Han an application for the right to control a broadcasting station been made by the Returned Sailors and Soldiers Imperial League of Australia?
  2. If so, has the request been granted; if not, why not?
Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– The answers to the honorable senator’s questions are as follows : -

  1. An application was received from the Victorian branch of the Returned Sailors and Soldiers Imperial League of Australia.
  2. The request has not been granted because then: was no suitable channel available.

page 1867

QUESTION

BOMBING PLANES

Senator GUTHRIE:

asked the Minister representing the Minister for Defence, upon notice -

  1. How many of the bombing planes ordered from Great Britain by the Commonwealth Government for defence purposes have been delivered ?
  2. If orders for bombing or anyplanes placed by the Government in Great Britain cannot be delivered in reasonable time,will the Government seriously consider the advisability of obtaining urgent requirements from Germany ?

Senator Sir GEORGE PEARCE.The Minister for Defence advises that a reply will be furnished to the honorable senator as soon as possible.

page 1867

QUESTION

MELBOURNE-ADELAIDE TRAIN SERVICE

Senator JAMES McLACHLAN:
SOUTH AUSTRALIA · UAP

asked the Leader of the Government in the Senate, upon notice -

  1. Is it a fact that no train leaves Adelaide on Sundays for Melbourne and delay is thereby caused to business people?
  2. In view of the reports of serious inconvenience caused to interstate railway passengers, will the Minister use his influence with the Victorian and South Australian authorities in an endeavour to have reinstated the train which previously left Melbourne for Adelaide on Saturdays?

Senator Sir GEORGE PEARCE.The replies to the honorable senator’s questions are as follows: -

  1. There is no train from Adelaide to Melbourne on Sunday nights.
  2. Representations in the matter will be made to the railway authorities concerned.

page 1867

QUESTION

SEAPLANE BASE

Senator E B JOHNSTON:
WESTERN AUSTRALIA

asked the Minister representing the Minister for Defence, upon notice -

  1. Has the attention of the Government been drawn to statements made by Major Brackley of Imperial Airways, condemning Darwin as unsuitable for a seaplane base?
  2. If so, will the Government review the claims of Wyndham as a seaplane base, and as the main air port of entry for Northern Australia?
  3. If not, why not?
Senator Sir GEORGE PEARCE:

– The Minister for Defence advises that a reply will be furnished to the honorable senator as soon as possible.

page 1868

QUESTION

RIFLE CLUBS

FREE Ammunition Issue.

Senator BRAND:
VICTORIA

asked the Minister representing the Minister for Defence, upon notice -

In view nf the importance of the rifle clubs as reserves to the Defence Forces, will the

Minister for Defence place on the Estimates for 1936-37 a sufficient sum of money to meet expenditure in the restoration of the annual grunt of 200 rounds nf free ammunition to members?

Senator Sir GEORGE PEARCE.The Minister for Defence has advised that the question of the amount of free ammunition to be issued to members of rifle clubs will receive full consideration when the Estimates for 1936-37 are under review.

page 1868

EXCISE TARIFF 1936

Bill (on motion by Senator A. J. MCLACHLAN) read a third time.

page 1868

CUSTOMS TARIFF (CANADIAN PREFERENCE) 1936

Bill (on motion by Senator A. J. McLachlan) read a third time.

page 1868

ELECTORAL DIVISIONS

PROPOSAL for REDISTRIBUTION of Victoria.

Senator Sir GEORGE PEARCE:
Minister for External Affairs · Western Australia · UAP

[11.61 . - I move–

That the Senate approves of the distribution nf the State of Victoria into electoral divisions as proposed by Messrs. F. W. Parkinson, P. Campbell and H. McTaggart, the commissioners appointed for Hie purpose nf distributing the said State into divisions, in their report laid before the Senate on the 27tri day of March, 1D35, and that the names of the divisions suggested in the report be adopted, with the exception Unit the name “ Deakin “ lie substituted for the name “Mernda”.

I- ask leave to resume my remarks at a .later stage, when T shall give reasons for the motion.

Leave granted ; debate adjourned-

page 1868

INCOME TAX ASSESSMENT BILL 1936

Second Reading

Debate resumed from the 19th May (vide page 1848) on motion by Senator A. J. MoLachlan -

That the bill be now read a second time.

Senator COLLINGS:
Queensland

.- I thank Hie PostmasterGeneral (Senator A. J. McLachlan) for his courtesy in having supplied mo with a proof report of his second-reading speech. I have done my best to assimilate it, even though imperfectly, in the short- period which has intervened between the adjournment of the Senate last, night and the hour of meeting today. I protest against the practice of withholding from members of this chamber the. opportunity to arrive at a proper understanding of measures before having to deal with them. With me, this is a complaint of long standing. Senators are not afforded the opportunity to which they are entitled, to give proper consideration to bills before “being called upon to express their opinions concerning them. Their only alternative is to remain silent knowing that they have not an adequate knowledge of the, contents of bills. Seemingly, protest against the practice is useless, and in the circumstances, wo must discharge to the best of our ability the obligation that rests upon us.

Having studied the bill, and the speech of the Minister upon it, I should be lacking in my duty did I not, on behalf of the Opposition, express concurrence with the comments of the honorable gentleman in regard to the stupendous nature of the work involved in the preparation of the measure and the essential steps which preceded its preparation. That the commissioners have performed excellently is unquestionable-, even though we may not agree with th, whole of their findings. I would couple with them in my remarks the draftsman, whose task must have been an exceedingly difficult one, as well as the ministerial representatives of the States and their taxation officials, who attended the several conferences which preceded the drafting of the measure. There can be no questioning the desirability of the goal aimed at by all parties, that the taxpayers of Australia should be enabled to discharge their liabilities by means of one return and one assessment. That, of course, has not yet been attained. Still, it is as well that wc should strive for it. There is not the slightest doubt that sooner or later, and the sooner the better, the federal idea will have to give way to that of unification which to us seems inevitable The sooner we can secure the abolition of six competing and conflicting States, and the passage of all legislation by one national parliament, the better. In the matter of taxation, there would then be one authority instead of seven, each having different ideas.

The matter of the abolition of the board of review, and the substitution therefor of an appellate tribunal presided over by a single judge of the Supreme Court, has not been brought to fruition so on that matter I need not express any opinions’ at this juncture. It is to be regretted that agreement between the States and the Commonwealth ‘has not been found possible in relation to the profits derived from a trade or business which is carried on in more than one State. I understand that Queensland is one of the offenders in this regard, for reasons with which I am unacquainted. The failure ‘to reach agreement is further evidence of the wisdom of my suggestion for the abolition of competing authorities.

Every source of information should have been made available to honorable senators. I am sure that the Minister is not responsible for the fact that we have not before us the Treasurer’s comparisons.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– I am afraid that the honorable senator is in error. I understand that this document was supplied to every member of the Senate and of the House of Representortives on the 11th March last. What I said last night was that there had not been time to bring it up to date.

Senator COLLINGS:

– That is my point. I have the Treasurer’s report, and find it very useful; but I have not had an opportunity to compare it with the principal act sufficiently closely to make myself acquainted with all the details.

We of the Opposition are very definitely of the opinion that direct taxation is always preferable to indirect taxation, and we just as definitely hold the view that the tax upon income is the fairest of all taxes, being really a tax upon the margins which the people of a country have available for the upkeep of the

State. Taxpayers and their associations, who, by means of intensive propaganda and almost continuous parliamentary representation, seek to have taxation reduced, should realize that, but for the existence of a well-ordered State, and the prosecution of its activities, the conduct of the manifold ramifications of business and industry, with all that that connotes, would be impossible, with the result that the income of the individual would not merely be jeopardized, but might more easily than many persons imagine become, non-existent. Some of the taxpayers’* associations are adroit at preparingfigures which prove everything but thetruth. I remember seeing one preposterous statement fairly recently, in which the detailed cost of government in thiscountry was worked out at so much a head. The result was astounding, but analysis showed that the figures were misleading and unfair, because they gave no credit whatever for the different assets created by the state activities, or for the advantages which those activities bring to the taxpayers and every unit in the community.

The Opposition believes in one or two fundamental principles of taxation. One is that, in no circumstances, should there be taxation without representation. I can imagine some of our friends in the Federal Capital Territory saying that we should put that completely into operation, but, of course, at the moment we on this side are not in control of the Treasury bench. We believe also in the fundamental principle that the taxation burden should be always placed definitely and exactly where it belongs. Those who receive the most advantages and benefits from the operations of the taxing authority should carry the taxation burden, whilst those who receive the least of them should not be asked to bear an unfair proportion of the faxes. To summarize it in the popular way, we believe that taxation should be placed on the shoulders of those best able to bear it. That it. is not so much a case of how much is taken away from a man by taxation, but how much he has left after the taxing authority has finished with him, is a point all too frequently lost sight of when the basis of levying of taxes is being considered.

In our opinion, surpluses in the hands of a government are indefensible. By that I mean, not that a government should cut its coat absolutely and only in conformity with the cloth, but that a government’s job is to render service, and not to make profits. It is obvious that if a government ha3 a surplus left, it has taken too much out of the pockets of the taxpayers, or has rendered too little in the form of services to the taxpayers, or has paid its public servants and those carrying on the detailed work of the administration too little by way of reward. To be guilty of any one of these, in my opinion, is not right. I do not mean that a government should not make provision for emergencies. On the contrary, it must do so. A government should not dissipate, in time of plenty, all that it has, because there may come a lean time; but for a government to have ever-recurring surpluses is wrong, not only for the reasons I have given, but also for the reason that it is given an opportunity to pose as a distributor of largesse, and, of course, when it does so it sees that the largesse is distributed in those directions which will bring it most kudos and most political advantage.

Senator Badman:

– What is the honorable senator’s attitude with regard to recurring deficits?

Senator COLLINGS:

– Recurring deficits, of course, are due to a variety of causes, most of which could be avoided by wise and proper management. The greatest deficits that have occurred in this country have been caused by governments not legislating on right lines. That could easily be proved, but it is not germane to the subject under consideration.

I am pleased that this bill does not differentiate between women who are receiving alimony and those who are receiving separation allowances. I noticed in the Minister’s second-reading speech that he appeared to be somewhat in doubt about the wisdom of the decision arrived at. But it has been arrived at, and we, as an Opposition, approve. Provision has been made in the assessment of total income for the taking into consideration of the value of residence and quarters, meals and sustenance provided for employees. If that is passed, I hope that every care will be taken to see that the returns of employers in this connexion are keenly scrutinized, 30 that the employers will not be allowed to make a profit as far as their income tax is concerned by reason of the charges they make. I notice also that losses due to embezzlement by employees are now to be allowable deductions. I shall want to know in committee whether it should not be made compulsory on employers to protect themselves against such losses by taking out fidelity bonds. If an employer were careless in the matter, I see no reason why responsibilities resulting from that carelessness should be placed on the general community.

Senator McLeay:

– Losses are not always due to carelessness.

Senator COLLINGS:

– That may be so, but in nine cases out of ten such losses are due to insufficient supervision or to the fact that employees are receiving too small wages for handling large sums of money.

Senator Abbott:

– An inherently dishonest employee will beat the employer in nine cases out of ten.

Senator COLLINGS:

– As my friend, Senator Abbott, says, an inherently dishonest employee will beat the employer in nine cases out of ten, but I suggest to him that inherent roguery is not a feature of the majority of employees in the Commonwealth.

I notice that an allowance is also to be made for the exemption of subscriptions to associations. To some extent that is the position now, but I shall want to know in committee what were the associations to which contributions have been allowable deductions and what are the associations proposed to be included ; also whether contributions to political campaign funds are to be included. If they are to be included, I shall have somer thing to say about it, because the party we represent is unable to obtain those large contributions to political funds which the Government and its supporters are so easily able to get. Concerning the deduction to be allowed for the housekeeper of a taxpayer who is a widower, if the housekeeper is solely maintained by the taxpayer and is attending to his dependent children, I should like some further information. I can visualize the case of people whom I know where the* daughter of a taxpayer, who is a widower, is keeping his house and looking .after him and his affairs generally, and where there are no other children. I shall want to know later whether that exemption should not be extended to meet such a case.

On the question of the equalization of payments to life assurance societies and superannuation funds, the Government has arrived at a compromise. The amount now allowable as a deduction in respect of contributions to life assurance societies is £50, and that for superannuation fund contributions is £100. It is now proposed, under the compromise, to- make a joint allowable deduction of £100. In his speech last night the Minister quoted the report of a British commission issued in 1920. I am not quite sure that I have the hang of the position correctly, but it did not seem to me that that report had any bearing on the question at issue. It seemed to me that it related to family allowances and not to contributions to life assurance societies. I expect the Minister will elucidate that point in committee. The reduction from £150 to £100 in this connexion may conceivably cause undue distinction between different classes of contributors, those who are to receive more and those who are to receive less.

I agree entirely with the necessity for the registration of taxation agents, but it is a pity that unity has not been accomplished on this point. I do not think that we should have the States registering taxation agents with the Commonwealth doing the same thing. The Commonwealth should be the one authority for the registration of these agents. I agree also with the provision that no retrospective amendments shall be allowed in assessments beyond a period of three years. That applies whether the assessment amendment would be for or against the interests of the taxpayer. Some alterations have been made in respect to the time for lodging of appeals, and I am of the opinion that a still further widening of the provision is probably necessary.

An anomaly which has always existed in the Australian taxation laws and which this bill does not propose to alter, arises from the exemption of income from Commonwealth bonds under assess ments of income tax for State purposes. This phase of the position is open to considerable argument, but I wish to show briefly how unfairly it works, apart altogether from the fact that it seems to be dangerous at a time when the demands of the people on the taxing authorities are becoming increasingly greater and when the tendency of the times is towards the State itself providing more and more of the .amenities of life and rendering more and more social services to the community. One cannot do these things without increasing taxation. It seems wrong that when we are facing the need for increased taxation to meet the ever increasing demands on the Treasury, we should be decreasing the taxable area. Moreover, the system operates inequitably between certain forms of income, because the man who invests his capital reserves in Commonwealth bonds escapes taxation to the extent of his investments, while the man who invests capital in industry, thus helping to promote the prosperity of the community, is penalized. I propose to show, by quoting two parallel examples, how unfairly the present system operates. The non-exempt taxpayer, whom I shall call “ A “, with an income of, say, £2,000 from rent and £500 from, a business, would pay federal tax on the whole £2,500, at the higher rate which applies to incomes of £2y500. On the £2,000 he would pay £279 3s. 4d., in addition to £87 10s. special property tax. This amounts to over £366, which his neighbour, whom I shall call “ B “, would escape altogether, because his £2,000 is exempt from State taxation, being derived from interest on tax-free bonds.

There remains the £500 of non-exempt income which each of them derived from a business. “ A “ would pay tax on this in full, for his income would be too large to entitle him to any statutory exemption. “ B “, however, would get a statutory exemption of £125, which would reduce his taxable income to £375. Then “ A. “ would pay at the rate of between 15d. and 16d. in the £1, while “B “ would pay at the rate of a little over 4½d. in the £1. So that, in respect of the same income of £500 from business, “A” would pav £32 18s. 7d., and “ B “ only £7 ls. lid. Income from approximately £650,000,000 of capital, earning in Australia about £23,700,000, is not available to the States for taxation. That is a vast annual income not included in the full incidence of Australian direct taxation. Inequalities of this kind exist because we have too many tax-levying authorities. That brings us back to the platform of the Australian Labour party, which includes unification, and the abolition of six out of the seven taxing authorities.

Senator E B JOHNSTON:
Western Australia

.- ‘This bill is the result of agitation in Australia for many years past for simpler and more uniform taxation methods, which can be easily understood by those who have to pay taxes. It is desired that taxation assessment methods shall be similar throughout the field of the seven taxing authorities. As the result of that agitation, the Federal Government appointed a royal commission in 1932, consisting of Sir David Ferguson, and Mr. E. W. Nixon, who were empowered to inquire into and report on the simplification and standardization of taxation law in the Commonwealth and the States. I desire to associate myself with the tributes which have been paid by both the Minister in charge of the bill (Senator A. J. McLachlan), and the Leader of the Opposition’ (Senator Collings) to the members of the royal commission, and to those State and Commonwealth Ministers and taxation officers to whose efforts the bill in its present form is due.

The Leader of the Opposition started his speech and ended it by advocating the Labour party’s visionary plank of unification, which is entirely opposed to the contract as understood by the States when they entered into federation.

Senator Brown:

– Why is it visionary?

Senator E B JOHNSTON:

– It is unjust, at any rate, and, as far as Western Australia is concerned, it is also visionary, because the people of that State, by a two to one majority have expressed their opposition to it, and their preference for complete self-government. If I thought that this bill represented a step in the direction of unification, I should oppose it at every point. But, of course, it really has nothing whatever to do with unification, which is opposed throughout the Commonwealth by at least two of the great political parties, and in Western Australia is opposed by every section of political thought. I refer the Leader of the Opposition to the opinions expressed some time ago by the Labour Premier of Western Australia, Mr. Collier, in an interview published in the press. In the course of that interview he opposed unification, and went so far as to say that unification would mean ruin to the people of Western Australia.

To the extent that this measure simplifies and renders uniform our taxation laws, it will be regarded as a valuable and acceptable addition to Commonwealth legislation, particularly when the States observe their obligation to pass complementary legislation, based on this measure and on the recommendations of the royal commission on taxation. Uniformity is very desirable as long as the basis of taxation is just. There is a feeling, however, that the tax gatherers are taking advantage of this opportunity to tighten up the law, and to increase the burdens of taxation borne by primary producers. I admit, that relief has been given in some directions, but the cumulative effect of the provisions of the bill operates against the primary producers, and will increase the total burden of the federal taxpayer.

This legislation is very complicated, and requires detailed examination in committee. It is really a matter for accountants and experts. If, however, the States bring their income-tax legislation into line with this federal measure, other than in respect of the amount at which taxation of income commences, p heavy increase of State taxation must follow. Speaking generally, State taxation has been more reasonable, and the exemptions under it are more generous, than under federal law. Uniformity of taxation legislation is desirable, but I hope that the federal taxpayer and the State taxpayer, the same individual, will not be asked to shoulder too great an increase of the general taxation burden for the sake of uniformity. If the States’ bring their legislation into line with this bill there must be a withdrawal of many of the concessions which the States are at present granting. Thus, uniformity, if attained, will lead to a considerable increase of the amount of taxation collected through Federal and State sources combined. It seems to me that the increases are particularly directed against graziers, farmers, and pastoralists. I wonder, also, whether uniformity is to extend, not only to income-tax legislation, but also to the whole range of taxation covered by the royal commission’s report. As indicating the differences which exist in the taxation systems of various States, it is interesting to recall that New South Wales, alone of all the States, imposes no State land tax. All the other States, smaller in population and poorer in resources and taxable capacity than New South Wales, have State land taxes of varying, but generally, heavy incidence. New South Wales, which has more than one-third of the population of Australia, and considerably more than one-third of its wealth, particularly in the form of land value, is very fortunate in having no direct State land tax upon those enormous land values. The bringing of State income tax into line with the federal measure will, therefore, impose a heavier burden on the residents of the land-taxing States such as Western Australia, than on the residents of New South Wales, who have so far escaped the heavy direct taxation on land which is a feature of the budgets of all the other States, and of the Commonwealth.

Of course, when the Constitution was framed, it was never anticipated or intended that the Federal Government would enter the field of direct taxation of income. The power to tax income was included only in the closing stages of the Federal Convention, and it was then regarded as an emergency power which, it was said, would be used only in times of national emergency such as war. However, with the growth of the federal octopus we find that the Federal Government has duplicated almost every avenue of taxation which the fathers of federation intended should be reserved to the States, and there seems to be little hope that it will retire from any field of taxation which it has once invaded. Thus, we have duplicated State and Federal income taxes, State and Federal land tax, and State and Federal probate duty. In every case the State and Federal governments each insist upon bleeding the unfortunate taxpayer alike in life and in death. A few years ago, Mr. S. M. Bruce, when he was Prime Minister, in a notable speech delivered at Perth, stressed the need for encouraging enterprise and employment in Australia, and, in order to do this, he said that it was necessary for the Federal Government to withdraw from the field of income taxation, leaving it entirely to the States. He stressed the undesirability of one government collecting revenue for another government to spend. To-day there seems little prospect of Mr. Bruce’s desire being carried into effect. The Commonwealth Government has not yet been able to abolish even the super tax on certain incomes imposed by the Scullin Government during the darkest days of the depression. It is well to remember that any increase of the weight of taxation under this measure may apply not only to ordinary federal income tax, but also to the super taxes on property incomes for the retention of which provision is made in this measure. I trust that that provision does not mean that the super tax on property incomes is to be extended beyond the end of this financial year. In view of the fact that the Government anticipates having a surplus of over £4,000,000 at the end of ‘this financial year it should dispense with the provision for continuing this super tax on income from property. However, many of the main recommendations of the Royal -Commission on Taxation have been put into effect, and some provisions of the bill which are of advantage to the taxpayer may be summarized as follows: -

  1. Alimony is not to be taxable income in the hands of the person receiving same.
  2. Losses incurred in earning income have been slightly widened.
  3. Expenses of borrowing are to be allowed over a period of five years, expenses of preparing a lease to be a deduction.
  4. Losses by embezzlement or larceny are to be allowed.
  5. Subscription to associations i3 allowed to a limited extent.
  6. Allowance for wife of taxpayer of £50 is now provided where wife is dependent.
  7. Medical expenses. - Under the present act a taxpayer with an income of £900 is not entitled to any deduction. The bill proposes a maximum allowance of £50, irrespective of income.

When the bill is in committee the Minister might consider the desirability of allowing exemptions in respect of dental expenses and increase the amount of the allowance to enable that to be done. Other benefits are -

  1. Funeral expenses. - The bill provides for an allowance up to £20, irrespective of income,
  2. Life insurance. - Deduction for premiums has been increased from £50 to £100.
  3. Time for objections and appeals. - This has been extended to 60 days.

In committee I propose to suggest that the Commissioner should, where he thinks fit, have power to extend the period beyond 60 days to meet the convenience of taxpayers who may be absent from Australia or who can satisfy the Commissioner that an extension is justified.

On the other hand there are a number of disadvantages which seem to be mainly directed against the primary producers. It is remarkable, and I regret it exceedingly, that this Government in which the Federal Country party is so strongly represented should be amending the taxation laws in directions which are entirely opposed to the interests of those engaged in our primary industries. Amendments to the detriment of those engaged in the agricultural and pastoral industries are as follows: -

  1. The sale of breeding stock on the realization of a business is now deemed to be taxable income.
  2. A purchaser is not entitled when buying sheep in the wool to treat the wool on the sheep’s back as a deduction from the subsequent proceeds of the wool.
  3. The proceeds of wool sold abroad is taxable in Australian currency.
Senator Dein:

– That is fair enough.

Senator E B JOHNSTON:

– The Privy Council is now determining whether that can or cannot be done under the existing act. They continue -

  1. Employees on grazing properties are now to be taxed upon the value of their quarters.

I do not think that the fears of the Leader of the Opposition (Senator Collings) to the effect that the employers will derive any advantage under this provision will be realized.

Senator Collings:

– I never knew an employer to miss an opportunity.

Senator E B JOHNSTON:

– Certain employees on stations and farms are to be taxed on the value of the premises they occupy, but that does not mean that the employers will alter their arrangements. In an overwhelming majority of cases employers have not collected money in this respect and will not do so in the future. The disadvantages continue -

  1. Graziers are not permitted to omit natural increase until sold or otherwise disposed of, and must bring into account each year’s natural increase.
  2. A grazier cannot have a new notice of election changing from cost price to market price, but he has a new election only in regard to the value of natural increase.
  3. The minimum values for natural increase to be included as income are to be raised as follows : -

Lambs, 2s. 6d. to 4s.; calves, 10s. to 20s. ; foals, 15s. to 20s.

  1. Growing crops, on the disposal of a business are to be deemed taxable income.
  2. On the death of a taxpayer, taxable income which may result as the devolution by death, is deemed a sale of trading assets.
  3. Losses carried forward. - It is proposed to reduce the number of years from four to three, for which iosses may be carried forward.
  4. Averaging provision. - This will only be applied in the future to primary producers.

Throughout five years of depression the averaging sections of the Income Tax Act have applied to all taxpayers, and during four of those years taxpayers have been paying an increased rate of tax on high incomes received prior to the depression. We have not yet recovered from the depression, but provision is made in this measure that, after 1938, only primary producers shall receive the benefit of the averaging provisions. “When the measure is in committee I propose to move to extend the period from which averaging of ordinary incomes will cease, from 1938 to 1940.

Senator Arkins:

– The farmers and graziers will enjoy the benefit of the averaging system.

Senator E B JOHNSTON:

– Yes.

Senator Arkins:

– Would it not he fair to say that, under this measure, primary producers are receiving greater consideration than other taxpayers?

Senator E B JOHNSTON:

– I do not agree with the honorable senator. Another disadvantage is -

  1. Board of Review. - It is proposed to discontinue the present Board of Review and set up a single judge.
Senator Duncan-Hughes:

– That is not provided for in the bill.

Senator E B JOHNSTON:

– No ; but the Postmaster-General has informed the Senate that it is the intention of the Government to make that alteration within one year. Although the law provides that the Taxation Board of Review shall be appointed for a period, not exceeding seven years, the term of office of its members expires in June next, and it is proposed, to appoint these gentlemen, who are holding responsible positions, foi- only a year.

Senator Duncan-Hughes:

– The Commonwealth Grants Commission has had its term similarly extended, and it seems to be able to function very well.

Senator E B JOHNSTON:

– We cannot compare the work of the Commonwealth Grants Commission to that of the Federal Taxation Board of Review. Although the members of that board do not occupy judicial positions, they should, as provided in the existing law, be reappointed at once for a term of seven years.

When the bill is in committee, I propose to ask honorable senators to oppose amendments designed in their cumulative effect to increase the incidence of taxation upon primary producers. I emphatically protest against the announcement made by the Treasurer (Mr. Casey) in the House of Representatives, that the Government proposes to abolish the Board of

Review and replace it by a single judge. This is a retrograde step; and one which has caused indignation and alarm amongst the general body of Australian taxpayers. It is the most stupid taxation proposal made by the Government, and is one which, I hope, will not be agreed to by the Senate. It is a proposal that strikes a blow at rights which the taxpayers have enjoyed for the last fourteen years. The Taxpayers’ Association, and many other leading organizations, representing the majority of taxpayers, are vigorously opposed to it. The Board of Review was established in 1922 for the express purpose of enabling taxpayers to appeal from any decision of -the Commissioner with a minimum of expense and delay. That purpose has been adequately fulfilled, and, from its non-judicial character, it has proved to be the most satisfactory tribunal to which small taxpayers in particular can appeal. With its trained personnel it is generally regarded as being vastly superior to an ordinary court for the determination of cases depending on an interpretation of business facts.

The proposals of the Ministry in this regard have evidently been based upon the recommendation of the recent Royal Commission on Taxation. This matter was dealt with in the .commission’s third report at pages 154 to 157, but it is submitted by the Taxpayers’ Associations of Australia that the final recommendation was made without a true grasp of the actual facts. Certain inaccuracies as to the number of appeals, &c, were apparent in the report, and these were corrected some months later in a subsequent report. Little, if any, evidence was submitted to the commission in regard to the Board of Review, for the reason that it was presumed that the board, which had given such general satisfaction for a number of years, would naturally be retained. That the board is welcomed by taxpayers is indicated by the fact that the number of appeals to it is five times as great as the number of federal appeals taken to the Supreme Court and to the High Court.

The Board of Review was established under the federal act of 1922, for the express purpose of providing taxpayers with the means of having any decision of the Commissioner of Taxation reviewed by an expert tribunal with the minimum of expense and delay, and without the necessity for embarking upon costly legal proceedings. This procedure was recommended by the first Royal Commission on Taxation, and was based on the English system, where taxpayers appeal first to a board of special commissioners. Under the English system the right of appeal from decisions of the special commissioners to a higher court is limited to questions of law only. In dealing with the question of appeals, the first royal commission said: -

There was perhaps no single subject upon which such unanimity of opinion was manifested by witnesses as upon the necessity for the appointment of a tribunal other than n court to deal with the numerous cases under the income tax act in which taxpayers dissent from the decisions of the Commissioner, but for various reasons, are unable or unwilling to assert what they believe to be their rights, in a superior court.

The expense, delay, and risk of proceedings in the superior courts arc said to deter taxpayers particularly where the amount involved is not large, from seeking a judicial determination of points at issue between themselves and the Taxation Department, and some witnesses considered that there were occasions on which departmental officers had taken advantage of this reluctance.

It is contended also that in many cases, no point nf law arises, but the issue is one depending upon differing views as to facts. All witnesses were agreed that, where a question of law is involved, an appeal should lie from the suggested board of appeal to the High Court or a Supreme Court.

As the outcome of the commission’s recommendation the present board was constituted in 1922, .and has functioned successfully and with general satisfaction since that date.

I wish to refer to some of the advantages of the board.

Disputes between taxpayers and the Commissioner of Taxation are inevitable under any form of taxation, and particularly under such a necessarily complex measure as an income assessment tax act. What income is assessable? What deductions should be allowed? These are questions upon which genuine differences of opinion will inevitably rise. The taxpayer is, however, more than frequently in no position to incur the prospect of heavy legal expenses in having his point of view contested. The Board of Review, however, provides a simple, cheap and efficient remedy. The board deals expeditiously with appeals in a businessslike and practical manner. Its simple procedure offers an attractive contrast to the formalities of a court of law. Taxpayers appear before the board in person, or may be represented by agents or accountants. In important cases they are frequently represented by leading counsel. The board’s proceedings are usually conducted in camera, so that publicity may be avoided. Any taxpayer may, however, have a public hearing, if he so desires.

The board is a highly competent tribunal. The present personnel comprises a taxation expert, a leading accountant, and a barrister and solicitor. It is claimed that an experienced board of this nature is preferable to a conventional court for the determination of the majority of taxation appeals that arise. The members of the board have a wide knowledge of business matters, and are possessed of an all-round commercial experience. The value of the board is more obvious when it is realized that the great bulk of taxation appeals relate to disputed matters of fact,’ and not of law. Experience has shown that a tribunal of this nature is more suitable for the majority of such appeals than is a. single judge. Probably there could not be a better summary of the value of the Board of Review than the words of the Privy Council : -

If you want to have the assessment reviewed judicially, go to the court; if you want to have it reviewed by business men, go to the board.

This statement appeared in a Privy Council judgment, delivered in 1930, in which it was held that this Parliament had full power to establish the board as a non-judicial tribunal. Previously, when the same case was before the High Court, Mr. Justice Isaacs said that the Board of Review afforded : -

A practical means of reconsidering business matters without the intricacies, delay, and expense of legal proceedings.

An outstanding advantage of the Board of Review is its influence in minimizing legal costs. The greatest advantage of the Board to the smaller taxpayer in particular lies in the fact that costs of contesting any decision of the Commissioner of Taxation are kept down to a minimum. Without the existence of the board, it is obvious that many taxpayers would not contemplate an appeal from the dictum of the Commissioner. An unfortunate characteristic of any court of law is that high legal costs seem to be inevitable. Departmental officials -are prone to take advantage of this point, and to rely upon the taxpayers’ natural reluctance to invoke the tortuous and costly process of appealing to tile’ courts. For this reason the federal hoard has, perhaps, proved to bc of considerable embarrassment to taxation officials. But this fact demonstrates the main virtue of the board in the eyes of the taxpayer - he has, in all cases, the right of appealing to the board for redress. He can, if he so desires, appear in person, and incur no expense whatever. This fact, alone, ensures that (.-very objection lodged by a taxpayer receives the consideration it deserves at the hands of the department. Our experience in taxation matters in Australia during the last fourteen years has shown that the board is preferred to the tribunal proposed by the Government.

The second royal commission has recommended that the judge of the proposed new taxation court should finally decide all matters of fact, and all matters of discretion. These powers are too wide to be exercised by any one man. Taxation appeals are mostly concerned with disputes as to facts, and the application of the act to them. A perusal of any volume of taxation decisions will confirm this statement, and will show that in many instances an examination of more or less complicated accounts is required. Consequently the deciding authority should possess a sound knowledge of business methods and principles. That is why it is essential to preserve the choice so admirably summarized by the Privy Council : “ If you want to have the assessment reviewed judicially, go to the court; if you want to have it reviewed by business men, go to the board.”

The great majority of taxpayers will not take their grievances to a court. They will not face “ the intricacies, delay, and expense of legal proceedings.” This has been proved up to the hilt, and is the main objection to depriving the public of their present right to determine whether they will appeal to a court, or to an expert and businesslike tribunal’.

In 1925 the original Board of Appeal was re-constituted in its present form as a Board of Review. A suggestion that a judicial body might be preferable was strongly opposed by the then Federal Treasurer (Dr. Earle Page) and by the then Leader of the Opposition (Mr. Scullin), and Parliament, for the second time, emphatically decided that a tribunal of taxation and business experts was much to be preferred to anything in the nature of a court. I refer honorable senators to Hansard of the 18th September, 1925, at page 252S. It is extraordinary that the Minister in charge of the bill should suggest abolishing the board at the very time when some of the States are actually adopting the federal principle of a Board of Review.

The Income Tax Assessment Bill introduced in New South Wales provides for the establishment of a tribunal similar to the present federal board. The Governments of Victoria and South Australia are also reported to be considering the appointment of similar “ nonjudicial5’ tribunals. Surely the adoption by the States of this principle gives added weight to the necessity for the retention of the federal board.

The principle of having one court of final appeal for purposes of both Federal and State cases has considerable merit, and is welcomed by the taxpayers and the taxpayers’ associations throughout, the Commonwealth. ‘ But why the establishment of this court should necessitate the scrapping of the Board of Review cannot be seen. The removal of the board would strike a severe blow at the rights of taxpayers, and would lead to a reversion to the state of affairs which obtained in the federal sphere prior to 1922, and aroused the greatest dissatisfaction amongst taxpayers generally. If the Commonwealth Government and the governments of several of the States favour the idea of a special court, then let there be such a tribunal to hear appeals from the Board of Review. This would bring the present system into line with the English practice, and would certainly be more acceptable to taxpayers.

The case for the retention of the Board of Review may be summarized as, follows : -

  1. The board was established on the recommendation of the first Royal

Commission on Taxation, and in the light of overwhelming evidence.

  1. The board has for fourteen years given general satisfaction, and is welcomed by taxpayers; it has enabled taxpayers to appeal against any decision of the Commissioner with the minimum of expense and delay; it has enabled taxpayers to avoid the high legal costs of court proceedings.
  2. With its trained personnel, itis better fitted than a court to deal with questions of business or commercial facts upon which most taxation litigation devolves.
  3. The principle of a non-judicial tribunal to review decisions of the Commissioner is in accordance with the practice in Great Britain, a practice that has stood the test of time.
  4. Outside of tax administrators, there has been no demand for the abolition of the board; on the other hand, all sections of taxpayers are insistent that the board shall remain.

I hope that the Government will reconsider the announcement by the Minister that it intends to retain the services of the board for a further period of one year only. It is wrong to deny proper security of office to officers doing important work of the nature of that performed by the Board of Review; they should be re-appointed for the full seven years. The bill deals with other interesting and important matters, to which I shall refer when the measure.reaches the committee stage.

Senator BROWN:
Queensland

– Under this measure, itis proposed to take a step in the right direction, even if it is only a small step. Thousands of persons in the community pay very little income tax, and thousands of the supporters of the Labour party have no taxable income, yet the Opposition appreciates any action taken to simplify our taxation laws, and to eliminate the irritating features of the act which the taxation authorities are called upon to administer. Although we constitute the Opposition, we realize that on occasions the Government can take a step in the right direction. When they come to deal with their income tax returns, many of my friends get into a Serbonian bog. With the Minister, I hope that the day will come when we shall have a uniform income tax return for both Federal and State authorites. Why should it not be possible to arrange for one collection and then divide the total amount collected between the Federal and State governments according to their needs? Some States, of course, might want more than others. There seem to be conflicting interests at work. Some States cannot come into line with the Federal Government, and sometimes the Federal authorities cannot accept the States’ ideas. These difficulties, however, are not insuperable, but they emphasize what my leader, Senator Collings, has claimed - the need for unity which will ultimately lead to unification. Senator Johnston described this ideal as the dream of visionaries, whilst Senator Arkins referred to it unfavorably in many ways, but I believe that eventually uniformity will be achieved in income tax matters. It will certainly be welcomed by the Labour movement. It may take many years to accomplish, but we are now steadily moving in that direction. Every one directly interested in legislation realizes that this need is paramount.

Unfortunately, many people who support the Labour party have no income on which taxes can be levied. If a government believes in taxation as a means of obtaining revenue, I should imagine that one of its first aims would be to see that the people as a whole have something to tax, but to-day thousands of our fellow citizens are, so to speak, left on the shelf financially, being dependent solely on wages for relief work, which are not taxed.

Since 1930-31, State income taxation has increased by £600,000. In the same period, Commonwealth income taxation has increased to £8,300,000, the detailed figures in respect of the latter collections being as follows : -

These figures are particularly interesting to members of this Opposition, because we feel that, in the remission of taxation by this Government, the richer people have been more than favorably treated. This conclusion must be drawn from these figures, because, whilst they show a diminution in income tax collections, they reveal an increase of collections from indirect taxation, which is generally paid by the workers. Some peoplecontend that it is the rich people who pay the bulk of the taxes. Dealing with this matter, the Sydney Sun, under date the 18th May, 1936, says in a leading article, in which it attacked the leader of the Labour party (Mr. Curtin) -

Dues any working nian or woman believe that the sales tax, or the wages tax, or, for thu matter of that, the income tax, increases his spending power? liven the taxation of the richer people curtails the general wage-fund. It may result in thu employment of a few more public servants, but these produce nothing, while those employed in industry outside do. … It is tho pom- who are the real taxpayers, and they pay in less food and less chances of employment, lt is safe to say that if the governments of Australia - which take to-day nearly £200,000,000 a year out of the public wages fund of £450,000,000 - were to cut down their taxation by £50,000,000, there would not be an unemployed man or woman in Australia (except for a few unemployables ) . and there would be increases of wages and higher spending power all round.

This is the sort of criticism we read in such papers a3 the Sydney Sun, which took the leader of the Labour party to task because ho expressed the opinion that the time was not opportune to consider any diminution of taxation of those who could well afford to bear it, because we were not yet right out of, the depression. We know that no matter how we may juggle with taxation methods, the work of the community is done by the workers generally. This fact remains, no matter under what monetary system a community may operate, whether it be the Douglas credit system or any other-

Senator DUNCAN-HUGHES:
SOUTH AUSTRALIA · UAP

-hughes. - Does the honorable senator mean the manual workers ?

Senator BROWN:

– No ; I mean all those who contribute useful service which enables the community to carry on. From that point of view, the workers pay taxa tion. There can be no doubt about that, because if we are compelled to have a number of non-productive workers, these naturally have to be fed, clothed and housed, and they are fed, clothed and housed by the people engaged in producing food, clothing or housing. I admit that, by a process of juggling with methods of taxation, it is possible temporarily to inflict a financial injury on the workers, because for a time the workers as a whole must bear the burden of any additional taxation However, I admit also that eventually through our arbitration system, under which our industrial courts base their judgments on the cost of living, this burden may be lightened. Such statements as that which I quoted from the Sydney Sun seem to me to be absurd. This paper estimated the public wages fund at £450,000,000 per annum. Actually it represents the total income of the community, so that in that respect it has made a mistake. Its claim that if taxation were reduced to the extent of £50,000,000 per annum the community would be enabled to employ every ablebodied man is absurd ; because under the present economic system it is impossible for private enterprise to find work for all our people, and it has become necessary for governments to impose taxes for the purpose of undertaking public works with the idea of providing work for the unemployed, whilst at the same time, developing the country. Whether the revenue of the Government is derived through income tax or any other form of tax, if it is used in such a way as to add to the productive capacity of the country it not only enables employment to be increased, but also makes possible an improvement of the standard of living in the community. The idea propounded by the Sydney Sun that under the present economic system a diminution of taxation by £50,000,000 per annum would automatically increase employment is an obsession which cannot be supported by reasonable argument. It does not follow that the people relieved of the payment of taxes will use the money remitted in providing employment. If, for instance, the taxation of the Commonwealth were reduced by £50,000,000 per annum - and I suggest that the bulk of the remission would benefit the rich - and the people so relieved used this extra money in travelling abroad, a reduction of taxation would not automatically mean an increase of employment here.

I am not suggesting that the Labour party stands for taxation merely as taxation or that it .suggests that increased taxation will solve our economic problems, l t says nothing of the kind. It takes cognizance of all the economic relationships in modern society and says emphatically that a wise government can use its revenue from taxation for the purpose of improving the general economic position of the country by providing work and wages for all of its people. Supporters of the Douglas Social Credit System contend that taxation can be done away with altogether. They argue that all the finance necessary for the continuation of the necessary functions of the State can be produced under a uniform financial system of social credit. By that means they claim that the taxation of both rich and poor can be eliminated. The Single Tax League believes in a uniform tax, namely, a tax on the unimproved value of land. The single-taxers have been promulgating their ideas for many decades, but do not seem to have made any headway. Recently in the Sydney Domain, I heard one of their spokesmen, Mr. Huie, still preaching the same old story which T heard him preach in the same spot 20 years ago. I understand that adherents of this school of thought are subsidized from a fund bequeathed for the purpose of advocating this particular idea.

Senator Arkins:

– I understand that they are financed from the Fell endowment.

Senator BROWN:

– Whether the supporters of this school are actuated purely by the ideal they preach, I do not know; however, they are still advocating the same old theory their predecessors propounded many years ago.

I am pleased that the Government is taking steps to overcome duplication in respect of income taxation. We would like to see such duplication abolished altogether. Perhaps all of us would like to see all forms of taxation abolished. That would be indeed a lofty ideal, although I suppose that Senator Johnston would describe it as very visionary.

Senator E B Johnston:

– Income taxation should be reserved to the States.

Senator BROWN:

– There is something in the honorable senator’s suggestion, but the present Government would describe it as visionary. Once a government lays its hands on any form of taxation it is unwilling to loosen its hold. A tax may be imposed in special circumstances such as those which existed when the sales tax legislation was enacted, but as the years pass various excuses are offered for its continuance. Some day, however, when the Labour party is in power it will no longer be imposed.

Senator Arkins:

– The Labour party imposed it.

Senator BROWN:

– Yes, in a time of financial crisis. Even Mr. S. M. Bruce said that in the circumstances no other action was possible. Only recently the Leader of the Senate (Senator Pearce) said that if something were not done to correct Australia’s adverse trade balance, similar steps to those taken by the Scullin Government might have to be taken The introduction of a measure of this kind reveals the way in which various interests seek to transfer the burden of taxation from themselves to other sections of the community. The primary producer complains that he is unfairly taxed; the brewer says that his product is overtaxed, traders complain of heavy restrictions on their trading activities; landlords complain of the heavy taxes on property. Representatives of the various interests bring pressure to bear, in an endeavour to unload their burden and place it on others. The Labour party recognizes the need for lightening the burden of taxation oh the poorest sections of the community. It is not so greatly concerned with those who can afford to paytaxes. I believe that there will come a time when taxation, as we know it, will no longer be imposed, and that some other means of obtaining revenue to meet governmental expenses will be found. But whilst- taxation in its present form remains, the Labour party stands for making its incidence such that the burden will fall most lightly upon those least able to bear it and most heavily upon those with large incomes.

Sena.tor Herbert Hays. - The honorable senator should sit with us.

Senator BROWN:

– I do not think so. The honorable senator supports a party that believes in increasing indirect taxation, which bears most heavily on the wage-earners, whereas the Labour party would lighten their burden, even if by so doing those with larger incomes would have’ to pay more.

Senator Arkins:

– Does the honorable senator support the Lang faction or the Garden party?

Senator BROWN:

– The Senate is not now dealing -with that little interlude in the great march of the Labour movement towards its ‘ goal. Similar happenings take place in all political parties; there is jealousy, bitterness and struggle going on all the time.

Senator Arkins:

– The honorable senator said that he believed in direct taxation.

Senator BROWN:

– So long as the present system of taxation remains the Labour party will favour direct taxation in preference to indirect taxation. It believes that those who derive the greatest incomes from the community should pay most towards the maintenance of the community.

Senator Arkins:

– Is not that the case now?

Senator BROWN:

– Those persons in the community who are not producers, and are not helping to develop the country, should bear the greatest part of the burden of taxation. That is not so today. The Leader of the Senate has told us that, to a great extent, Government bonds are free of income tax. Governments must have money, and, accordingly, they have encouraged investors to lend it to them by making the conditions as attractive as possible. Theoretically, a man who exercises initiative, either in primary or secondary production, and uses his money for the betterment of the community, should have greater consideration than a man who does nothing for the community, but merely lives on the interest derived from his investments.

Senator Herbert Hays:

– The honorable senator supports high customs duties, which are a form of indirect taxation.

Senator BROWN:

– The present Government has so altered the incidence of taxation that those least able to pay have to bear the heaviest burden. The Labour party will support any step towards the elimination of unnecessarily obscure and involved methods of taxation ‘ which harass the community. Some day a better system will be in operation, but so long as the existing system remains, the Labour party will favour the simplification and unification of our taxation laws.

Senator DUNCAN-HUGHES:
In this chamber, and elsewhere, I have so often complained of the difficulty of interpreting our taxation laws, that it is with particular pleasure that I welcome the steps which have been taken to overcome the worst of those difficulties. Whatever may be said of the details of this measure, and however we may disagree with some of the Government’s proposals, the introduction of this bill is an event on which not only the community at large, but also those who have played a leading part in bringing about this most desirable consolidation of our income-tax laws, are to be congratulated. I am not clear whether the initial step which has led to this consolidation was taken by the present Treasurer (Mr. Casey · South Australia [12.41].

or by a former Minister, Sena.tor Massy-greene.

Senator A. J. MoLaohlan. - I think that Senator Massy-Greene was the person originally responsible, but the present Treasurer has been just as enthusiastic.

Senator DUNCAN-HUGHES:

– I congratulate the Treasurer and the departmental officials, as well as the members of the Royal Commission on Taxation, whose exhaustive report forms the nucleus of this bill. I also include in my congratulations those private individuals whose special knowledge of taxation was made available to those engaged in the preparation of this measure. In the nature of things, the extremely intricate and detailed work which they performed, they cannot expect, and will never receive, special thanks or recognition. The work has been completed with extraordinary rapidity, having regard to the long period occupied by an English commission on a similar undertaking. That body has been sitting for nine years, and has not yet completed its labours. I do not suppose that I arn regarded as one given to offering compliments too freely, but I think that all those who contributed to the consummation of the desires of so many taxpayers, are alike to be congratulated.

Sitting suspended from to 2.15 p.m.

Senator DUNCAN-HUGHES:

– The first point I want to emphasize is that the bill represents in fact a consolidation, and although it contains a certain number of variations, it does not open up anew every section of our income taxation. The bill, in the main, follows the lines of previous acts. I think that the subdivision of the bill into many more clauses than were contained in earlier bills of this sort is an improvement, and reference is thereby made much easier. On this point I made an interjection yesterday regarding the memorandum which was prepared for the guidance of honorable senators, showing opposite the various clauses in this bill the relevant sections of the existing act. I can appreciate the difficulty of having this explanatory memorandum reprinted following the passage of the bill through the House of Representatives, where certain amendments were made; but I suggest to the Government that it might be worth while to reprint it with all the amendments as finally passed by the Parliament. If this be done it will be of great assistance, not only to taxation experts, but also to the ordinary man in the street. Legal practitioners and taxation experts generally are familiar with the sections of the present act, and if my suggestion were given effect to, they would he able to pee at, a glance which are the corresponding provisions of the new measure. Uniformity of principle has been achieved in the taxation measures to be passed by the various States, though, of course, not in respect of details which depend to some extent on the financial needs of present and future State Governments. I do not want to raise bogeys, but there is a doubt in my mind as to how far it will be possible to get the various governments, Commonwealth and State, to stand by the uniformity which at last has been achieved. I think it will be rather deplorable if, a few years hence, every government in Australia passes amendments altering principles in their legislation; that will mean that we shall again have something like seven different acts in force instead of, substantially, one.

The bill as it stands is more explicit and simpler than the existing law. We, who have so often asked for all the simplicity possible .in taxation measures, welcome its introduction. Indeed, I would go even further and say that the bill achieves an objective which might with advantage be extended to other forms of legislation, such as, for instance, the tariff. During the discussion of the tariff schedule last night, I had occasion to point out that certain provisions were more complicated and difficult for the man in the street to understand than are those contained in the schedule which preceded it. It seems to me unfortunate and not altogether logical that at a time when we are doing our best to simplify taxation measures, the tariff schedule is moving in the opposite direction of obscurity and difficulty of comprehension. A great deal of the tariff is almost unintelligible to the men most concerned with it, and it is with them we are most concerned, as we are concerned in this bill with those who pay income tax. This bill was considerably improved in detail during its passage through the House of Representatives, though I would not suggest that there is no room for further amendment of it. Indeed, I have several amendments which I propose to move in committee. At this stage I shall mention only one, which relates to the rather vexed matter of appeal by the taxpayer against assessments. As the bill now stands the taxpayer is required in the first instance to lodge notice of objection to the assessment. I do not altogether agree with Senator Johnston that this bill represents a tightening up of the provisions against the taxpayer; I do not think that is a fair statement to make when it is considered that this bill has been before a great number of experts, not only governmental, but also private practitioners who have looked at it from the taxpayer’s point of view. I do not wish to impute that the Government is trying to tighten up this bill unduly and take advantage of the opportunity to slip in clauses which might be detrimental to the taxpayers. As a distinguished friend of mine, who certainly had a knowledge of taxation matters from both sides, used to say, “ In matters of taxation the Commissioner and the taxpayer are at arm’s length.”

Senator Payne:

– At daggers drawn !

Senator DUNCAN-HUGHES:
SOUTH AUSTRALIA · UAP

– HUGHES. - Occasionally that is so. There is naturally a tendency, which has been noticeable and has been illustrated by certain obiter dicta from the High Court Bench, for the Commissioner to demand, at any rate, his pound of flesh. On the other hand, on the part of many taxpayers there has no doubt been a desire to pay nothing at all. It is for us to see that the scales of justice are balanced evenly between the two. In doing so I think it is right that Ave should remember that the Commissioner ‘and his staff are in the first place highly expert men who have devoted their lives to their occupation, and that they have the assistance of expert legal officers to whom they can refer at any moment. The ordinary taxpayer, particularly the country tax: payer, is not in that happy position. The country taxpayer is often ignorant, as I am certain all honorable senators are aware, of even the rudiments of bookkeeping. In taxation matters he is placed, technically, in the position of defendant. Wo should see that he is given every reasonable opportunity to present his case in the very best light. I feel that the provisions relating to notice of objection have in this respect at any rate, tended to tighten up the law against the taxpayers. I propose to move, at a later stage, an amendment designed to ensure that to some extent the provisions of the law shall be extended so that when a breach of the law comes up for adjudication the taxpayer’s case shall be the best which he can put forward - not perhaps the case which he made out when he was unaware that he had some alternative or additional ground to plead that was not set out in the -first instance.

I do not agree with Senator Johnston that it i3 necessary that at the present time we should discuss the respective merits of a single appellate tribunal for the Commonwealth and “States, and a board of review. This is a matter of which there is a great deal to be said on both sides. The Treasurer stated that if it is possible to arrive at a joint agreement on this matter with the -various State governments, the suggestion will then be laid before Parliament in the form of a complementary bill. A discussion of the respective merits of these two tribunals appears to me to be outside the ambit of the bill now under consideration. I shall hold my hand on this general question. Just as there is a great deal to be said for uniformity of taxation measures, so also there is a great deal to be said for uniformity of judicial rulings, instead of a continuation of the conflicting rulings which may at present be made by different boards in different States at different times. I am certainly prepared to consider the desirability of a single tribunal if eventually some arrangement is arrived at between the Commonwealth and the States, and the Government brings in a bill to give effect to it. I do not propose to delay the second reading of this .bill, which is essentially one for consideration in committee, but there are two or three points of a general nature which arose from the discussion this morning to which I should like to address myself before I sit down.

Senator Collings remarked that taxation should be placed upon the shoulders of those best able to bear it. I think that that is already done in Australia. I do not know what the exact percentage is at the present time, but some years ago I remember I was astonished to find that a relatively small percentage of the people in Australia paid direct federal taxation.

Senator Payne:

– Less than 10 per cent, of the people of Australia pay more than 80 per cent, of the total taxes collected.

Senator DUNCAN-HUGHES:

– I thought the case was even stronger than that; certainly with an exemption of £250 no one can suggest that the taxation is being forced on to the shoulders of those who are unable to sustain it. A number of further concessions which have been made in recent years in connexion with our income tax legislation have been wholly to the advantage of the smaller man. It cannot be fairly claimed that under the present Australian system of levying taxes heavy burdens are imposed upon those not in a position to pay. But apart from the direct taxation, there is also indirect, taxation.’ I direct the- attention of the Leader of the Opposition to the fact that indirect taxation, although it may come back eventually to one or two special sections of the community, is distributed over everybody. Every person pays it. The Labour party, more than any other party, except perhaps that led by Senator Leckie, advocates the continuation of very high tariffs, the indirect taxation of which affect everybody. The low-tariffists are not responsible for the volume of indirect taxation. I do not believe in high tariffs, although I am fully aware that, if I were to adopt the attitude which some members of the Labour party would accuse me of adopting, I should seize on high tariffs for the purpose of taking away from the taxpayer a large amount of his burden, and spreading it generally over the whole of the community. I do not believe that that is sound’ finance, and for that reason I am opposed to it. The Leader of the Opposition has stated that surpluses are wrong in principle; but all Treasurers in good years are liable to have surpluses if they have budgeted prudently. Does the honorable senator suggest that any surplus which may happen to fall to a Treasurer at the end of a year is to be distributed regardless of the dictates of economy or anything else; that it should be regarded as a gift of the gods, and expended? Is it not the duty of the Government to act like any prudent man who, finding that he had obtained an unexpected windfall, employs it for the purpose of reducing his expenditure in the following year?

Senator Collings:

– No prudent man starves himself through a year in order to show a surplus at the end of that year. That is what governments do.

Senator DUNCAN-HUGHES:

– Unfortunately, in every community there are” a few men who starve themselves throughout their lives in order to obtain a surplus. Everybody is aware that there are misers, although they do not exist in considerable numbers in Australia, probably because they have little opportunity to put away large profits into a box underneath their beds.

Senator Foll:

– I have not noticed that any Treasurers are misers.

Senator DUNCAN-HUGHES:

– Some are more level-headed than others.

Senator Brown, when referring generally to money and taxation, stated that the worker contributes the bulk of the revenue derived from taxes. . To a great extent he does; but one has to define “ worker I have never been convinced that the man who works with his head finds it any less laborious than the man who earns his living with his hands. Certainly, the strain upon the brain worker is much greater, and he is more liable to a breakdown than is the manual labourer. In fairness to Senator Brown, I should state that he was not thinking only of the manual worker ; but he singled out one type, and said, “ These are the people who are the only necessary and important elements in the community.” From that statement I dissent. Throughout my . political life I have maintained that capital is just as necessary to the worker as the worker is to capital.

Senator Collings:

– The capitalist is not, though !

Senator DUNCAN-HUGHES:

– If there be capital, there must also be the capitalist, whether a socialized community, or a series of private individuals. Where I differ from the Leader of the Opposition, who, I think, would substantially agree that capital is necessary, is in my contention that the individual capitalist will make more out of the use of his money, will waste less of it, and will therefore be able to provide more employment, and give to the public as a whole that incentive of personal initiative, without which no community will prosper.

When speaking to my electors in 1931, when economic conditions in Australia were extremely bad, I was talking in this strain when a member of the audience interjected, “ The worker is the only man who produces wealth ! “ I replied, “ Well, why does he not produce it now? This is the time when the country is crying out for wealth to be produced. But the worker is helpless, because capital is not forthcoming.” That is my answer to that contention.

I do not feel that this bill demands anything approaching the general survey of the taxation acts, which was given by the Minister in charge of the bill (“Senator A. J. McLachlan), and by the Treasurer (Mr. Casey), in the House of

Representatives. Except on minor points, this bill will not even require much amendment. But I have mentioned a few general points, because it seems to me that they affect some of the really essential matters with which this bill is designed to deal.

Senator LECKIE:
Victoria

.- The object of this bill, which is long overdue, is to consolidate and simplify the taxation acts; consequently, to every business man it will be very welcome. Some of the clauses are not exactly consolidating in purpose, because they embody some alterations which will require more investigation and explanation during the committee stage than has yet been given. “While this bill will be of great advantage to the Australian taxpayers by simplifying the various acts, it seems to perpetuate the present unfair distribution of the taxation areas between the Commonwealth and the States. Australia has drifted into a most peculiar state of affairs; the Commonwealth has almost the whole area of taxation, and the States have to take the leavings. Only this week honorable senators have been treated to the spectacle of the Treasurers of the several States meeting in Canberra to beg for financial assistance from the Commonwealth. That occurs repeatedly, and the Commonwealth is obliged to pay grants to them in order to enable them to carry on their essential services. I do not know what would have befallen some of the States if the Commonwealth had not granted nearly £2,000,000 to South Australia, rendered substantial assistance to Tasmania, Western Australia and Queensland, and even distributed various sums to Victoria and New South Wales. My object in speaking in this strain is to urge the Government to devise at once some method for putting on a permanent and sound basis, the financial relationships of the Commonwealth and the States. At the present time they arc most unsatisfactory to all parties concerned. I do not blame the States for directing attention to the big surplus of £4,000,000 which the Commonwealth expects this year, while declining to yield any of its avenues of taxation. Their area of taxation is so curtailed that they cannot carry on without large grants from the federal exchequer. This bill seems to me to perpetuate that disability. In reply the federal authorities say in effect : “ We are in the income tax field for good, and we shall not get out of it.” In the first place, income tax was introduced as a war measure, and for no other reason. The Commonwealth should be in a position to relinquish a certain field of taxation to the States.’

Senator Guthrie:

– It should have relinquished the land tax long ago.

Senator LECKIE:

– I do not think that there is much of the land tax left to relinquish to the States.

Senator Guthrie:

– About £1,000,000.

Senator LECKIE:

– Income tax seems to be one of the things that the Commonwealth should not touch, if it can recoup itself in some other direction for the loss of revenue. It should be prepared to say to the States: “The Commonwealth is voluntarily relinquishing the income tax to you ; but do not ask for further assistance.” I offer this suggestion, because I consider that within the next few years some effort will have to be made by the Commonwealth Government to simplify the financial relations between the Commonwealth and the States.

Senator Duncan-Hughes:

– We have wanted a federal convention for years.

Senator LECKIE:

– We are ‘ drifting along in the same old way year after year. The States are increasing their taxation, but they are getting poorer, and are depending more and more upon subsidies granted to them by the Commonwealth. This year the federal surplus will approach £4,000,000, which is equivalent to nearly half of the collections of federal income tax. The administration should be working towards the goal of relinquishing income tax or some other field of revenue to the States. In suggesting the income tax I am not dogmatic; I do not lay it down as my final opinion.

I commend the Government and those responsible for the consolidation and simplification of the law, but I also remind the Government that this is not the final stage. Before long it will have to grasp firmly the nettle of the financial relations of Commonwealth and States. The sooner it works along these lines, the sooner will the States be made happy. and the Commonwealth removed from that unenviable position of having almost to offer bribes or sops to obtain their goodwill and ease the relations between the several governments. I do not desire to dwell on this point; but for many years it has seemed to me that the Government which will tackle this problem firmly and quickly will be deserving of the gratitude of the whole of the community. In this regard the Federal and State taxpayers are exactly the same set of persons. The reference sometimes to the great burden imposed upon the State taxpayers by federal taxation is absurd. Federal and State taxpayers are the same people. No State can start along a path of improvement unless it knows that its financial position is secure, and that there are certain fields in which it can exercise its powers of taxation, untrammelled by the Commonwealth. Therefore, I hope that the Government will at an early date undertake the reform I have suggested.

Senator J V MACDONALD:
QUEENSLAND · ALP; FLP from 1932

– This bill has been spoken of as “ very largely a consolidating measure”, but it appears to me that a number of new provisions have been incorporated in it. For instance, clause 63 reads - (1.) Debts which are bad debts and are written off as such during the year of income, and -

  1. have been brought to account by the taxpayer as assessable income of any year; or (b)are in respect of money lent inthe ordinary course of the business of the lending of money by a taxpayer who carries on that business, and no other ‘bad debts, shall be allowable deductions.

That provision is new to me, and I should like some information regarding it.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– But it is very familiar to me.

Senator J V MACDONALD:
QUEENSLAND · ALP; FLP from 1932

– I direct attention also to the following observation in the introductory speech of the Minister in charge of the bill: -

Honorable senators will appreciate that, at present, there is a variety of concessional deductions under the Commonwealth and State acts. An attempt has been made to bring these into harmony, and in this connexion the Commonwealth’s contribution has been to concede a deduction of£50 to a married man in respect of his wife, or, wherethe taxpayer is a widower, in respect of a female relative having the care of children under sixteen years of age, provided that the wife or relative is a resident and is wholly maintained by the taxpayer. This concession, it is estimated, will cost the Commonwealth from £300,000 to £350,000 in revenue the next financial year, but it was regarded as a proper deduction to be made in the interests of the married section of the community, as well as in the interests of uniformity.

I am familiar with a deduction of that nature, but it may be that it appears in the Queensland law. I should like the Minister to indicate in his reply whether it is new in Commonwealth law.

Without doubt, a greater degree of uniformity is highly desirable, not only in our income tax legislation, but also in the laws relating to other subjects dealt with by our so-called federation. Numerous newtaxes have been introduced in recent years, and taxpayers are to-day faced with many involved considerations when they set out to prepare their returns. It should be possible to make provision on one large return for all the information a taxpayer is under obligation to supply. As this bill makes a useful contribution towards the achievement of uniformity, I shall support it.

Generally speaking, I am opposed to the taxation policy of this Government, for it bears with undue severity on the working classes. The Labour party believes in direct taxation. The ideal canon of taxation is that taxes shall fall most heavily upon the shoulders of those best able to bear it. That consideration should be borne closely in mind in the organization of our national finances. It seems to me, however, that the working people of Australia have not had a fair deal from this Government. Sales tax, for example, imposes severe hardship on the people on the lowest rung of the social ladder, whose capacity to pay is very limited. The general policy of this Government undoubtedly favours the richer classes of the people to the detriment of the workers and the producers.

Senator DEIN:
New South Wales

– I welcome this bill, because it is a step towards uniformity - a principle which should be encouraged to the fullest possible extent.. One of the most gratifying features of this bill is that it has developed from the findings of theRoyal

Commission on Taxation, which conducted its investigations a few years ago. It is not always that a government finds itself in a position to introduce legislation to give effect to the findings of royal commissions, which makes it all the more pleasing that in this particular case that happy result has been achieved. It may, in the circumstances, be justly claimed that, not only the appointment of but also the expense incurred by, the Royal Commission on Taxation has been justified. Of late years royal commissions have been 3et up with more or less monotonous frequency. They may be likened to a sink down which the public funds have been poured with remarkable liberality, while the unfortunate taxpayers have stood by in bewilderment. Happily, however, the Royal Commission on Taxation has amply justified itself.

A good deal has been said by the honorable senators of the Labour party regarding the distribution of taxation over the community. I have obtained some illuminating figures on this aspect of the subject which show quite clearly that income tax at least has been imposed in accordance with the general principle that taxes should fall most heavily on the shoulders of those who are best able to pay. In 1934-35 a total of 149,366 taxpayers with taxable incomes up to £200 paid £197,414 in taxes, or about £1 7s. a -head. It cannot be said that that is an unbearable impost. A total of 46,987 taxpayers with taxable incomes ranging from. £201 to £500 paid £374,427 in taxes, or 5.9 per cent, of the total income tax collected; 22,769 taxpayers with taxable incomes from £501 to £1,000 paid £656,925 in taxes, or 10.4 per cent, of the total amount collected ; and 13,245 taxpayers with taxable incomes exceeding £1,000 paid £3,079,697 in taxes, or 48.8 per cent, of the total amount collected. Those figures do not include company taxation. It will be seen from what I have said that the taxation of this country is distributed equitably over the whole community. We know, unfortunately, that the sales tax falls upon those in menial circumstances as well as those in a more affluent position, but it should be remembered that many commodities in common use are exempt from sales tax.

I hope that the list of exempt goods will be enlarged during the next financial year. I have made these remarks principally because the honorable senators of the Labour party devoted most of the time they occupied to the pointing out of alleged taxation injustices to the workers. No doubt they realize that their speeches will read well in Hansard, and will “ go down “ with people who do not know the facts of the case, and who are likely to believe the frequently-made contention that this is “ a rich man’s government “.

I shall support the bill because it implements, to a very large degree, the recommendations of the Royal Commission on Taxation. The measure has been well received by taxpayers generally, and the Government may be heartily congratulated upon having introduced it.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

. - in reply - I thank the Senate for the gratifying reception it has given this bill. I assure honorable senators again that no large fundamental principles of the existing law have been altered. The variations made have been inspired by a desire to achieve uniformity with the States. That remark has particular reference to certain observations of the Leader of the Opposition, and I implore him not to imagine that the Government has neglected to give full information to the members of both Houses of the Parliament respecting the nature of such variations. An explanatory memorandum appropriate to a measure of this size was prepared and made available to honorable senators and other interested parties on the 11th March last. It set out clearly the wording of the existing law, and, on the opposite page, the variations proposed in this bill. The memorandum was prepared by expert officers of the Taxation Department and other gentlemen whose services were made available for the purpose. I assure Senator Duncan-Hughes that, after this bill has been passed by both Houses of the Parliament, a memorandum will be prepared and made available to the legal profession, taxation, experts and others who desire to make a comparison of the new law with the old.

Senator Collings:

– The Senate was not sitting in March, so members of this chamber did not receive a copy of th3 memorandum.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– Apparently the document was not forwarded to the honorable senator. The Leader of the Opposition also referred to the issue of tax-free Commonwealth loans. That, I suggest, is not a matter with which, at the moment, we are concerned. It is one for decision by the Loan Council. If the Loan Council decides to issue loans free of taxation, the Commonwealth and State governments will have to bear their share of the blame or credit. I am, however, confident that if in its wisdom the Loan Council approves the flotation of loans free of income tax, it will be because of its belief that that system will not increase materially the cost of money required for industry. Senator Johnston and Senator Duncan-Hughes referred to the observations which I made regarding the Government’s intentions concerning the Board of Review. Whatever may be done in that matter will not be affected by this bill. The provisions relating to the Board of Review have been retained, and will continue to operate, and Parliament will have an opportunity, if the States come into line, to consider legislation to substitute a single judge, or some other appellate tribunal, to take the place of the Board of Review. I knew that there is a considerable body of opinion that a single judge would not be able to deal with thu large number of appeals that would bc made. Senator Johnston suggested that, through the various alterations of the law made in this measure, we may be levying further tribute on primary producers, and he referred to a number of items in respect of which this bill has taken from primary producers benefits which, hitherto, they have enjoyed. The provisions contained in the bill which benefit primary producers may be summarized thus : The rebate of tax allowed in respect of business income retained in the business is, in effect, limited to primary producers; special deductions are allowed to primary producers in respect of capital expenditure on wire and wire-netting, and in respect of the extermination of pests, and clearing; the averaging provisions are retained for this class of taxpayer; the carry forward of losses is primarily in force in the interests of primary producers; concessions allowed to co-operative companies are, in practice, mainly limited to co-operative companies dealing in primary produce; and the depreciation allowed on structural improvements is restricted to primary producers. If, as the result of our efforts to obtain uniformity in taxation methods, there should be a slight increase of any burden imposed on primary producers, that additional burden will be more than offset by the provisions to which I have referred. I attended two conferences to consider the adoption of uniform taxation measures, and I was deeply impressed by the desire of Commonwealth and State Ministers and officials to achieve uniformity, in the interests of taxpayers. Five of the States are already considering legislation to implement the recommendations of the conferences. Ever since the presentation of the report of the royal commission there has been constant consultation between Commonwealth and State authorities, and also between taxation officers of the various States. The Commonwealth and State Treasurers, and officials representing the different treasuries, are confident that uniformity will be achieved, and in order that it may be maintained, arrangements have been made for periodical conferences between Commonwealth and State Ministers and officials. I thank honorable senators for their gener ally sympathetic reception of the bill.

Question resolved in the affirmative.

Bill read a second time.

In committee:

Clauses 1 to 5 agreed to.

Clause 6 (Definitions).

Senator DUNCAN-HUGHES:
South Australia

.- The definition of “ agent “ includes -

  1. Every person who in Australia, for or on behalf of any person out of Australia, holds or has the control, receipt or disposal of any money belonging to that person; and
  2. Every person declared by the Commissioner to be an agent or the sole agent oi any person for any of the purposes of this act;

It seems to me, and to many others that paragraph a is so comprehensive as to render paragraph b unnecessary.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– In practice it has been found that in some cases there is no agent for some person upon whom the Commissioner desires to levy tax. Such cases have arisen frequently in connexion with companies. The company is then constituted by the Commissioner an agent for the person in order that the Commissioner may collect the tax. That, I understand, broadly was the reason for the inclusion of this provision.

Senator PAYNE:
Tasmania

.- I should like to know why it has been necessary to amend the definition of “dividend”. In. the original act “ dividend “ includes “ any distribution made by a company to its shareholders whether in money or other property out of the profits “. The definition in this clause is in similar terms with the addition of the words “ and any amount credited to them as shareholders “. I am at a loss to understand why these words have been included, because money credited to taxpayers as shareholders of a company may not actually be available to them for some considerable time. Such an amount would be of no use to them until it had been distributed. It would be very embarrassing to a person to be assessed in respect of an amount which he had not received. Will the Minister explain why these words are included ?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– This definition is dealt with in paragraph 117 of the report of the Royal Commission on Taxation. The substance of the commission’s recommendation is that the words “ out of its profits “ should be deleted from the definition and inserted in clause 44, where they should more properly appear. It is necessary to provide that dividend shall not include a return of paid-up capital. The words “ and any amount credited to them as shareholders “ were inserted to make it clear that the distribution refers to the amounts credited as well as to the amounts paid. It is a definition which the members of the legal fraternity consider necessary.

Senator PAYNE:
Tasmania

.- Money credited to a shareholder may not be received for some. time. I do not wish to do anything to assist any person who is liable to escape the payment of income tax, but in this amendment a person may. be expected to pay a heavier tax for a specific year, because he has not actually handled money credited to him. If he does not pay income tax on the amount in one year he will have to -pay it in the following year; but it is unfair to ask him to pay on an amount which he has not received, except in respect of bonus shares which represent an immediate addition to his capital which he can utilize. He cannot utilize credit unless he has received the money.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– In respect of some private companies, it has been found that the availability of the money is not the test for taxation purposes. This amendment has been inserted to meet cases which may possibly occur in the administration of the law, and the clause ha3 been framed to conform with later provisions in the bill.

Senator E B Johnston:

– Will the Postmaster-General explain the effect of amending the definition of .”special property tax “ in paragraph c?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– This amendment is explained in paragraph 278 of the report of the Royal Commission on Taxation. In view of the criticism of the High Court in the . case of Victoria Park Racing and Recreation Grounds Limited v. the Federal Commissioner of Taxation. the Crown Law- authorities and the Royal Commission decided to amend the law in the direction proposed. It is an attempt to clarify the .law, but whether that has been done will depend upon the subsequent decision of the court.

Senator PAYNE:
Tasmania

.- According to this definition a “ taxpayer “ is a person who derives income. The act to be amended defines a “ taxpayer “ as any person chargeable with income tax. That definition is clear, and I cannot understand why any person should be included as a taxpayer who does mot come within the provisions of the Income Tax Assessment Act, which deals only with income. Under the proposed amendment, all persons deriving income become “ taxpayers “. I could as easily understand the definition if it provided that “ taxpayer “ means “ all persons in Australia “. Clause SI provides that taxpayers are persons in receipt of an income of £250 or more annually.

Senator McLEAY:
SOUTH AUSTRALIA · UAP; LP from 1944

– What of those taxpayers who do not furnish returns?

Senator PAYNE:

– I understand that some persons who should furnish a return do not do so. If it were provided that every person in Australia should send in a return, the position would be clear, but it is unreasonable to provide that “ taxpayer “ includes all persons deriving income, regardless of the amount of such income. That is not in conformity with the spirit or letter of our income tax law.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The only explanation I can give is that contained in the commission’s recommendation. If a person is not in receipt of a specified income he is not liable io pay income tax, but I can conceive of cases in which it would be necessary for the extensive powers which the Commissioner enjoys to be employed in connexion with persons who earn income but do not pay the tax. That is what the draftsman had in mind in framing this clause, and I am assured it is merely a drafting amendment.

Senator PAYNE:
Tasmania

.- The definition of “ taxpayer” is contrary to the letter and spirit of the act. Under the act taxpayers of all kinds are not included.

Senator MCLEAY:

– lt is u dragnet definition.

Senator PAYNE:

– That may be the intention.’ It is incorrect to say that under our income tax laws every person is a taxpayer, because clause 81 provides that taxpayers are those in receipt, of £250 or more per annum.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– Clause ST does not provide that.

Senator PAYNE:

– That clause sets out a statutory exemption of £250, and any person in receipt of that amount or more is an income taxpayer, but under this definition the person who receives only £2 per annum can be regarded as a taxpayer. If the Government is anxious to reach all those who should send in returns, but who do not, I would be only too willing to assist it.

Senator COLLINGS:
Queensland

– Every person in the community is a potential taxpayer.

Senator Payne:

– Not under an income tax assessment act.

Senator COLLINGS:

– Under that act or some other act.

Senator Payne:

– Does the Leader of the Opposition (Senator Collings) suggest that this measure covers property?

Senator COLLINGS:

– It deals with income from property. The honorable senator is splitting straws. A resident of Australia who is not a taxpayer to-day may be a taxpayer to-morrow. There is something in the suggestion made by the Minister during his second-reading speech that we should deal only with the fundamental principles, and not waste time haggling over the language employed. Even if we secured minor alterations, we would not improve the measure. Unless we have some important amendments to propose, we should facilitate the passage of the bill.

Senator DUNCAN-HUGHES:
South Australia

.- The Leader of the Opposition (Senator Collings) cannot dispose of the point raised by Senator Payne in that way. A definite change in the definition of “ taxpayer “ is proposed. Prior to the introduction of this measure a taxpayer was a person chargeable with income tax, but now a taxpayer is a. person deriving income. It is mom than a matter of mere verbiage, because the term “taxpayer” is now all embracing. The amended definition extends the operations of the act to probably hundreds of thousands of persons in receipt of a small income, who are not taxpayers, but who will be liable to furnish returns. Is it suggested that, in the past, the Commissioner has had any difficulty in dealing with such cases? If it is proposed to change, radically, the previous definition, such a change should be clearly set out. Perhaps this matter is not of enormous importance, but it is certainly one well worth careful consideration, because, in effect, the term “ taxpayer “ is now to embrace an enormous number of people who pay no tax at all.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– Any alteration of this definition would necessitate a redrafting of the whole of the measure. Suppose that certain people enter secretly into a trust, or other arrangement, and a number of them are not taxpayers, because they are not chargeable with income tax. Under the existing definition the inquisitorial powers of the Commissioner do not extend to them, and the Commissioner is thus deprived of an opportunity of bringing them before him for examination. If the definition proposed in this measure be adopted, however, he will be given an opportunity to examine any persons who, he believes, are attempting to evade taxation by some internal arrangement of their affairs.

Senator Payne:

– What power did the Commissioner have in that respect previously ?

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– He had certain powers, but the object of this definition is to extend them. I admit that this definition embraces people who do not pay tax. As we proceed with the consideration of this measure, honorable senators will find that this term is used in a variety of ways. Generally speaking, it is now used as meaning a person deriving income, rather than in accordance with the old definition which was a person “ chargeable with income tax”; it has now clearly a wider significance.

Senator PAYNE:
Tasmania

– I suggest that the Minister should postpone consideration of this definition, and that when the committee comes to consider clauses to which it applies specially, he should explain the significance of the word in each case. If satisfied with such explanations, I have no doubt that the committee will agree subsequently to the whole of the definition clause.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– I undertake that if I cannot satisfy the honorable senator on this definition before we conclude consideration of the measure, I shall recommit the clause.

Clause agreed to.

Clauses 7 to 19 agreed to.

Clause 20 (Income to be expressed in Australian currency).

Senator COLLINGS:
Queensland

– I ask the Minister to explain this provision. If a resident in Australia conducts a business transaction overseas, the income from which is liable to Commonwealth income tax, will it be necessary for purposes of assessing tax to convert every transaction into Australian currency at the rate ruling on the date on which the transaction was made? I foresee difficulty in dealing with such conversions from sterling to Australian currency.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– In view of the present relation of Australian currency to sterling we must have a provision of this nature; the tax will be made on the profit resulting from such transactions.

Senator COLLINGS:

– In respect of what date will the value of Australian currency be computed?

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– The date on which the profit results; if a taxpayer makes a profit of £100 to-day in London his profit would amount to £125 in Australian currency.

Senator COLLINGS:

– But the department will not know about the profit at the time it is made.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– The taxpayer will have to show in his profit and loss account the date on which he made the profit.

Senator Leckie:

– But he might make twenty different transactions in a year.

Senator COLLINGS:

– I take it that the intention is where ataxpayer shows, in his return, that he has made a certain profit during the year, he shall suffer no injustice; therefore, the exchange rate is to be taken into consideration. How will the department know the particular date in respect of whichthe rate of exchange on a transaction is to be calculated when it is informed of such a transaction only at the end of the financial year ?

Senator DUNCAN-HUGHES:
South Australia

– This is a new clause; there is nothing in the old act which corresponds to it.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– It is drafted in the light of the High Court decision in, the Payne case.

Senator DUNCAN-HUGHES:

– This is obviously an arguable matter, and in the memorandumwe are informed that the full High Court, by the prevailing judgment of the Chief Justice - I take it that the court was equally divided and, that being so, the decision of the Chief Justice, as , the Senior Judge, prevailed - has held that the Commissioner of Taxation was right in converting to Australian currency the income of a taxpayer received in England in sterling. This particular taxpayer has now appealed to the Privy Council. In view of the fact that this case is sub judice, will the passing of this clause affect the rights of Payne if his appeal succeeds?

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– This provision will not operate retrospectively.

Senator DUNCAN-HUGHES:

– I understand that Payne’s case will go straight on and be determined on its merits ; but what about an individual who has not received in Australia any money accruing to him overseas? Is he to be taxed on profit arising from the rate of exchange as though his overseas income had actually been converted into Australian currency?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– Yes. This provision may appear likely to operate harshly in respect of certain individuals, but we must work on the basis of the conversion of all profits made overseas by Australian residents if we are to be enabled to tax any income derived outside the Commonwealth by Australian residents. Whether the money is, or is not, brought to Australia is the good fortune, or misfortune of the taxpayer as the case may be. The economics of income taxation must be based upon the value of our currency; otherwise no finality would be reached and administration would become most difficult. I shall cite one or two instances on this point. Supposing a taxpayer derives income overseas during the financial year about to close. If the present rate of exchange of £25 is maintained to the 30th June next the taxpayer, for the purposes of furnishing his return, will have to convert his overseas income into Australian currency at that rate for the purpose of furnishing his return of income. If he has not converted it into good Australian pounds, that is his misfortune. It is a matter of good or evil fortune according to whether the rate of exchange fluctuates or remains static. The assessment must be based on the Australian pound. There has been a good deal of discussion regarding the decision of the High Court. Although the matter has now gone to the Privy Council, the taxpayer concerned will not suffer any injustice, because whatever the final decision the legislation will not be made retrospective. The clause as originally drafted was altered in the House of Representatives to its present form. The omission of any reference to telegraphic transfer rates for calculating exchange is due to a decision to allow the common commercial practice applicable to the circumstances of a particular taxpayer to operate. I admit that the subject is full of complexities, and that from time to time difficult cases have arisen, but that is the basic principle underlying the clause.

Clause agreed to.

Clauses 21 and 22 agreed to.

Clause 23.

The following income shall be exempt from income tax -

  1. Income derived -

    1. By any person visiting Australia, from a.n occupation carried on by him while in Australia…… (q), Income derived by a resident from sources out of Australia where that income is not exempt from income tax in the country where it is derived, or where the taxpayer is liable to pay royalty or export duty in any country in respect of goods from the sale of which the income is derived;
Senator BROWN:
Queensland

– Paragraph c i refers to the income of an association or club established for the control of any out-door athletic sport or game. Why . is indoor sport excluded ? Is there any special reason for confining the exemption to out-door althletic sports, and can the Minister say whether the exemption is reciprocated by other countries?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The exemption is reciprocated. As to the restriction of the exemption to out-door sports, I can only say that the sub-paragraph has been taken bodily from the old legislation, which included the word “ out-door “.

Senator Brown:

– It seems hardly fair that the representative of an out-door sport shall be exempt, whereas the income of a billiardist or boxer will be subject to tax.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I move-

That after sub-paragraph (vi) of paragraph (o), the following sub-paragraph be inserted: - and (vii) as director’s fees or salary by a non-resident during a visit to Australia during which lie acts as a director, manager, or other administrative officer of a manufacturing, mercantile or mining business, or of a business of primary production, if the visit of the nonresident to Australia does not exceed six months; “

The amendment is designed to remove the irritation now existing among business men who pay what may be termed courtesy business calls to Australia. These visits are generally made for the purpose of inspecting Australian branches of- overseas industries, and meeting Australian clients. These visitors generally do not 1 engage in competitive business while in Australia. A similar concession is allowed by other countries to Australian businessmen who visit them on missions similar to those covered by the amendment. The existing Commonwealth law places an obligation on visitors to pay Commonwealth and State income tax upon so much of their remuneration as is attributable to Australia on a time basis. The concession will be welcomed by the business community generally, and overseas visitors in particular.

Amendment agreed to.

Senator COLLINGS (Queensland) 1 3.55]. - Paragraph e exempts from income tax the income of a religious, scientific, charitable or public educational institution. It is a fairly comprehensive provision, and I should like an assurance from the Minister that, in. interpreting it, the department will see that the door is not thrown open for any kind of organization which claims to be religious, scientific, charitable or educational - but is, [cr,;i in fact, not so - to escape payment of its just dues.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The paragraph does not vary the existing law. The door will not be thrown open to bogus organizations to obtain exemption. From time to time attempts have been made to escape taxation under this provision, but they have not been successful. The Commonwealth taxation authorities have no knowledge of any fraud having been perpetrated under it.

Senator COLLINGS:
Queensland

– I am not satisfied with the Minister’s explanation. Surely the department has some definition of a religious, scientific, charitable or public educational institution. Unless there be some definition what is there to prevent any organization from saying that it comes within the scope of the paragraph, and claiming exemption?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The Government has thought it unwise to include a definition of the institutions covered by the paragraph. It prefers that the Commissioner, if not satisfied that an organization is entitled to the exemption, shall assess and levy tax on its income; the organization concerned may appeal against his assessment. .In that way, the court would decide whether or not the income should be taxed.

Senator Collings:

– Then any collection of cranks can claim to be a religious or scientific organization?

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– Some have tried, but without success.

Senator LECKIE:
Victoria

.- The Minister’s explanation does not answer the objection which has been raised. Honorable senators know that organizations which claim to be religious bodies actually engage in trade, and, because of the exemption granted under this provision, obtain an advantage over their competitors. I have in mind an organization whose income runs into thousands of pounds a year. This organization is competing with local traders. It is true, I believe, that its profits are devoted to the maintenance oi missions and to other religious purposes, therefore it can legitimately claim that it has a religious standing. But when an organization, religious or otherwise, deliberately enters into business and competes with the ordinary trader, its profits should be subject to the same toll by the Taxation department as are the profits of the average business man. One of these religious bodies, to my knowledge, pays no taxation. An organization which makes thousands of pounds a year from its trading operations should pay the income tax. I assume that the Taxation Department takes pains to ensure that this particular institution expends its profits in a proper manner; nevertheless in exempting it from taxation, the department is doing an injustice to its competitors. If it were competing on fair lines I would raise no objection; but it pays no taxation, while its competitors are obliged to do so. The Minister should give to the committee some further assurance that institutions engaged in ordinary trading will not escape the taxation disabilities which are the lot of the private trader.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The subject raised by Senator Collings and Senator Leckie is most vexed. Some of the institutions, while they do engage in business, use the fruits of their industry ill most estimable ways. Others are organized to make a trading profit. In this respect their operations resemble those of a State or Federal Government; they have the advantage of escaping from the income tax and various other charges on their profits. They are apparently the cared-for darlings of the several Commissioners of Taxation of the Commonwealth and the States. I point out, however, that this matter was introduced at a conference of Ministers and taxation commissioners, representing the Commonwealth and the States, and it was decided that the existing law should not be amended. Nevertheless, I shall have regard to the representations made to-day by honorable senators, because it has been demonstrated to me on more than one occasion that one institution was simply trading under the cloak of religion. The Federal and States Governments, however, have difficulty in saying to it: “ You shall be taxed because you do not expend your money in the way you should,” while saying to the larger and more important organizations whose services to humanity have been so marked in Australia : “ You shall be exempt from taxation.’’ If a line is to be drawn, the trading profits of all these religious bodies will have to be taxed. The point which influenced the Ministers at the conference to which I have alluded was that any decision to compel religious institutions to pay income tax upon trading profits would react harshly upon an organization which is doing great service to the poor of Australia.

Senator COLLINGS:
Queensland

– The explanation offered by the Minister does not meet my objection. The organization, which I have in mind, has two spheres of operation. One brings it properly under the definition of a religious body; but it is also a huge trading concern, and, in my opinion, should not, on that phase of its operations, be exempt from tax. On more than one occasion the Labour party has been requested to take up this matter by the unions of employees who are engaged in similar occupations in private industry. By reason of its religious appeal to the public, this particular organization is not competing fairly with private enterprise. It markets articles which have to be manufactured and placed in containers. From time to time in my letter box I have found propaganda directing my attention to the advantages of the products made by this organization and informing me that if I present myself at the local store with the enclosed coupon, I shall be given two boxes of that product for the price of one. The employees of other firms complain that owing to this unfair competition their output is being reduced. The appeal of this organization is to the religious feelings of the community. For example, a certain organization of a properly religious character and entitled to recognition as such, engages extensively in laundry work. It takes, into its laundries women who are unfortunate in more senses than one and gives them a means of livelihood. Making a canvass of the shipping companies, its representatives point out what charitable rescue work it is doing and as a result, obtain their laundry work. Its competitors in private enterprise, however, lose a considerable amount of business through these tactics. I emphasize that the organization does not pay award wages and is not subject to the same overhead costs as the private concerns; but it has a religious appeal to the public which no commercial competitor can have. I have in mind more than one organization ; they are not confined to the Seventh Day Adventists’, the Anglicans, or the Roman Catholics. One of them, can be rightly claimed to be religious in its activities; what it does with its profits is no concern of the national Parliament. The point to be borne in mind is that it makes profits like private industry; it is competing unfairly with commercial enterprise. What prospect lias any business man of competing successfully against the Salvation Army? J! fail to understand why it should be exempt from taxation in “regard to its trading departments.

Senator Dein:

– The Salvation Army does not trade at all.

Senator COLLINGS:

– Nonsense. It engages in laundry work, and in the manufacture of uniforms, and a hundred and one other things are produced on a wholesale scale by its subsidiary institutions. The competition is most unequal. If the department has a definition of what is a religious, a charitable, or a scientific organization, I desire to know it. I could collect in a very short time a number of cranks who would be able to convince the Taxation Department that they were scientists. If the Commissioner of Taxation happened, to sympathize with their activities, probably they would obtain exemption from income tax on any profits they might make. This morning I stated that the Opposition believes in the income tax as the fairest form of tax, and the possibilities of escape from it should be reduced to a minimum.

Senator ARKINS:
New South Wales

– I regret that this matter has been referred to under a cloud of secrecy. The Minister in charge of the bill (Senator A. J. McLachlan) set the example by referring vaguely to organizations which he did not identify, and the Leader of the Opposition (Senator Collings) followed suit.

Senator Collings:

– There was no secrecy about my remarks.

Senator ARKINS:

– Apart from secrecy, the remarks of the Leader of the Opposition contained some inaccuracies. After mentioning the Seventh Day Adventists’, the Roman Catholics and tha Anglicans, he stated that there was another great organization which makes a pretence of religion, but is a huge trading concern.

Senator Collings:

– I consider that I am entitled to protection from misrepresentation. In each instance I was careful to say definitely that those organizations had two sides to their character. One is definitely and properly religious; the other is trading.

Senator ARKINS:

– I accept the explanation of the Leader of the Opposition, it is, however, not substantially different from his former remarks. He referred to three Christian organizations - the Seventh Day Adventists’, the Anglicans and the Roman Catholics - and added that there was another organization, which apparently did not come within the category of those that he named. Hu proceeded to object to the distribution if their coupons as a means of advertising their products. I know of at least half a dozen organizations which utilize the coupon system for advertising purposes.

Senator Brown:

– It is a breach of the law in Queensland.

Senator ARKINS:

– I see no objection to it. It is a most useful form of advertising. When we mention institutions which use religion as a cloak, and we do not identify them we are doing wrong. From time to time I have received many letters dealing with organizations which it is suggested are resorting to unfair business tactics, or which use the cloak of religion to escape from the payment of the income tax. In endeavouring to discover whether such statements have been justified, I have received sufficient proof that the institutions render valuable service to the community. All of their profits are not devoted to extending their business, but are expended on christian services not only in Australia but also in other parts of the world.

Senator Abbott:

– They also take people off the charge of the Government.

Senator ARKINS:

– That is so. I consider that honorable senators who have referred to certain christian organizations as entering into unfair competition with private enterprise should supply the names of them. If such practices are found to be proven, a law against them should be made. . I believe that the Minister referred to one such institution; if he knows of one it is his duty to see that a law is framed to prevent it from continuing to trade unfairly.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– I did not say so.

Senator ARKINS:

– The Minister certainly led us to believe that there were in Australia organizations in this category, and the Leader of the Opposition mentioned first institutions controlled by the Anglicans, Roman Catholics and Seventh Day Adventists, and then went on to speak of the business activities of the Salvation Army, implying that that organization was a trading concern.

Senator Millen:

– So it is.

Senator ARKINS:

– I agree that the Salvation Army engages in certain forms of business, but it is not a commercial organization in the ordinarily accepted sense of the term. It conducts hostels in the various capital cities, and social centres in the country, but its hostels are conducted not so much for profit as for the purpose of rendering definite service to the outcasts of all nations. Profits which the Salvation Army makes out of its hostels are used for the furtherance of its religious and social services. I am neither an apologist nor an advocate for the Salvation Army, but I think we must all admit that its officers and soldiers are the most self-sacrificing people in the whole of the Christian religion. They accept less money for their services, they work harder, and the whole of the profits made in any of its many activities are utilized for the benefit of the needy and the weak who have fallen by the wayside. The Salvation Army does not barter pieces of silver in the market place for the purpose of commercial gain.

Senator Millen:

– No one said that it did.

Senator ARKINS:

– Perhaps that charge was not definitely laid against the Salvation Army, but it .was implied in the interjection of the honorable senator.

Senator Millen:

– It was not.

Senator ARKINS:

– I am sorry if I misunderstood the honorable gentleman, but I certainly understood him to say that the Salvation Army was a commercial concern.

Senator GUTHRIE:

– I do not think that any one said or even suggested that it was a commercial organization.

Senator Collings:

– I did not say anything of the sort. All I asked for was the insertion of a definition to prevent fraud.

Senator ARKINS:

– When the Leader of the Opposition was speaking, Senator Dein, who sits on my left, and Senator Herbert Hays, immediately took him to task for his unfair references to the Salvation Army. Senator Leckie has told us of the agitation that has been in progress for several years to alter the taxation law in its relation to charitable and religious bodies which engage in commercial undertakings. In New South Wales the members of certain organizations are continually on the doorsteps of members of Parliament, asking for protection in their businesses against the competition of semi-religious organizations, but whenever taxation legislation is under review the references to these organizations are clouded in mystery. Apparently no one is willing to say more than that some charitable or religious organizations - no names are mentioned - are engaged in business, and because they escape taxation, are competing unfairly with businesses privately controlled. If there is anything in the allegation that such bodies are using the cloak of Christianity to make profits without paying taxation, it is about time that legislation was framed to check them. In fact I would go further and say that they should be closed up altogether.

Senator Collings:

– Would the honorable senator agree to the inclusion of a protective definition in the bill?

Senator ARKINS:

– Yes.

Senator Collings:

– That is all I am asking the committee to do.

Senator ARKINS:

– The inclusion of a definition of the nature suggested by the Leader of the Opposition may be justifiable. This matter has engaged the attention of. Commonwealth and State legislators for some considerable time, and I commend the suggestion to the Minister in the hope that, if it is adopted, we shall know where we stand with these so-called religious business concerns if, as has been stated, they are competing unfairly with private business firms.

Senator LECKIE:
Victoria

.- 1. think that the objections which have been voiced in this discussion would be met if the Minister would agree to add to paragraph e the words, “ whose income is entirely expended in Australia “. If these organizations, in their trading activities, are competing with private businesses, we should be assured that the profits made by them are expended in this country, and not sent to some other part of the world. This would probably remove the cause of irritation on the part of those private business firms, with whom these organizations are in competition.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The bill is the outcome of a conference and an agreement between Commonwealth and State taxation authorities. The several Treasurers and their taxation advisers, in the conferences which were held to frame this uniform taxation measure, gave very careful consideration to the issue which has been raised in this discussion, and I am advised that any alteration of the provisions would be objectionable, because it would be a departure from the agreement made; moreover, it would not meet the wishes of Senator Collings, and I do not think I could provide a satisfactory definition of the words “religious, scientific, charitable, or public educational institution.” Those who have practised law know that there are thousands of pages of controversial matter concerning these words. The Commissioner of Taxation himself would prefer to depend on the legal interpretation given to this provision rather than include in the clause a definition which by means of some legal subterfuge, might be evaded. I am also advised that Senator Leckie’s suggestion would, if adopted, react unfavorably against many missions that are conducted in this country, the profits from which are sent abroad to forward missionary activities. The problem is a very complex one, and while I admit that there is an element of unfairness in the business activities of some of these semireligious organizations, I can assure the committee that under the law as it stands, if the Commissioner of Taxation has any doubt as to the character of the business conducted by these bodies he does not hesitate to- levy taxation. I am quite sure that if Senator Collings were surrounded by the cranks to whom he referred, and claimed exemption from income tax, he would find the Commissioner adamant. In the circumstances, I cannot accept the suggestion made by Senator Leckie, and I ask the committee to pass the clause as it stands.

Senator HERBERT HAYS:
Tasmania

– I hope that the committee will not amend the clause.

Senator Collings:

– No one has asked that it be amended; I have* asked for the insertion of a protective definition.

Senator HERBERT HAYS:

- Senator Leckie has suggested an amendment, which the Minister has declined to accept. “We all admit that the various religious and charitable organizations that have been mentioned in this discussion have rendered signal service to this country. I deprecate this searching criticism of their activities and the implication that some of them are purely trading concerns. The revenues derived from their activities are utilized for the furtherance of scientific, educational, religious, or philanthropic purposes, and it is no exaggeration to say that they relieve the Commonwealth and State governments of hundreds of thousands of pounds of expenditure on social, educational and other services which, but for their existence would have to be raised by taxation of the people.

Senator Abbott:

– They give back to the community much more than they take from it.

Senator HERBERT HAYS:

– There is no justification whatever for a microscopic examination of the business concerns conducted by these organizations. The activities of the Salvation Army are world-wide. The army, in all countries, is busily engaged gathering up and caring for the outcasts of society. If taxes were levied on the3e organizations the amount received annually would be small, and institutions now rendering valuable Services to the community would be discouraged.

Senator DUNCAN-HUGHES:
South Australia

– The religious, scientific, charitable and public educational institutions covered by this clause are very valuable to the community and should be encouraged. The commission was obviously satisfied with the position, as the clause is exactly similar to the provision in the act to be amended. If undue advantage were taken of this provision an amendment of the law could then be considered.

Senator LECKIE:
Victoria

.- The Minister (Senator A. J. McLachlan) said that as this hill has been drafted after consultation with the taxation authorities of the various States, amendments could be made only after further conferences. Is that the position?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

. I do not wish the honorable senator to misrepresent me. The clause has been the subject of consultations between the representatives of the Commonwealth and States, who have expressed the views which some honorable senators have already expressed. If the clause is amended, further conferences will have to be held, but, of course, it is competent for honorable senators to move amendments if they so desire.

Senator LECKIE:
Victoria

.- I do not wish to do the Minister an injustice, but it would appear that even minor amendments cannot be adopted without reference to some other authority. I am not particularly concerned, but it is somewhat unfair if that practice is to be adopted in connexion with other clauses. Surely amendments can be adopted without necessitating consultation with other authorities?

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– Honorable senators can move whatever amendments they desire, but the Government does not wish to amend a measure which has received the close attention of the representatives of the Commonwealth and the States.

Amendment (by Senator A. J. McLachlan) agreed to -

That after the word “ country “. second occurring, paragraph (q) the words “outside Australia “ he inserted.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I move -

That at the end of paragraph (q) the following words be inserted: - “For the purposes of this paragraph, a taxpayer shall be deemed to be liable to pay royalty or export duty in any country outside Australia if he satisfies the commissioner that he sold the goods in that country to another person for export from that country, and that the price for which the goods were sold was less, by the amount of the royalty or the export duty, as the case may be, than the price which the taxpayer could have obtained from the sale of the goods outside that country;”

This amendment is designed to remove an anomaly which has been brought under notice as existing in connexion with the copra trade of the Mandated Territory of New Guinea. An Australian company is producing copra in that Territory, but does not export and sell it in the copra market outside the Mandated Territory. The company sells the copra within the Territory to a purchaser who exports and sells it elsewhere. The actual exporter is obliged to pay an export duty to the Government of the Mandated Territory, and hence he is entitled to the exemption granted by sub-clause (q) now under consideration. The actual exporter, however, usually depresses his purchase price for the copra by the amount of the export duty and. thereby transfers the burden of’ the duty to the producing company. This company is not, in the technical sense contemplated by sub-clause (q), an actual payer of the export duty to the Government concerned. It merely bears the burden of the duty through the ordinary operations of trade as they are influenced by the export duty. Consequently, the Australian company is technically subject to the Commonwealth Income Tax. This result was never intended by the Parliament when the provision in the existing law which corresponds to sub-clause (q) was enacted. The amendment now proposed will cure the defect.

Amendment agreed to.

Clause, further verbally amended, and as amended, agreed to.

Clauses 24 to 33 agreed to.

Clause 34 (Cost price of natural increase) .

Senator E B JOHNSTON:
Western Australia

.-This is one of the many amendments which may prove detrimental to primary producers. Over a period of years the liability of the taxpayer may be increased, particularly in districts where the possibility of the progeny of cattle, sheep and horses surviving is somewhat uncertain. Will the Minister explain the reasons for the proposed alteration?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– This clause which relates to the cost price of the natural increase of stock is elastic and enables the Commissioner to do justice in cases of hardship. It gives greater elasticity than the existing law.

Clause agreed to.

Clause 35 (Omission of natural increase under previous act).

Senator E B JOHNSTON:
Western Australia

– This clause also embodies an alteration which affects the primary producer, as in the past he was permitted to omit the value of natural increase from his returns. I am advised that this provision will operate adversely to graziers, at any rate for the first few years. What is the reason for this alteration ?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– As the honorable senator is aware, this provision was recommended by the royal commission; to put it colloquially, it is “ as broad as it is long “ ; the taxpayer will receive as much as he will give.

Clause agreed to.

Clause 36 (Disposal of assets of a business).

Senator E B JOHNSTON:
Western Australia

– I ask why the basis of taxation on a “ walk-in walk-out “ sale of a pastoral property, or farming property with stock, is being altered as is proposed in this clause? It will operate only when the whole property is sold, but I am informed that the alteration will be to the detriment of graziers and farmers who, generally, are opposed to it.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I cannot see how this alteration will operate injuriously to any one. On page 46 of the memorandum, the variations of the existing law in respect of this clause are set out as follows: -

  1. Growing crops and crop-stools are brought into the category of trading stock in the case of sale or disposal. This results in the purchaser obtaining a deduction for the purchase price as well as the vendor being taxed upon it.
  2. Assets in the nature of trading stock disposed of by testamentary disposition are specifically dealt with in clause 37.
  3. In a business of primary production working beasts and beasts of burden are treated as trading stock - see definition of “ live-stock “ in clause 0.
  4. The exemption relating to profits made on the sale of live-stock’ used for breeding purposes is withdrawn.

The removal of the exemption under (iv) above is in accordance with the recommendation of the royal commission, which gave very serious consideration .to this item of the exemption in the interests of Commonwealth and State uniformity. The royal commission pointed out that, when breeding stock is sold in the ordinary course of business, the proceeds of the sale are included in the taxpayer’s assessable income in the usual manner. The exemption of profit on the sale of breeding stock sold for the purpose of putting an end to a business, or a part of a. business, rests on the argument that the breeding stock is equivalent to plant, and that when the breeding stock is sold, the proceeds represent the realization of a capital asset. To this the royal commission replies that when the breeding stock is purchased, the purchase cost is nil owed as a deduction ; similarly in the case of breeding stock, which is bred by the taxpayer, he receives a deduction of the working expenses of the station property incurred in rearing live-stock. The view of the royal commission is that live-stock possesses the characteristics of a fixed asset and a trading asset, and though an animal may be acquired primarily for breeding or wool-growing purposes, its ultimate sale is by no means a minor consideration. No justification, therefore, exists for a continuance of the concession, as in all cases the full cost of every head of stock purchased or reared has been allowed as a deduction, and the recommendation of the royal commission is that the proceeds of breeding stock sold upon the realization or discontinuance of a business, from any cause whatsoever, should be included in the assessable income of the taxpayer. The profit on the trading stock realized by a merchant in similar circumstances is not exempted from taxation. The State Ministers in conference all supported the recommendation of the royal commission.

The elasticity provided by the revised livestock clauses has been made possible only on the assumption that the ultimate profit or loss on the sale of live-stock would be brought to account.

Clause agreed to.

Clauses 37 to 43 agreed to.

Clause 44 (Dividends).

Senator E B JOHNSTON:
Western Australia

– This provision refers to certain dividends which are exempt from taxation if paid wholly and exclusively from certain funds. It appears that the words “ wholly and exclusively “ will create an anomalous position. Where it is feasible for a company, trading both inside and outside of Australia, to declare separate dividends “wholly and exclusively “ out of each class of profit, the Australian shareholders are not liable to further tax in respect of the proportion of the profits derived outside Australia. In a number of cases, however, it is not practicable for a company to adopt this course, and the shareholder, although the conditions are unaltered, becomes liable to tax on the whole of the profits whereever derived. The declaration of separate and distinct dividends becomes impracticable to a company deriving only a small proportion of its profits in Australia. There seems to be no logical reason, other than to facilitate departmental administration, for the retention of this anomalous provision. It appears inherently wrong that a shareholder’s liability to tax should be dependent upon the manner in which a company declares its dividends.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– This, and the preceding clause, represent practically the whole basis of the simplification of the law relating to the taxation of dividends. I assure the honorable senator that this clause is embodied, word for word, in the present, act.

Clause agreed to.

Clauses 45 to 50 agreed to.

Clause 51 (Losses and outgoings).

Senator LECKIE:
Victoria

.- This clause provides that -

All losses and outgoings to the extent to which they are incurred in gaining or pro- ducing the assessable income, or are necessarily incurred in carrying on a business

. shall be allowable deductions . .

In the opinion of many taxation experts the inclusion of the word “ necessarily “ tends to defeat the object of the clause, which is to liberalize allowances. The Royal Commission on Taxation in paragraph 554 of its report, recommended that “ all losses and outgoings incurred in carrying on a business for the purpose of gaining or producing the assessable income should be allowed as a deduction “. The inclusion of the word may also encourage litigation. I should like to know why the Commonwealth has departed from the recommendation of the royal commission. I understand that one State has declined to include this word in its draft bill.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The present section in both the Commonwealth and State acts provides a rigid test in that the expenditure to be allowed as deductions must be “ wholly and exclusively “ incurred in the production of assessable income. In the bill before us the general allowance clause in respect of business deductions has been widened considerably. The bill also combines in one clause both the general allowance and the general disallowance sections of the present act. The clause as drafted was accepted only after the most careful consideration. Although the word “ necessarily “ does not appear in the New South Wales bill, it does appear in the uniform bills drafted for the acceptance of other State parliaments. The representatives of the States were persuaded to accept the clause in the interests of taxpayers only if the word “ necessarily “ were included: It must be borne in mind that there are taxpayers who will exploit the provision by claiming exemption from taxation oh the ground that the deductions which they claim relate to expenses incurred for business purposes. Tor example, expenditure incurred in entertaining prospective clients would be claimed as an allowable deduction. Any deduction which is not allowed is as much a subject of appeal against the Commissioner’s decision as is any other item of expenditure. In England a deduction is not allowed if the expenditure is not wholly and exclusively laid out for the purpose of the business. It has been held in that- country that for an expenditure to be deductible it must he “ essential “ to the earning of the gross receipts. In the United States of America the law provides that “ business expenses deductible from the gross income include the ordinary and necessary expenditure directly connected with or appertaining to the taxpayer’s trade or business “. I admit that one State has not yet come into line in this matter, but the Government is not without hope that it will do so, in the interests of uniformity.

Senator DUNCAN-HUGHES:
South Australia

– This matter has been broughtunder my notice, and I understand that the word “ necessarily “ has given rise to some dissatisfaction. The Minister says it has been included in the clauses in order to catch exploiters; but surely the law, which has to be obeyed by the general community, is not drafted solely on the chance of an occasional exploiter attempting to evade it. I understand that the Commissioner construes the first part of the clause as relating only to obvious losses and outgoings, such as wages, sales of products at less than cost price, taxes, &c. ; but when it comes to matters such as expenditure on advertising, which all honorable senators will admit is an important item in any business, the Commissioner has held, in some instances, that such expenditure is out of all proportion to the needs of the business, and has disallowed a portion of it. Similar action has been taken in respect of other kinds of expenditure which are not indisputably “necessarily incurred in carrying on a business “. The original act includes the words “ all losses and outgoings . . . actually incurred “.

It does not contain the word “necessarily “. The use of that word makes the justification for the expenditure a matter of personal opinion. Surely no one is more’ capable of forming an opinion as to what is necessary for the proper development of a business than is the man who conducts it. In my opinion, it would be better of the word “necessarily “ were deleted in favour of either “ relevant “ or “ actually “.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– It is true, as Senator Duncan-Hughes has mentioned, that section 23 of the existing legislation provides for “all losses and outgoings “. Section 25 of the act provides that a deduction shall npt, in any case, be made in respect of any of the following matters -

  1. domestic or private expenses.
  2. money not wholly or exclusively laid out or expended for the production of assessable income;
  3. any loss not connected with or arising out of the production of assessable income, or any capital withdrawn from any business producing income, or any sum used or intended to be used as capital in any business, or any capital used in the improvement of premises occupied for the purpose of any business.

That principle is contained in the new provision, although the language employed is not the same. The bill provides that certain losses and outgoings shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or arc incurred in relation to the gaining or production of exempt income.

In view of the fact that five States haveaccepted this wording and that this matter was discussed fully at several conferences I ask the committee to accept the clause as it stands, with the inclusion of the word “ necessarily

Senator Collings:

– Did the royal commission suggest the inclusion of “necessarily”?

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– It dealt with a number of English and American decisions, and as a result of its report, the word “ necessarily “. was included in the clause. The new clause makes clearer the principle contained in the existing legislation. In the carrying on of a business there are items of expenditure which, although properly deductible from an accountancy point of view in order to ascertain the profits, do not survive the test set up by the act. The object of the clause is to give legislative effect to a principle laid down by the High Court in appeal cases. There will be some reduction of the yieldof tax from some businesses through allowance, in future, of deductions in respect of Arbitration Court expenses and certain legal expenses which have not previously been deductible. On page 100 of its report the Royal Commission on Taxation said -

The problem, therefore, is to draft sections relating both to the allowance and disallowance of deductions which will make it clear that the taxpayer is entitled to claim any expenditure properly incurred by him in the production of his income, whether derived from a trade or otherwise, without at the same time opening the door so wide as to permit the allowance of deductions for which there is no justification. This might, perhaps, be accomplished by means of a section under which the taxpayer would be allowed as deductions all losses and outgoings incurred in gaining or producing the assessable income, or in carrying on a business for the purpose of gaining or producing such income; with a proviso or limiting section excluding the right to deduct any losses or outgoings of capital, or losses or outgoings incurred in relation to the gaining or production of income exempt from tax.

The recommendations of the royal commission, as accepted by the Government, have been embodied in the bill now before the committee and, in the interests of uniformity, I urge the committee to accept the clause.

Senator Duncan-Hughes:

– There is not complete uniformity, because New South Wales has not included the word “ necessarily “ in its draft legislation.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– As I have said, the Government is not without hope that New South ‘Wales will yet fall into line. Unless there is a considerable degree of uniformity, we shall have judges deciding deductions on different bases. If this Parliament fails to accept a provision which is practically uniform, some of the States will make other changes, and there will be no uniformity at all. Differences of language may give rise to a great deal of litigation.

SenatorLECKIE (Victoria) [5.13].- The Minister’s contention that uniformity of legislation is desirable has great weight withme, but we have also to consider the protection of the taxpayer. The inclusion of the word “ necessarily “ seems to place on the taxpayer an obligation which he should not have to bear. Senator Duncan-Hughes referred to expenditure incurred in advertising. A business man may make a mistake and advertise too extensively; but at the time that the expenditure is incurred he regards it as necessary to his business. Another man may expend considerable sums of money in defending his patent rights, only to lose his case. Would the Minister say that that expenditure was not necessarily incurred in carrying on his business ? So long as the administration is sympathetic the inclusion of the word “ necessarily “ may be of comparatively little importance, but changes of officers might result in the administration becoming harsh.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– Does not the honorable senator consider that this provision is wider than the old section?

Senator LECKIE:

– If the Minister will offer to defer consideration of the matter, or will give an undertaking that if it is found necessary a suitable amendment will be made by the House of Representatives, I shall be satisfied.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– Does not the honorable senator consider that the clause opens the door wider than the existing law?

Senator LECKIE:

– The general opinion of taxation experts is that the concessions intended to be given to taxpayers, are being withheld from them. It does not appear to me that this one word carries such a great amount of weight. To say that unless we insert the word “ necessarily “, the aim to achieve uniformity will fail, is, in my opinion, to exaggerate its importance. It is feared that the word will involve the commercial community, if not in further expense, at any rate, in a considerable amount of explanation in order to satisfy the Commissioner of Taxation that the expenditure incurred was absolutely necessary for the earning of the income.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– In my second-reading speech, I pointed out that if any difficulties arose from the operation of this clause they could be corrected by subsequent legislation. In my opinion, this provision will not give rise to any inconvenience ; I consider that it widens the door in order to extend allowable deductions.

Senator Gibson:

– The clause may widen the door, but the word “ necessarily “ appears to close it again.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– Why ? Does the honorable senator suggest that expenditure which is not necessary for the production of income should be allowable as a deduction ? Surely not ! This clause specifically refers to all losses and outgoings to the extent to which they are incurred in gaining or” producing the assessable income. Suppose that a gentleman entertains honorable senators at a champagne supper in the interests of a certain industry; is he to be permitted to put the expenses down to advertising, and claim them as deductions? The Commonwealth Government hopes to bring all the States into line in this matter. It has been most troublesome for the officers of the department, and if uniformity is not obtained, more difficulties win be created for the tribunals. The wiser course for the committee to adopt would be to agree to the clause in its present form, on the understanding that if any difficulties arise they will be corrected by amending legislation. The only reason why thu officers of the department requested nin to give this undertaking was because they are aware that some taxpayers have such fears as Senator Leckie has expressed. We desire uniformity, and if this provision does not operate as is intended, the Commonwealth Government will request the States at some future conference to agree to amend the law.

Clause agreed to.

Clause 52 agreed to.

Clause 53 (Repairs).

Senator COLLINGS:
Queensland

– I notice that expenditure incurred by the taxpayer in the year of income for repairs, not being of a capital nature, to premises or rolling-stock used by him for the purposes of producing assessable income, shall be an allowable deduction. Will similar consideration be allowed in respect of personal exertion? For example, a worker has to paint his dwelling. The States and the Commonwealth do not allow such expenditure to be deducted. Therefore, I fail to see why it should be allowed in connexion with a business, when the individual is only improving his capital asset?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The taxpayer may purchase a property in a state of disrepair and expend considerable sums to restore it to a habitable condition. It is considered that this expenditure is of a capital nature, which if it had been incurred before the purchase would have been reflected in the price paid ; therefore, this is treated as capital expenditure. The repairs must be to any premises or part of premises, plant, machinery, implement, utensils, rolling-stock, &c, occupied or used by him for the purpose of producing assessable income, or in carrying on business for that purpose. For example, wear of machinery, the deterioration of buildings under the influence of weather, and of premises in which acids are manufactured, are forms of depreciation for which an allowance is made. In addition to this, however, provision is made for repairs, and the Commissioner of Taxation decides how much ought to be allowed for depreciation and how much for repairs. While expenditure on repairs of a capital nature is not an allowable deduction, repairs which are incidental to the earning of the income, and by way of every-day expenditure are deductible. Sub-clause 2 refers to expenditure incurred upon repairs to any premises or part of premises not so held, occupied or used. In that case no deduction will be allowed.

Senator Collings:

– What is the position of a worker who paints his home?

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– Such expenditure is excluded under subclause 2.

Clause agreed to.

Clauses 54 to 62 agreed to.

Clause 63 (Bad debts).

Senator J V MACDONALD:
QUEENSLAND · ALP; FLP from 1932

– The Minister in charge of the bill mentioned that an alteration to the verbiage of this clause has been made. Will he explain what is the effect of that reconstruction ?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The royal commission reported upon this clause, and it has been altered slightly to cover cases of bankruptcy, and conforms to the existing .practice adopted by the Commissioner of Taxation. Although the wording has been enlarged, it merely embodies in statutory terms what has been the practice in the Commissioner’s office. This practice has been accepted, I understand, by the several commissioners of taxation for the Commonwealth and the States.

Clause agreed to.

Clauses 64 to 73 agreed to.

Clause 74 (Election expenses of candidates for Parliament).

Senator COLLINGS:
Queensland

– I note that expenditure incurred in the year of income by the taxpayer in being elected as a member, or in contesting an election for membership of Parliament, shall be an allowable deduction. I suggest that the word “ elected “ should be amended to read nominated “. In its present form the clause does not provide for a man who is a candidate for the first time, and who does not have the income until he has incurred the necessary expenditure.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– I agree that that would be a rather narrow interpretation of the clause. I shall have the point raised by the honorable senator examined.

Clause agreed to.

Clauses 75 to 77 agreed to.

Clause 78- (1.) The following shall, to an extent in the aggregate not exceeding the amount of income remaining after deducting from the assessable income all other allowable deductions except the deduction of losses of previous years and of the statutory exemption, be allowable deductions: -

  1. Calls on shares in a mining company or syndicate carrying on mining operations in Australia for gold, silver, base metals, rare minerals or oil, or in any company carrying on afforestation in Australia as its principal business.
Senator LECKIE:
Victoria

.- Sub-clause (1) paragraph (&) provides that sunns which are not otherwise allowable deductions, and which are paid by the taxpayer in the year of income to a fund to provide Individual personal benefits, pensions or retiring allowances for employees or dependants of such employees, shall be allowable deductions; and paragraph c enacts that sums paid to a retiring allowance or pensions fund for persons who are, or have been, employees or dependants of employees, shall also be allowable deductions. Paragraph al deals with calls on shares in a mining company or syndicate carrying on mining operations in Australia, or in any company carrying on afforestation in Australia as its principal business. It is contended that the limitation of allowance to the amount of the net income of the year should he removed. As regards the sums mentioned in paragraphs b and c, in most instances where a company or a firm establishes a fund or pays retiring allowances, it is under an obligation to make a contribution to the fund or to pay retiring allowances irrespective of whether it showed a profit or loss in any particular year. It is suggested that a company or firm should be allowed to carry forward, as an ordinary business loss, the excess of contributions over the profits for the year. The retiring allowance received by the ex-employee is subject to tax in his hands. Therefore, if the limitation mentioned is allowed to remain, double taxation will result. Payments made under paragraph- d may be for the purpose of carrying on a particular undertaking during an unproductive period, and, as the operations mentioned are of national importance, the conduct of them should be. encouraged. Sub-clause 1 stipulates that gifts to a public hospital shall be allowable deductions, and although paragraphs b and c seem to open up a wider field, a company or firm will not be allowed to deduct arrears of payments from” the income of the following years.

Senator E B JOHNSTON:
Western Australia

– Paragraph d, which exempts calls on shares in a mining company or syndicate carrying on mining operations in Australia, has been the law for many years, but it has not given very much relief. If the Government wishes to encourage mining operations, provision should be made to exempt application and allotment moneys. Is seems strange that calls on shares in a mining company should be allowable deductions, whereas application and allotment moneys are not. There is a lack of uniformity about the provisions which should be rectified. Some mining companys call up nearly all of their capital ; others are able to carry on with the application and allotment moneys. I suggest that the Minister should agree to the insertion of the words “application and allotment moneys and “ at the beginning of paragraph d.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

Senator Leckie has asked for the removal of the limitation of the deduction provided in paragraphs b, c and d. The honorable senator contends that, in most instances, the employer is under an obligation to make a contribution to a fund or to pay retiring allowances, irrespective of whether the business shows a profit or a loss in any particular year. Apparently the honorable senator has overlooked clause 66, which deals with contributions to pension funds in cases where the taxpayer is under legal obligation to make the payment. Generally speaking, this applies in most cases where a fund is established. Under clause 66 there is no limitation of the amount of deduction which may be allowed. Paragraphs b and c of clause 78 represent a concession to the taxpayer in regard to voluntary payments. They are allowed to the amount of net income of the year. Payments of this nature, as in the case of gifts to charity, cannot be allowed without any limitation. It was a consideration, in obtaining approval for the extension of the deductions under paragraphs b and c, that it would be limited to the amount of the net income of the year.

Senator LECKIE:
Victoria

.- The provisions in clause 66 to which the Minister has directed my attention do not alter the position. I am referring to the position of taxpayers who have shown an absolute loss, and have not been able to make contributions to a superannuation fund ; but who, in the following year, have made a profit, out of which they have paid a double contribution. There should be some elasticity about the provisions in order to allow a taxpayer to recover in respect of actual losses sustained.

Amendment (by Senator E. B. Johnston) proposed -

That, at the beginning of paragraph (d), tlie words “Application and allotment moneys and” bc inserted.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I cannot accept the amendment. This provision is in the law as it stands, and it is not the intention either of the Commonwealth or the States to extend it. Calls on shares in a mining company or syndicate may be regarded as expenditure which people make from year to year in the carrying on of their businesses; whereas application and allotment moneys are treated, apparently, as capital expenditure. Some mining companies are doing tolerably well, and, although I am a strong supporter of one of the industries concerned, my advice to those in control of them is to leave well alone. I, therefore, suggest that the honorable senator should not press his amendment.

Amendment negatived.

Senator LECKIE:
Victoria

.- Can the Postmaster-General give an assurance that the law will be administered in the light of the facts which I have mentioned, as regards contributions made by taxpayers in paragraphs b and c? I do not wish to submit an amendment which might embarrass the Government.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– I give the honorable senator an assurance that if, -owing to business losses in one year, the contribution is made in the following year, the practice has been to regard the amount paid as an allowable deduction.

Clause agreed to.

Clause 79 (Concessional deductions).

Senator COLLINGS:
Queensland

, - The clause provides that there shall be allowable as a deduction the sum of £50 in respect of the spouse of thu taxpayer, or where the taxpayer is a widower, in respect of a female relative having the care of any of his children who are under sixteen years of age, if the spouse or relative is a resident and is wholly maintained by the taxpayer. Will the Minister (Senator A. J. McLachlan) explain if there is anything improper in suggesting that a similar deduction should. also be made in respect of a taxpayer who has’ no children under sixteen years of age dependent upon him, but who is entirely dependent upon a relative to look after his household?

Senator A J McLACHLAN:
Postmaster-‘General · SOUTH AUSTRALIA · NAT

. - I have a very vivid recollection of the controversy on this point which occurred at a conference held in Melbourne some time ago, the report of which I have not now before me. The royal commission stated -

The allowance should, be made when the wife is wholly maintained by the taxpayer. A wife should be deemed to be wholly maintained by her husband if her private income does not exceed £100 per annum. We suggest, therefore, that the concession should be allowed only in respect of a relative having the care of children under sixteen years of age.

The clause is in the form recommended by the commission, and although there was considerable discussion on the point raised by the Leader of the Opposition (Senator Collings) the preponderance of opinion was in favour of leaving the provision in its present form. The State governments also are enacting a similar provision.

Senator J V MACDONALD:
QUEENSLAND · ALP; FLP from 1932

– I mentioned the subjectmatter of this clause during my secondreading speech, and I should like the Minister to clear up several points, because I understood him to say, when moving the second reading of the bill, that this is a new concession which the Commonwealth is granting. The Minister also said that an attempt had been made to make the Commonwealth and State acts uniform. Under this clause the Commonwealth allows a deduction of £50 in respect of the spouse of a taxpayer which, I understand, is the same as that, provided previously. I have taken considerable interest in this subject, because it affects those who have the responsibility of rearing families. From time to time the imposition of a tax on bachelors, and spinsters has been mentioned, but those suggesting such a tax have received little support. It appears to be comparatively easy to impose indirect taxes in the shape of customs duties, sales tax and relief tax, but it would be more reasonable to grant further deductions of this Mature and in that way assist those who are bringing up families. I am pleased to find that this provision has been included in the bill, but I should like the amount to bc increased to £72. The amount provided in the clause is small, but some benefit will be conferred upon those who are carrying a fairly heavy burden, and have to contend with many hardships.

Senator DUNCAN-HUGHES:
South Australia

– I suggest that after the words, “ medical practitioner “ in paragraph r. the word “ dentist “ should be inserted. Provision has been made for the deduction of amounts paid to qualified medical practitioners, nurses, chemists, and public or private hospitals, but no such deduction is allowable in respect of payments made to dentists. This matter was considered by the Royal Commission on Taxation, which decided not. to include such payments because such a deduction is allowed by only one government. That does not seem to settle the matter, and unless such a deduction can be said to infringe some principle every government will be governed in its course by financial considerations. It is calculated that the deductions provided for in paragraph a will result in Commonwealth revenue being reduced by at least £300,000. It is obvious that no State, unless it is the rich State of New South Wales or the almost equally richState of Victoria, could afford to forgo such a large amount of revenue. This is a matter, not of principle, but of detail, in respect of which one government need not be bound by the decision of another government. It has been said that in many households the cost of dental attention is as great and in some instances greater than the- cost of medical service.

Senator Collings:

– Medical practitioners frequently send their patients to dentists.

Senator DUNCAN-HUGHES:

– The health of a person frequently depends upon the condition of his teeth. Years ago visits to dentists were not considered necessary, but if the health is to be preserved such visits are now regarded as essential. Medical practitioners often advise their patients to visit a dentist every six or twelve months. The payments made to dentists are justifiable deductions just as much as are those made to doctor?, nurses and others. In fact, the service rendered by the dentist may be more ‘ valuable than that given by the others.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

. -“-The royal commission considered the inclusion of dentists but stated that it was not prepared to increase the allowable deductions already provided for, more particularly as the payments made to dentists are allowed as deductions by only one State government. I understand that, payments made to dentists are at present allowable as deductions under the New South Wales Act, but that act is being made uniform with the Commonwealth and other State acts. Such payments may be considerable, particularly when gold fillings and expensive crown work are involved. If payments made to dentists were included, those made to others rendering similar service would also have to be considered. I understand that the Treasurer, when pressed by honorable members in another place, to see if something could be done in this direction, was obliged, in the interests of uniformity of assessments, to refuse an amendment on the lines of that now suggested to the committee. I ask honorable senators, therefore, not to press this matter. The Treasurer undertook to communicate with the other States and if they are prepared to fall into line with this suggestion, the Commonwealth Government will do likewise. That is .the attitude adopted by the Treasurer. In those circumstances, and in view of the fact that the government of -Now South Wales has agreed to abolish concessional deductions in respect of dental attention, it would be a breach of faith on the part of this Government to accept the suggestion at this stage. The arguments advanced by honorable senators, I admit, are quite logical, and could probably, with equal reason, be applied in favour of concessions in other directions. In view of the Treasurer’s undertaking, however, I ask honorable senators not to press for this alteration.

Senator COLLINGS:
Queensland

– I ask why the concessional deduction for medical attention is fixed at an amount not exceeding £50 in the aggregate. As everybody knows, it costs much more than this for a major operation. Indeed, very few specialists would perform a major operation for less than £50.

Senator Dein:

– One could have a major operation performed in a public hospital.

Senator COLLINGS:

– Yes, if one were prepared to parade his poverty, in a public institution one has to submit to an examination of his financial circumstances in order that the authorities may be satisfied that he cannot afford to pay for treatment. I repeat that £50 is not a sufficient allowance to cover a serious operation.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I agree with the honorable senator. The States, however, declared that they could not agree to a deduction exceeding £50, in respect of medical attention. In this matter they were bound by financial considerations.

Senator ARKINS (New South Wales)

Government of New South Wales has agreed to abolish its concessional deductions for dental attention. Unfortunately many people have to meet dental expenses continuously.

Senator Guthrie:

– Dental attention is essential to health.

Senator ARKINS:

– That is so. The concessional deduction allowed in this respect in New South Wales was very considerate to the taxpayer.

Senator Leckie:

– What government brought in that provision?

Senator ARKINS:

– I believe it was a Nationalist government. I am sorry that the Minister cannot see his way clear to accept the suggestion made by Senator Duncan-Hughes.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– For the reasons I have stated it would be unwise for the Government to take such a step at this stage.

Senator ARKINS:

– It might be; but, as Senator Leckie said earlier, are we to pass measures in this chamber merely by saying “ Amen “ to them ? I believe that ultimately a concessional deduction for dental attention, as has been allowed hitherto in New South Wales, will have to be provided for in our income tax legislation generally. After all, when dealing with these matters we must bear in mind that not only people with big incomes pay tax, but also a large number who find it difficult to meet their assessments. Even senators may sometimes find it difficult to meet their income tax. We realize, of course, that income taxation is fair and equitable, but owing to the fact that the tax assessed on an income enjoyed for a certain period has to be paid in a period when the taxpayer’s income has diminished, difficulties in payment very often arise. We know that many people with small incomes have to meet bills of from £30 to £40 annually for dental attention. It is reasonable, therefore, to allow this expenditure to be deducted from income. If Senator Duncan-Hughes moved in this matter, I would support him, if only for the reason that the abolition of concessional deductions for dental attention by the Government of New South Wales is bound to react badly on taxpayers in that State. This is one of those comparatively small concessions, which, in hard times, many people appreciate very much indeed. I should like to express my opinion by a vote on this matter.

Senator GUTHRIE:
Victoria

.- I support the suggestion made by Senator Duncan-Hughes, because attention to the teeth of children and adults is just as important, from the point of view of general health, as is medical attention Dental science has advanced tremendously during the last few years. It is known that defective teeth undermine general health. I differ from the statement of the Minister that this line of argument could be applied with equal force in favour of other deductions - for instance., in respect of expenditure for eye treatment and the purchase of optical glasses. Loss of eyesight will not cause death, but defective teeth, by poisoning the whole system, can do so. I should like to see a concessional deduction allowed for dental attention.

Senator BROWN:
Queensland

– This matter affects me very much, personally, because, at the moment, I am in receipt of many bills for professional services of this nature. Suppose that my medical adviser is also a dentist; if my children go to him for dental attention can I claim to deduct the expenditure from my income, because the work was done by a medical practitioner 1 I have been allowed such deductions. However, another man whose children may have their teeth attended to by a dentist, who is not a medical practitioner, cannot claim a similar exemption.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– If I were legal adviser to the Commissioner, I would refuse such a claim as that indicated by the honorable senator. This measure specifically states that concessional deductions are allowable only in respect of payments “ to any legally qualified practitioner, nurse or chemist, or public or private hospital in respect of any illness of, or operation upon, the taxpayer or his spouse, or any of his children …” If the honorable senator went to a medical practitioner, who was also a dentist, for dental atten tion, he would not approach him as :i medical practitioner, and therefore, if I were the Commissioner, I should not allow a concessional deduction in that case.

Senator DUNCAN-HUGHES:
South Australia

– In respect of these concessional deductions, the allowance in each case is £50 in the aggregate. I presume that -that allowance can be availed of in any form of medical attention. Does the Minister consider that the cost of this particular concession to the Government would be greatly increased if deductions were allowed for dental attention? More important still, does he regard this provision as a principle, or is it’ n matter of detail in which the various State governments are in a position to do what they think best? I agree that in this matter uniformity is essential, but as the deduction is limited to £50, I do not think that the inclusion of dental expenditure would make ‘ very much difference.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The revenue aspect has been examined by the Commonwealth and State taxation authorities. Whilst I do not base my argument on financial grounds only, I am informed that provision for dental attention in this clause would result in a considerable reduction of revenue. Although, as Senator Duncan-Hughes has pointed out, a limit is prescribed, and that limit may not now be fully availed of in respect of expenses for medical and nursing attention, yet if the allowable deductions were extended to include the cost of dental attention, the concession would be used by a far greater number of people, and a considerable loss of revenue would result. I agree that this matter should never have become one of principle, but, unfortunately, it has.

Sitting suspended from 6.15 till 8 p.m.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– A conference of Commonwealth and State Ministers considered several of these matters and came to an agreement concerning them. It would indeed be unfortunate if the Commonwealth were now to do something which would destroy the existing harmony. Tor instance, if one piece of legislation allowed dental expenses as a deduction whilst others did not, that uniformity which is most desirable would not be achieved. As several of these matters will be reconsidered at a further conference to be held in September, I ask the committee to allow the clause to pass now.

Clause agreed to.

Clause80 - (1.) For the purposes of this section, a loss shall he deemed to be incurred in any year when the allowable deductions (other than the concessional deductions and the deduction allowable under this section) from the assessable income of that year exceed the sum of that income and the net exempt income of that year, and the amount of the loss shallbe deemed tobe the amount of such excess.

  1. . .. . Provided that, if the GovernorGeneral by proclamation so directs, the period of three years shall, as on and after such date as is specified in the proclamation, be substituted for the period of four years specified in this sub-section.
Senator E B JOHNSTON:
WESTERN AUSTRALIA · CP

– I move -

That the words “ and the net exempt income of that year”, sub-cla use (1) be left out.

For various good and sufficient reasons Parliament has seen fit to exempt certain classes of income from the payment of tax. Those exemptions include certain classes of Government securities, incomes from some forms of primary production and mining, and extraAustralian incomes in the hands of a resident when such income is subject to tax in the country of origin. It, therefore, seems inherently wrong that other provisions of the same legislation should, by indirect means, nullify the benefits of those exemptions i n many cases. That, however, is the effect of this clause, which sets out to allow losses incurred by a taxpayer against subsequent profits. Equity demands that that should be done; but the clause provides that, in arriving at the loss, exempt income shall first be taken into account. It provides further that when the loss is carried into the subsequent year’s assessment, it shall be set off, in the first instance, against any exempt income of the year of assessment. In order to show how thebenefits of the alleged exemption may be lost, I cite the following example -

In case A it will be seen that the whole of the exempt income for the two years has been brought into account and virtually taxed by reason of the reduction of the loss against the later year’s profits.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– This is a subject which has been debated at length on many occasions. In 1928 the then Treasurer (Dr. Earle Page) speaking in the House of Representatives, said -

Such cases at once raise the question of the general ability of the taxpayer to pay his tax. That ability may very properly be measured against the total income derived by him from all sources, so that when a concession is granted to the taxpayer in the shape of deduction of losses from profits and carrying forward unrecouped losses against future income, it is proper that the taxpayer’s benefit should be limited to the excess of his loss over any net income received by him which is not taxed by the Common wealth.

Various chambers of commerce took up this matter. They desired that, in calculating the losses to be carried forward from previous years, the net exempt income should not be taken into consideration in arriving at the net loss. They claimed that, in effect, the set-off meant that’ indirectly, the exempt income was made taxable. The soundness of the argument is not admitted. The Royal Commission on Taxation examined this subject exhaustively, and expressed the opinion that, as the deduction of losses is a concession given by the Government in any case, the Government has every right to limit the extent of the concessional deductions and the losses which should be permitted. Bound up with this subject is the ability of the person concerned to pay. The royal commission expressed the opinion that a person with exempt income is in a better position to meet the higher incidence of the taxation than is a person without such income. I draw attention to page 109 of the royal commission’s report, in which that body adopted the principle which Dr. Earle Page expressed in 1928. The ability to pay is the test. When a concession is granted, it is not too much to expect that any income should be brought into the calculation. I cannot accept the amendment.

Amendment negatived.

Senator E B JOHNSTON:
Western Australia

– I move -

That the proviso to sub-clause (2) be left out.

It appears that this proviso has been included in the bill in order to achieve uniformity with the States. It is submitted, however, that a period of three years is insufficient, in many cases, particularly where primary producers are concerned. It is, therefore, urged that the period of four years should be retained, and that a similar period be adopted by the States.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– In my second-reading speech I explained the reason for the proviso. The Commonwealth and the States considered this matter at a conference. I point out that the carrying forward of losses is not at present provided for in the legislation of the States. In the interests of uniformity, State Ministers have agreed to the equity of the provision and have undertaken to recommend its adoption by their several Parliaments. It was held that it would be sufficient ti the losses were carried forward for three years, and also that the acceptance of a definite period of three years by all governments, or by a majority of governments, would be of decided advantage to primary producers. The proviso to subclause 2, therefore, provides for the issue of a proclamation reducing the period to three years, on the understanding that the proclamation will not be is.sued unless the States agree to the provision for the carrying forward of losses, and the State legislation has been implemented. I cannot accept the amendment.

Senator Cooper:

– Did the Queensland Government agree to carry forward losses ?

SenatorA. J. McLACHLAN. - I am informed that it agreed to do so. Indeed, all the States agreed to do so, on the understanding that this proviso would be inserted in the Commonwealth law.

Amendment negatived.

Clause agreed to.

Clauses 81 to 83 agreed to.

Clause 84 -

The assessable income of a taxpayer shall include, in addition to rent, any premium received by him in the year of income, and any consideration so received for or in connexion with his assent to any grant or assignment of a lease:

Provided that where a lease of land from the Crown used for primary production assigned or surrendered was acquired by the taxpayer before the sixth year of income in which the lease is assigned or surrendered the amount of net premium (or if in respect of the transaction there are more net premiums than one - the sum of the net premiums) to be included as assessable income shall not bc greater than the total of the amounts allowed to tha taxpayer underthis act and the previous acts in respect of the lease.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I move -

That after the word “ shall “ the words “ except in cases in which the next succeeding sub-section applies “ be inserted.

If the amendment is accepted by the committee, I shall move a consequential amendment to omit the proviso and insert a new sub-clause.

The proviso was inserted in the bill in the House of Representatives in order that the profit on the sale of a lease of land from the Crown, used for primary production, and which had been held more than seven years, should not be taxed beyond the amount of the deductions allowed to the taxpayer in connexion with the lease. The proviso was based on a somewhat similar provision appearing in the New South Wales bill. The clause, however, provides for the inclusion in the assessable income of the gross premium ; whereas, the proviso inserted in the House of Representatives refers to the inclusion in the assessable income of a net premium, It has been found necessary, therefore, to introduce a new sub-clause, providing for the inclusion in the assessable income of net premiums in the case of leases of the type referred to in the proviso. The phraseology of the proviso has also been suitably altered to harmonize with the new sub-clause. While the Government has accepted this amendment, as remodelled, it does not. represent the final word. The matter was discussed yesterday at the conference of State Premiers, and it was agreed that the subject will be reconsidered from the legal and financial standpoints between now and September. If necessary, an amending bill will be introduced to make the provision workable. From the legal standpoint, this is most complex and difficult. The Government has accepted the principle of the amendment inserted by the House of Representatives, but the States and the Commonwealth desire to be given more time to consider its effect. The Treasurer (Mr. Casey) has promised that the matter will be discussed next September, after which some minor amendments may have to be made to the clause.

Amendment agreed to.

Amendment (by Senator A. J. McLachlan) agreed to -

That the proviso be left out, with a view to insert in lieu thereof the following subclause. “ (2.) Where a lease from the Crownof land used for primary production is assigned orsurrendered by the taxpayer, and the lease was acquired by him before the sixth year priorto the year of income in which it isto assigned or surrendered, the amount of the net premium received by the taxpayer as consideration for or in connexion with theassign- ment or surrender shall he included inhis assessable income:

Provided that the amount of any net premium (or if, in respect of the transaction, there are more net premiums than one - the sum of the net premiums) so included shall not exceed the total of the amounts of deductions allowed under this act and any previous law of the Commonwealth to the taxpayer in respect of the lease.”

Clause, as amended, agreed to.

Clause85 (Deductions).

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I move -

That, at the end of the clause, the following sub-clause be inserted: - (4.) Where a net premium is, under subsection (2.) of section eighty-four of this act. included in the assessable income of a taxpayer, the deductions which would have been allowable under this section had the full amount of the premium been included under sub-section (1.) of that section in the assessable income of the taxpayer, shall be taken into account, only for the purpose of ascertaining the amount of the net premium.”

The clause deals with the deductions from premium income, and makes no mention of net premium. The proposed amendments are designed to ensure that the clause may be invoked for the purpose of ascertaining the amount of a net premium. These amendments are consequential on the amendments to clause 84.

Amendment agreed to.

Clause further verbally amended and, as amended, agreed to.

Clauses86 and 87 agreed to.

Clause88 (Deductions to lessee).

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The subject embodied in this clausehas been discussed by the various interests concerned. The complexity of the position between trustees, attorneys, and representatives of life tenants, and lifetenants themselves, who have taken a lease from a trustee, is considerable, and it has been decided to refer the matter to Mr. Justice Ferguson, with a view to ascertaining whether some method can be evolved whereby justice will be done to these people. They have represented that they entered into leases in conformity with the law which then existed. Subsequently a dispute arose in regard to the method by which the. position of the trustees of these estates is secured by the creation of a sinking fund from the amount paid by the tenant. The matter has been discussed with the Treasurer, and it will be reconsidered next September. What the decision of the Government will be I am unable to forecast, but I apprehend from the representations made to it that some relief will be given to these persons.

Senator LECKIE:
Victoria

.- I direct attention to paragraph b of subclause 2, which sets out that where a taxpayer who in the year of income is a lessee of land used for the purpose of producing assessable income has, either before or after the commencement of the lease, incurred expenditure in making improvements not subject to tenant rights on that land, and was required to make them under the provisions of the lease, he shall be granted some relief from taxation. If a leaseholder is required to carry out certain improvements under the provisions of the lease and/or by a statutory authority, he should be entitled to some consideration. The position is that manufacturers and business concerns are frequently compelled by health or factory authorities to carry out certain works or improvements on their premises. Surely they should be allowed to deduct that expenditure from their income. As I interpret the bill, such persons will not be allowed to make this claim. I consider that the position may also arise in connexion with primary producers; the State governments have taken certain powers for the rehabilitation of farmers, and have provided for a moratorium. In some cases the States are compelling those in charge of the holdings to erect fences and carry out other improvements. At a meeting of experts associated with certain factories, it was found that this provision might put the business men to a good deal of expense without granting them any relief.

Senator A. J. McLACHLAN (South Australia - Postmaster-General) 8.28 J . - Senator Leckie asks that a deduction should be allowed to a lessee in. respect of improvements made by him as the result of a request of some statutory authority such as a municipal council or board of health. The bill already widens the present allowable deductions in regard to improvements. Under the present act, the expenditure in respect of improvements under a covenant of the lease is allowed. Under the bill, the deduction is extended to cover cases where improvements are made with the written consent of the lessor. In future, the lessor is to be assessed on the value to him of the improvements so effected. I visualize cases where_, if such were to occur, either the lessor or the lessee, by getting the local authority to take certain action, would derive benefits. I consider that that would be a particularly dangerous provision. Accordingly, after consideration by the departmental officers, it was resolved to leave the respective rights of the parties untouched. The only allowance which could be made was in respect of improvements effected with the consent of the lessor, and, furthermore, as the lessor is assessed on the value to him of those improvements, it is a matter for the lessor and the lessee to adjust between themselves when the lease is being drawn up. The taxation laws should not take cognizance of any relationship which may be brought about by some decision of an outside authority. I draw the attention of Senator Leckie to the extent to which the bill has already widened the allowable deductions. In many of the cases referred to, it was thought that the improvements would have to be made by the lessor or with his consent. In the latter event, a deduction according to the amount of expenditure will be allowed as a matter of course; but if the improvements are not made with the lessor’s consent, it. is considered that a deduction should not be allowed to the lessee, nor should the lessor be assessed in respect thereof. To do so would be to allow an outside body arbitrarily to increase the imposition on the lessor or give a benefit to the lessee. The extensions of the deduction already proposed in the bill were arrived at only after most careful consideration, and they represent the basis agreed upon between the Commonwealth and the States.

Clause agreed to.

Clauses 89 to 102 agreed to.

Clause 103 (Private companies - Definitions).

Senator LECKIE:
Victoria

.- Representations have been made to me that the definition of “distributable income “ should be amended to include expenditure, such, for instance, as is incurred in connexion with trade marks, excess depreciation, &c, which in the ordinary course is not an allowable deduction. The suggestion is made because, in certain instances, distributable income is defined as the actually existing net profits available for distribution.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– This subject has received very careful consideration. Representation has been made that “ distributable income “ should be defined to include the profit of the year and not the taxable income as at present. In determining the taxable income, all business expenses are allowed as a deduction. But if profits were allowed, companies would arrive at different results in respect of the same taxable income. For instance, one company might write off depreciation at a rate based on the estimated life of the plant, whilst the policy of another company might be to write off excess depreciation so as to get rid of the capital item at the earliest possible date. Some companies also reduce considerably the amount of profit by setting aside abnormal fees for their directors. The adoption of the profits basis would give an unfair advantage to the unscrupulous taxpayer, and would, to a large extent, nullify the provisions of the law relating to insufficient distributions of profits. By basing the calculation on the taxable income, all taxpayers are placed on the same footing, and as stated earlier, the wider provisions dealing with allowable deductions should cover the deduction of all legitimate business expenditure. Expenses in respect of patents and copyrights are regarded as capital expenditure.

Clause agreed to.

Clauses 104 to 111 agreed to.

Clause 112 (Deductions not allowed).

Senator PAYNE:
Tasmania

.- This clause provides that expenditure incurred by a life assurance company exclusively in gaining such premiums or considerations shall not be an allowable deduction. I shall be glad if the Minister will give me some information about this matter.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

. -If the honorable senator will turn to page 125 ofthe memorandum he will note that section 20 a of the existing act provides - 20 (a) (1) For the purpose of ascertaining the taxable income of a company the principal business of which is-life insurance there shall be excluded from the assessment the following amounts : -

  1. All premiums received in respect of policies of life insurance and all considerations received in respect of annuities granted and all income derived from any source whether in or outside Australia which, apart from the provisions of this subsection, would not be included in the assessment, and all expenditure exclusively incurred in gaining those premiums or considerations or that income.

The honorable senator will see that the same provision is embodied in somewhat different language in the clause.

Senator PAYNE:
Tasmania

.- I accept the Minister’s assurance, but I am afraid that the explanatory notes do not quite bear out what he has just said. The section to which he has directed attention provides that for the purpose of ascertaining the taxable income of a life assurance company, “ there shall be ex- cluded from the assessment” certain amounts which include “all expenditure exclusively incurred in gaining those premiums “. The clause states that such expenditure shall not be an allowable deduction.

Senator A J McLACHLAN:
Postmaster -Gener al · SOUTH AUSTRALIA · NAT

– The part of the bill which we are now considering deals with the revision and rearrangement of the provisions of section 20 a, without the introduction of any new principle in respect of life assurance companies. I can assure the honorable gentleman that if there had been any alteration of the law, we should have heard about it from the companies concerned.

Senator PAYNE:
Tasmania

.- I am not yet satisfied with the Minister’s explanation. Clause 111 states that the assessable income of a life assurance company shall not include premiums received in respect of policies of life assurance or considerations received in respect of annuities granted. It provides further, that the total income shall include such premiums as considerations. Clause 112 reads -

Expenditure incurred by a life assurance company exclusively in gaining such premiums or considerations, shall not be an allowable deduction.

How can it be contended that these two provisions do not introduce something different from whatis contained in the present act, particularly when read in conjunction with the explanatory note? If the Minister’s statement is correct, the drafting should be sufficiently clear to enable the clause to be understood.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– Clause 111 provides -

The assessable income of a life assurance company shall notinclude premiums received in respect of policies of life assurance, or considerations received in respect of annuities granted . . .

That, is quite clear. If clause 112 is read in conjunction with clause 111 it will be seen that they harmonize. The law has always been as is provided in clause 112. Neither the income obtained from premiums, nor the expenditure incurred in obtaining that income, is taken into account. I am informed that these clauses have been drafted in their present form to facilitate the framing of a subsequent portion of this division. The substance of the law is in the two clauses which I have read. The last sentence of clause 111 is included to show the total income upon which the formula provided in clause 113 operates.

Senator PAYNE:
Tasmania

.- The Minister said that no new principle is involved in respect of the activities of insurance companies. The memorandum must be incorrect, as on page 125 the following section is quoted - 20a. - (1.) For the purpose of ascertaining the taxable income of a company the principal business of which is life insurance, there shall be excluded from the assessment the following amounts: -

  1. all premiums received in respect of policies of life insurance and all considerations received in respect of annuities granted, and all income derived from any source, whether in or outside Australia, which, apart from the provisions of this sub-section, would not be included in the assessment, and all expenditure exclusively incurred in gaining those premiums or considerationsor that income;

That is the present law, but that is not what the bill provides.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– The honorable senator should study clauses 111 and 112.

Senator PAYNE:

– Clause 111 deals only with premiums, and clause 112 with the expenditure incurred in obtaining premiums, but that expenditure is not allowable as a deduction. A life assurance company cannot carry on without premiums, and, in obtaining premiums, has to incur certain expenditure. A retail distributor has to incur expenses in order to obtain business, as does an assurance company in securing premiums from policy holders.

Clause agreed to.

Clauses 113 to 123 agreed to.

Clause 124 verbally amended, and. as amended, agreed to.

Clause 125 - (1.) Where interest is paid or credited by a company to any person who is a non-resident -

  1. on money securedby debentures of the company and used in Australia, or used in acquiring assets for use or disposal in Australia; or
  2. on money lodged at interest in Aus tralia with the company, the company shall be liable, without affecting” its liability (if any) in respect of other income tax payable by it, to pay income tax upon that interest at the rate declared by the Parliament.
Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I move -

That the words “income tax upon tlhe interest,” paragraph (a) be left out.

That at the end of paragraph (b) the following sub-paragraphs be inserted: -

where the person to whom the interest is paid or credited is a company - income tax upon that interest; and

Where the person to whom the interest is paid or credited is not a company - income tax upon so much of that interest paid or credited in the year of income as exceeds Two hundred and fifty pounds.

These amendments have been found necessary as a corollary of the amendments moved by the Treasurer (Mr. Casey) in the House of Representatives to provide for a statutory exemption of £250 in respect of absentees.

Senator FOLL:
Queensland

– This clause provides that, in the event of the Commissioner of Taxation being unable to secure amounts paid by way of interest from overseas debenture holders, the company shall be liable. A company, being liable for the full amount of its own tax, should be allowed to deduct the additional amount paid on behalf of a defaulter.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

. A company is liable for the amount paid on behalf of an absentee, but it can recoup itself at the expense of the absentee.

Amendments agreed to.

Clause, as amended, agreed to.

Clauses 126 to 137 agreed to.

Clause 138 (Film business controlled abroad - taxable income) .

Senator ARKINS:
New South Wales

– I understand that the film industry in Australia is suffering special disabilities of the nature proposed in this clause under income tax measures of various States. Clause 137 deals with the Australian income of foreigncontrolled companies, insofar as such companies attempt to evade taxation by means of trading arrangements which do not disclose the true profits made from their Australian business. The film distributing interests claim that clause 137 is sufficient to cover their operations, and, therefore, there is no necessity for clause 138. An assessment made on a foreign company under clause 137 results in the taxation in Australia of profits which are also subject to tax abroad. This double tax, however, is due solely to an attempt by a foreign company to avoid income tax in Australia. For quite a long time it has ,been suggested that attempts have been made by certain foreign film companies to evade payment of tax by selling their films in Australia at an unjustifiably high price, and keeping the profits in their own country, while showing a false profit in the country in which they operated. But the same charge in :all likelihood could be levelled against oil and motor companies, and other foreign-controlled enterprises. If it is shown that the price charged by the foreign company to the Australian business is fair, the assessment under -section 137 is withdrawn; in that case there is no avoidance of income tax in Australia, and therefore, double tax is not charged. Under clause 138, however, -any profit which the overseas filmpro.ducing company may make out of its producing operations upon which it is liable to income tax abroad, is again taxed in Australia, notwithstanding that such profit may be properly attributable to sources abroad; that is, that the price charged to the Australian distributing business was fair. There is thus a vital difference between the two clauses, and a clear discrimination against the film industry. I understand, and I believe other honorable senators are also aware of this fact, and that this method of taxation, which is applied in the case of film companies, is different from that applied to other foreign-controlled companies, such as, for example, the oil and motor concerns. The film companies, are forced to pay a double tax, whilst the other companies are placed in. a different category. I understand that the governments of both New South Wales and Queensland are of the opinion that this is not a fair tax. When, the governments came together in conference, however, and decided on uniform legislation, all of them, apparently, accepted this means of taxation, presumably because it would bring in a greater amount of revenue. The taxation of foreign-controlled companies is dealt with in a different way in other countries. The United Kingdom, for instance, does not follow a course similar to that proposed in this measure. I suggest that the Minister should explain fully the particular reasons for the inclusion of this clause. If greater taxation has to ve op.id by the film industry, it will mean that films will become dearer, and that eventually the public who patronize .pictures will have to pay more for their entertainment. I suggest that the Government should extend to the film companies at least the same consideration which it extends to other foreign-controlled companies, such as those engaged in the oil and motor industries.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

. -These- clauses repeat in substance section 28a of the existing law. This section was inserted in the act in 1930, and was received with expressions of satisfaction by all parties in Parliament, the only criticism being that it had been too long delayed. Under the pre-existing law, it was not possible to tax foreign film-producing companies upon the income they derived through the exhibiting of their films in Australia. By the creation of subsidiary distributing companies in Australia and similar devices, their affairs were so arranged that their income was, technically, not derived from sources within Australia, and was, therefore, not liable to assessment. On the other hand, the charges to the subsidiary companies operating in Australia were so framed as to cause little or no profit to be made by them. Under the law as it then stood, the Commissioner pf Taxation could go no further than the subsidiary Australian companies in an attempt to assess and collect tax, but in this respect his powers were limited to cases where the business of the subsidiary company produced either no taxable income or less than the ordinary taxable income which might be expected to arise from that business. It was quite impossible for the Commissioner to obtain the necessary information to put into operation his powers in this respect, for he was unable to obtain from the subsidiary companies any information as to costs of production and other necessary expenses upon which he could form an opinion as to the amount of income which might be expected to arise from businesses of this nature. The attitude adopted was that this information was not available in Australia. Moreover, in the enforcement of any such assessment, the Commissioner could only levy upon any property in Australia of the subsidiary companies, and could not prevent the remittance abroad of large sums of money. Owing to the widespread demand that these foreign companies should pay tax upon the profits arising in Australia through the exhibiting of their films, this legislation was enacted. Its effect is that such a company must pay tax upon 30 per cent, of its gross Australian receipts unless it proves, by production of accounts, that this amount is excessive. This legislation has operated very successfully, and has resulted in the production of accounts which previously had been stated to be not available. The fact that, in some cases, 30 per cent, has been shown to be excessive does not detract from the value of the legislation, because it is only that legis- lation which has enabled the Commissioner to obtain the accounts necessary to ascertain what are the real profits of the companies. Moreover, the fact must be remembered that the legislation was closely followed by the depression period, during which the profits of these companies were, doubtless, considerably less than in normal times. If this legislation were now abandoned, the Commissioner would again be placed in a position where he would be limited to asserting such liability as he could, against the Australian subsidiary companies, while the foreign companies would go free in respect of the large profits derived by them through the instrumentality of the subsidiary companies. The fact that some States are not adopting a provision similar to this is not significant because, while the Commonwealth provision remains, they are able to base their assessments upon the information which the companies are compelled to produce by reason of the Commonwealth provision. This is a notional method of assessing an income. The Government says, in effect, to these companies, “We shall tax. you on profits at the rate of 30 per cent, of your gross receipts “. The onus is then on the companies themselves to produce the facts; if the facts are proved, then the Commissioner does not tax them on the 30 per cent, basis. What is wrong with that?

Senator Arkins:

– Can the Commissioner lower the rate of taxation?

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– Yes, and he does. At a time when there is so much internationalism in commerce, it would be unwise for us to show any laxity in our desire to control companies of this nature. We welcome them into this country, but we say, in effect, “ When yon come here, you must comply with all of the fiscal laws of this country “.

Senator Arkins:

– Have they been complying with the laws?

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– We have seen to that.

Senator E B JOHNSTON:
Western Australia.

– The film companies must do a marvellous business if their profits amount to 30 per cent, of their gross receipts.

Senator Collings:

– Nobody said thai.

Senator E B JOHNSTON:

– That is the profit on which the first assessment is made, and I do not know of any other class of business which returns so high a percentage of profit. It appears that under this clause profit, if any, properly attributable to overseas operations, which are subject to heavy taxation overseas, are liable to taxation in Australia. On the other hand, losses made overseas arc not allowed as a deduction against the income of the Australian companies. Neither are they carried forward and allowed as a set-off in future years, as is done in respect of all other taxpayers. It appears also that clause 13S applies only if the distribution of films is carried on in Australia by means of a subsidiary company. I am told that if the distribution is carried on by a branch of a foreign company, which is not separately incorporated, clause 138 will not apply. It seems to me to be an extraordinary state of affairs if we are prepared to continue legislation which gives an advantage to those companies that are represented here by a branch as compared with companies which are incorporated here. In these circumstances, it would appear that the bill penalizes a business because of the form in which it is carried on in Australia. Clause 137, which deals with other foreign companies, does not distinguish between businesses carried on in Australia by means of branches and those which operate through subsidiary companies. In view of the disclosures made to, and the information withheld from, the Royal Commission on Petrol, it would appear that if legislation of this nature is necessary in regard to the film industry, it is even more necessary in respect of some other foreign companies. I am opposed to the clause.

Clause agreed to.

Clauses 139 to 156 agreed to.

Clause 157-

  1. ) In respect of income derived during the year ending on the thirtieth day of June One thousand nine hundred and thirty-eight . . . the foregoing provisions of this division shall not apply except in respect of income derived by a primary producer.
Senator E B JOHNSTON:
Western Australia

– I move -

That the word “thirty-eight” be left out with a view to insert in lieu thereof the word “ forty “.

This clause provides that the averaging of incomes, other than those of primary producers, shall end after the 30th June, 1938. As during the depression all classes of the community had to submit to the averaging of their incomes, which acted to their disadvantage, the term of two years proposed in this clause is too short. In order that the lower incomes of the depression years may be taken into account now that conditions are improving, the term should be at least four years.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– The Royal Commission on Taxation recommended that the provisions of this section should come into force at once, but in order to allow a little breathing space the Government extended the time until the 30th June, 1938. Having regard to the generous nature of the bill, I ask the committee not to accept the amendment.

Amendment negatived.

Clause agreed to.

Clauses 158 and 159 agreed to.

Clause 160-

  1. In this section, “business” means a business which from its nature and character requires for its efficient working the retention in “Die business of some part of the taxable income of each year.
  2. This section shall not apply in any case bv reason only of the fact that the amount set aside, appropriated or written off the value of assets in the accounts of an individual in respect of depreciation, exceeds the amount, if any. allowable under this act in respect of depreciation of th,i.e assets.
Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I move -

That sub-clauses (2) and (3) be left out with h view to insert in lieu thereof the following sub-clauses : - “(2.) In this section, ‘business’ means a business which from its nature and character requires the retention in the business of not less than fifteen per centum of the taxable income of each year. (3.) This section shall not apply in an;, case by reason only of Die existence of any one or more of the following facts: -

The amount set aside, appropriated or written off the value of assets in the accounts of an individual in respect of depreciation, exceeds the amount, if any, allowable under this Act in respect of depreciation of those assets.

It is necessary to retain taxable income to meet expenditure of such a nature as would be, if and when incurred, a deduction under this act from assessable income.

It is necessary to retain taxable income to repay borrowed money.

It is necessary to retain taxable income to increase capital.”.

The amendment proposed represents a re-arrangement of the terms of the existing sub-clauses 2 and 3 for the purpose of expressing their intention more clearly. By a recent decision, the Board of Review has interpreted the corresponding provision in the existing law in a manner which would expose the revenue to heavy loss unless the terms of the provision be amended as proposed. The original object of the provision, which was incorporated in the law by the Income Tax Assessment Act 1922, was to grant the concession provided by the section to a limited class of business which, being fully capitalized, was bound to appropriate part of its taxable income for the purpose of preserving its assets at their original value. That provision was never intended to grant the concession, at the expense of other taxpayers, to a person entering upon a business with the use of borrowed money and retaining his taxable income in order to pay off his indebtedness, and so build up his capital. But the recent decision of the Board of Review would extend the benefits of the section to such a case. Hitherto, the section has been applied almost exclusively to pastoral propositions, where the natural increase of live stock must be retained to replace worthless animals, and thus enable the assets of the business to be maintained at their effective strength. The alteration of the wording of the sub-clauses will not deprive primary producers of the benefit of the section in those types of cases in which it is now being applied. It should be noticed that it is taxable income which must be retained. Thus, a retention of proceeds of the business under the heading of depreciation would not be a cause for the application of the section to a case, because the law already provides for complete exemption by way of deduction in an assessment of the part of the taxpayer’s gross receipts that represents the permissible provision for depreciation of plant and machinery. No further con cession, by way of reduction of the rate of tax on any part of the taxable income, could be justified or permitted in such a case.

Senator E B JOHNSTON:
Western Australia

– This is an example of how thoroughly the policy of the present Government differs from that laid down by Mr. S. M. Bruce when he was Treasurer of the Commonwealth. I am opposed to the amendment, which is designed to restrict, in more specific terms, the rebate allowed in respect of business incomes in the hands of individuals or partnerships. The original intention of section 30 of the existing act was to place an individual taxpayer or partnership on a basis more comparable with that of a company. Its intention was made clear in a speech delivered by Mr. Bruce in October, 1922, but in the administration of the act that intention has never been given full effect. The Supreme Court of Victoria held, in effect, in the case of Kiddle v. The Commissioner of Taxation, that the section should apply in cases in which some part of the taxpayer’s income was retained for the development of the business. The amendment will completely override that judgment. Repeated applications by taxpayers to the department on this subject have met with a large proportion of refusals. From an economic point of. view it is desirable that individual traders and (partnerships should be placed on the same basis as companies in regard to their ability to retain some part of their income for development and expansion, without being subject to further tax, and it is suggested that an appropriate way to do that would be to exclude subclauses 2 and 3 entirely. I shall read some of the evidence given by Mr. McKellar White, president of the Taxpayers Association of New South Wales, before the Royal Commission on Taxation on the 21st November, 1932. In respect of section 30, sub-section 2 of the act, Mr. McKellar White said -

It is recommended that sub-section 2 of this section be deleted. That is a matter which was referred to the other day, and it may be of interest to know that since then the Supreme Court of Victoria has given a decision under section 30 allowing the rebate that the Commissioner refused to allow. I have a. copy of the judgment in that case, which I will hand in for the information of the commission.

The Government now proposes to alter the law in order that other taxpayers may be deprived of the benefit of that judgment. Dealing with this matter, Mr. McKellar White said -

In connexion with this particular matter I have looked up federalHansard in connexion with the debates in Parliament at the time that the section was originally introduced in 1922. In introducing section 30 of the act in October,1922, the then Prime Minister, Mr. Bruce, stated– “ Relief or benefit is to be afforded to partnerships and to those carrying on individual business. At present a private company, although it may be to all intents and purposes a partnership, has a considerable advantage over the individual or partnership carrying on business. The private company pays tax at the company rate only on any part of its profits which is retained in the business and placed to a reserve, whereas individuals engaged in business, whose rate exceeds the company rate, are obliged to pay on the whole of their profits at whatever is the appropriate rate for their own income. The Government are desirous almost above anything to encourage the expansion and stabilizing of business by the placing to reserves of amounts which will help to effect these two objects; and in this bill, in order to give some encouragement to the individual or the partnership, and to place both a little more closely upon the terras enjoyed by the private company, provision is made by which. 15 per cent. of the profits earned by the individual or the partnership can be taxed at the company rate (of 2s. 5d.) instead of at the rate appropriate to the individual or partnership if the latter is higher than the former.”

My only regret is that, in this amendment, the Government is so thoroughly departing from the opinions expressed by that eminent statesman upon this matter. Mr. McKellar White, in evidence, said -

There wo have a definite statement by the Prime Minister at the time, that it was the intention of the Government to give some relief or some encouragement for the expansion of business. This section was specifically inserted for that purpose, but in administration it has been found that the rebate under section 30 is practically a dead letter. We suggest that it should bo eliminated, and that the original intention of the section should bc given effect to.

I regret that the committee is adopting the proposals of the Minister instead of inserting amendments which would give effect, to the intentions of Mr. Bruce when he was Treasurer.

Amendment agreed to.

Clause, as amended, agreed to.

Clauses 161 to 164 agreed to.

Clause 165-

  1. 1 ) Any person who charges directly or indirectly any fee . . . shall sign a certificate . . . setting out the sources of information from which the return was compiled.
  2. . Every person carrying on business shall furnish particulars . . . setting out the sources of information from which the return was compiled.
Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I move -

That the words “ the sources of information from which the return was compiled “, subclauses (1) and (2), be left out, with a view to insert in lieu thereof the words, “ such information as to the sources available for the compilation of the return as is prescribed “.

The object of the amendment is toenable information to be obtained from an agent or a taxpayer as to the sources of information which were available to him in preparing the return, and not only as to the sources of information which were actually used in preparing that return.I referred to this matter last night, and it has been accepted on all sides as an improvement upon the wording of the clause.

Amendment agreed to.

Clause, as amended, agreed to.

Clauses 166 to 169 agreed to.

Clause 170- (2.) Where a taxpayer has not made to the Commissioner a full and true disclosure ofall the material facts necessary for his assessment, and the Commissioner is of opinion that there has been an avoidance of tax. the Commissioner may -

  1. where he is of opinion that the avoid ance of tax is due to fraud or evasion - at any time: and
  2. in any other ease- within six years from the date upon which the tax became due and payable under the assessment, amend the assessment by making such alterations therein or additions thereto ashe thinks necessary to correct an error in calculation or a mistake of fact or to prevent avoidance of tax as the case may be. (4.) No amendment effecting a reduction in the liability of a taxpayer under an assessment shall be made except to correct an error in calculation or a mistake of fact; and no such amendment shall be made after the expiration of three years from the date upon which the tax became due and payable under that assessment.

Senator E. B. JOHNSTON (Western

Australia) [9.37]. - I move -

That paragraph (6) sub-clause (2), the word “ six “ be left out with a view to insert in lieu thereof the word “ three “.

The effect of this amendment will be to reduce, from six to three years, the time; under which amendments of assessments can be made by the Commissioner. The present law provides for a period of three years where records are kept, and for six years where no records are kept. The new provision is unsatisfactory, because it will enable the department to re-open many assessments, which could not be done under the existing law. As this applies only to cases where no fraud or evasion has occurred, I fail to see why the alteration should be made.

Amendment negatived.

Senator E B JOHNSTON:
Western Australia

– I move -

That sub-clause (4) be left out.

This clause stipulates the conditions under which assessments may be amended. Subclauses 3 and 4 are designed to prevent the re-opening of an assessment when a taxpayer has fully and openly disclosed to the department the whole of the material facts, except where an error of calculation or mistake of fact has occurred.

Senator Collings:

– That is the only ground for the re-opening of an assessment.

Senator E B JOHNSTON:

– The serious result of passing the sub-clause in its present form would arise when the decision of a court upset the ruling of the Commissioner of Taxation. Notwithstanding the fact that the court may decide that his ruling is illegal, or his interpretation of the law erroneous, taxpayers, other than the litigant who have been assessed under the Commissioner’s interpretation, can obtain no redress. The court cannot order the Commissioner to rectify an anomaly unless a ‘taxpayer has shown appropriate grounds for objection.

Amendment negatived.

Clause agreed to.

Clause 171 agreed to.

Clause 172-

Where by reason of any amendment the taxpayer’s liability is reduced, the Commissioner may refund any tax overpaid..

Senator DUNCAN-HUGHES:
South Australia

– Several years ago 1 raised this matter in relation to some minor taxing bill. I expressed the view, which is not in any way extreme, that if it is incumbent upon the taxpayer to pay his tax when assessed, it should be equally incumbent upon the Commissioner to refund any over-assessment, which is admitted by him to be such. The Minister then in charge of the bill (Senator Brennan) explained that the word “ may “ was mandatory, and had been held to be so by the courts ; for that reason there was no necessity to stipulate “ shall “ in lieu of “ may “. In view of the fact that this is the bill under which income tax, which is the principal form of direct taxation, is levied in Australia, I see no reason why the word “ may “ should persist in this clause. In drawing attention to this matter I am actuated only by a desire to see that equal justice is rendered to both parties. If honorable senators study the bill they will find that section after section contains the phraseology the taxpayer “ shall “ do this or that. If it is clear, on the Commissioner’s own admission, that the excess of tax is repayable, the clause should read that it “shall” be repaid. That is only just.

Senator A. J. McLACHLAN (South

Australia - Postmaster-General) [9.43] . - The honorable senator is quite correct in stating that compulsion embodied in the word “ shall “, is employed against the taxpayer, while it is not employed where the Commissioner is concerned. There is a reason for the adoption of this language in relation to what is a clear liability on the part of the Commissioner. The amendment of the assessment reduced the liability of the taxpayer. Money has been paid by him in excess of what ought to have been paid, and an action lies against the Commissioner for the recovery of it. The view expressed by the Crown Law authorities is that if the word “ shall “ is inserted in reference to the Commissioner in a taxing measure such as this he is obliged to refund the money without the right of any set-off. In the majority of contentious cases the Commissioner has other claims against the taxpayer. That is why there is a statutory obligation on the taxpayer, but not on the Commissioner. The provision has been so worded in order to make sure that the Crown gets the money which may be owing to it on some other account of the taxpayer.

Senator DUNCAN-HUGHES:
South Australia

– The Minister’s explanation is not particularly satisfactory to me, and it does not agree with a statement of opinion which I had from his colleague, Senator Brennan, a year or two ago. On that occasion, Senator Brennan said that the word “ may “ is frequently interpreted by the courts to mean “ shall.” On the other hand, the Minister in charge of the bill has just told us that it may be advisable for the Commissioner to retain money overpaid, as a set-off against other claims which the department may have against the taxpayer concerned. If a taxpayer is over-assessed he has to pay the amount, but may lodge an objection. In due course his objection is treated as an appeal. If, eventually, the Commissioner agrees that the taxpayer is right, there should be a definite obligation on the Commissioner to refund, without delay, the amount of the overcharge. Indeed it is not unreasonable to urge that there should be an interest charge against the Commissioner, just as there is an interest charge against the taxpayer who does not pay his assessment within the time allowed. To put this discussion in order, I move -

That the word “ may “ be left out, with a view to insert in lieu thereof the word “shall “.

Senator BRENNAN:
Acting Attorney-General · Victoria · UAP

– As my name has been mentioned in this discussion it is appropriate that I should say a few words about the point which has been raised by Senator Duncan-Hughes. I accept the explanation given by my colleague in charge of the measure (Senator A. J. McLachlan), that theclause has been so worded for the reasons given by him; but with regard to the use of the word “may” where the word “shall” might ordinarily be expected to be used, I can only say that in the courts the word “may” does receive frequently the force of the word “ shall “.

Senator Duncan-Hughes:

– Then why not have uniformity in these four or five clauses of the bill ?

Senator BRENNAN:

– If the circumstances were exactly the same, I have no doubt that it would be desirable to have uniformity. I agree that very often a taxpayer is overcharged, but it may well happen that in a previous year he has been undercharged, possibly because of his own malfeasance, to use a quite harmless word, and if authority were not expressly given to the Commissioner to set off against an overcharge an amount by which the taxpayer may have been undercharged, the Commissioner would not be entitled to retain the money and make the adjustment. There is, however, a presumption that governments, through responsible departmental officials, will always do the right thing. That is why, sometimes, in legislation referring to the obligations of governments are less manadatory than those relating to private individuals, and as the Commissioner of Taxation is the head of an important agency of government, there need be no fear that he will not do the right thing. If, as has been suggested, the Commissioner does not promptly repay money which, it is said, may rightfully belong to a taxpayer it cannot be put to any improper use; it cannot be stolen; it must be placed in some trust account, which may not be interfered with by any unauthorized person. No possible harm can be done by the retention of the word “may” in those provisions of the bill where the word “ shall “ might be used. If, however, the word “ shall “ is substituted for the word “ may “ in clause 172, the taxpayer who appeals successfully against his assessment may snap his fingers at the Commissioner and evade payment of money, which, because of under assessment in other years, he may owe to the department.

Senator ABBOTT:
New South Wales

– The committee may be interested to learn what happened about twenty years ago, concerning which I exonerate every living official of the Commonwealtih or State Taxation Departments. A friend of mine prepared his income tax return, was daily assessed, and paid the amount owing. Many years later, from certain information which he received, he discovered he had been overassessed to the extent of £500. That amount had been paid into a trust fund, and, of course, as Senator Brennan lias told us, no possible harm could come to it, although the taxpayer suffered the loss of interest on the amount overpaid for the whole of that period. The Commissioner and officials of the department must have known that he was entitled to a refund, but no action whatever was taken to do the right thing. When, however, he learned that the money was due to him, he made a claim, which was paid without demur. Senator Duncan-Hughes has submitted a very reasonable amendment. I am surprised that any member of the Government should attempt to defend the present practice, but I hope that the Minister in charge of the bill will adopt a more reasonable attitude. No possible harm can come to the department if in clause 172 we substitute the word “ shall “ for the word “ may “, thus requiring the Commissioner of Taxation to refund any money overpaid. There is no justification for the Commissioner retaining money overpaid, merely because the department may, at some later and unascertained date, have a claim against the taxpayer concerned. I hope that the Minister will accept the amendment.

Senator COLLINGS:
Queensland

.- I trust that the PostmasterGeneral (Senator A. J. McLachlan) will not do as was suggested by the previous speaker. The statement that persons liable to pay income tax are always anxious to discharge the debt, is inaccurate. The Commissioner of Taxation may have ‘had considerable trouble in obtaining money due by certain taxpayers. The suggestion is that money overpaid should not be held by the Commissioner against a certain debit.

Senator Abbott:

– That is sheer imagination.

Senator COLLINGS:

– It is not. The honorable senator might as well say that a storekeeper who always has trouble in collecting a debt from a customer should be compelled to make a refund in cash on goods which the customer returns while he still owes money to the storekeeper. If we use the word “ shall “ the Commissioner will be obliged to refund the amount overpaid, and incur the risk of not receiving money which will be due to him later. It ap pears that “may’’ has an entirely different meaning from “ shall “, and a mandatory provision will limit the powers of the Commissioner to protect other taxpayers.

Senator JAMES MCLACHLAN (South

Australia) [10.2]. - I intend to support the amendment moved by Senator DuncanHughes. Wherever the taxpayer is involved “ shall “ is used, but when the Commissioner is concerned “may” is employed, and in .that way the former is always at a disadvantage. The Assistant Minister (Senator Brennan) spoke of the officers of the Taxation Department as honorable gentlemen. We do not deny that, but he must admit that there are as many honorable men outside the Public Service as there are in it. The Leader of the Opposition (Senator Collings) who appears to have debits and credits somewhat mixed, said that because the taxpayer may incur a debt in some future year the Commissioner should have the right to retain any amount overpaid until that debt is liquidated.

Senator Collings:

– We are always in debt .to the Commissioner of Taxation.

Senator JAMES McLACHLAN:
SOUTH AUSTRALIA · UAP

– Taxpayers are not indebted until the amount of tax set out in the assessment becomes due. The Assistant Minister spoke of taxpayers having the best of the deal, but I do not think that that is the case when money owing to them is not refunded.

Senator Brennan:

– The point I made was that the Commissioner would always refund an amount overpaid unless there were valid reasons for not doing so.

Senator JAMES McLACHLAN.Senator Abbott cited the case of a man who overpaid £500 and did not recover it until years later. I could mention an instance even worse than that. When the department holds money belonging to a taxpayer it will retain it as long as it possibly can.

Senator BROWN:
Queensland

– It is not often that I disagree with the views expressed by the Leader of the Opposition (Senator Collings). A few weeks ago I was assessed for double the amount which I should have paid. I brought the matter under the notice of the authorities, but had I paid the money [ would have expected an immediate refund. If we are to have uniformity in our taxation laws, Ave should, in this instance, insert “ shall “ instead of “ may I do not agree with the Leader of the Opposition that money over-paid should be held against a possible future debt, because money due to a taxpayer should be refunded. I think that the difficulty could be overcome by amending the clause to read -

Where by reason of any amendment the taxpayer’s liability is reduced, and where there is no counter claim, the Commissioner sh ali refund any tax over-paid.

The Acting Attorney-General said that that will be done automatically, but where there is no counter claim the money should be refunded without delay.

Senator DEIN:
New South Wales

– I am inclined to support the views expressed by Senator DuncanHughes. It has been said that the Commissioner will refund money that is overpaid, but how is the taxpayer to know that money is owing to him? The Commissioner and his officers are the only ones who know, and according to the Acting Attorney-General, the onus will be upon the Commissioner, and upon no one else to refund the money. If the clause provides clearly that the money shall be refunded, the Commissioner has no alternative but to carry out the law. I cannot agree with the Leader of the Opposition, when he says that the Commissioner is justified in withholding money due to a taxpayer, because in a subsequent year the taxpayer may owe money to the department-

Senator Collings:

– I referred only to exceptional cases.

Senator DEIN:

– I do not wish to misrepresent the honorable senator, but I understood him to say that the Commissioner was justified in withholding money over-paid until such time as the taxpayer may owe money to the Commissioner. We should not employ words in regard to the meaning of which there is doubt. It should be obligatory upon the Commissioner to refund the money due to a taxpayer, particularly as the amount paid to the Commissioner may have been obtained by way of an overdraft. I trust that the Postin aster-Gener al (Senator A. J. McLachlan) will accept the fair and reasonable amendment moved by Senator Duncan-Hughes.

Senator BRENNAN:

– The next clause makes it mandatory upon the Commissioner to notify the taxpayer of what has happened.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– Where “ may “ is used in relation to the imposition of a duty it connotes an obligation. In Stroud’s Judicial Dictionary, second edition, I find the following: ^ “ May “, and such enabling words as those above referred to, therefore group themselves into two classes according as they impose or give -

  1. . An obligatory duty.
  2. A discretionary or enabling power.

I suggest that it is immaterial whether

Ave use the word “may” or the word “ shall “, and I intend to adhere to the clause in its present form.

Senator ABBOTT:
New South Wales

– The two Ministers who have spoken have said that money over-paid may be held against a possible debt to the Taxation Department, thereby showing clearly that there is a possibility of the Commissioner exercising his discretion. Later, the Postmaster-General said, even though the word “ may “ is used, it is obligatory upon the department to repay amounts over-paid. One argument destroys the other.

Senator J V MACDONALD:
QUEENSLAND · ALP; FLP from 1932

– I appreciate the point made by the Minister that, strange as H may seem, some of our common English words are capable of t-AVO meanings; that “ may “, for instance, can, in certain circumstances, mean “ shall “. I have had experience of what government departments can do so far as demands on taxpayers are concerned. Accepting the position, however, that the departmental officers may .be right in 49 cases out of 50, they will be tempted, mi the fiftieth case, if they are given permissive power under this clause, to cover up a departmental mistake, particularly when the amount involved is small. The department - and I do not blame it - gets every penny it can collect; I could give two or three instances of its actions in this respect. I support the amendment moved by Senator Duncan-Hughes, with this proviso - which, I think, offers a reasonable way out of the difficulty - that to it, after the word “overpaid”, the following words should be added: “ where the taxpayer is not otherwise indebted to the Commissioner “. If the taxpayer is up to date with his payments I can see no reason why it should not be made mandatory on the Commissioner to refund any tax overpaid.

Senator DEIN:
New South Wales

– Is the intention of this clause to make it obligatory upon the Commissioner to refund overpaid tax, or that the Commissioner may refund such tax at his discretion?

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– -Beading the clause as a lawyer, I should say it makes it obligatory upon the Commissioner to refund overpaid tax. However, if the dominant view of the committee is that the word “ shall “ should be inserted in lieu of the word “may”, I do not think that any harm will be done by the amendment.

Senator DUNCAN-HUGHES:
South Australia

– It was suggested by the Acting Attorney-General (Senator Brennan) that overpaid tax should be set off against other money that may be due to the Commissioner. I emphasize that this money is, admittedly, wrongly paid, or paid by a mistake on the part of either the taxpayer or the Commissioner, and ought not to bein the hands of the Commissioner at all. It would be grossly inequitable, therefore, to set it off against any amount whatever. This is a matter in which, I suggest, we should pay attention more to uniformity and to ensuring that the law operates equally both ways, than to any other aspect. I do not speak with any hostility; long ago, I suggested the use of the word “ shall “ in this connexion, and if “ shall “ is inserted in lieu of “ may “ in this instance there will be no room for doubt that the Commissioner is obliged to refund the tax overpaid.

Amendment agreed to.

Clause, as amended, agreed to.

Clauses 173 to 184 agreed to.

Clause 185-

A taxpayer dissatisfied withany assessment under this act may, within sixtydays after service of the notice of assessment, post to or lodge with the Commissioner an objection in writing against the assessment stilting fully and in detail the grounds on which he relics:

Senator LECKIE:
Victoria

.- I move -

That the word” sixty “ be left out with a view to insert in lieu thereof the word “ ninety “.

If taxpayers are overseas, a period of 60 days is not sufficient to enable their agents to communicate with them, and to receive a reply in time to lodge objections. I understand that at present the period for lodging objections is 60 days, and that an extra 30 days may be allowed at the discretion of the Commissioner.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– It is 42 days, with an extra discretionary allowance of 30 days, or 72 days in all.

Senator LECKIE:

– My proposal will relieve the fears of agents whose principals are overseas at the time assessments are received.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– Some of the States now prescribe a shorter period than 60 days for lodgment of objections; in some States it. was as low as fourteen days, and 60 days was accepted as a compromise. I cannot accept the amendment.

Senator Leckie:

– I was afraid that the period of 60 days would be too short, and would lead to objections -which would not otherwise be made.

Senator A J McLACHLAN:
SOUTH AUSTRALIA · NAT

– That point was fully considered by the States.

Senator Leckie:

– In that case, I shall not press my amendment.

Amendment - by leave - withdrawn.

Senator E B JOHNSTON:
Western Australia

– I move-

That after the word “ assessment “, second occurring, the words “ or within such further time, not exceeding twelve months after the date of service, as the Commissioner or the Board of Review may allow “ be inserted.

The purpose of this amendment is to make less rigid the time limit imposed upon a taxpayer wherein he may lodge formal notice of objection. The clause as drafted confers no right upon the Commissioner to extend the time of 60 days within which he may accept notice of objection, no matter what the circumstances may be; he may think it fair to extend the time, hut is powerless to do so. While normally a period of 60 days should be ample for a taxpayer to take the steps necessary to protect his rights, in many cases, owing to special circumstances, it will prove insufficient. It must be remembered that an objection in general terms is not sufficient; the bill provides that it must be stated “ fully and in detail “. This entails, in all but the simplest cases, reference to the taxpayer’s legal advisers. If a taxpayev resides in a distant part of the country, or, perhaps,- is at the time abroad, such period is quite inadequate. The Minister refused to accept the amendment proposed by Senator Leckie on the ground that it would defeat the endeavour to achieve uniformity. My amendment would bring about uniformity, because the bill before the New South Wales Parliament, which is supposed to be uniform with this one, provides for these contingencies. Clauses 219 and 241 of the measure provide that the Commissioner may extend the time for the lodgment of an objection up to twelve months, and should he decline to meet the taxpayer in this regard, the taxpayer may then apply to the board of appeal for such extension. The need to liberalize the existing provisions is all the more necessary in view of the fact that clause 170 precludes any amendment of an assessment other than in relation to errors of calculation or of fact, if the taxpayer has not lodged an objection. In other words, no matter how grossly incorrect an interpretation of the law might have been,no alteration can be made by either the Commissioner or the court unless the taxpayer has lodged objection on the proper ground and within the stipulated time. Unless it, desires to collect taxe3 to which it is not, legally entitled, the Government would not lose anything by accepting the amendment. I do not believe that it has any such desire, and, therefore, I hope that it will accept the amendment.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

. - The provision allowing for 60 days is a liberalization of the existing act, which allows for only 42 day3. Acceptance of the honorable senator’s amendment would seriously affect uniformity and pre judice taxpayers in States other than New South Wales. In Victoria, only fourteen days are now allowed for the lodging of an objection. In the administration of taxation acts, there must be a definite time limit for the lodging of objections and appeals. If the caseis one in which the Commissioner readily agrees that an amendment should be made, it can be done under the general provisions of the act, which permit the Commissioner to amend an assessment within three year3 in respect of questions of fact. Whatever period is fixed, the same argument could be put forward in favour of an extension. If the honorable senator is right in his remark in relation to the bill before the New South Wales Parliament, I can only say that I have no knowledge of any departure from the uniform provision agreed to at the conference. This subject was discussed at the conference in my presence, and I was clearly of the opinion that a period of 60 days had been accepted by all the States. That, I submit, is a considerable period, and as the point raised by the honorable senator can be met in a variety of other ways, I must oppose his amendment.

Amendment negatived.

Clause agreed to.

Clauses 186 to 189 agreed to.

Clause 190-

Upon every such reference or appeal -

the taxpayer shall be limited to the grounds stated in his objection ; and

the burden of proving that the assessment is excessive shall lie upon the taxpayer.

Senator E B JOHNSTON:
Western Australia

– I move -

That after the word “objection”, paragraph (a), the following words be inserted: - “unless the board or court hearing the appeal gives leave to add further grounds. In such a case the Commissioner shall have 30 days (after the furnishing by the taxpayer of any information required by the Commissioner in relation to such further grounds) within which to consider the further grounds “.

The proposal is merely to give the Commissioner power to do certain things, and is in agreement with the provision of the New South Wales bill. Its inclusion in this measure is desired for the reasons that were given in regard to the proposed amendment of clause 185. It is a matter for regret that the Minister has not the New South Walesbill before him.

Senator Arkins:

– The New South Wales draft bill may not be accepted by the State parliament.

Senator E B JOHNSTON:

– The Minister says that we should aim at uniformity. My amendment would make for uniformity. As the bill stands, no matter how incorrect an assessment may be, a court cannot order the Commissioner to correct it unless the taxpayer has stated the proper grounds of objection. Nor has the court any power to allow an objection to be altered. On matters of appeal’, it is submitted that the court or the board of review should be left as free as possible to determine the questions at issue, and should not be bound by technicalities as to whether or not the taxpayer included certain grounds in his original objection. It might be suggested that the acceptance of the amendment would leave the way open to unscrupulous tax agents to omit to disclose the real grounds of objection until the appeal reached the court. It is not thought that great weight can be given to the suggestion, and, in any case, the court itself has a discretionary power in the matter.

Senator A J McLACHLAN:
Postmaster-General · SOUTH AUSTRALIA · NAT

– I ask Senator Johnston not to press his amendment. Strong representations along similar lines have been made to the Treasurer both by the Chamber of Commerce and at the conference. The almost unanimous opinion of the conference of experts was that, if the request were acceded to, it would tend to destroy uniformity. The States would not be prepared to accept the proposal, in view of the variety and status of the courts which now deal with appeals. The AttorneyGenerals of the. States have agreed to accept the extension asked for as soon as an appellate tribunal has been constituted. At this stage, however, I cannot accept the amendment.

Senator DUNCAN-HUGHES:
South Australia

– In my secondreading speech I indicated that I proposed to move an amendment along the lines of that now before the committee. In form it is shorter than the amendment of Senator Johnston. It seeks the inclusion of the words “ and to such other grounds as the board or court hearing the appeal gives leave to add “. My object is to ensure that taxpayers, who generally are not persons learned in the law, are not debarred from placing before the board or court anything that might be said on their behalf. In my opinion, any tendency on the part of a taxpayer to add to his original objection without justification is met by the requirement that the consent of the court or the board to the addition must be obtained. Many taxpayers, particularly those in country districts, know very little about the law; they are not likely to set down their objection in other than a roughandready form in the first instance, although they may subsequently want to add certain details.. If they desire to add them, I cannot see any reason why they should not be allowed to do so. This is not a vital matter, but is simply an attempt to ensure that a taxpayer is not debarred from putting forward all that can be said on his behalf. In the event of an appeal, the average taxpayer, who is largely ignorant of the taxation laws, is confronted with a body of financial and legal experts, and, therefore, he ought to be given every opportunity to put forward the best case that he can for himself. I cannot see that by agreeing to allow him to amend his objection, we shall do any injustice to the Commissioner or to the Commonwealth.

Amendment - by leave - withdrawn.

Amendment (by Senator DuncanHughes) put -

That after the word “ objection “, paragraph (a), the following words be inserted: - “ and to such other grounds as the board or court hearing the appeal gives leave to add.”

The committee divided. (Temporary Chairman -Senator J. B. Hayes.)

AYES: 15

NOES: 12

Majority . . . . 3

AYES

NOES

Question so resolved in the affirmative.

Clause, as amended, agreed to.

Clauses 19] to 194 agreed to.

Progress reported.

page 1927

PAPERS

The following papers were pre sen ted : -

Postmaster-General’s Department - Twenty fifth Annual Report,1934-35.

Ordered to be printed.

Northern Australia Survey Act - Additional Photographs for incorporation inthe Report laid on the Table on 23rd April 1936.

page 1927

HOUR OF MEETING

Motion (by Senator SirGeorge pearce) agreed to -

That the Senateatitsrising, adjourn till 11a.m. to-morrow.

Senateadjourned at 10.50 p.m.

Cite as: Australia, Senate, Debates, 20 May 1936, viewed 22 October 2017, <http://historichansard.net/senate/1936/19360520_senate_14_150/>.