House of Representatives
30 September 1924

9th Parliament · 2nd Session



Mr. Speaker (Rt. Hon. W. A. Watt) took the chair at 3 p.m., and read prayers.

page 4860

TARIFF AND COST OF PRODUCTION

Petition

Mr. PATERSON, in the absence of the honorable member for Riverina (Mr. Killen), and on his behalf, presented a petition in favour of largely reducing the cost of primary production attributable to the nigh duties on machinery and means of transport used by settlers. The petition was signed by Mr. Charles Milthorpe, president, and Mr. George Jones, secretary of the Eurangeline branch of theFarmers and Settlers Association, New South Wales.

Petition received and read.

Mr SPEAKER:

– That would not be in order.

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

– I should like, sir, to ask you whether an honorable member would be within his rights in moving for the addition to the petition which has just been read of a new clause mentioning the high price of land as one of the evils from which settlers are suffering ?

Mr SPEAKER:

– The House is aware that the right of petition extends back a good many centuries, and is the privilege of every citizen. It would not be in order to propose to add anything to the petition which has just been read.

page 4860

PRINTING COMMITTEE’S REPORT

Report No. 4 of the Printing Committee presented by Mr. Corses, read by the Clerk, and adopted.

page 4860

QUESTION

WRECK OP DOUGLAS MAWSON

Rescue or White Women

Mr WEST:
EAST SYDNEY, NEW SOUTH WALES

– After the House adjourned on Friday last I paid myusual visit to Sydney. While there I was asked to put a question to the Prime Minister to-day, and, in order that he may understand it, I quote the following : -

The executive of the Women’s League of New South Wales has passed a resolution urging the federal authorities to offer a substantial reward for the rescue ofthe two white women survivors of the wrecked steamer Douglas Mawson, supposed to have been captured by Northern Territory natives; or for further authentic information concerning the women.

I ask the Prime Minister whether the Government is prepared to offer a reward for the rescue of these women, or to secure authentic information regarding their fate, to relieve the minds of the women of Australia, because of the cruel position in which these women are placed and of the delay in connexion with their attempted rescue?

Mr BRUCE:
Minister for External Affairs · FLINDERS, VICTORIA · NAT

– It is not necessary to offer a reward or any other inducement to urge the people of Australia to take all steps possible to rescue these unfortunate women. The Government do not consider it necessary or proper to offer a monetary reward for the rendering of a service which is so obviously its duty and that of every citizen in the community.

page 4860

QUESTION

TURKISH INVASION OF IRAQ

Mr MANN:
PERTH, WESTERN AUSTRALIA

-Is there any information which the Prime Minister can give the House regarding the very threatening situation reported on Saturday last as having arisen in the Iraq area in connexion with the Mosul question?

Mr BRUCE:
NAT

– I have no information which I can give the House at the present time. As the honorable member knows, the matter was brought under the notice of the League of Nations. Beyond that fact there is no information that I can make available to the House.

Mr MANN:

– Has the right honorable gentleman information that it is correct that a Turkish invasion of the Iraq area has taken place?

Mr BRUCE:

– I have no information on that point, beyond what has appeared in the press.

page 4861

QUESTION

ALIEN IMMIGRATION

Mr WATKINS:
NEWCASTLE, NEW SOUTH WALES

– Following up previous questions, I now ask the Prime Minister whether he has any information to give the House with respect to the immigration of aliens from. southern Europe? Has the right honorable gentleman seen a statement lately appearing in the press to the effect that these people are able to come to Australia on payment of £12 passage money as against £32 passage money required from British immigrants, and, further, that they are not subjected to the same medical examination as are British immigrants 1

Mr BRUCE:
NAT

– I have dealt on several occasions with the immigration of Italians and other southern Europeans. If the honorable member desires any further information, and will place his question on the notice-paper, I shall endeavour to satisfy him. Regarding the specific cases he has mentioned, I regret that the information has not yet been supplied to me, but I shall try to get it for him in the course of the next day or two.

page 4861

QUESTION

COCKATOO ISLAND DOCKYARD

Mr MAHONY:
DALLEY, NEW SOUTH WALES

– Is the Prime Minister aware that within the next fortnight hundreds of men will be discharged from the Cockatoo Island Dockyard? Will he take steps to have work provided immediately so as to prevent that calamity?

Mr BRUCE:
NAT

– I shall investigate the matter with a view to seeing whether anything can be done in the direction desired by the honorable member.

page 4861

QUESTION

TELEPHONE AND TELEGRAPH INSULATORS

Mr FENTON:
MARIBYRNONG, VICTORIA

– Can the PostmasterGeneral say whether steps will be taken to prevent the employees in the insulator- making industry from being thrown out of employment by the cancellation of orders from the Postal Department? I understand that the employers are keeping their men employed temporarily in the hope that the department will come to their rescue. They have installed special machinery, and have trained their staffs specially for dealing with post office requirements.

Mr GIBSON:
Postmaster-General · CORANGAMITE, VICTORIA · CP

– My department is using Australian material wherever possible. During the last two years it has used, for the first time, Australian leadcovered cables. The insulator position became very critical at one period, and the department was compelled to import a small number of A type insulators. The difficulty of obtaining adequate supplies of insulators for telephone and telegraph purposes throughout the Commonwealth during the past two years has caused the department serious embarrassment, and in a large number of instances wires have had to be slung prior to the supply of the insulators in order that the work of gangs might continue. The orders placed outside Australia during the years 1922-23 to 1924-25 were as follow: -

During the same three years the requirements and actual output of Australian supplies were as follow : -

During 1923-24 the average requirements of the department totalled 286,075 insulators a month, but up to the end of February only 1,797,700 had been delivered, representing a deficiency of 490,900. Throughout this period the department had adopted every possible means to induce contractors to speed up their -work, but nevertheless there was a very serious set-back during the months of December, January, and February. The total deliveries for that quarter reached only 522,944. In consequence of the serious dislocation of departmental operations resulting from the failure of supplies, and iii order to minimize further inconvenience in the execution of departmental works, supplementary orders for 300,000 insulators were placed abroad in February, 19^4. Of the total insulators required for 1924-25, rather less than S per cent, were ordered from overseas, arrangements being made to ensure delivery early in the financial year, with a view to overcoming the disabilities resulting from insufficient deliveries from the normal sources of supply. During the past twelve months the undermentioned orders have been placed with Australian manufacturers : -

The Australian deliveries under current contracts for the months of June, July, and August, 1924, totalled 1,256,455, which was by far the largest output on record, and was more than the department will need normally, when the arrears of supplies have been overtaken. The department is quite satisfied with the Australian insulators, and as many of them as possible are being used.

page 4862

QUESTION

PREFERENTIAL TRADE WITH CANADA

Mr ANSTEY:
BOURKE, VICTORIA

– Will the Minister for Trade and Customs lay on the table the report of the Tariff Board regarding preferential trade relations between Australia and Canada?

Mr PRATTEN:
Minister for Trade and Customs · MARTIN, NEW SOUTH WALES · NAT

– Yes.

page 4862

QUESTION

SHIPMENT OF AUSTRALIAN PRODUCE

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

-Will the Prime Minister give honorable members before the House rises an assurance that, if Japanese shipping companies secure a substantial part of the business of carrying wheat and wool from this country, steps will be taken to put an export tax on produce carried from this country in foreign ships, with the object of protecting Australian and British shipping companies?

Mr BRUCE:
NAT

– I cannot give the honorable member such a general undertaking as he has invited me to give.

page 4862

QUESTION

COUNTRY POST OFFICES

Opening Charges

Mr R GREEN:
RICHMOND, NEW SOUTH WALES · CP

– Is it a fact that the charges for opening post offices in the country after hours have been increased from ls. to ls. 6d. ?

Mr GIBSON:
CP

– No increase has been made in the fees for opening country post offices.

page 4862

QUESTION

MINISTER FOR WORKS AND RAILWAYS

Visit to CANBERRA

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

– Will the Prime Minister ensure that the new Minister for Works and Railways (Mr. Hill) has an opportunity to make an extended visit to the Federal Capital Territory, so that he may become imbued with the federal spirit that pervades Canberra and its environs ?

Mr BRUCE:
NAT

– I have no doubt that the Minister for Works and Railways will find that his official duties will require him to visit Canberra.

page 4862

QUESTION

PRIME MINISTER’S VISIT TO WESTERN AUSTRALIA

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

asked the Prime Minister, upon notice -

  1. Will he say if he can give the approximate date- of his proposed visit to Western Australia?
  2. Can he make it convenient to spend a day in Kalgoorlie in order to glean a knowledge of underground gold mining!
  3. Will he include the important port of Geraldton in his itinerary?
  4. Will he consider the question of visiting the north-west ports and Kimberley on this occasion, so as to become acquainted with the pearling and pastoral industries of this important and large portion of the Australian continent ?
Mr BRUCE:
NAT

– It is not possible at this stage to state an approximate date nor to indicate which districts or centres will be visited in connexion with the proposed visit to Western Australia. The suggestions of the honorable member will, however, be borne in mind when any arrangements are being made.

page 4863

QUESTION

CONFECTIONERY

Mr GREGORY:
SWAN, WESTERN AUSTRALIA

asked the Minister for

Trade and Customs, upon notice -

  1. What was the value of confectionery imported into Australia for the year 1923-24?
  2. What was the recorded value of confectionery manufactured in Australia during the same period?
  3. What would have been the amount of duty payable had the value of the Australian manufactured confectionery been imported under our preferential tariff rate?
  4. What was the recorded amount of wages paid to employees in the confectionery industry in Australia during the period 1923-24?
Mr PRATTEN:
NAT

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

  1. £67,362.

2, 3, and 4. This information will not be available until early next year.

page 4863

QUESTION

MAIZE

Importations from South Africa..

Mr CORSER:
WIDE BAY, QUEENSLAND

asked the Minister for Trade and Customs, upon notice -

  1. Is it a fact that the Commonwealth Parliament, when dealing with the Tariff in 1921, passed an import duty of 3s. per cental on maize from South Africa?
  2. Is it a fact that it was subsequently made inoperative owing to an ancient reciprocal treaty with South Africa providing for1s. per cental ?
  3. Is it a fact that the then Minister for Trade and Customs promised definitely that the Government would secure promptly an alteration of the reciprocal treaty with South Africa?
  4. If so, will he state what has been done in this direction to safeguard the producers of maize in the Commonwealth against the introduction of black-grown maize from South Africa?
Mr PRATTEN:
NAT

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

  1. From 14th October, 1921, the general tariff on maize was made 3s. per cental. Hansard indicates that at the time of the debate it was intended the general tariff rate should apply to maize from South Africa.
  2. Yes, by the Customs Tariff (South African

Preference) Act 1906.

  1. No definite promise can be traced, but the matter was the subject of negotiations in 1921.
  2. The matter is now again the subject of negotiation with the Government of South Africa.

page 4863

QUESTION

PREFERENTIAL DUTIES

Proportion of British Manufacture

Mr FENTON:

asked the Minister for Trade and Customs, upon notice -

  1. What arrangements have been made with other oversea dominions in reference to percentage of British manufacture in goods imported into Australia?
  2. If there is a difference of opinion among the dominions in respect to the percentage of British manufacture in goods imported, has the Commonwealth Government the right to proceed on lines most beneficial to Australia independent of the decision of other oversea dominions in respect to this question?
Mr PRATTEN:
NAT

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

  1. The percentage referred to has been in force since preference to British goods was first accorded in 1907. Other British dominions have since adopted the same standard, and a uniform invoice declaration has been drawn up, but except as to New Zealand and South Africa there is no definite arrangement.
  2. Yes.

Later -

Mr PRATTEN:
Minister for Trade and Customs · Martin · NAT

(By leave.) - The Customs Tariff Act provides that goods, the produce or manufacture of the United Kingdom, and shipped from the United Kingdom to Australia, shall be admitted at the rates of the British preferential tariff. Hitherto goods have been regarded as being the produce or manufacture of the United Kingdom if British labour or materials constituted 25 per cent, of their factory cost or works cost. In the case of goods containing British labour or materials which are exported to a foreign country and undergo in such country a process of manufacture and are then returnedto the United Kingdom for further manufacture, only such British labour or material as is added after their return to the United Kingdom is taken into account in calculating the proportion of 25 per cent. When, however, all the processes of manufacture have to be carried out in the United Kingdom, admission is allowed at British preferential tariff rates even though the proportion of British labour and material is less than 25 per cent. For instance, an article of jewellery wholly made in United Kingdom from raw imported gold would get British preferential tariff rates, although the value added by British labour might be less than 25 per cent, of the factory or works cost. These conditions have been in force since the introduction of preference to the United Kingdom in the year 1907, and similar conditions are adopted by the other dominions as well as the United Kingdom. They likewise apply to the Commonwealth’s tariff agreements with New Zealand and South Africa. For some years past the Government has been giving very serious consideration to these conditions, and as a result of investigations made has come to the conclusion that they are pressing hard upon some Australian industries, especially textiles, iron and machinery, and call for drastic alterations. When goods are exported direct from continental countries to Australia the provisions of the Industries Preservation Act supply a means of protecting our industries from the cheap products of these countries by the imposition of dumping duties, and these provisions have undoubtedly often prevented serious detriment being caused to our industries by such importations. But when goods of continental origin are imported into Great Britain, under present conditions the addition of 25 per cent, to their value by British labour or materials entitles them to admission into Australia at preferential tariff rates. They not only gain thereby immunity from dumping duties, but also* actually get the benefit of the lower rates of duty on goods of British produce or manufacture. Consequently, it will be seen that the present conditions of preference virtually give a premium to the use of continental labour and materials in Great Britain, to the detriment, not only of Australian industries, but also of the industries in Great Britain producing all British goods. And this is not the only objection. There are many classes of materials that can only be obtained in continental countries. If an Australian manufacturer imports them, he must pay the rates of the general tariff, whereas a British manufacturer can import the same materials, submit them to a process of manufacture which constitutes a mere 25 per cent, of the value of the finished goods, and then get them into the Commonwealth at preferential rates. During the Prime Minister’s recent visit to England, the subject was discussed with representative British manufacturers, and after full consideration they thoroughly agreed that it was essential, in the interests of British as well as Australian manufacturer, that some alteration should be made. The suggestion that the proportion of British labour and materials re- quired to qualify for preference should be increased from 25 per cent, to 75 per cent, was very generally accepted, subject to the modification that in the case of goods in which all possible processes of manufacture had been performed in Great Britain a lower proportion might be required. In view of the fact that all the dominions have been acting hitherto on a uniform basis in this matter negotiations were initiated, as a beginning, with New Zealand, for the purpose of making a general alteration. These negotiations have now been brought to finality. The Prime Minister of New Zealand has expressed his agreement with the necessity for an alteration, and has agreed that the percentage of 75 per cent, should be adopted. After mature consideration of the subject, the Government has decided to tak© the following action: - As regards goods which are partially manufactured in the United Kingdom, the requisite proportion of labour and material entering into the goods to entitle them to British preferential tariff rates will be raised from 25 per cent, to 75 per cent. Where, however, it is claimed that all possible processes of manufacture have been performed in the United Kingdom, subject to that fact being established to the satisfaction of the Minister as a result of inquiry and report by the Tariff- Board, admission at British preferential tariff rates will be allowed, provided, however, that under this clause no goods of a class or kind made or produced in Australia will be accorded the preference unless at least 50 per cent, of the works or factory cost consists of United Kingdom labor or material. Under this clause, British newsprint would be exempt, for the reason that there is no industry of the kind in Australia. If the proportion of British labour and material in British newsprint should be less than 50 per cent., it would still come into Australia under the British preferential tariff, provided that all possible processes tff manufacture have been carried out in the United Kingdom. In regard to goods which have a£ some stage entered into the commerce of, or have undergone a process of manufacture in, a foreign country, and have been returned to the United Kingdom for the completion of manufacture, the total value of the labour and material which was expended in the United Kingdom will be taken into account and not as at present, merely that portion which is added after their return to the United Kingdom. The existing conditions that the final process of manufacture must be performed in the United Kingdom and that the goods must be shipped from the United Kingdom to Australia will be maintained. The action necessary to give effect to the alteration will be taken by the making of a regulation under the provisions of the Customs Act, and in order that due notice may be given to all concerned of the changed conditions, it is proposed to bring the new arrangement into operation on the 1st April, 1925, that being the earliest date possible, in view of the changes that will be entailed. The altered conditions of preference will also apply to the reciprocal tariff agreements with New Zealand and South Africa. Action will be taken immediately to notify the authorities in the United Kingdom,, and also all the other dominions.

page 4865

ASSENT TO BILLS

Assent to the following bilk reported : -

Papua Bill.

Service and Execution of Process Bill.

Tasmania Grant Bill.

Excise Tariff (Spirit) Bill.

Tariff Board Bill.

Quarantine Bill.

Boy Scouts Association Bill.

page 4865

DAIRY PRODUCE EXPORT CONTROL BILL

Bill returned from the Senate with amendments.

page 4865

PAPERS.

The following papers were presented: -

Arbitration (Public Service) Act - Determinationsby the Arbitrator, &c. -

No. 53 of 1924 - Line Inspectors’ Association

No. 54 of 1924 - Meat Inspectors’ Association

Commonwealth Board of Trade - Report on the subject of Trade with India, China, and the East, together with an addendum containing particulars of certain developments which have occurred in connexion with the subject since the Report was prepared.

Defence Act - Regulations Amended - Statutory Rules 1924, No. 138

Naval Defence Act - Regulations Amended - Statutory Rules 1924, No. 137

Northern Territory Acceptance Act and Northern Territory (Administration) Act - Ordinance of1924- -No. 20 - Registration.

Public Service Act - Regulations Amended - Statutory Rules 1924, Nos. 141, 142, 143

Treaties of Peace (Austria and Bulgaria) Act - Regulations Amended - Statutory Rules 1924, Nos. 135, 136

Treaty of Peace (Germany) Act - Regulations Amended - Statutory Rules 1924, No. 133

Treaty of Peace (Hungary) Act - Regulations Amended - Statutory Rules 1924, No. 134

page 4865

INCOME TAX ASSESSMENT (LIVE STOCK) BILL

Second Reading

Dr EARLE PAGE:
Treasurer · Cowper · CP

– I move -

That the bill be now read a second time.

The necessity for this bill, relating to the valuation of live stock for the purposes of assessments of income tax, arises from a recent judgment of the High Court in the case of Cameron v. The Deputy Commissioner of Taxation in Tasmania. The appellant returned his live stock at values which were below the departmental standard values, on which the Deputy Commissioner had assessed him. He thereupon appealed to the Supreme Court of Tasmania on the ground that the values he had placed on his live stock were correct, and his appeal was upheld. During the proceedings, counsel for the appellant raised the contention that inasmuch as the departmental standard values differentiated between stock in one state and similar stock in another, they were unconstitutional and invalid, and that, such being the case, no live stock could be brought to account from July, 1917, to June, 1921, because there was no valid value prescribed-, as the act of 1918 directed. These legal points were referred to the High Court, and upheld by it. The effect of this decision is that in the assessments for the years from 1915 to 1918 live stock must he brought to account at their market values. For a number of years the value of live stock was continually increasing, and if the owners were compelled to pay taxation according to that increasing value they would be obliged to pay taxation on stock some of which died in the subsequent period of drought. That would be a great hardship. In addition to that, for the period 1918-19, to 1921-22, live stock could not be brought into account at all, according to the High Court judgment.

For the first three years the application of an assessment on the basis of the market values would operate harshly on live stock owners, for market values were on the up grade, and no drawback would be given in respect of losses through droughts. In the next four years, the exclusion of live stock from their returns would throw the owners back on a cash basis for the purposes of assessment; that is, the stock would be taken into account only when it was actually sold, and, in some cases, would not be taken into account at all. The Government is taking action now to save the revenue from the liability of refunds claimed on technical grounds; to remove possible hardship on stock-owners; and to give an option to stock-owners to have their past assessments maintained or amended on a market value basis for all years. The bill provides that if a stockowner so elects, within three months he may bring his stock into account at market value; but if he does not so elect, past assessments will stand.He must send in notice within three months if he wishes for a re-assessment.

Mr Gregory:

– Is that not too short a period ?

Dr EARLE PAGE:

– All the stockowners know of’ the High Court judgment, and they are expecting this validating measure. I think, therefore, that three months will be sufficient time to give them to make their election. The right’s of the appellant Cameron were of course, safeguarded in respect of the period covered by the appeal, but he will have the right to make his election as to the other years. I trust that the bill will have a speedy passage.

Mr SCULLIN:
Yarra

– I should like an assurance from the Treasurer that the choice which a man makes under this measure in respect to the imposition of income taxation must also apply for the purpose of has war-time profits taxation.

Dr Earle Page:

– Abill dealing with war-time profits taxation in respect to live stock will be introduced subsequently.

Mr SCULLIN:

– In that case I have no objection to the measure. It seems tome to be reasonable.

Mr Fenton:

– Do I understand that all the stock in Australia is to be taken to be of uniform value?

Dr Earle Page:

-No; but there will be a uniform basis for valuation.

Question resolved in the affirmative.

Bill read a second time.

In committee:

Clauses 1 and 2 agreed to.

Clause 3 - (1.) Where the value of live stock has been taken into account in any assessment made under the Income Tax Assessment Act1915, or under that Act as subsequently amended, the person whose income was assessed may elect, within three months of the commencement of this Act, to have the assessments made under that Act, or under that Act as subsequently amended, altered in accordance with the provisions of the last preceding section and the Commissioner may thereupon make such alterations in the assessments as are necessary for that purpose.

Mr. GREGORY. (Swan) [3.46). Under the provisions of this clause a stock-owner is given three months in which to choose the method by which the value of his live stock shall be assessed. That seems to me to be too short a period for stock-owners in the interior; for example, in the north-west of Western Australia.Very little inconvenience would be experienced by the Taxation Department if the period were lengthened to four months. I therefore move -

That in sub-clause ( 1 ) the word “ three “be left out with a view to insert in lieu thereof the word “ four “.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 4 -

This act shall not apply to any assessment in respect of which the person to whose income the assessment relates has, before the thirtieth day of June, One thousand nine hundred and twenty-four, obtained a judgment of the High Court in his favour in respect of the value of live stock included in that assessment.

Mr DUNCAN - HUGHES:
Boothby

– I understand that there were a certain number of cases similar to that of the appellant Cameron, but that the attitude adopted by the Commissioner of Taxation was that the case of Cameron would be accepted as a test case. If that is so, the stock-owners concerned should be placed in the same position as Cameron. I therefore ask the Treasurer whether he will agree to the insertion of the words “ or duly given notice of objection or notice of appeal “ after the word “ favour “. , Mr. FENTON (Maribyrnong) [;3.50],I understand that the honorable member for -Boothby (Mr. Duncan-Hughes) contends that all taxpayers who lodged a protest .against the department’s valuation of their stock should be put into the same category as Mr. -Cameron, who obtained a decision from -the court. I -am under the impression that a judgment of the High Court in respect -of taxation applies to all taxpayers who paid tax under circumstances similar ibo those put before the court, -whether these taxpayers protest or , not. A large number of taxpayers., it may be, paid this tax, fully believing that they were doing the right thing by the Government and by themselves., -and now theY find that, according to a court decision, they should not have paid it. It seems to me that there may be many other stock-owners in whose cases ‘.even ‘greater hardship kas been inflicted than in the case brought before the court. Certain taxpayers referred to by the honorable member for Boothby have, I understand, lodged objections.

Mr Duncan-Hughes:

– They have kept their protests alive by lodging objections or notices of appeal.

Mr FENTON:

– I take it that the honorable member wishes taxpayers who. have lodged objections, but were not before the court, to be treated in the same way as the taxpayer who applied to .the court and obtained a judgment. But .1 have in mind the large number of other taxpayers who neither applied to tire court nor lodged objections. It might result in a considerable loss of revenue i’f the tax were refunded in every instance ; -but I am under the impression that -when -it is discovered that a tax has been illegally charged, all who have paid it are entitled to its remission.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– In 191’8 a new method of assessing the value of live-stock was -adopted by this Parliament, which was to be “as prescribed.” The Commissioner of ‘Taxation promulgated regulation No. 315, which differentiated between the value3 of stock in the various states. That regulation operated for four years, and was universally regarded as being approximately reasonable, for,- under it, stock in Queensland, for instance, was not worth as much as stock in New South Wales or ‘Victoria. Mr. Cameron objected to the departmental valuation of his stock.

He said that his stock, in Tasmania, were worth less .than the sum set down by the commissioner., and he appealed to the court asking that his values, and not those of the department, -be taken. The court decided, first of .all, that the department had no constitutional right to differentiate between stock in the various states, and having prescribed an invalid system of valuation there was no basis on which live.stock could be -taken into account .at all during a. period of four years. The court said that in those cases live-stock would have to be taken into account ‘On the basis of ‘their cash value when sold, -no deduction being provided for, as previously. It is problematical - .and I trunk this is the general opinion throughout Australia - whether anybody will benefit by that decision. Most stock-owners think that they will suffer through being forced back into that position, having to take the value of their stock into account at the price at which it was sold. Mr. Cameron, of course, is entitled to ‘the fruits of his legal victory. I understand that the ‘legal position is that, .for the actual year of his assessment, he will .not , have to pay the tax. All other stock-owners will have the right to -elect whether they will take their stock into account .at its market value or accept the departmental valuation. There is no question of depriving anybody of his rights. I take it that the -honorable memtar for .Boothby suggests that those who lodged objection to -the assessment should mot :be compelled ,to pay the tax.

Mr Duncan-Hughes:

– I ‘suggest that they should “be in -the ‘same position as the gentleman who obtained a judgment from the court.

Dr EARLE PAGE:

– The bill gives them another option, and puts them in a better position than before.

Mr PROWSE:
Forrest

.- The position is not quite clear to me. The honorable member for Maribyrnong (Mr. Fenton) endeavoured to ascertain what would be the position of those who had -paid taxes that they legally need not have paid. Will they be entitled under this hill to a refund, whether they lodged objection to the assessment or not? I take it that this Parliament desires that all taxpayers .shall be treated -alike. Seeing that a re-assessment of the value of livestock throughout Australia is involved, it appears to me to he questionable whether we can pass a completely validating bill. The regulation which enabled differentiating values to be fixed simply meant that stock-owners were obliged to fake their balance-sheets. I have mentioned this matter previously. I always protested against the values assessed by the department, for I knew, better than the department, the value of my stock. The department never even saw the stock. But it arbitrarily fixed its value, thus faking my balance-sheet, which had been properly prepared. I think that Mr. Cameron is a public benefactor, and the committee . should now put the matter on a basis that will be permanently satisfactory. Livestock should be taken into account at its value, like any other chattel. It would be better still to adopt a cash basis for the value of live-stock.

Clause agreed to.

Title agreed to.

Bill reported with an amendment; report (by leave) adopted.

Dr EARLE PAGE:
Treasurer · Cowper · CP

(By leave.) - -I move -

That the bill be now read a third time.

In doing so, I desire to point out that last year we altered the method of assessing the value of live stock, and gave three options. Those three options still remain. This bill is to revive the acts which were repealed in 1922. That is the reason for bringing it forward as a separate measure. It gives two options where previously there was only one. A person may accept either the valuation of the department, or the market value.

Question resolved in the affirmative.

Bill read a third time.

page 4868

MEAT INDUSTRY ENCOURAGEMENT BILL

Second Reading

Mr BRUCE:
Prime Minister and Minister for External Affairs · Flinders · NAT

– I move -

That the bill be now read a second time.

This bill has been introduced in fulfilment of a long-standing promise. It wasnot brought forward earlier, because it is complementary to measures which must be passed by the State Parliaments. It is the state -acts that will really be the operative measures, the bill now before the House being, to a great extent, a machinery measure to give to the meat -council an Australian-wide authority, in stead of merely local authority. In September, 1922, the then Minister for Trade and Customs (Mr. Rodgers) summoned a conference of those engaged in the meat industry. It met in Melbourne, and was. attended also by representatives from each of the states of all parties interested. After the war there was a severe slump in meat, and the industry was in a very unsatisfactory position. At the conference the establishment of a meat council was. agreed to. The council was to inquire into all questions that concerned the meat industry - particularly the reasons for the unsatisfactory position which then existed, and the means by which the industry might be benefited, chiefly in the direction of finding markets and improving the marketing system. As the matters dealt with by the council are primarily of state concern, the proposal is that the council shall be financed by a levy which will be made by the states on the raisers of meat. The only fund which the council will have at its disposal will be the moneys derived from the levies made under the state acts. Should the states all pass the necessary legislation, state boards will be set up, and levies made, to enable them to carry out the duties entrusted to them. The idea underlying this bill is that the state boards shall not act independently, and that there shall be also a national meat council, which will consider the meat industry from the Australian standpoint. This national council will act in co-operation with the state boards. No levy will be made under the Commonwealth’ legislation.

Mr Maxwell:

– Are the states unanimous regarding the necessity for this legislation ?

Mr BRUCE:

– Queensland has already passed similar legislation, and I understand that New South “Wales contemplates doing so during the present session of the State Parliament. There is no definite knowledge of Victoria’s intention, but it is believed that a bill will pass through the State Parliament in the near future. Western Australia has also agreed to pass similar legislation.

Mr Foster:

– Is it not vital that the states shall be unanimous?

Mr BRUCE:

– No; but it would be useless for us to proclaim the act if only Queensland had passed similar legislation. If, however, Queensland, New South Wales, and Victoria had passed similar measures, the proclamation of the Commonwealth act would have a beneficial effect in drawing those three states closer together.

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

– What steps does the Government propose to take to get hack the money” it has advanced ?

Mr BRUCE:

– If the various state acts are passed, the amounts advanced will be a first charge on the levies to be made under them. From the Commonwealth point of view, it is of considerable importance that the states should pass the desired legislation.

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

– But supposing they do not pass it?

Mr BRUCE:

– The Commonwealth has no actual security. This bill is an attempt to assist the meat industry to ascertain in what direction existing methods can be improved. Already the council has done some useful work. In considering the position of the meat industry in Australia, the council must take into consideration, not only the time that Australian cattle take to mature, but also the longer period occupied in the transport of meat from Australia to the world’s markets as compared with transport from the Argentine. The meat council has already made certain recommendations to shorten the period of transhipment overseas. I recommend the bill to the House.

Debate (on motion by Mr. Anstey) adjourned.

page 4869

AUDIT BILL (1924)

Second Reading

Mr BRUCE:
Prime Minister and Minister for External Affairs · Flinders · NAT

– I move -

That the bill be now read a second time.

This is the short bill to amend the Audit Act that I foreshadowed in replying to a question asked by the Acting Leader of the Opposition during the discussion of the Estimates by this House. Under the Audit Act the remuneration of the Auditor-General is £1,000 per annum, but since the year 1920-21 an additional amount of £500 has each year been placed on the Estimates to increase his remuneration to £1,500 per annum. This is an undesirable position. The purpose of the bill is to make the salary of the Auditor-General a statutory payment of £1,500 per annum.

Bill read a second time, and passed through its remaining stages without amendment or debate.

page 4869

INCOME TAX ASSESSMENT BILL

Second Reading

Debate resumed from 18th September (vide page 4498), on motion by Dr. Earle Page -

That the bill be now read a second time.

Mr SCULLIN:
Yarra

.- This is a bill to amend the Income Tax Assessment Act. Its purpose is primarily to remove some of the weaknesses in the amendments passed last year, and to place a few patches upon certain loopholes in the existing act. But this measure makes no attempt to deal with two vital matters, one being the remedying of existing injustices under the act, and the other the lessening of its complications. In measures such as this there are two things to aim at - simplicity and equity.

Mr Bruce:

– The two do not mix very well.

Mr SCULLIN:

– They do not. Very often the striving for equity adds to complication.’ I am sorry that the bill retains the inequitable provisions of the act, and that it also adds to the existing complications. For these reasons I am forced to criticize it. I support it because it raises the exemption and strengthens the law in regard to the protection of the revenue. In discussing this bill, it is just as well to take warning from the manner in which another bill to amend the Income Tax Assessment Act was introduced last year. That bill was introduced in the dying hours of the first period of this session. During a discussion, commencing at 2.45 a.m., and ending during that sitting, drastic amendments were made to the act under the constant fall of the guillotine. We on this side vainly protested. Most honorable members present were lying asleep on the benches. Honorable members should not be in a state of physical exhaustion when considering important amendments to the Income Tax Assessment Act. Such methods simply mean that the departmental officers prepare measures, Cabinet considers them, and then they become the law of the laud. It is government, not by parliament, but by bureaucracy. We are reaping the fruits of this procedure, because the bill has been introduced to remedy the evils and defects of the rush legislation of last year. The proposed amendments are urgent and serious, and -because of that the bill must be passed. Were it not so late in the session, and were it not for the need to strengthen immediately the existing law, I should move an amendment referring the bill back, so that the Government might come down with a comprehensive scheme to simplify taxation, and to render it more equitable. I fear to take that risk because if the House -carried the amendment - and one should not submit amendments unless there is reasonable hope of securing their adoption - and we lost the measure, the Treasury would be deprived of a considerable amount of revenue by a number of sharp people who have been evading their legitimate taxation for some time. I notice that the bill is to be made retrospective. That is necessary. Although one may object on principle to retrospective legislation, yet, because of the rush methods adopted last year, it is necessary to make the provision of this bill retrospective. That I also support. Wherein did the amendment of the act last year open the door to evasion and injustice? In the first place, the rate of company taxation prior to last year was 2s. 5d. in the fi on the undistributed profits of the company. Last year that rate was abolished, and there was substituted for it a rate of ls. on the whole of the profits of the company. So long as we have individual income tax rates running up to 5s., Gs., and 7s. in the £1 and a company rate of ls. in the £1, so long will individuals be tempted to bring their income under the company rate to .evade the higher personal rate. That is what has happened. Notwithstanding the warnings given when the bill was under discussion last year, it went through, and as a result quite a number of bogus holding companies were formed for the purpose of evading income taxation at the personal rate. Although this measure is designed to remedy that defect in the law, I firmly believe that if the differentiation in the rate of taxation be continued other schemes will be adopted to evade taxation at the higher rate. Section 21 of the act provides that if a company distributes less than two-thirds of its profits to its shareholders the Commissioner may determine if the amount undistributed, or any sum not exceeding two-thirds, could reasonably have been distributed. This is a very wide ‘discretion to give to the Commissioner or Ms deputy, and whilst I cast no reflection upon the honour of any individual, I emphasize that this House ought to be careful not to place in the hands of any official discretionary power to remit taxation to the extent of thousands of pounds, and, perhaps, hundreds of thousands of pounds. There is provision in the act that if a taxpayer is dissatisfied with the decision of the Commissioner or his deputy he may refer hia case to a board of appeal, but if the Commissioner errs on the side of leniency there is no check. No doubt honorable members are aware of the discussion that has taken place recently concerning the evasion of taxation by certain companies. I expected that the Treasurer would have laid some stress on this point when he was moving the second reading of the bill, and that he would have exposed the methods adopted by these holding companies to -dodge taxation.

Mr Maxwell:

– An explanation might prompt other people to do likewise.

Mr SCULLIN:

– Every one who has had anything .to do with income taxation knows that for a long time past a- considerable number of people have been evading income taxation. For this reason the Government ought to have introduced this bill earlier in the session. The registration of holding companies for the evasion of taxation is no new device. They were in existence before the amending legislation was passed last year, and the only effect of that measure was to provide a greater incentive for their multiplication. Let us examine the methods adopted, taking as an illustration a trading company showing a -profit of, say, £60,000. Instead of paying income taxation on that amount of profit or on the proportion which the Commissioner deems should be distributed, a holding company is formed for the purpose of holding the profits or investing them. The profits not having been distributed, the Commissioner may intervene, and under section 21, determine whether a sum not exceeding two-thirds of the taxable income of the company could reasonably have been distributed. He may resolve to follow these profits to the shareholders only t» find, in all probability, that the principal shareholder is a. holding company liable to taxation) at the- company rate of ls. in the £1. Thus, the shareholders in the trading’ company- pay taxation at the- company rate. In. view of what has happened! I am glad that the bill now under consideration is to be made retrospective. I doubt, however, if the Treasurer will be able to get the whole of the lost revenue^ because once a fish gets through the net it is- not so easy to catch it again. These holding, companies may, in the meantime, have been dissolved’; the shareholders- may have disappeared ; some of them may have gone insolvent. The report of the Income Tax Commissioner discloses a significant and considerable increase in the number of companies. I find that in the year 1920-21 the number of individuals who paid income taxation was 548,076, and in 1922-3’, 464,298, a decrease of 83,778. I find also that in 1920-21 the number of companies that paid’ income taxation was 4,743, and in 3922-23, 5,405, an increase of 662. What has been going on is obvious. I may Be asked’, “ What can a company do with its pro-fits if they are not distributed among their shareholders?.” The profits may be disposed of in various ways. The money may be carried to the reserve fund, and utilized- in the expansion of the business; it may in the following year bc returned to the shareholders in the form of bonus shares free of income taxation ; or it may be invested in bonds, or some other security and; return profits to the shareholders. In. view of the. facts- I have outlined,, the question naturally arises whether this amending legislation! will overcome the existing difficulties.

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

– ©idi I understand the honorable member te say that bonus shares are not taxable?

Mr SCULLIN:

– Not if distributed out of reserves. If out of current profits they can be taxed-. I am showing what can be done* by refraining from distributing, profits. While the Commissioner can tax the undistributed profits’ at ls., in the £1, there- is always a desire on the part of a> company to keep in hand as long as possible a large amount of the undistributed profits’, because then only taxation at the company rate has to- be pma. By forming another company to which the profits can be passed on, or can be deemed to have been- passed on, the shareholders- pay tax on their share of the profits at the rale of Is. in the- £1, instead of at rates- varying from perhaps 5s. to, say, 7s. in the £1. We have now to consider whether the proposed amendment of the existing law will prevent evasion in this way. The amendment is contained in clause 6. Unless a person has made a thorough study of income tax legislation for a considerable period,, even after reading the clause ten times, he will not be able to thoroughly understand it. Numerous complaints have been made concerning the employment of taxation agents, but without the assistance of a person skilled in interpreting our taxation law,- many taxpayers would be at a great disadvantage. In effect, the amendment to the existing law is to provide that a shareholder in a holding company shall be deemed to be a shareholder in a trading company in which the holding company holds shares. When the Commissioner of Taxation finds that a trading company has not distributed two-thirds of its profits, and that a portion of them has been, paid to a holding company, he can ascertain the names of the individual shareholders, in the holding company, and tax. them as individuals. That is what is intended, but I believe that objective cannot be achieved. One would not be so foolish as to be dogmatic in matters’ of this kind, but I suggest, for the consideration of the Treasurer, that there is nothing to prevent a trading company forming a number of holding companies, which may be designated “ A,” “ B,” “ C,” “D,” and so on. The Commissioner of Taxation may deem that twothirds of. the profits of a trading company have not been distributed;, he cannot interfere under the act in regard to any larger proportion. He finds that the profits are held by a holding company which may be “ A,” in which a company known as “ B “ holds shares, and when further investigation is made it may be found- that those holding shares in “ B “ have an interest in “ C,” and so on. What would be the position of the Commissioner in such circumstances ? He would have to ascertain the profits obtained by individual shareholders in the different companies, and would probably find, that some of the holding companies also held shares in scores of other trading companies. Such ag exhaustive analysis would add to the existing complicated position. As a holding company is a registered company, it is entitled to all the privileges enjoyed by all other registered companies. If a company can hold in reserve at least one-third of its profits, and more if the Commissioner permits, I submit that a holding company can also claim to hold one-third of its profits in reserve.

Dr EARLE Page:

– We cannot overcome that.’

Mr SCULLIN:

– A trading company might make £60,000 in profits. If it did not distribute any of its profits it would pay ls. in the £1 on them, but if it did distribute them to its shareholders they would have to pay at rates which would vary according to the . total amount of their incomes, and might be in some cases as high as 5s. or 7s. The Commissioner might say, I deem £40,000 - or two-thirds - of these profits to have been distributed for the purpose of taxation. But the distribution might have been to a holding company which, in turn, had distributed to another holding company, and so on, until, under the provision which allows ls. in the £1 to be paid on the undistributed proportion of the profits, practically the whole amount had been paid for at that rate.

Mr Maxwell:

– Why are holding companies formed ?

Mr SCULLIN:

– Largely for the purpose of evading taxation.

Dr Earle Page:

– I have an amendment which I think will overcome that difficulty.

Mr SCULLIN:

– It would be interesting to know if the amendment will achieve what is desired. Some holding companies may be legitimate investing companies.

Mr FOSTER:
WAKEFIELD, SOUTH AUSTRALIA · ANTI-SOC; LP from 1910; NAT from 1917; LP from 1922; NAT from 1925

– Some are not.

Mr SCULLIN:

– Some are formed primarily for the purpose of evading taxation. As companies were formed for evading the existing act, so others will be formed for evading the proposed law.

Mr Mathews:

– The present position was anticipated when an amending bill was last before the House.

Mr SCULLIN:

– Holding companies were in existence before the existing act was passed.

Mr Maxwell:

– It should be easy to decide which is a bogus company..

Mr SCULLIN:

– A steamship company may have 80 per cent, of its capital invested in other shipping companies or colliery companies. A trading company’s profits may be traced to such companies, and its profits taxed at the rate of ls. in tha £1.

Mr Maxwell:

– Instead of to the individual shareholders ?

Mr SCULLIN:

– Exactly. That is the position in which we are placed. By imposing a company rate at ls., hundreds of thousands of pounds arc lost. As I have shown the manner in which the payment of taxation may be avoided, I trust the question will- be carefully considered by the committee. The shares in a trading company may be held largely by a holding company. That holding company may hold the bulk of the interest in twenty other trading companies, and it will be necessary to estimate the proportion of each shareholder’s interest in all of those companies. To do so will work out something like this : shareholder Brown has a certain interest in holding company “ A,” which has investments in twenty trading companies. Brown’s individual income must be assessed upon his proportion of the holding company’s interests in the twenty trading companies. The staff of the Taxation Department .will have to be increased rather than decreased in order to cope with the work that will thus be thrown upon it. Confusion will be worse confounded. It may be said: “It is very easy to criticize, but you should suggest what ought to be done.” That is what I propose to do, and I hope that it will not be regarded as presumptious of me. I think that I shall not be adjudged guilty of that when I tell the House that the suggestions I intend making are not novel or original, but embody schemes that have been adopted by other countries, or that have been suggested after very exhaustive investigation of the subject by the royal commission. First of all, let me emphasize the inequity of the present system. If a company has the right to reserve at least one-third of its profits, and upon that reserve to pay a tax of only ls. in the £1, why is not a private firm given the same privilege? Take two big drapery establishments, each making a profit of £20,000 annually. One is run by an individual, and his profits are taxed at the individual rate of income tax. On the other side of the street a similar business is run by a company. At least one-third of its profits can be carried to reserves, and upon that the company pays a tax of only1s. in the £1. Will any honorable member argue that that is equitable ? If a company can, by placing certain of its profits to reserves, escape the individual rate of taxation, why cannot a private individual havea reserve fund similarly treated? Every day there are probably half a dozen registrations of new companies. On one day last week a family in Victoria registered seven new companies in its own name. It is obvious that the object is to avoid not only income tax but also land tax. It is a wellknown fact that companies have by such methods evaded the payment of land tax, yet there has been no amendment of the law to prevent them from doing so. We should treat all alike; we should not have one law for a company and another for an individual. Companies now pay a tax of1s. in the £1 upon all profits. Those of its shareholders who wouldbe nontaxpayers if they had a similar income from any other source are compelled to pay that1s. in the £1 under the law as it now stands. That is not equitable. A man may have shares that return him £50 a year. He has no other income, yet he is called upon to pay an income tax of £2 10s. in company taxation. If his income from those shares amounts to £100, his tax is £5 a year. The smallest income receiver, if he receives his income from dividends, has to pay an income tax of 5 per cent. That is a higher rate than honorable members are called upon to pay in respect of the salaries that they receive. Surely, no one can claim that that is equitable. I ‘have said that the company tax is1s. in the £1, and that the individual rate is paidon the dividend. Then there is a rebate of1s. in the £1 to those who receive their dividends, provided that they are income taxpayers; but there is no rebate to those persons who would not be income taxpayers if their income were not derived from shares in a company. Under section 20, sub-section 3 of the act, permission is given to a company to deductthe tax of1s. in the £1 from a shareholder’s dividends whether those dividends are allotted to preferential or to ordinary shares. There again honorable members will see that the small shareholders are being hit in order to relieve the big shareholders from the necessity of bearing their proper share of the amount required for the government of this country. Prior to the amendments that were made last year the tax on reserves was 2s. 5d. in the £1. A company that made a profit of £60,000 could carry to reserve the sum of £20,000. At 2s. 5d. in the £1 the tax on that was £2,400. At the present time, at1s. in the £1, the tax is £1,000. That loss of £1,400 is made good by taxing at the rate of1s. in the £1 a large number of small shareholders who should not be liable to pay any tax, because their incomes are well within the exemption.

Dr Earle Page:

– A company with that profit would pay a tax of £3.000.

Mr SCULLIN:

– It pays £1,000 on the £20,000 in reserve. The £2,000 that it pays on the £40,000 is rebated when that sum is distributed. By that means revenue is lost, and the deficiency is made good by taxing the small shareholder at the rate of1s. in the £1. A rebate is allowed only to those who are taxpayers. If a shareholder’s taxable income is less than. £200 - and if, under this amendment, it is less than £300 - no rebate is allowed. If one is only a small taxpayer one’s rebate will be very small; the full rebate is not allowed until the income is about £600 a year. It is argued that the smell shareholder does not pay the tax; that it is paid by the company. That is a foolish argument. Anything the company pays must be made good by the shareholders. If a shareholder does not pay the tax, why is a rebate allowed to big shareholders of the amount that the company pays ?

Mr Maxwell:

– Although the shareholder does not actually pay the tax it is. paid with his money.

Mr SCULLIN:

– Exactly. I frankly admit that I have stated extreme cases in order to emphasize my point. Take a proprietary company comprising two groups of shareholders. To simplify the matter I shall call these shareholders “A” and “B”. “A” is a small man whose total income is represented by what he gets from the company. “ B “ has interests in scores of other concerns. The total profit is £1,200. The company tax upon that sum at the rate of 1s. in the £1 is £60. “ A “ holds a onefourth and “ B “ a three-fourths interest m the company. “A,” whose total income is £300, pays a -tax of .£15, .as hia share of the ‘company tax. “ 33 “ pays £45 as hie share of the company ‘tax. .But because “B” is ;a big income taxpayer with an interest in -other companies he has the whole of that £45 rebated; whereas “ A,” because he is a small man with no ‘Other income, is not allowed any rebate. That is the -first illustration of injustice. It was pointed out last year, but no notice was taken of it.

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

– Does .the Treasurer admit that injustice?

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

– Of course he does. He cannot dispute it. The only .argument he -can -use against it is to say that the company pays the -tax, but it pays it, as the honorable member for Fawkner (Mr. Maxwell) has just said, with the shareholders’ money. X direct attention to another phase of the matter to show how ,an -even greater injustice takes place. I .take (again, for the purpose of illustration, two shareholders in a company making £1,200 profit. “ B “, holding .a three-fourths interest, can out-vote “A”. He says, “ We will not distribute any of the £ 1,200 profit. We will keep it in the - company, .or invest it for the benefit of the company.” His reason for refusing to distribute the profit is that he does not want to pay -‘5s. in the £1 tax .on it. He out-votes “ A “., and the £1,200 profit is not distributed. Then the Taxation Commissioner comes along, and he says, “ We must get some revenue from this company in addition to the company tax.” He deems that two-thirds of the profits of £1,200 .has been distributed, and proceeds to tax £800 as distributed profit. Of this amount “ A “ is credited with £200 and ” B “ with £600. As “ A “ has only £200 income and is therefore exempt from income tax, he is not charged tax. “ B “, the Commissioner finds, has an income of £10,000 or £12.000 besides the £600 deemed to have been distributed to him from the company’s profit. When that is worked out the tax chargeable on it is about 4s. in the £1. It may not be exactly 4s. in the £1, but I use that figure for the purpose of illustration. The Taxation Commissioner applies this rate, less ls. in the £1 rebate, already paid by the company, and finds that the tax which “B” should be called upon to pay is £90.

Mr Prowse:

– Would not -the £600 be included im “ B’b “ general income, and be taxed at the graduated rate ?

Mr SCULLIN:

-Yes, but added to the £1-0,000 or £12,000 income from other sources it ‘brings “B’s” rate up to about 4s. in the £1. He gets a rebate of ls. and is taxed at 3s. in the £1, making his additional tax £90. Here is where the in: justice comes in. Having ascertained that “B” should pay this £90, the Commissioner says, “You have to pay £90 more tax because I deemed that £600 of the profits of your company were distributed to you,” but he collects it from the company and not from the individual “ B “. By collecting it from the company, the’ unfortunate “A”, who is .a shareholder with “ B “ in the company, has to pay one-fourth of the amount, or £22 10s., as his contribution to lighten the hurden .of the hig man. Not only (has the small man who should be exempt from any taxation to pay his share of the company’s taxation, but he has actually also to pay a share of the rich man’s income tax. That is about the -most inequitable .arrangement ever -put ‘before the country, but it has stood since 1922, when it was first introduced by the then honorable member for Flinders (Mr. Bruce), who was at the time Treasurer of the Commonwealth. I hoped that some attempt would be made to remedy that injustice, but there is nothing in this bill to remedy it. If we divide a company into a greater number of sections it will be found that -the injustice is only increased. I have taken the example of a small man associated in a company with a big man, but we know from our own experience that there are a great many small .shareholders associated with numbers of very wealthy men in different companies. It will lie found La every instance -of the kind that .the system of taxation adopted operates to the detriment of the small shareholder who happens to be associated with wealthy men ki .a company.

Dr EARLE Page:

– There may be 20,000 shareholders in a company, and iff in the case of all companies the interests of individuals were followed throughout, as the honor-able member suggests, we should need every one in -the community on the staff of the Income Tax Department.

Mr SCULLIN:

– That is not so.. The Treasurer has the choice of three methods, each of which would be less, complicated, less costly, and more equitable, than that now adopted. I take the illustration, for instance, of a company of five shareholders, each of whom holds an equal number of shares. Its. profits are £1,500. It distributes none of its profits. The Taxation Commissioner deems that twothirds of the profits, or £1,000, has been distributed, and he follows the distribution to each individual shareholder. He says to each, “ You have received in dividends £200 from this- company,” and in each case he adds this amount to the individual’s private income. He find’s that “A” has no other income, and, therefore, has no additional or any income tax to pay. “ B,” “ C,” “ D,” and “ E,” have each from other sources an income of from £10,000 to £12,000 a year. The Commissioner finds their -average tax would be about 4s. in the £1. He says to each of them, “ Adding the £200 which I deem to have been distributed to you from the company’s profits to your private income, I find that you should pay at the rate of about 4’s. in the £1, less ls. in the £1 rebate of what the company has paid, and so you have to pay an additional £30.” Four times £30 is £120,. which is collected from the company.. The company has paid1 at the rate of ls. in the £1 on’ the £1,500 the sum of £75, making, a total tax of £195. The Taxation Commissioner does not tax the four partners, “ B,” “ C,” “ D,” and “ E “ to the amount of £30 each. He cannot do so under the act. He must take it from the company. He takes it from the company, and the whole of the shareholders, having equal shares in the company, must pay an equal share of the tax, with the result that the unfortunate “ A,” whose total income is his dividend of £200 from the company, has to pay one-fifth of the £120 and one-fifth of the £75’ company tax, or, altogether, £39 out of his total income of £200’. That is the sort of thing which is possible under the existing law. What remedies can be suggested? There are three ways in which companies could be taxed, more equitable and more simple than that which has been adopted. We could adopt the English system. I do not support it, but I submit it to honorable members as an improvement upon what we’ have. The English system is fairly simple.

There is a flat rate- of 6s. in- the £1 on all companies’ profits. Then a rebate is given to every person who receives a dividend of fis. in the £1, whether he is taxable or not taxable. All he has to do is to produce his dividend warrant from the company, om. which is written.-, “ This dividend has paid 6s. in the £1 tax.’’ When the taxpayer is assessed he gets that 6s. rebated. If a man is- in receipt of an income below the amount exempted from income taxation, he can still present his dividend warrant and get his 6s. in the £1. rebated from the amount of tax paid in his name. Most companies pay dividend less tax, so. that a dividend which would otherwise be £1, is only 14s. Under the- English system the shareholder who has. contributed his quota to the taxation of his company gets his rebate when the dividends are taxed. That is equitable.. It may be said that a large number of people in a small way are unaware of their rights uncle,r the law, and. make no claim for rebate. They suffer an injustice in that way, but it is due to their own carelessness; and latterly there has arisen an army of taxation agents who- are making a good thing out of the collection of rebates payable over a number of years. It may be argued that under this system a lot of taxation is collected and is then refunded, but it could be placed to the credit of a trust account, and need not be paid into the Consolidated Revenue.

Mr FENTON:

– Are there any holding companies in the Old Country to dodge taxation ?

Mr SCULLIN:

– No. Every company is treated in the same way, and there is no incentive to form a holding company to cheat the revenue. A dozen holding companies might be formed, but still 6s. in the £1 has to be paid on the profits made by a company. That would be an improvement upon our system) but I do not advocate it, for various reasons, I remind the Treasurer that the royal commission that made exhaustive inquiries during a number of years into the question of income taxation, submitted two alternatives to the Government. Speaking from memory, I believe that the taxation commission was’ unanimous on the principle that income taxation should be imposed on individuals and not on corporations. One method of taxation it proposed was to tax the whole of a company’s undistributed profits and reserves at 2s. 5d. or 2s. 6d. in the £1, and when those reserves were distributed to the shareholders in the form of dividends^ to rebate the company. What was happening under the provision which imposed a tax of 2s. 5d. in the £1 on reserves, was that when reserves were distributed a rebate was made on the individual dividend, but the small shareholder who had not to pay income tax received none of the rebate. The royal commission said that that was not equitable, as the company had paid the tax on the reserves, and the rebate should be given to the company that paid it, and not to individual shareholders. Another proposal was made in another portion of the taxation commission’s report which ia equitable and simple. It is to consider a company just as one would consider an individual trader. There should be no tax on profits as the income of a company, but the tax should be imposed on the individuals receiving the profits.

Mr Latham:

– That is the Victorian., system,, and it is a simple system.

Mr SCULLIN:

– No ; there is a tax of ls. in the fi on the whole of a company’s profits in Victoria. That is taxation at the source, and it is most inequitable.

Mr Latham:

– I was mistaken; the honorable member is right.

Mr SCULLIN:

– We have many wealthy men in the community drawing big dividends from companies operating in Victoria whose maximum income tax is ls. in the fi on the profits of the companies in which they are shareholders. They are not taxed at all on dividends which they receive from the company, and the ls. in the £1 imposed on the profits of the companies is paid by the companies. The royal commission said that wc should not tax income at the source, but in the hands of the recipients. If a company made a profit of £20,000, the Taxation Department need, not bother about whether ifc has been distributed or not; it can deem that it has been distributed, and then follow it into the hands of the individual shareholders, and tax them at the rate applicable to their individual incomes. I know that arguments may be urged against this system. It will be said that companies must keep reserves for the purpose of increasing stock, or replacing plant, and so on; but an individual trader, although he must keep reserves for the same reason, does not get exemption from income taxation in the same way as a. company. If he makes a profit of £20,000, it is taxed’ as income, although he may not use it all as personal income. If he forms his business into a company, and gives his wife, his sons, and his daughters, shares in it, he can escape with a tax of ls. in the £1 on onethird of the profits. Why should the Parliament differentiate between a company and an individual’ trader? Why should we not treat a company as we treat an individual ? The effect of adopting my suggestion would be that we would get more revenue, and would be able to adjust taxation more equitably for the man who! does not float his business into a company. My suggestion would be practicable and equitable. I would move an amendment in the form of an instruction from this House to the Government to adopt my suggestion, but I fear that if I did so the bill might be lost. Because of the good that is in it, I do not want to lose it. Some of the proposed machinery clauses are very necessary. Ifc will effect some improvement in the taxation of companies, and is one step, at least, in the right direction. I hope I have not wearied honorable members with the3e intricate and involved questions. I have expressed views that I have formed by reading the reports of royal commissions, and endeavouring to evolve an equitable and simple system of taxation. I direct the Treasurer’s attention to the fact that in section 21 of the existing act no date is fixed on which the Commissioner shall deem that two-thirds of the profits are distributable. That omission, which causes a lot of confusion, can be corrected when we are in committee. Revenue we must have, and the taxes to produce it should be placed on the shoulders of those best able to bear them,. The evasion of taxation by the formation of companies can be overcome by adopting any one of the three suggestions I have made. 1 prefer my last suggestion, which was to treat the companies on exactly the same basis as individual traders. That would avoid all the complications that are now introduced. The Commissioner has the power, not. only to examine the profits of a company, but to order as much less than two-thirds of the profits as in his opinion is justified to be distributed. The items that can be excluded from the category of distributable profits would amaze honorable members. In the Senate on the 24th August, 1923, Senator Pearce ‘said that the Commissioner has treated as not being distributable -

  1. All items of expenditure (not deductible in arriving at taxable income) on income tax, war-time profits tax, donations, subscriptions, law costs, &c.
  2. Amounts used to restore losses on paid-up capital.
  3. Anticipated losses.
  4. Reserves for income tax.
  5. Commitments - for example, high-priced goods from overseas rushed on importers.
  6. Sinking fund to pay debentures.
  7. Sinking fund to pay cost of lease or improvements.
  8. Provision for bad debts.
  9. Depreciation in excess of departmental rates.
  10. Bad debts in time-payment purchases.
  11. Investments in war loans.

These things are not deductible from any one’s income, but they can be treated by a company as non -distributable profits, which are subject “to a tax of only ls. in the £1. What are “ war loans “ within the meaning of the act? Although the war is over, war-loan scrip is still purchasable on the market. The Commissioner has the power to which I have referred, and, according to Senator Pearce’s statement, he exercises it, and if a company wishes to escape taxation all it has to do is to say that it will invest its profits in war loans. All the complications and injustices to which I have referred arise because we tax companies instead of taxing incomes in the hands of the recipients. There 1 leave the matter in the earnest hope that the Government will present a complete and full amending Income Tax Assessment Bill early next session, with the object of remedying these injustices.- Any move in that direction will receive my support, and, I believe, the support of every honorable member on this side of the House.

Mr LATHAM:
Kooyong

.- This bill, the Treasurer has said, is designed to explain and clarify the law. In some respects it is open to grave doubt whether it attains that object. It makes important changes in the law, and I hope the House will not take it for granted that it merely expresses in clearer language determinations at which Parliament has already arrived. Very im portant changes are made, which may or may not be desirable, and I want honorable members to realize that some of them are retrospective. With much of the very lucid speech of the honorable member for Yarra (Mr. Scullin) I agree, but I am unable to accept his view that it is right or proper for Parliament to pass retrospective taxation legislation. Only in very exceptional circumstances can such legislation be justified. It is more important that this Parliament should be absolutely fair_ to the citizens of Australia than that it should collect by hook or by crook every possible penny. When Parliament is considering a taxation bill it has the assistance of officers of the Crown Law Department and the Taxa-tion Department, and it should make its legislation clear.- Citizens are entitled to act on its legislation. They have acted upon it in the matter of taxation, and it would be a very serious thing now to require people to pay taxation which this .Parliament has said they need not pay. Certain distributions of moneys have been made upon the assumption that they will not be taxed, because this Parliament has so declared. That has been going on for two years, but now a bill, saying that the law is doomed to be otherwise than it has been for the last two years, is brought down. People wj.ll be required to pay taxation on moneys that they have probably spent. I submit to the House, with some confidence, that such a measure is unjust, whether it is applied to a poor or a rich man. Section 16 of the principal act has appeared in various forms in our Income Tax Acts. It is the section under which questions have been decided by the courts regarding the taxation of bonus shares. The’ 1922 Income Tax Assessment Act provided that there should be included in the taxable income of a taxpayer -

Dividends, bonuses or profits (but not including a reversionary bonus issued on a policy of life assurance) credited, paid or distributed to the member or shareholder from any profit derived from any source by the company.

Provided also that where’ a dividend or bonus is paid wholly and exclusively out of the profits arising from the sale of capital assets a member or shareholder shall not be liable to tax on that dividend or bonus.

This Parliament in that year used the phrase “ capital assets “ for the purpose- of indicating the source of dividends or bonuses that should not be taxable in- the hand’s- of shareholders-. It isproposed to substitute for those words, “ Assets which were not acquired for’ the purpose of resale, at a profit.” That is . not an- unreasonable legislative- proposal, but either the- proposed word’s mean the same as the existing words, or- they mead something, different. If they mean the’ same,, there is no- need for them. If these word’s mean something different, whymake them retrospective? If we- desire1 to change the law, why not be- content merely to change it without making the alteration retrospective-?’ Why change- it and say that the change- shall be deemed to have been made two years ago? In the. absence of special reasons- to- the contrary, the general rule should obtain- that retrospective legislation, particularly inregard to taxation, is highly objectionable.

Mr West:

– If the bill, is passed, will the Government have power to collect taxation retrospectively?”

Mr LATHAM:

– If this bill is passed the Commissioner of Taxation will be entitled to collect taxation on money on which taxpayers have paid no income tax. for the last two years, and in- respect of which they have considered that everything was settled, as. they had obeyed the. law of the country. The Commissioner will be able to collect taxation on money that has, probably been, spent. Let us consider the case of. an executor or trustee who- has- received bonus- shares during the last. two, years.. He knew that they were not- taxable^, because, this Parliament had said so. He. distributed them- to the beneficiaries,, who- in turn may have sold them and spent the proceeds, but if the proposed amendment is- agreed to it. will be possible for the commissioner to- descend upon him and demand’ income taxation in respect of those shares.

Mr Foster:

– -After the estate- has been wound, up ?

Mr LATHAM:

– Yea, and- when theexecutor, who had no- personal interest’ in the estate, has perhaps no means of recouping himself. That is- a very unjust proposal; in fact, retrospective taxing, legislation can hardly ever be justified’. The honorable member for- Yarra (Mr. Scullin) appeared eagerly desirous- that the Treasury should’ collect as much money as possible. That should not be the only- aim and ideal of this Parliament.. Of course,, the Government must .collect revenue, but its first concern should be for justice- in- its method of collection. Every member of the community is entitled to act upon- the decisions of this Parliament, as represented! in its- legislation, and any change in the 1’aw should apply only to the future. Clause 4, sub-paragraph K, proposes an amendment of the existing law relating to the taxation- of what are commonly called bonus shares. Since 1922, the law has; required a taxpayer to include’ in his. income -

The face value of shares distributed’ by a company to its members or shareholders in consequence of the capitalization of the whole or any part of the assessable income, of the. company, which it is liable to include in itsreturn for the purposes of.’ its current assessment :

Provided that, nothing in this section shall render liable to taxation the value of shares issued by a company - to its members or shareholders in consequence of. the capitalization of any other of its- profits.

The proviso, is most important. In 1922 this- Parliament deliberately- enacted that taxation should be paid’ only on the face value of bonus shares representing the’ profits- returnable- in the current assessment, and that other bonus shares- issued in- respect of profits should not be taxed. Because of the existing legislation, during the past two years companies throughout Australia baree distributed to their shareholders additional shares by way of capitalization of profits .. Such shares were nontaxable when, they were distributed-. The recipients may ©r may not have- them in their possession still, and. their financial position may be good or bad’. This House, is asked now to reverse, the deliberate decision, of the legislature in 19.2,2, and introduce the retrospective provision shown ia paragraph, h of clause. 4. It cannot be said, that paragraph, h will have the- same effect as. the short and’ simple provision in the 1922 act; it is an entirely new provision, and it is made retrospective. When examining paragraph h in detail, par- ticular attention might be paid to subparagraph 3. It will be observed that that sub -paragraph- is- an exception. The clause provides- that the paid up value of shares shall be taxable except the profits (3..)_ derived by the- company during the financial!, year commencing on the first day of. July, one thousand nine hundred! and twentytwo, or during an accounting period’ substituted therefor by theCommissioner under section 32 of this act, or in any subsequent financial year or accounting period, and upon which the company is not required bythe Commissioner to pay tax or additional tax under section 21 of this act.

As sub-paragraph 3 is an exception, the last sentence of the paragraph is an exception upon an exception, and appears tome to mean that if a company has been required to pay tax under section 21, the shareholder also will be taxed in respect of the same profits. That seems a remarkable provision; and I ask the Treasurer to consider whether the words employed by the draftsman carry out the real intention of the Government. Subparagraph 4 of the same clause contains words which I am sure will cause a great deal of difficulty. It refers to profits - standing to the credit ofprofit and loss account, or any similar account, on 1st day of July, One thousand nine hundred and fourteen.

I do not know of any account that is similar to a profit and loss account.

Dr Earle Page:

– The Government proposes to strike out that provision, and substitute the words “ except profits derived subsequent to 1st July, 1914.”

Mr LATHAM:

– Simpler wording will obviate a lot of difficulty and confusion. Ever since this income taxation has been imposed by the Commonwealth, exemption has been allowed on profits earned before 1st July, 1914. That exemption was perfectly fair, and people have worked on the assumption that they were free to enjoy such income free of taxation. This bill does not preserve that exemption, but makes taxable moneys earned and set aside for distribution prior to the 1st July, 1914. Surely that is unfair. No honorable member can think it right to tax moneys earned prior to the introduction of Commonwealth income taxation. Most of the other matters to which I desire to refer can be dealt with more appropriately at “the committee stage. The only exception is clause 14, which provides for the refer- ence of certain questions to a member of a board of appeal. The boards of appeal constituted under the act have important judicial functions to perform, and are superior to the Commissioner, inasmuch as they may review his decisions. Clause 14 proposes to allow the Commissioner to refera matter to a memberof a board of appeal, and require him to investigate it, and make a recommendation to the board, of which the Commissioner is a member. I question whether the Commissioner should have power to direct a member of a tribunal, whose functions include the reviewing of his decisions, to undertake investigatory duties for the purpose of making a report to the Commissioner, as chairman of the Appeal Board, which report the Commissioner may or may not accept. This seems to be putting the members of the board of appeal in an improper position. It would be better if the duties proposed to be referred to a member of the board were performed by the board itself.

Mr FORDE:
Capricornia

..- As the bill contains some very useful amendments of the income taxation machinery, I intendto give it my support. Some of the amendments were desirable. For instance, clause 3 proposes to give exemptionto - the income derived by apenson from the working of & mining property in Australia principally for the purpose of obtaining gold- this exemption shall apply to dividends paid by a Company out of such income.

The gold mining companies throughout Australia have experienced adversity in recent years. During the war period, owing to the marketing of their products having been controlled by the Commonwealth, they lost, approximately, £3,000,000, representing the greater amount which they would have received if they had been allowed to sell their gold in the open market. Clause 8 proposes an amendment tosection 24 of the principal act in order to increase the exemption from £200 to £300, less £1 for every £3 by “which the income exceeds £300. I hope that every honorable member will recognize that that amendment is justified. Having regard to the increase in the basic wage and the high cost of living, incomes up to £300 should be exempt from taxation. I hope that the Treasurer willalsoaccept the amendment, which will be proposed by the honorable member for Maribymong (Mr. Fenton) to allow of a further deduction for medical and funeral expenses, namely -

  1. Any sum or sums of money paid to any legally qualified medical practitioner, public or private hospital, nurse,chemist, dentist,or masseur, in respect of the illness of or any operation upon the taxpayer or his wife or any member of his family under the age of twentyone years, and in addition, in the event of the death of the wife of the taxpayer or of the death of any member of his family under the age of twenty-one years, any sum or sums of money paid to any undertaker for funeral and burial expenses.
  2. Any payment made during the year preceding the year of assessment by the taxpayer as a contribution to any society registered under the Friendly Societies Act.

I have always thought that the taxpayer should be allowed to deduct expenses of that kind. There are many persons receiving wages or small salaries who, on account of illness or deaths in their families, are required to pay away a big proportion of their incomes. The amount paid away in this direction could reasonably be deducted from their taxable incomes. I hope the Treasurer will accept the amendment. The honorable member forCalare (Sir Neville Howse) has also suggested an amendment which I should like the Treasurer to accept. The honorable member proposes that any person who is carrying on agricultural or pastoral pursuits in a district which is subject to the ravages of animal pests shall be entitled to a deduction for the money he has spent in the purchase of wire netting used in the construction of a wire-netting fence to prevent animal pests from entering upon the land used by him in the production of his assessable income. Thousands of small farmers in Queensland find it absolutely necessary to surround their tomato plantations, banana plantations, or cotton crops with wire netting to protect them from wallabies, otherwise they would secure no crops, and no taxable income. The wire netting is purchased by them to enable them to earn an income. It will be a great boon to producers generally to assist the small farmer in this direction. I think that honorable members generally will support the increase in the general exemption from £200 to £300. The wage-earner is to-day only 7d. a week better off than he was in 1911. He certainly receives a higher remuneration for his services, but the increased cost of living has absorbed the whole of the increase in his wages with the exception of 7d. a week. Since 1911 the wage-earner has been chasing the high cost of living, and so far he has failed to improve his economic position. He has been denied full justice, industrially and economically, because his wage has always been just behind the increase in the cost of living. The great majority of the people of Australia, with families, whose earnings do not exceed £300 a year are just about on the bare subsistence line, or ares floundering on what is commonly called the bread line. They already pay, individually, the taxation imposed on the various trading companies, which pass it on. Commonwealth statistics relating to the cost of housing accommodation show the following increases from March. 1911, to the first quarter of March, 1924: -

That is one direction in which the workers have suffered from the increased cost of living. I shall quote other figures presently. Although the workers on the basic wage have had to contend with inadequacy of remuneration and unemployment, there are thousands of people in the community who profess amazement at the spirit of industrial unrest which they say is manifest among workers. But if they were compelled to endure some of the privations and hardships suffered by those whose salaries do not exceed £300 a year, and on whom the burden of peopling this country rests, they would readily understand the cause of this unrest. Many people declare that the Australian workers are living in a veritable paradise, but, as a matter of fact, the workers themselves have good reason to be discontented with their lot. During the last twelve years the wealth owners of Australia have greatly improved their positions. Privatelyowned capital has increased by approximately £1,000,000,000, whereas the average wage paid to the worker of the Commonwealth, after allowing for the increase in the cost of living, has not increased by more than 7d. a week. At a meeting of the Australian Science Congress, held in Adelaide on the 29 th August last, the Commonwealth Statistician disclosed the fact that privately-owned wealth in Australia at the end of 1921 aggregated £2,165,900,000 as against £1,417,910,000 in 1910-11. That increase was considerable enough, but calculating the increase in private wealth for the two years following 1921, on the basis of the preceding years, plus the natural increase in added wealth, we find that at the end of 1923 the private wealth of the Commonwealth was something over £2,400,000,000, approximately £1,000,000,000 more than in 1911. This huge increase in private wealth is made up in a variety of ways - cash, land, buildings, implements, machinery, live stock, metals, minerals, farming products, imported merchandise, manufactured products, raw materials, holdings in companies, and a score of other more or less tangible assets. Along with this increase in the riches of the wealth owners, there has been greater exploitation of the worker. From year to year the holdings of the wealthy have increased to a very much greater extent proportionately than have the wages of the workers. The latter have been forced to put up a desperate fight to maintain even the economic position they enjoyed in 1911. Prosperity has knocked at the door of manufacturers, and persons engaged in certain primary industries, but no- one can say that it has ever come to the door of the wage earner. He has been kept on the bare living wage, with intermittent periods of unemployment. The steadily mounting increase in the cost of living has always deprived him of the advantage of the apparent increase in wages he has secured since 1911. The old-age pension is all that lies ahead of many of those who are to-day receiving less than £300 a year, and have large families to bring up and educate. It is absolutely impossible for them to set aside sufficient to keep themselves in their old age, especially where they have to meet excessive medical expenses. Fully 80 per cent, of the wealth of the Commonwealth is in the hands of about 30 per cent, of the population, while the other 70 per cent, is carry,ing on a desperate fight in order to make ends meet. Those who ask for a little more are branded as revolutionaries, bolsheviks, and anarchists. Is it to be wondered that sometimes a little bitterness is engendered in the fight of the workers for a better share of this world’s goods 1 I remember the remark of a member of the British Empire Exhibition Commission, when that commission visited Mount Morgan. The commission saw the conditions under which the miners and the surface workers were toiling. The latter were then receiving the reduced wage of 13s. lOd. a day. One member of the commission said, “ By Jove, I would not work here among these fumes for £2 a day.” An increase in the income tax exemption to £300 is fully justified on the ground that many people who are earning from £200 to £300 a year cannot afford to pay income tax and meet the increased cost of living. The wealthy can afford to pay a substantial tax. The following figures show how private wealth in Australia has increased from 1911 : -

The figures I have quoted show that the wealth-holders of the Commonwealth have improved their financial position at the rate of £2,400,000 a week. Let us see how the workers have fared during the same period. If we study the facts and figures we find that their story is, indeed, a tragic one. The party to which I have the honour to belong does not only advocate better conditions for the workers in the mines or factories, or on the farms; it also advocates better conditions for all who are engaged in the work of production, whether they be farmers or city workers. When we come to examine the figures for a period of years, we find how the cost of living has affected the average weekly wage paid to workers.

A study of these figures shows that in spite of the struggleof the workers throughout Australia to improve their remunerationtheir wagesonly increased by 841/2 per cent., while the cost of living increased by 82 per cent., and they are, therefore, only 7d. per week better off that in 1911. Prom 1911 to 1914 the nominal, wage of the workers increased by 81/2 per cent., but, owing to the increased costof living, the purchasing power of 20s. in 1911 had dropped to 17s.11d. in 1914, so the worker was actually 3s. 6d. per week worse off in 1914 than in 1911. During those years private wealth increased by £178,770.,000. The war then occurreda war which, we were told, was to end war, and was to improve the conditions of the mass of the people and give them a new world, and in 1919, when the workers who went abroad to fight returned to Australia they found that although the average weekly wage had increased from 55s. 7d. to 74s.11d., the purchasing power of 20s., which had dropped to l7s.1d. in 1914, had declined to11s. 8d., making the purchasing power of the average wage 4s. 7d. a week less than in 1914. In the period from 1914 to 1919, during which the worker suffered this reduction in his purchasing power, the wealthy classes of Australia increased their wealth by £350.000,000. Since the termination of the war the capitalists have increased their wealth by £550,000,000. They have done remarkably well. In view of all these circumstances, the people receiving incomes of less than £300 per an num should have all the consideration that the Government can give them., and the proposal to increase the income taxation exemption from £200 to £300 should receive the heartysupport of every honorable member. As the bill, so eloquently debated by the honorable member for Yarra (Mr. Scullin), contains some useful amendments, I intend to support it, but I hope that early next session the Government will introduce a consolidating measure to give effect to other desirable amendments indicated by the honorable member.

Mr PROWSE:
Forrest

.- I, like the honorable member for Yarra, feel that the amendments proposed in this measure will be useful, but the bill does not remedy all the taxation anomalies and injustices from which our citizens are suffering. I feel that lengthy amendments to the measure would not, at this stage of the session, receive proper consideration, and, therefore, I do not intend to propose them; but I, too, hope that early next session we shall be given an opportunity to amend and to improve our taxation laws, so that justice may be done to the people. I also concur in the views enunciated by the honorable member for Kooyong (Mr. Latham) in regard to certain aspects of the bill. We ought to be very careful to see that we enact laws which will operate equitably upon all classes of the community. In 1922, when the consolidating taxation bill was before us, I endeavoured to amend the provisions of clause 13 with respect to the averaging system. I pointed out that some of the provisions of the measure appeared to me to be entirely unjust and unreasonable, and that it would do little to remove the injustices caused by our method of single-year taxation, but I was unable to persuade the then Treasurer (Mr. Bruce) to accept my views. It should be laid down as a maxim that we must legislate justly for our citizens. The British Royal Commission on Taxation reported to the British Government in 1919 that no taxation law could be successfully administered which wascontrary to the general sense of justice in the community. I agree with that. The Prime Minister (Mr. Bruce), in addressing a meeting in Melbourne, on one occasion observed that he agreed with the maxims of Adam Smith, and he quoted the following : -

The subjects of every state ought to contribute towards the support of the Government as nearly as -possible in proportion to their respective) ability.- thai) is, in- proportion to the: revenue which they respectively enjoy under the protection of the state.

Although every member of the House will approve of that, I regret that it has not been the result of the measure we passed in. 1922.. I. wish to draw the. attention: of honorable members to the actual experience- of one taxpayer under our. present system. Hia income, in round figures,, for- the year ended 30 th June, 1.921, was £5.,Q00; for tha- year ended-. 30th June, 1922.,. £6,000; and foi the year ended 30th June, 1923, £800, which waa. £11,800 for the three years,, an average of £3,933 a. year. A man with an irregular income which, averages £3,933 a year, should” not have to pay any more taxation than a man with a regular income, of that amount, for the taxable capacity of the two taxpayers would be the same. But what is the case under our existing legislation?’ The man with the irregular- in come actually paid on his £1-1,800 a- total of £1,692’, whereas the man with at regular income of ..the- same amount would: have- paid only £1,339’, &t £3’63; less1. A gross injustice like thatsimply howls for- remedy. Birt let us suppose for- at moment- that instead’ of the- man. receiving his irregular income in the way mentioned, he received’ it im the reverse order-; that is- to say, in the first year £800, in- the second £6;0O0>, and’ in the third’ £5,000. It might just as easily have happened that’ way, and1 had it been so his taxation, would have been £1,202 instead of £1,692’, or £490; less than- he- actually paid. An act which would permit such a result is’ clumsy, incomplete, and grossly unjust, for the taxpayer would “get at” theGovernment under its own- laws. The intention of this Parliament in agreeing to the graduated system was that the manwith the- big income should pay more taxation! in the £1 than the man with the small income, but it was recognized when the consolidating bill was before us that .the1 system- would operate unjustly on the man who- had an irregular- income;, and therewas a pretence on the part of the Govern- ment to. adopt an. averaging system’.. I submit that a. system! which could operateas this one does’ is unfair. The– lowest tax that should be. possible om an average” income of £3,933 a; year for three years, is. £1,339, and a taxpayer with am average income of £3,933 should have to pay that amount. The- system that I suggested in as amendment I moved to the 19-22 bill would! have worked equitably, would have been, easier to. administer, than the present one, and’ would not have impinged upon the graduated- system. J hope that an> opportunity will be afforded to adopt the suggestion of the honorable: member for Yarra (Mr. Scullin’), for taxpayers; who have no- regular income are suffering voder a galling sense of injustice. Under the present law, the department goes from one extreme to the other, and injustice is inflicted either on. the- taxpayers or on- the country. A five-years averaging: system is’ in operation, but, instead of averaging the income, an average rate of tax is determined. It is regrettable that the innovation was made.

Mr West:

-.. - I told the honorable member that at the tine.

Mr PROWSE:

– When I submitted am amendment in; 1921, the honorable member for East Sydney (Mr. West) audi other members walked out of the chamber, and refused to vote. If proper consideration had been given to- .the matter then, the present dissatisfaction would not have, arisen…

Mr PARKER MOLONEY:
HUME, NEW SOUTH WALES · ALP

– The honorable member’s own colleagues in the corner did not vote with him.

Mr PROWSE:

– AH who were present, including the. Treasurer (Dr. Earle Page),, voted’ for my amendment. I hope that the Government will provide in this bill; for the deduction of medical expenses.. I think- that the honorable member for Maribyrnong (Mr. Fenton) previouslymade the suggestion. The Government would not lose the tax, if a reasonable deduction were allowed for medical expenses incurred by a taxpayer. But under the present system the Government receives income tax on the amount twice,, and’ sickness, instead’ of being a calamity,, becomes, from the stand-point of the Commonwealth, rather a fortunate circumstance.

Question resolved in the affirmative-.

Bill read a second time.

In committee:

Clause 1 agreed to.

Clause 2’ (Repeal).

Dr EARLE’ PAGE:
Treasurer · ‘Cowper · CP

– The repeal under- the original’ act was’ absolute in regard to all the previous- acts’. This’ clause is necessary, because the repeal’ of the IncomeTax Assessment Act 1>915-21 abolished all the powers of the Commissioner under that act, and it was, therefore, impossible for the department to issue any original assessments for those years in the case of persons who had wittingly or unwittingly evaded payment of the tax for some or all of those years.

Clause agreed to.

Clause 3 (Exemptions).

Dr EARLE PAGE:
Treasurer · Co wper · CP

– The object of the exemption provided under this clause is to encourage, as much as possible, the investment of money in mining undertakings and primarily for gold-mining. The proposal of the Government is considered preferable to that suggested by the mining industry, which would have thrown considerable work on the Taxation Department beyond what was warranted. It is proposed that the profits of the next financial year shall be exempt.

Mr MANN:
Perth

.- I suggest the insertion in section 14 of the principal act of a new sub-paragraph. I move -

That the following new sub-paragraph be added to paragraph (6) : - “(bb) Cash or shares received from a com pany by a prospector or lease-holder as consideration for the assignment or transfer of any claim, lease, licence, or other title, held under the Mining Act of any state.”

I greatly appreciate what the Government has already done in exempting from income tax the profits from gold mining, but I desire the positive exemption of the income of prospectors.’ I believe that in a recent case the Commissioner refused to exempt a prospector because his title was not a lease but a licence. I do not wish a loop-hole to be left, so that it may be said that a prospector is engaged in the business of prospecting, and that his income is therefore taxable under the section providing for the taxation of profits derived from a business. The amendment, which contains nothing that might prove dangerous, is intended to help the ordinary prospector who is endeavouring to develop a property. He should not be taxed on the result of his arduous labours, from which, generally, he derives very little profit. He should not be taxed on the value of any shares given to him as a reward for his prospecting work.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– The Government intends to exempt those who are trying to find, or to develop, gold-fields, but not those who make a business of buying and selling leases. . To that end it is proposed to introduce in this bill a clause exempting

The income derived by a person from the working of a mining property in Australia principally for the purpose of obtaining gold - this exemption shall extend to dividends paid by a company out of such income.

That will apply to companies which are now mining for gold in Australia, whether their original capital is paid up or not. The Government desires that they shall be encouraged. The case of the small prospector is dealt with in the clause dealing with leases. When the amending bill, which has been rendered necessary because of the Dalrymple decision, is brought down, the honorable member for Perth (Mr. Mann) will have an opportunity to bring forward the case of the small prospector. The Government is anxious to meet the case of the small prospector, but it is not desirous of exempting from payment of income tax those persons who make a business of buying and selling leases. The present exemption includes sales by bona fide prospectors, whether by traffic, trade, or otherwise, arid also applies to the proceeds of the sale of a mining property when the Commissioner is satisfied that the lease has been sold by persons who do not make a business of buying or selling such properties, and who purchased the lease from a bona fide prospector, and work the property in a. proper and efficient manner. The only people who are not covered at present, and who, under this clause, will be liable to pay tax, are those who make a business of buying and selling mining properties. All others are included.

Mr MANN:
Perth

.- If the Minister will give me his assurance that the legislation which he proposes to introduce will meet the case to which I have referred, I am willing to withdraw my amendment.

Mr SCULLIN:
Yarra

.- If the honorable member for Perth (Mr. Mann) withdraws his amendment at this stage, he maynot have another opportunity to move it. It is very difficult for us to discuss a bill which we have not seen. I have no doubt that the Treasurer believes that the bill which he proposes to introduce will provide the honorable member for Perth with an opportunity to move . his amendment, but when the bill comes before us we may find that it does not do so. That bill will, I take it, deal only with leases. I understand that it is a bill to tax, as income, the proceeds of the sales of leases other than mining leases.

Dr Earle Page:

– That is so.

Mr SCULLIN:

– The honorable member for Perth wants to exempt from income tax any reward given to a prospector for having discovered gold. If the prospector had no lease, how could he, under a bill which deals only with leases, be exempted from payment of the tax.

Dr Earle Page:

– That is met by the words, “ the income derived by a person from the working of a mining property.

Mr SCULLIN:

– If the interpretation of the department is that a prospector will come under the definition of a “ person working a mining property,” well and good ; but I doubt if it will “be so. It is all a question of interpretation.

Dr Earle Page:

– The present act reads -

The assessable income of any person shall include -

Money derived by way of royalty or bonuses, and premiums, fines or foregifts or consideration in the nature of premiums, fines or foregifts demanded and given in connexion with leasehold estates;

Provided that paragraph d shall not apply to the proceeds of the sale, transfer or assignment of the lease of a mining property (other than coal mining) where the Commissioner is satisfied that the lease has been sold, assigned or transferred -

by a bona fide prospector; or

by a person, partnership, syndicate or company’ who or which does not make a business of buying and selling mining properties and who or which purchased the lease from a bona fide prospector and worked the property in a proper and efficient manner.

That will be re-enacted.

Mr SCULLIN:

– I think that that is exempting the person who purchases the leasehold from the prospector, which is not what the honorable member for Perth desires.

Mr Mann:

– I want to exempt the man who sells.

Dr Earle Page:

– The act says “ the proceeds of the sale.

Mr SCULLIN:

– I take it that the purpose of the bill which is to be introduced will be to make the proceeds of the sale of leasehold land taxable as in come, and that it will include a provision to exempt the proceeds of the sale of mining leases.That would be all right if the prospector had a lease; but if he discovered gold, he might sell out to a syndicate, and not obtain a lease. In that case, how would he be treated ?

Mr Mann:

– He is taxed on the nominal value of his shares. I wantthe provision to be absolutely “ fool proof,” which is the reason for my amendment.

Mr SCULLIN:

– Under the proposed amendment, a lease will be exempt.

Sitting suspended from 6.30 to 8 p.m.

Mr MANN:
Perth

.- As the Treasurer has stated that what I desire will be provided for in an amendment to a bill to be introduced later, I ask leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Mr SCULLIN:
Yarra

– I wish to know whether the amendment desired by the honorable member for East Sydnew (Mr. West) should now be dealt with? He really proposes to insert a new paragraph in clause 3.

Dr Earle Page:

– That amendment could take the form of an additional clause at the end of the bill.

Clause agreed to.

Clause 4 -

Section sixteen of thePrincipal Act is amended -

by inserting in sub-paragraph (i) of paragraph (a) thereof, after the word “article” (last occurring), the following proviso: -

by inserting after sub-paragraph (ii) of paragraph (a) thereof the following provisos : - “Provided that the value adopted in relation to any live stock, as the value of that live stock, as at the end of the period in which the income was derived, shall, for the purposes of the assessment of the person’s income derived in the next succeeding period, be deemed to be the value, of that article as at the commencement of” the next succeeding period: “ Provided also that any option exercised in pursuance of this sub-paragraph shall be irrevocable and shall apply to the assessment of the person’s income derived in the periodin respect of which the option is exercised and to assessments in respect of all subsequent periods;”

by inserting therein, after paragraph (aa) the following paragraph: - (h), by omitting; sub-paragraph (ii) of paragraph (b) thereof and inserting in its stead the following, sub-paragraph: -

the paid-up value of shares distributed by a company to its members or shareholders to the extentto which the paid-up value represents the capitalization of the whole or any part of the profits of the company except profits -

arising from the sale of assets which were not acquired for the purpose of resale at a profit;

upon which the company has, paid income tax for any financial year prior to the financial year commencing on the first day of July, One thousand nine hundred and twenty-three ;

) derived by the company during the financial year com- mencing on the first day of July, One thousand nine hundred and twenty-two or during an accounting period substituted therefor by the Commissioner under section thirty-two of this Act or in any subsequent financial year or accounting period, and upon which the company is not required by the Commissioner to pay tax or additional tax under section twenty-one of this Act; or (4) standing to. the credit, of profit and. loss account or any similar account on the first day of July, One thousand nine hundred and fourteen;”

by omitting paragraph (h) thereof..

Section, proposed to be amended -

The assessable income, of any person shall include -

profits derived from any trade or busi ness and converted, into stockintrade or added to the capital of or in any way invested in the trade or business:

For the purposes of this paragraph. “ Value “ means–

  1. in the case of live stock (not being live stock used as beasts of burden or as working beasts) - the cost price or market selling price at the option of the taxpayer. The cost price in relation to natural increase of live stock shall be the value per head of the live stock selected by the taxpayer within the limits prescribed and the value so selected shall he used for the purposes of the assessment of the financial year beginning on the first day of July; One thousand nine hundred and twentythreeand of all subsequent years: (aa) Notwithstanding anything contained in paragraph (a) of this section, an owner of five stock may elect to omit from the account required by that paragraph the value of all natural increase of any live stock owned by him, and born during the year in which the income is derived, and. shall not be assessed for income tax in respect of that natural increase except to the- extent to which he has disposed of it. The owner of the live stock shall give notice of his election in writing, in the. prescribed form signed by him, and deliver it at the office of the Commissioner on or before the prescribed date. Every notice given by a taxpayer in pursuance’ of this paragraph shallbe irrevocable.

    1. in the case of a member, shareholder, depositor or debenture-holder of a company which derives income from a source in Australia or of a company which is a shareholder in a company which derives income from a source in Australia -
  2. the face value of shares distributed by a company , to its members or shareholders in. consequence of the capitalization of the whole or any part of the assessable income of the company which it is liable to include in. its return for the purposes of its current assessment:

Provided that nothing in this section shall render liable to taxation the value of shares issued by a company to its members or shareholders in consequence of the capitalization of any other of its profits.;

  1. prizes in lotteries paid in cash or by means of inscribed stock or bonds or other negotiable instruments:
Dr EARLE PAGE:
Treasurer · Cowper · CP

– I move -

That after paragraph (b) the following paragraph be inserted: - (ba) by inserting in sub-paragraph (ii) of paragraph (a), thereof, before the words The cost price in relation, the words which shall be exercised by notice in writing signed by him and delivered by him at the office of the Commissioner on or before the prescribed date.’ “

The amendment provides that a person wishing to exercise an option, which is to be irrevocable, shall express it in writing to the Commissioner. The wording of the amendment is practically the same as the wording in that part of the principal act dealing with the option to be exercised by the taxpayer regarding the inclusion in or exclusion from his return of the natural increase of his live stock. All paragraphs from b to f in section 16 deal with irrevocable options of taxpayers. “We were informed by the draftsman that the wording inserted in these provisions of the bill passed last year conveyed the intention of Parliament. This amendment puts the position absolutely beyond doubt, and permits the option to be extended back.

Amendment agreed to.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– I move -

That the word “article”, paragraph (c), he left out with a view to insert in lieu thereof the words “ live stock “. .

This amendment corrects a literal error that inadvertently crept into the wording of the clause.

Amendment agreed to.

Dr EARLE PAGE:
Treasurer · Cowper · CP

. - I move -

That after the word “ irrevocable “, para graph (c), the words “ and shall, if the person, in the notice of his option, so requires, apply to the assessment of his income tax for the financial year beginning on the first day of July, One thousand nine hundred and twentythree “be inserted.

This clausedates the option back to the time when it was made irrevocable last year.

Amendment agreed to.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– I move -

That paragraph (f) be left out.

This paragraph is unnecessary, because the preceding amendment provides for practically the same thing.

Amendment agreed to.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– I move -

That after the word “ company “, lines 6 and 7 sub-paragraph (ii) of paragraph (h), the words “ derived subsequent to first day of July,One thousand nine hundred and fourteen,” be inserted.

This amendment deals with bonus shares. The honorable member for Kooyong (Mr. Latham) raised a question as to the effect of paragraph 4, and what the reference to profit and loss really meant. This amendment makes the position absolutely clear and beyond dispute.

Amendment agreed to.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– I move -

That before the word “ sale “, sub-paragraph

  1. of paragraph(h), the words “ revaluation or “ be inserted.

The amendment deals with bonus shares that are specifically excluded from taxation. The whole section of the principal act has been inserted. In the amending clause the specific itemsexcluded are set out in detail, but in the act itself the opposite course was followed. The amendment makes for greater clarity and less trouble. Regarding the revaluation or sale of assets, if a company decides to increase the number of its shares and issues those shares to its shareholders, such shares will not be taxed. It has never been intended that they should be taxed, and the amendment makes the position perfectly clear.

Amendment agreed to.

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

– I move -

Thatafter the word “ paid sub-paragraph 2 of paragraph(h) , the words “ or is liable to pay “ be inserted.

This amendment exempts bonus shares on which the assessment for taxation has actually been issued.

Amendment agreed to.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– I move -

That after theword “pay”, sub-paragraph 3 ofparagraph (h), thewords “(or if so required has paid or pays)” be inserted.

This is similar to the previous amendment.

Amendment agreed to.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– I -move -

That the words “ (4) standing to the credit of profit and loss account or : any similar ac count on the first day of July, One thousand nine hundred and fourteen:” be left out, with a view to insert in lieu thereof the words “(4) not subject to income tax”.

The assets from which these bonus shares may be taken are specifically named. All assets that are not liable to income taxation, and are used for the purpose of creating new shares, are consequently automatically free from income tax.

Amendment agreed to.

Mr SEABROOK:
Franklin

.- I move -

That paragraph (n) be left out.

This paragraph provides for the omission of paragraph h of the section of the principal act under which prizes won inlotteries are taxable. Tattersall’s in Tasmania are taxed to the extent of £111,000, and if my amendment is carried, the collection of that tax will still be in the hands of the ‘Commonwealth. At some future time Tattersall’s may leave Tasmania and establish themselves in another state; and if, under the bill, the collection of this tax in respect of their prize money were left to Tasmania as proposed, that state would then be unable to collect it.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– The honorable member suggests that the Federal Government should still continue to tax Tattersall’s, and hand over to the Tasmanian Government the money collected. That Government must decide for itself in what way Tattersall’s should be taxed. The Commonwealth Government has already expressed its attitude in this respect.

Amendment negatived.

Clause 4, as amended, agreed to.

Clause 5 (Income arising from sale of trading stock).

Dr EARLE PAGE:
Treasurer · Cowper · CP

– This clause amends section 17 of the principal act, which deals with “ walk-in walk-out “ sales. Two years ago that section was amended to permit of the omission of breeding stock from a return. It was anticipated that it would apply to “ walk-in walk-out “ sales only, but in operation it has been found that certain pastoralists are able, under this clause, to carry on sales of their female stock in the ordinary course of business, and so practically to evade taxation. It makes section 17 apply wholly and solely to sales on a walk-in-walk-out basis. Ordinary income comes under section 16, which deals with what constitutes income, and section 23 deals with what constitutes deductions.

Mr Hurry:

– Is there any definition in the act of “ trading stock “ ?

Dr EARLE PAGE:

– Yes ; it is defined to mean anything produced, manufactured, acquired, or purchased for purpose of manufacture, sale, or exchange.

Clause agreed to.

Clause 6 (Taxation of company where distribution not reasonable).

Dr EARLE PAGE:
Treasurer · Cowper · CP

– I move -

That clause 6 be left out, and the following inserted in lieu thereof: - “ 6. Section 21 of the principal act is amended by omitting sub-section (2.) thereof, and inserting in its stead the following sub-sections: - (2.) The Commissioner shall assess the tax, and the additional tax, if any, which would have been payable by the shareholders if the sum or further sum determined by the Commissioner in accordance with sub-section (1.) of this section had been distributed to them in proportion to their interests in the paid-up capital of the company:

Provided that, where any person (other than a company, trustee, or partnership), who is not a shareholder of the company would (if there had been successive distributions of the relevant parts of the sum or further sum determined by the Commissioner to and by each company, trustee, and partnership interposed between that person and the company in respect of which the determination is made) have received a part of that sum or further sum, the Commissioner may, if he thinks fit, also assess the tax and the additional tax, if any, which would have been payable by that person if those distributions had been made. (2a.) The company shall pay to the. Commissioner the amount of the tax and additional tax assessed under the last preceding sub-section.’ “

The amendment carries out in simpler terms the intention of the original clause. It was thought that it would apply to a series of holding companies which might be formed simply for the purpose of evading taxation, but it did not completely fill the bill. Consequently, the clause has been amended to make it absolutely certain. The object aimed at by the amendment is the simplification of the method, by which the additional tax assessed under section 21 may be recovered, by action in the courts, if necessary, and by the collection through the company of income tax payable by individuals on any additional sum which the Commissioner considers the company could reasonably have distributed to its shareholders. Under the law as it stands, the Commissioner has no power to require the primary company to pay taxation on behalf of the person who is the real and final person holding an interest in the company. The clause in its amended form will give the Commissioner power to collect the additional taxation. The position has been completely changed from 1922. Under the alterations made last year companies were required to pay 1s. in the £1 instead of at the rate of 2s. 5d. on the undistributed profits. Though the Commissioner had power to assess the amount of profits which should have been distributed, he could not get any more taxation from the company. The clause has been drafted to enable the Commissioner to assess the shareholders, and . collect from the company the amount which would have been due to the Crown if the profits had been properly distributed. Of course, it is desirable to get the closest approximation to equity that can be obtained. I am sure that all honorable members listened very attentively this afternoon to the honorable member for Yarra, but every one must realize the position we are now in. On the taxation system evolved in 1915, there has been built up a series of taxation measures and regulations, and we have a Public Service trained in those methods. We have passed the peak of taxation. Our highest year was 1921. Since then we have been gradually coming down. Eventually, we hope to completely evacuate the field of income taxation. It would obviously be very difficult, and would lead to endless work if we completely altered the system now. Though we may agree with the honorable member for Yarra that there could.be a better system., we may differ with him as to the best system that could be devised, and the compromise might be worse than the present system. I do not think the present is an opportune time to completely revise the present system. The clause does not touch that principle. It is simply designed to prevent evasion of taxation by those who ought to pay it.

Mr SCULLIN:
Yarra

.- The difficulty that honorable members are faced with in connexion with these amendments is that they were only circulated just before the dinner-hour adjournment. It is not fair to expect us to thoroughly understand their meaning. The amendment now before the committee appears at first sight to accomplish what the bill was intended to do, and I can at least say for it that it is couched in simpler language; but I am loth to say definitely that it accomplishes all that the original clause did. In that clause there was this very wide definition of “ shareholders “ -

For the purpose of the last preceding section, “ shareholders “ includes -

a beneficiary in a trust estate (the trustee of which, either directly or through the interposition of any other trusts or of any companies, is a shareholder in the company) who is not under a legal disability and who is. presently entitled to a share of the income of the trust estate; and

a shareholder of a company which, either directly or through the interposition of any other companies or of any trustees, is a shareholder of the company in respect of which the Commissioner has made a determination under sub-section (1.) of this section.

Thus the shareholder included a shareholder in any subsidiary company. We have not that definition in the bill now, but we do seem to achieve the same end in simpler language. Let us assume that the Government, by this clause, will accomplish what it sets out to achieve. I can still see the possibility of an evasion of the law. I agree with the Treasurer that the situation entirely changed when we departed from the taxation of companies at a rate which approximated the average rate of tax which the dividend receivers paid. Prior to last year, the company tax was 2s. 5d. in the £1 on undistributed profits. Before then it was 2s. 8d. We arrived at 2s. 5d. or 2s. 8d. in a rough and ready way as the average rate of income tax paid by the receivers of dividends. Last year, as I have already pointed out, the company rate was fixed at1s., and as a result there was a temptation to companies to get as much of their profits into reserves as possible, and to have as little as possible distributed in dividends. This is what the tax dodgers have been doing most effectively. The purpose of this amending legislation is to try to stop that practice. I do not want to dogmatize on this subject, but I suggest that even yet those who set themselves out to evade taxation may be able to do so. The amendment deals, only with undistributed profits. Under section 21, the Commissioner has power to deal only with a company that has not distributed at least two-thirds of its profits.Let us see what may happen even now. Let us assume that trading company “ A “ distributes two-thirds of its profits. The Commissioner cannot interfere. The company is taxed at1s. in the £1 on the whole of its profits. If the Commissioner determines to follow the two-thirds of profits distributed, he may find that they are held by a holding company “B.” The profits of this holding company do not come under section 21. They must be treated as distributed dividends from company “ A,” and onethird can be reserved. In this way, the profits may be distributed in diminishing amounts. I cannot see how the amendment will meet the difficulty^ because it does not deal with profits that are not distributed. A company distributing two-thirds of its profits, which is the maximum which the Commissioner can compel it to distribute, does not have to comply with section 21 of the act. After the Commissioner has ascertained that two-thirds of the profits have been distributed it is found that the amount has been- passed on to an investing or holding company, and when the Commissioner attempts to apply section 21 to, say. ‘’’ B “ company, which is a holding company, he finds that as that company has already distributed two- thirds of its profits to another holding company, section 21 cannot apply. The Commissioner may also find on investigation that three, four,, or five other holding companies have each held one-third, and have distributed the remaining two-thirds.

Dr EARLE Page:

– Does the honorable member suggest that each holding company is of the same size as the original trading company ?

Mr SCULLIN:

– There may be Droprietary companies with only two shareholders.

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

– Page. - With the same number of shares?’

Mr SCULLIN:

– A holding company can be formed and take over practically the whole of the shares in the original’ trading’ company.

Mr Mann:

– Could such a company show its entire income as profit ?

Mr SCULLIN:

– What other expenses mould it have ?’

Mr Latham:

– A holding company has hardly any expenses.

Mr Maxwell:

– And the holding company distributes two-thirds of the twothirds, of the profits, it received from the trading, company..

Mr SCULLIN:

– Yes,, until the amount is diminished to such an extent that there is no taxable income.

Mr Foster:

– Really a bogus company.

Mr SCULLIN:

– Yes, a company formed for the purpose which, apart from the expenses of registration, does not incur any expenditure. It has been suggested during the debate that we should be able to define bogus- companies.. Purely bogus companies cam be detected and dealt with under special .legislation. But who is to be the judge of what is and what is not a bogus company? They secure their position by having a certain amount of legitimate holdings - if anything is legitimate, and I have very grave doubts about it - in one company or another. Some shipping companies hold large interests in. meat works and in coal mines, and I have in mind a company the bulk of whose capital is invested in a number of other companies. On what basis of equity can we allow companies to retain each year in reserve onethird of their profits so that within three years they get away with a full year’sprofit while paying the lower instead of the higher rate. In that way the Commissioner treats companies differently from, members of an individual firm who pay income taxation on the whole of their profits? Why should not the shareholders pay income taxation om the profits which come under the taxable amount? So long as this is not- done the department will be faced with difficulties. This provision will not meet the situation. When the Income Tax Rates Bill is before the House I intend to suggest an increase in the company’s rate. If we inserted a penal clause we could to some extent improve the position, but I do not see how we can altogether avoid the existing anomaly under the present law. If an original trading company does- noi distribute its profits it is- evading taxation.. When this measure is passed, and the Commissioner deems that twothirds of the profits of a company have been distributed, the companies will adopt different methods.

Mr GREGORY:

– Could it not be provided that the dividend should be paid to individuals, and not to a company ?

Mr SCULLIN:

– The holding company is the shareholder. How can the dividend be paid to an individual who does not hold the shares? If a shareholder in. a trading’ company disposes of his interest to an investment or holding company, he ceases to be a shareholder in the trading company. If a personholding a controlling- interest in a trading, company disposes of his shares,, he receives in exchange shares’ in an investment or .holding company. Under the existing la.w, when the Commissionerdeems* that two.thirds of the trading company’s profits have been distributed, he can follow the profits to the holding companies, which pay ls. in the £1 on the undistributed! profits, less a rebate of ls. in the £1, which means- that they escape taxation. For the information of the Prime Minister :(Mr.’. Bruce), who was temporarily .absent, I ‘shall repeat, that when a trading company distributes twothirds of its profits, section 21 -of the act does not apply. The two-thirds of the profits .so distributed may .go to a holding company, and ;as the section I have mentioned does not apply, the Commissioner cannot interfere.

Mr Bruce:

– Why!

Mr SCULLIN:

– Because the company has distributed the maximum of two*thirds provided for.

Mr Bruce:

– The second holding company ‘cannot do anything with it unless It distributes it.

Mr SCULLIN:

– Two-thirds of its profits may ,be distributed .to another holding company..

Mr Bruce:

– And so .on, ki a steady (downward progression.

Mar. SCULLIN.- Yes, .until there is no taxable income’. Does this .amendment .provide against that?

Mr Bruce:

– No; and we never can.

Mr SCULLIN:

– That is precisely the position I have reached, and I am .glad to have it confirmed by the Prime Minister. The honorable member for ‘Swan 4(Mr. ‘Gregory) asked if there was not a way in which to deal with this ‘-matter, and I said that I .did not think there was, iso long as we continued the present system of levying a rate of ls. while individuals have to pay from ‘5s. to 7s. in the £1.

Mr R GREEN:
RICHMOND, NEW SOUTH WALES · CP

ls the British system which was mentioned this afternoon preferable?

Mr SCULLIN:

– It prevents the practice in force in Australia.

Mr Bruce:

– How?

Mr SCULLIN:

– Taxation is collected at a flat rate of 6s. in the £1 .on the whole of the profits of a company.

Mr Bruce:

– Not now. That was the highest rate during the war.

Mr SCULLIN:

– What is it to-day 1

Mr BRUCE:
FLINDERS, VICTORIA · NAT; UAP from 1931

– Four shillings in the £1.

Mr SCULLIN:

– Then it has been reduced .since the last report I have received was published, which was quite recently. In Great Britain a flat rate of, say, 4s. in the £1 is imposed on which a rebate is .available when a dividend is paid.

Mr Bruce:

– - There is no state taxation in Great Britain.

Mr SCULLIN:

– That does not alter the principle.

Mr Bruce:

– It makes all the difference.

Mr SCULLIN:

– I am astonished at the Prime Minister introducing state taxation when I .am .dealing with a -question of principle under the Commonwealth law. I have not advocated the imposition .of a 6s. or a 4s. in the £1 rate for .companies, but the method adopted in Great Britain .differs from our own.

Mr Bruce:

– - The company rate is, I understand, 3s. -6d. in the £1 in .New South Wales.

Mr SCULLIN:

– No; at is .2s. 6d. in that .state.

Mr Bruce:

– And then there .is the Commonwealth tax <o£ Ls.

Mr SCULLIN:

– If the right . honorable gentleman -wishes to refer ito -state taxation -on companies, I may mention that the rate in Victoria is ls. The point with which I .am dealing is that under the present system some persons pay 5s. in the £1 federal tax, whilst others pay only ls. in tike £1 on ;a -similar income. The Prime Minister has -stated that we cannot get away f nom that. It .can .only be done by .’altering the whole system .of taxation, and undoing what we did last year. I : admit that the Government are attempting to .catch the tax -dodgers, but they cannot, as. the Prime Minister admitted, succeed by this -means. A proprietary company may consist of two shareholders, and a limited company of five ‘shareholders, and the only -costs incurred in forming one of these .companies would be those involved m. registration and in issuing the scrip-, I am net .-advocating the adoption of the British system., although I admit it is preferable to ours.

Mr Bruce:

– The British system ‘is identical.

Mr SCULLIN:

– It is not.

Mr Bruce:

– It is taxation at the source.

Mr SCULLIN:

– Undoubtedly it is taxation ,at the source, and that is why I do not like it. But under British legislation every shareholder receives a rebate after the dividend is distributed, whereas here a rebate is allowed .only to those who have a taxable income. Persons with a small income which is not taxable, and who receive .a few pounds by way of dividends, pay ‘at the rate .of ls. in the £1.

That is not done in Great Britain. Under British legislation the company pays 4s., and every shareholder who comes along with his dividend warrant, whether he is taxable or not, under the act receives a rebate; but we only give a rebate to those whose incomes are ‘ taxable. Persons at present receiving less than £200 do not receive any rebate, and when this measure is passed those whose income does not exceed £300 will not benefit. By raising the exemption from £200 to £300 we are assisting 80 per cent, or 90 per cent, of the taxpayers, but are injuring many small shareholders in companies. Last year a similar measure was rushed through Parliament during an all-night sitting, when the closure was frequently applied, and the Government are now trying to patch it up in order to save revenue. Hundreds of thousands of pounds have been lost, and we are now asked to pass retrospective legislation, which I always regard as vicious - although I do not so regard it in this case - to overcome the. mistakes of the past. I submit that this measure will not prevent tax dodgers evading taxation so long as they have the opportunity to contribute only ls. in the f i. There are three methods which can be considered. The British system is a simple one, which deems that all profits of a company are distributed, and they are followed up. The act amended last year under which 2s. 5d. in the £1 was imposed on undistributed profits, although inequitable, was preferable to the present act, and was better from the revenue point of view, because there was not the’ same incentive to avoid taxation. When ls. in the £1 is imposed, companies are tempted to carry large sums into reserve, on which they pay a rate of ls. in the £1. Early next year, I hope the Treasurer will introduce another amending bill, to try to deal with the tax dodgers.

Mr BRUCE:
Prime Minister and Minister for External Affairs · Flinders · NAT

– The point which the honorable member for Yarra (Mr. Scullin) has taken deals with the whole basis of company taxation, as laid down in section 21. That section was designed to meet a certain type of case, but that which it was intended to obviate would happen under whatever system we might adopt. lt cannot be obviated by the system of taxation at the source, which we now have, or by providing that a company shall pay tax only upon the undistributed portion of its income, the remainder being followed into the hands of the individual shareholders, and taxed at the rate applicable to individual incomes. The honorable member stated that the English, system is quite different from our own. I dispute that statement. The English system is almost the same as ours, the only exception being that under the English act a rebate is allowed. In Great Britain the taxation is levied at the source in the same way that ours is levied. The English system has no great advantages over that of the Commonwealth. As a matter of fact, they have had to follow our legislation by inserting in their act a provision similar to section 21 of the Commonwealth statute. That action was taken only twelve or eighteen months ago. Prior to that there was no provision by which it could be assumed that a company had made a bigger distribution than actually had ‘been made. They had no provision of this kind. Those methods of avoiding taxation which the honorable member has suggested are possible here, by means of the creation of holding companies, could be adopted without any check at all in Great Britain, until a section similar to section 21 of our act was inserted in the British act.

Mr Scullin:

– In Britain they could not get away with a small tax of ls.

Mr BRUCE:

– In ore-war days they could get away with very much less. The honorable member referred to the nonallowance of a rebate to a shareholder in Australia whose rate of tax is less than le. in the £1. That provision was inserted in our act in order to avoid complexity. I think that every honorable member will admit that the act is quite complex enough as it stands; but it would be still more complex if the alteration suggested by the honorable me’mber were made. Such a provision is not necessary when the tax is only ls. in the £1, but it is very necessary where, as in Great Britain, the tax is 4s. in the £1. It has been suggested that it is only the email taxpayer who pays this tax. He does nothing of the sort. The tax is paid by the company. It could be said that it was paid by the shareholder if the tax were sufficiently high to’ affect the dividend, which, in other words, is the income that goes to the individual shareholder. But where the tax is only ls. in the £1, it cannot have the slightest effect upon the dividend that the small shareholder receives. We should be adding still further to the complexity of an act that is already hopelessly complex if we inserted what the honorable member suggests. The section is principally intended to ensure that persons “who have large incomes from companies shall not evade their obligation to pay income tax by reason of the failure of companies to distribute a reasonable portion of their annual earnings. A very limited number of companies would resort to that- means of attempting to evade taxation. No ordinary public company, that has its shares on the market, would hold up the whole of its annual income and nOt distribute it amongst its shareholders. Tt must distribute a certain portion to its shareholders.

Mr W M Hughes:

– Quite recently, the. House of Lords decided that profits that are distributed in the form of shares, and thus. in effect increase the capital of a company, are not taxable.

Mr BRUCE:

– The right honorable gentleman refers to the bonus share system. We have not to rely upon a decision of the House of Lords in such a case; we have definitely provided for that contingency in the act itself.

Mr W M Hughes:

– The shares can be put on the market and sold.

Mr BRUCE:

– That point is quite different from the one that we are now considering. We are dealing now with .i company that retains its profits. A company that had a large number of shareholders could not do that. The shareholders would immediately demand the distribution of the income to which they were entitled. Such companies can, therefore, at once be dismissed from this consideration. Such a provision as that suggested by the honorable member for Yarra can contemplate only what are known as “ oneman “ companies - one man holding all the shares in a private company; but, in order to comply with the companies law, giving one share each to a few nominees. We have to endeavour to make it impossible for such companies to evade the taxation they are entitled to pay. This matter was very exhaustively reviewed when the consolidating act of 1922 was introduced. Prior to that time, we had a section of this character which provided that if the Income Tax Commissioner decided that a company had not distributed a reasonable portion of its profits, he had no option but to say that the whole of the profits must be deemed to have been distributed. If, for instance, a company had distributed 30 per cent, of its profits, and the Commissioner decided that that was not a reasonable distribution, but that 50 per cent, would have been, he had no power, prior to 1922, to levy tax on the basis of a distribution of 50 per cent. He had to levy tax upon the whole of the profits. Either he had to refrain from declaring that a sufficient portion of the profits had not been distributed, because, by doing so, he would be compelled to commit an act of gross inequity by imposing taxation on the whole of the profits, or he had to so act that it would be impossible for a company to retain a reasonable amount for reserves and for the future expansion of its business. The unsatisfactory nature of the position was appreciated when the consolidating act was introduced in 1922. The matter was examined from every angle, and it was decided that the Commissioner should not have the power to pursue the matter further if a company had distributed two-thirds of its profits. He had to see that the company had made a reasonable distribution. It is perfectly true that, in some cases, it might not be a reasonable distribution, but there are very few companies in respect of which it could be said that a distribution of two-thirds of its profits was not reasonable. An ordinary company ought to retain one-third of its profits to build up its reserves and ensure its stability. It can be regarded as reasonable, therefore, if two-thirds of the profits have been distributed and one-third is retained for a reserve to meet the future requirements of the business. It is suggested that that is not altogether satisfactory because of the existence of these oneman companies. It must be remembered, however, that there are not a great number of those companies.

Mr Scullin:

– They are springing up like mushrooms.

Mr BRUCE:

– If honorable members examine the returns, they will find that there are not many persons who can affordto leave the greater part of their “profits in any company, even if it will relieve them from a certain amount of income tax. They may save ‘a little in ihat direction, font they are .under the disadvantage that .the .money so locked up is not available for their .current expenses. It is further .argued that a company can invest its profits in other companies, and. Whereby avoid the payment of taxation, lt must be remembered, however,, that each of those .other companies must observe the two-thirds standard. Quite apart from the complexity involved in .registering one company after another, there is the further disadvantage that the income always is a diminishing one, and the difficulties are- augmented toy every transaction. Nobody can carry out a series of transactions of that sort. Money so invested is withdrawn from current income, and is not available for ordinary purposes, lt must also be remembered that that money cannot he handled until the .company is wound up. I had a good deal to do -with this matter when the consolidating act was introduced, and I believe that a reasonable ‘basis has been adopted. It would be quite unreasonable to assume that the whole of the profits had been distributed. ‘The harm to the community would he greater than the advantage gained from catching a few persons who were endeavouring to avoid their taxation obligations. In a country such as Australia, our one aim should be to build up industdi.es and to encourage those who are controlling industry through the agency of a joint-stock company not to distribute too great a part of their profits, but, on the contrary, to retain as much as possible for the expansion and stabilization of their .business.

Mr Gregory:

– Does not that apply to an individual as well as to a company?

Mr BRUCE:

– It does. The honorable member infers that the .treatment of the individual is different from that of the company. It has been suggested that they should be dealt with on the same basis. I point out to the honorable member that it is open to any person to turn his business into a private company if he thinks that it is advantageous to do so. There are no better means for employing capital developmentally than are offered under the joint-stock system, which is universally adopted, and under which are drawn together the small contributions of many persons, the aggregate sum being utilized in carrying on a great industry. The point raised by the honorable member for Swam (.Mr. .Gregory) was fully considered in 1922, and :a new provision was inserted in the act .dealing with partnerships and private individuals.

Mr Gregory:

– The argument of the honorable member for Yarra was that large shareholders now put their dividends into holding .companies and escape the payment of taxation.

Mr BRUCE:

– There is nothing to prevent a man from investing his dividend in a holding company, but it is of no use to him .if he cannot get it out of the holding company.

Mr Scullin:

– He can buy bonds with it and draw 6^ per cent, interest.

Mr BRUCE:

– I stress the point that that system does not confer any advantage upon the majority of the people of this country. Only a few individuals can afford to do it. Nothing is gained by creating a holding company and putting into it the dividends you obtain from some “ other company, if you cannot get them out of the second company for your ordinary purposes year by year without paying taxation. Once you invest in “ B “ company a dividend obtained .from “ A “ company you cannot get at that income until “ B” company declares a dividend. That dividend immediately becomes taxable. The transaction is not nearly so simple as it sounds. It would be impossible to devise an absolutely perfect system without making it so complex that it could not be administered. The honorable member for Yarra said that our objective should be to bring about equity and simplicity. It is extraordinarily difficult to reconcile one with the other. The more equitable you -are the more complex you become. The less complex you are the less equitable you become. It is the duty of the legislature to prevent evasion of taxation as far as possible. Section 21, which gives the Commissioner the right to insist upon a further distribution of profits if a company has not distributed at least twothirds of its profits, provides a reasonable basis. It ensures that every company must make a fair distribution, but it does not penalize a company that is endeavouring to build up its business and make adequate reserves. It, at all events, limits the opportunity to avoid the payment of taxation., because .a person who forms a company with that object cannot have the taxation withheld on a greater amount than one-third1 of the. profits that are earned, lt is, I think, obvious that an amendment of the’ act. is necessary. Means have been discovered for getting over what was the intention, of the legislature, la the first place, a tax is imposed upon, a company which has not distributed a sufficient, amount of its profits.

Mr W M Hughes:

-.. - Who- decides whether a sufficient amount has been distributed ?

Mi-. BRUCE. - The Commissioner.

Mr W M Hughes:

– On what principle does he work?

Mr BRUCE:

– He has to take account of the known- obligations of the company, the reserves that must be created, and so on; the whole basis is laid down. He is given a discretion to decide whether a company has not distributed two-thirds of its profits. If it has not, he can compel it to make a further distribution. Under the consolidating act the company has to pay the tax, which would have been payable by the taxpayer if a distribution’ had been made. Prior to the passing of the consolidating act, it was the shareholder who had to pay, although no distribution of dividends had been made- to him, and he had no moneys from the company from which to meet the tax. To secure greater justice, it is provided that the company shall pay, and the basis upon which the company pays is the rate which would have been applicable to the shareholder if, in fact, he had enjoyed a dividend.

Mr W M Hughes:

– What difference does it make, in the case of a one-man company ?

Mr BRUCE:

– A one-man company is a company, of one shareholder, whose income,, say, is £50,000 a year. If he is in the fortunate position’ of being able toleave his dividend in the company, the tax will be payable at the company rate. But if it comes to him as a shareholder, he may have to pay at the rate of 6s. or. 7s.. in the’ £1.

Mr W M Hughes:

– He will be the same man.

Mr BRUCE:

– But he would prefer to pay at the rate of ls. rather than at the rate of 6s. or 7s. in the £1.

Mr W M Hughes:

– He would pay only the lower tax.

Mr BRUCE:

– No;, not if the dividend came to him as a shareholder.

Mr W M Hughes:

– Then- he ought not to be in. a company; he ought to bein an asylum.

Mr BRUCE:

– He tries to pay the one tax now and we are endeavouring to prevent, him from doing that. If he leaves what might be his; dividend in the company of which he is the one shareholder, he pays, at the company rate,, instead of at the rateapplicable to an income of £50,000. a year. The Taxation Commissioner may then, say that there should have been a distribution* of a greater amount of the earnings of the company, and he may decide that the. distribution should be £10,000., The company would then have to pay on £10,000/ at the 6s., 7s., or 8s. rate applicable to the income of the shareholder instead of at the ls. rate. This does not suit the enterprising gentleman who is the sole shareholder of a company, and he proceeds to register a small holding company or syndicate, and give his shares to that syndicate. Then the Taxation Commissioner says, to the “A” company, “You have not distributed enough. You must, distribute so much more.” The; amount to be distributed might be £10,000’, and the Commissioner would look to see who was the shareholder who would get the £10,000. He would find that it was another company, and so would only pay at the ls. rate. In order to defeat that, tins amendment lays, it down that where a distribution should have been, made by “A1* company amd the shareholder- is “B” company, the Taxation Commissioner takes no notice of “B” company in order to ascertain the rate of tax,, but finds out the rate which would have been- payable by shareholders, in- ‘Iff’ company according, to their interest in “B” company, which gives, again the rate at which the big man- should pay. The practice to which I referred is being met by one amendment of the law provided for in this bill. Another amendment is proposed to- meet the case where, instead of forming a holding company, shares are paid into the hands of a trustee, and the trustee is a shareholder in the company. In this case, where a distribution has been ordered’ by ‘“A” company, the Commissioner looks around1 for the shareholder and he finds that he is a trustee. E-e ascertains -what rate the trustee should pay, and he find’s that he has no financial interest in the shares aifc, all, and therefore could nob be called upon to pay tax: at any rate. To get over that difficulty, it is proposed to go beyond the trustee to the beneficiary, andcharge tax at the rate applicable to the beneficiary. I think that honorable members will agree that these amendments are desirable and necessary. Coming back to the point raised by the honorable member for Yarra, I say, emphatically, that it is quite impossible o do what he desires and provide that, in no conceivable circumstances, can anybody avoid paying tax at the rate applicable to his income. We could not do that, even if we adopted the system he has suggested of following the dividend into the hands of the shareholders and taxing them at their individual rate. That would be going back to the system we had before, under which a company only paid the tax on undistributed income. I venture to say that the honorable member for Yarra was quite wrong in suggesting that the British system is better than our own, because the British system follows exactly the plan we have of taxing at the source. Under the British system, there is no better means than we have here of meeting cases such as we have been discussing to-night.

Mr Scullin:

– Under the British system, they tax eventually in the hands of the recipient.

Mr BRUCE:

– The honorable member contrasted the company rate of 4s. in the £1 in Great Britain, as against the rate of ls. in the £1 in Australia; but the difference is not so great as might besupposed. I remind the committee that the 4s. rate was imposed in Britain only because of the war, and the pressure to which Britain was subjected during the war. Prior to the war, the British income tax was a negligible quantity. Another fact which must be remembered is that in Australia the system generally adopted by the states is to tax at the source. In New South Wales, for example, the tax which has to be paid by a company to the state is 2s. 6d. in the £1, in addition to the ls. in the £1 payable to the Commonwealth. So that, whilst a company carrying on business in Great Britain would pay tax at the rate of 4s. in the £1, a company carrying on business in New South Wales would pay at the rate of 3s. 6d. in the £1, and the difference is not very great. The question whether we should tax at the source, or should tax only undistributed profits and tax dividends in the hands of shareholders, has been very exhaustively discussed in this House on many occasions. It was discussed from every aspect when we were considering the consolidating bill in 1922, and it was again the subject of consideration last year. I submit that the system we now propose will work quite satisfactorily. It embodies theprinciple of simplicity so absent from many provisions of the existing act, and it offers no greater opportunity for those determined to evade taxation than is offered by the other system to which reference has been made during the debate.

Mr LATHAM:
Kooyong

.- I venture to doubt whether the amendment proposed by the Treasurer will’ secure the object he has in view. In the first place, there will be difficulty in following moneys along the track which has been referred to by various speakers. Apart from this, an easy method has suggested itself to me -of evading liability to taxation under this section. To give honorable members an example, I suggest that “ A “ is a company, which the Commissioner determines should make a larger distribution of its income. Suppose that income is earmarked, and it is possible to follow it down through “B,” “ C,” and “ D “ companies. If I am a shareholder of “ D “ company, and only a shareholder of l!hat company, and get part of the distribution, then the proviso applies to me, and tax must be paid, because the words of the section are -

Provided that, where any person (other than a company, ‘ trustee, or .partnership) who is not a shareholder of the company would (if there had been successive distributions of the relevant parts of the sum, or further sum determined by the Commissioner, to and by each company, trustee, and partnership, interposed between that person and the company in respect of which the determination is made) have received a part of that sum or further sum, the Commissioner may, if he thinks fit, also assess the tax and the additional tax, if any, which would have been payable by that person if those distributions had been made.

This applies, it will be seen, only to a case where the shareholder of “ D “ company is not a shareholder of “ A “ company. If I were a shareholder of “D” company, and wished to enable “A” company to evade the application of the section, I should make myself a shareholder also of “A” company. I would then no longer be a “ person who is not a shareholder of’ A ‘ company.” As in that case the distribution would not be to a person who is not a shareholder of “A” company, but to a shareholder of “ D “ company, who is also a shareholder of “A” company, the section would not apply. From a cursory examination of the amendment, this device suggests itself to me as a means by which the payment of the tax might be evaded. I suggest to the Treasurer that if the amendment were altered to read, “ Provided that, where any person (other than a company, trustee or partnership) otherwise than as a shareholder of the company would …. have received. . . . “ and so on, the position would be met.

Mr SCULLIN:
Yarra

– I should not have spoken again on this amendment but for the remarks of the Prune Minister (Mr. Bruce), who did not deal with the issues raised in this debate. The honorable member for Kooyong (Mr. Latham) has directed attention to one loophole, and has probably provided a patch for it, but it is significant that even the honorable member, with his legal mind, is unable to show how the larger breach that I discovered can be patched. Nor did the Prime Minister do so. Let me consider the remarks of the Prime Minister, and show whether he gave the committee the facts. He said that nothing could be done under this bill that could not be done under the British act. What I have been stressing is that there is not the incentive to do it under the British act that there is under our act. In England a company cannot escape with anything less than the company tax, which, on the latest figures I had, was 6s., but which the Prime Minister stated was 4s. The real reason why the provision is so dangerous is that the company tax in Australia is too low. To say that an English company could do under the British act what an Australian company could do under the Australian act is to beg the question. If a British company did dodge the tax. by transferring all its profits to reserve, it would still have to pay the company rate, which is four times the Australian company rate. The Prime Minister advanced a most extraordinary argument in reply to my remarks about small shareholders paying1s. in the £1.

He said that the act would be made much more complex if these people were given a rebate. There would be very little complexity in it’. Under the English system a notification is attached to the dividend warrant saying that “ This dividend has paid a tax of so much in the £1, which will be refunded on the presentation of proof that you have received this.” That document is handed in, and the person receives the rebate. The system adds very little complexity to the work of assessment. I submit that persons who are not taxable are as much entitled to rebates as those that are taxable. Those that are taxed 5d. in the £ ought to get the same rebate as those that are taxed 5s. in the £1, but they do not get it under our inequitable system. The act lets off the wealthy man who has shares in a company, but hits the small man hard. The Prime Minister said that the payment of the tax by companies would not have the slightest effect on the shareholders’ dividends. If the small shareholder is not entitled to a rebate, then his fellow-shareholders are not entitled to it, but they get it, because they are big men. The small man does not get it, but the big man does. The arguments or excuses that are put forward to deprive the small man of the rebate can be advanced with the same amount of logic, if there is any logic in it, to prevent the big men from getting a rebate. The Prime Minister said that public companies whose shares were on the market could not do this sort of thing, but would have to distribute their profits, because their shareholders would want dividends. I admit that, but we are not discussing such public companies, whose shares are quoted on the market, but companies whose shares are held by a few individuals. The daily newspapers every day contain notices of half a dozen registrations, the object of which is to evade income taxation and land taxation. That sort of thing has been done to the knowledge of the Government for a considerable time. This class of company, said the Prime Minister, is limited in number. I answer that argument by saying that such companies are ‘springing up like mush-‘ rooms, and are not limited in number. He went on to say that there was a lot of complexity in forming and registering these companies. There is no complexity in it. If he will refer to the notices of registration last week, he will see that one family in the State of Victoria registered seven companies, with the same directors in each of them. The total amount of capital was £90,000. Why did they break the business up into seven companies? In my opinion the answer is obvious. In reply to an interjection by the honorable member for North Sydney (Mr. W. M. Hughes), he said: “ If these individual arms wish to do it, they can form themselves into companies.” A moment before he had said that it was difficult and complex to form and register companies. If you are a big firm you can form yourself into a company, and the inducement is to do it, for by that means you can pass’ a large part of the burden of taxation on to the “ other fellow who cannot, or is too honorable, to form a company. The speech of the Prime Minister was an example of special pleading. He said that the provision relating to the distribution of two-thirds of the profits was reasonable. It may be reasonable for a new company, but it may be very unreasonable for an old-established company. The reasonableness of it depends on the position of the company. But I submit that the distribution is no more reasonable for a company than for a firm. If it is reasonable tor a company to be allowed to place onethird of its profits to reserves and pay only ls. in the £1 tax on them, it is equally reasonable for a firm to do so. This provision means that a company need pay only ls. in the £1, instead of the shareholders paying perhaps 5s. in the £1, on one year’s income in every three years. The Prime Minister said that companies could not all afford to keep profits in reserve, because t-hey wanted them, and that the provision applied to only a limited class of companies. Surely that is an argument on my side. It is because the provision applies to a small and privileged class that I object so strongly to it. I could understand him saying that because the provision applies to all taxpayers it is equitable. The truth is that it applies to a limited few, and those the wealthy few, who can afford to put their money in reserve, and not distribute it. The Prime Minister also said, “ What is the use of these reserves being paid into a holding company if you cannot get them out? The moment the holding company pays out the money in dividends, the Government taxes it.” That kind of argument might deceive some people, but it will not deceive honorable members, be- cause it is well known to them that there are well-to-do firms the proprietors of which do not want to spend more than a fraction of their profits. If they received the profits in cash they would convert them into bonds at 6) per cent., to pile up more profits. The holding company could do that out of profits that have paid ls. in the £1, but which, if distributed as dividends, would have paid perhaps 5s. or 6s. in the £1.

Mr Corser:

– Does not the honorable member know that many companies have had to write down their capital because they have paid too much in dividends ?

Mr SCULLIN:

– And does not the honorable member know that that statement is true of firms just as it is of companies?

Mr Gregory:

– And what about individuals?

Mr SCULLIN:

– And individuals too. There is not one argument that can be put forward in favour of reserves for a company that cannot be put forward with equal force in favour of reserves for a private firm. An individual may take too much out of his business and spend it.

Mr Corser:

– Why should a company be forced to distribute more than twothirds of its- profits in dividends?

Mr SCULLIN:

– I am not asking that any company should be forced to pay anything in dividends, but I say that a company, for the purpose of ascertaining its taxable income, should be treated as if it was a private firm. It is impossible for honorable members to escape from the logic or justice of that argument. In my previous remarks I stated that the rate of tax imposed upon companies in Great Britain was 6s. in the £1. I have since ascertained that it was 6s. in the £1 until an amendment was made this year, when it was reduced to 4s. 6d. It is now 4s. 6d., and not 4s., as stated by the Prime Minister. The purpose of the bill is to protect the revenue of this country. The Prime Minister argued that it would protect the revenue from the operations of the manipulators that had been forming holding companies H As far as I have been able to read the bill in the limited time allowed to honorable members, it does so as far as section 21 of the principal act is concerned. That is to say, it will prevent the formation of holding companies to cheat the ‘ revenue out of the taxation on the undistributed profits of a company. When I pointed out to the Prime Minister that the revenue could be cheated in another way, he admitted that that was so. The Commonwealth is losing revenue through the operations of manipulators and tax-dodgers, who form bogus companies in order to get the benefit of the ls. rate instead of the higher rate applicable to individuals, and I am showing that even if the proposal contained in this clause is accepted, they will still be able to evade taxation; they will not hold their profits, but each company in turn will distribute two-thirds of them, and then section 21 will not apply. If one family has formed seven companies, other families may do likewise. So long as the company rate is ls. iu the £1, and the rates applicable to individuals are as -high as 7s. in the £1, so long will means of evading the higher rate be found. The existing provision is more equitable and less easy of evasion. I admit that under any scheme we may adopt companies will still be formed which will put a certain amount of their profit into a reserve, fund; but if the amounts carried to reserve are taxed at the rate of 2s. or 3s. in the £1, the Commonwealth will not be- cheated to the same extent as it is at present. I suggest that the Treasurer should reconsider this matter, so that when the bill declaring the rate of taxation is before us, an amendment may be made to tax profits carried to reserve at the same rate as the individual shareholders would pay if such amounts were distributed.

Mr W M HUGHES:
North Sydney

– It is very much to be regretted that the amendments contained in the bill are brought forward in such a way as to make it difficult to understand what their effect will be upon the principal act, to say nothing of their effect upon the taxpayer. Like the Prime Minister, I deplore the complexity of this measure, and of the taxation system generally, but I was rather appalled to hear him say that it was impossible to get equity with simplicity. I suppose that from that remark we are to deduce that justice, like the peace of God, “ passeth all understanding.” I hope that is not so. The bill consists of fifteen clauses, which propose about 50 or 60 amendments to the act’. The Prime Minister has said that he is quite sure that these proposals are all right. I remember having heard a similar remark in previous years. Probably there was a time when I almost believed these assurances by the right hon orable gentleman, but times’ have changed, and I cannot now accept them unreservedly. The proposal to which the honorable member for Yarra has’ directed attention is most difficult. Whatever we do, we shall probably wish that we had done something else. The outstanding defect of the amendment is the tremendous power to be given to the Commissioner. For all practical purposes, the Commissioner will impose the taxation, but, unlike a god, he is not given dominion over the whole earth, or even this community; he cannot temper the wind to the shorn shareholder, but he may temper it to a company. I understand from the Prime Minister thai the delinquents are few, and the righteous many, and so in practice the Commissioner has to deal with very few people who deliberately evade taxation. But human nature being what it is, I imagine that every company will se arrange its affairs and statements as te pay as little taxation as possible. That. I assume, is what all ordinary human beings, do. Companies are of two classes. In one class of company there are large numbers of small investors, of whom we hear a good deal in another connexion. They form, as it were, the outer bulwark when the big companies are in danger, and, at such times, we are abjured to have regard for the small investors. But this bill does nothing for them ; they have to pay on the higher rate.- The other class are the one-man companies, which are not so rare as the Prime Minister professes to believe. The formation of such companies occurs as frequently as is profitable, and if this bill makes the subterfuge more profitable, there will be many more such companies. They are formed for the purpose of evading the tax or taking advantage of the act. The right honorable gentleman if in a cleft stick. If he imposes excessive taxation so that no money will be available for the expansion of business, it will be a fatal check to progress. The amendment, we are told, will allow for the expansion of industry, while at the same time assuring to the Taxation Department a fair return. This method, however, does not appeal to me as likely to be more satisfactory than the present system or thai which obtained in 1922. The one-man company is no more entitled to consideration than is the private individual. In fact, such a company was a- private individual before this method of taxation made it profitable for him to become a company. He should continue to be regarded as an individual, as in fact he is. If we are to give as much latitude to the Commissioner as is proposed, it would be better to give him power to say what is a bona fide company, as distinguished from a company formed for tha evasion of taxation, rather than invest him with authority to require one taxpayer to pay a much higher rate than another. I can make no suggestions for improving the bill. I have at various times made a good many suggestions in connexion with measures of this kind, and I have come to the conclusion that .as fast as we block up one hole another appears elsewhere I look forward with a certain degree of chastened expectation to hearing once more about this time next year another bill- introduced, and being told once more that at last the department has evolved an equitable and effective scheme of taxation. I suppose it is futile to suggest that it would be well to leave the law as it is at present, so that we may have an opportunity during the recess to look carefully through the bill, and discuss with those who are affected by it what its consequences are likely to be. We could then return to the consideration of the measure with our minds refreshed and enlightened. I certainly think that it would be better to postpone the bill. I do not wish to vote against this clause, but judging it by and large, I am not in favour of the bill.

Mr GREGORY:
Swan

.- I would like the Government to give us an assurance that next year a consolidating income tax assessment bill will be introduced. I have received many complaints regarding the difficulty of understanding the principal act and the various amendments thereto.

Mr Bruce:

– As recently as 1922 we consolidated all the income tax assessment laws.

Mr GREGORY:

– And have been amending them ever since.

Mr Bruce:

– Only last year.

Mr GREGORY:

– And no sooner did the Treasurer introduce this bill, which he said would give us a very much improved system, than he tabled a long list of amendments to further improve the improvements. I do not understand the bill, altered as it is by the long list of further amendments. Like most honor able members, I depend upon specialists for information regarding the effects of the taxation system and proposed amendments thereto. Having regard to what I have been able to glean from this discussion to-night, and conversation with those who have made a study of this matter, I am not satisfied with the proposed amendments relating to the taxation of companies. Would it not be possible to . make it incumbent on any company receiving income in the shape of dividends from another company to pay duty on that income on the basis on which an individual pays 1

Mr Scullin:

– It would be necessary to have a special company rate for that particular form of income.

Mr Bruce:

– The honorable member’s suggestion would disturb the whole basis of a joint stock company, formed as an investment company.

Mr GREGORY:

– If a person forms a company and holds 99 per cent, of the shaves and makes a profit of £60,000, he may subsequently form an investment company whose income is probably the greater proportion of £60,000. No taxation would be payable upon that £60,000, other than on the income derived from its investment, whereas, if an individual received the same amount he would be called upon to pay taxation upon it at the highest rate. I cannot understand this keen desire to protect the company as against the individual. I agree with the Prime Minister that it is an advantage to have joint stock companies formed in Australia, but I think that the income they receive from the shares held by them in other companies should be subject to the same rate of taxation as is paid by individuals. No person should be allowed to escape his fair share of taxation by the formation of a bogus company, or even by promoting a legitimate company to build up a huge concern “which may ultimately bring him a large profit.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– I rise to deal first of all with one or two matters touched upon by the honorable member for Yarra (Mr. Scullin), and especially to dissipate the idea which the honorable member has formed that the imposition of a tax of ls. in the £1 at the source operates harshly in the case of small investors in companies. As fashioned last year, the act operates more favorably to the small man than it does to the big man. If a person has an income of £400. of which £200 is derived from personal exertion, and £200 from dividends, the taxation of the £200 at the source automatically puts him completely outside the scale of taxation on his income from personal exertion. A man with an income of £400 from personal exertion and £400 from dividends, is simply taxed at. the rate of £400.

Mr Scullin:

– But he also pays at the rate of1s. in the £1 on the other £400.

Dr EARLE PAGE:

– The man with the larger income pays a higher rate than 1s., because the dividend he receives is used, together with his personal exertion income, to determine the rate of his tax. The smaller man frequently gets clean out of the taxable field, by reason of the fact that the dividends he receives are not taken into account at all. The second question raised by the honorable member was the continual formation of companies. But the honorable member forgets that in every state, except Victoria, the taxation on companies is very severe. In New South Wales, the rate is 2s. 6d. in the £1, and I believe it is 3s. 9d. in the £1 in Queensland, which rates, with the1s. added by the Commonwealth, ‘ make a fairly formidable impost on the formation of companies. The honorable member also forgets that the existing act makes provision for the individual conducting a business. Section 30 provides - “(1.) Where an individual derives income from a business carried on by himself or in partnership with other persons, and his rate of tax on that income exceeds 2s. 5d. in the £1, he shall be entitled to a rebate in his assessment of a sum equal to the amount by which his tax on fifteen per centum of that income exceeds the tax that would be payable at 2s. 5d. in the £1 on that percentage of that income. (2.) In this section “business” means a business, which, from its nature and character requires for its efficient working the retention inthe business of some part of the income of each year.

The individual therefore has a certain amount of consideration extended to him as against the company, although I admit the 15 per cent, he may keep in hand is not as great as the 30 per cent, which the company may keep in reserve. According to the honorable member for North Sydney (Mr. W. M. Hughes), this bill is not receiving the consideration it should get, and no attempt has been made to acquaint honorable members with what the actual amendments are. This is not so, for a memorandum , has been circulated showing honorable members at a glance how the amendments affect the original act. Furthermore, the second reading was moved five days ago, and all the information available has been in the hands of honorable members since then. There may be some occasion to dispute the general principle underlying the bill, hut as I have previously said, income taxation by the Commonwealth is not to-day as burning a question as it was a few years ago. I admit that its basis may be unsound, but that basis was deliberately adopted by a previous Parliament. Any proposal to alter it now reminds me of what occurred in the case of an operation I performed some years ago. The patient had a tumour on his shoulder which necessitated the removal of the whole of his forequarter. When the operation was completed, the doctor who was administering the anaesthetic asked, “Which part of him shall we put to bed “ ? If we try to deal with the principle underlying this legislation, I am afraid that when we complete our task, it will be impossible to say what portion of it ought to be left, or what portion ought to be thrown away. The amendment suggested by the honorable member for Kooyong (Mr. Latham), in paragraph 2 of the amendment, is agood one. It makes the intention of the amendment clearer.

Amendment (by Mr. Latham) agreed to -

That the amendment be amended by leaving out the words “ who is not after “ partnership,” first occurring in the proviso, with a view to insert in lieu thereof the words “ otherwise than as.”

Amendment, as amended, agreed to.

Clause7 -

Section 23 of the principal act is amended -

by omitting paragraph (e) of subsection (1.) thereof and inserting in its stead the following paragraph : -

(ii) such sum as the Commissioner thinks just and reasonable as representing the diminution in value during the year in which the income was derived of any machinery, implements, utensils, rolling-stock, and articles used by the taxpayer for the purpose of producing income:

Provided that the following conditions shall apply in relation to the deduction of sums under sub-paragraph (ii) of this paragraph : - (5.) Where a person, from whose assessable income a deduction has been made to which condition (4.) of this paragraph applies, sells or otherwise disposes of the machine. . . . If the sale price exceeds the depreciated value, the amount of the excess shall be brought to account as income of that year;

Dr EARLE PAGE:
Treasurer · Cowper · CP

, - I move -

That after the word “ excess “ in proposed new paragraph (e) (ii) (5.), the words “ to the extent of the total sum of the amounts allowed by the Commissioner in any previous assessments in respect of the depreciation of the machine, implement, utensil, rolling-stock, or article “ be inserted.

The clause proposes to amend section 23 of the principal act relating to deductions by altering sub-section 1, paragraph b, in order to provide that where a taxpayer claims an exemption for rates and taxes paid by him, they must be rates and taxes for which he is personally liable, and not taxes paid by him on behalf of others. Another amendment in the same paragraph adds the words “ or any war-time profit tax.” A deduction of war-time profits tax paid is allowable in the assessment of the year in which the payment was made. But an adjustment may have been made in the assessment of the wartime profits tax by reducing that tax to the extent of the actual tax charged, and it is therefore necessary to make this amendment, so that it is absolutely clear that no double deduction can be claimed in respect of war-time profits tax already paid. The remainder of the clause deals with deductions that may be made in respect of the depreciation of machinery and plant. It provides for a much bigger concession than hitherto. It first of all re-states the existing law and provides for an alternative basis of deduction and for the taxpayer adhering to his choice in all future assessments. Persistent claims have been made over a number of years for some provision to meet the cost of replacing obsolete machinery, and the Government believes that the enactment of the clause will lead to the replacement of obsolete machinery with more modern plant, particularly in such establishments as butter factories. The amendment to the clause as printed is necessary owing to the fact that as the clause stands it requires a taxpayer to treat as income the whole of any amount for which he may sell an asset in respect of which he has. previously obtained deductions under the heading of depreciation. The amendment will limit the taxpayer’s liability in this respect. The reason for the limitation is that it follows the main important principle of the Income Tax Assessment Act, namely, that any profit on the disposal of a fixed capital asset is not subject to tax. The amendment will, of course, require the taxpayer to write back to taxable income all the previous deductions he has received as depreciation in any case in which his sale price for the asset exceeds its original cost price. If the sale price is less than the original cost but is greater than the value of the asset as written down by the previous depreciation deductions, the difference between the sale price and the written down value as mentioned is to be written back to income in the year of the sale of the asset.

Amendment agreed to.

Sir NEVILLE HOWSE:
Calare

– I move -

That the following new paragraph be added to the clause : - “and (f) by inserting after sub-section (1.) thereof the following sub-section: - (1a). Notwithstanding anything contained in paragraph (a) of the last preceding subsection, any person who is liable to render a return of income for the purposes of this act, and who proves to the satisfaction of the Commissioner that -

he is carrying on agricultural or pastoral pursuits in a district which is subject to the ravages of animal pests; and

that he has expended money for, or entered into a contract or undertaking with the . Government, or an authority of a state, for the purchase of wire netting for use in the construction of a wire-netting fence to prevent animal pests entering upon the land used by him in the production of assessable income, shall be entitled to a deduction -

in the assessment of the income derived by him in the year in which he places the wire netting in position on the fence, of such sum as the Commissioner is satisfied has been expended by the person in the purchase of the wire netting so placed and in placing it in position on the fence; or (el) in the case of a person who purchased the wire netting under a contract or undertaking with . the Government, or an authority, of a state - of the amount paid by him, in respect of that wire netting, in the year in which the income is derived, as purchase money or interest thereon and the amount (if any) expended by him in that year in placing the wire netting in position on the fence.’ “

The purpose of the amendment is to provide that a settler who has purchased and erected wire netting, but who probably still has ten or fifteen annual payments to make on it, will be able to deduct the amount of those payments as they are made. I hope the Treasurer will accept it, for it is only a continuation of the policy which has already been agreed to in the Advances to Settlers Act.

Dr Earle Page:

– I accept the amendment.

Mr SCULLIN:
Yarra

.-While I have a great deal of sympathy with the men on the land who are obliged to fight pests, I ask where this kind” of exemption is to end. I do not see any difference between allowing the exemption of expenditure on wire netting and in allowing the exemption of expenses incurred in the eradication of weeds or the destruction of rabbits. The man who goes into the heart of the Gippsland forest, and clears a block to carry on farming operations, might also be granted an exemption if this principle is to be adopted.

Mr Gibson:

– A man gets an exemption under those headings now for the labour expended.

Mr SCULLIN:

– There are many more causes of expenditure than labour - expenditure on material, for instance. Once wa begin making exemptions of this character, we shall be able to go on making them ad infinitum. One could discover many justifiable causes for exemptions in a district such as I represent, and, if I come along and move for additional exemptions on humanitarian grounds, I shall expect the honorable member for Calare to support me. If the exemption he has proposed were limited to struggling settlers, I should not raise my voice against it, but doubtless it will bc claimed by wealthy taxpayers who have many miles of wire netting on their runs, which add to the capital value of their properties. I could place alongside of this amendment the one that will be moved by the honorable member for Maribyrnong (Mr. Fenton), respecting the exemption of amounts spent in medical fees. Does the Treasurer propose to accept that amendment!

Dr Earle Page:

– Yes, but not wholly. I am willing to accept the provisions of the Victorian act.

Mr SCULLIN:

– I am glad to hear that, although the terms of the Victorian act are very limited. I should be more ready to accept the amendment before us if a maximum deduction for any one year were stated.

Dr Earle Page:

– Is it not desirable for a man to wire-net his property as soon as he can ?

Mr SCULLIN:

– Yes, just as it is desirable that he should erect his barns and his dwelling-house and provide other conveniences as soon as possible.

Dr Earle Page:

– The wire netting keeps the pests out.

Mr SCULLIN:

– Yes, and that, adds to the value of the property. I take it that the object of the honorable member for Calare is to give relief to the struggling man, but I fail to see why this exemption should be granted to the big man who spends thousands of pounds on wire netting.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– The rabbit and dog pests are probably the most serious deterrents to the development of the pastoral indus- try. I venture to say that the loss of revenue represented by the proposed exemption will be more than made up by the increase in income tax and land tax due to the increased carrying capacity of the land resulting from the use of netting.

Mr LATHAM:
Kooyong

.- The money spent on wire netting is a very desirable capital expenditure, but, as the honorable member for Yarra (Mr. Scullin) has pointed out, this is a proposal to deduct expenditure of a capital nature from income. This is a matter of policy, and the Treasurer has given the reason why he is prepared to accept the amendment. However, I fail to see why a distinction should be made between a taxpayer who has entered into an undertaking with a government or a state authority for the purchase of wire netting, and a person who- prefers to procure it from a private source, for the advantage accruing from the erection of the netting is the same in each case.

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

.- I entirely agree with the honorable member for “Kooyong (Mr, Latham). The amendment would not give relief to a large number of laud-holders in South Australia, whose wire netting has been supplied by the State Government through the local governing bodies. My desire is to benefit those settlers who are paying principal and interest for netting over a period of 20 years. They should receive the same consideration that is extended to persons in a position to purchase and pay for their netting in one year.

Mr GARDNER:
Robertson

.- While I recognize that the amendment will have a beneficial effect, there is much to be said in favour of the argument of the honorable member for Yarra. The amendment certainly embodies a departure from the principle laid down in the act of distinguishing between capital expenditure and expenditure from revenue, but as a great many settlers will be benefited I have no doubt that the end justifies the means. The erection of wire netting increases the producing capacity of the land, and I therefore support the amendment.

Mr WEST:
East Sydney

-.- In no period of Australia’s history have the farmers and pastoralists been better able to pay income tax on money -spent on wire netting than they are at the present time. This Parliament has already granted bounties on dried fruit, grapes and butter, and it will soon be known as the Parliament that, has given away the most public money to people who do not need it. Its actions in this direction are a source of amusement among passengers on the trains between Melbourne arid Sydney, and even honorable members supporting the Government are beginning to realize the seriousness of the situation. I have never heard of any strong demand for the assistance proposed tinder the amendment. I have endeavoured to ascertain the number of absentee land-owners who are making fortunes out of the properties held by them in Australia. There are other ways in which the Government can ease the burden of taxation.

Dr Earle Page:

– This will bring in more by way of land and income taxes than we shall lose bv ifc.

Mr WEST:

– As Australia has to meet heavy expenditure in connexion with war loans and interest, the Commonwealth should not deprive itself of the right to collect income tax. Last year our indebtedness was reduced by about £9,000,000, but at the same time we loaded it to the extent of about £20,000,000. There is no necessity for these exemptions. The people who will be affected have not asked for them. If ifc were but a few months before the next election I could understand the action of the Treasurer and members of the Country party in making these concessions. Because of the measures which it has introduced - measures dealing with butter, dried fruits, and other primary products - the Government is the laughingstock of its own friends. The committee would be well advised to reject this amendment).

Amendment agreed to.

Mr FENTON:
Maribyrnong

, - The Treasurer says that he would not be justified in” going beyond the provisions of the Victorian act in regard to deductions for medical expenses. That means that the amendment which he proposes to move is limited. The amendment of which I have given notice was not intended to apply to any one section of the community only, as I considered that any man, whatever his income, should be entitled to the deductions referred to therein. No deduction is more justified than ‘ the medical, funeral or hospital expenses incurred for a man, his wife, or the members of his family. The Treasurer proposes to confine the deduction to a taxable income of £800. The income tax form for the state of Victoria contains the following: -

Deductions claimed in respect of medical expenses paid to any legally qualified medical practitioner or public or private hospital, nurse, or chemist on account of the illness of taxpayer, wife, or children under 21 years of age, or on account of funeral expenses paid (not exceeding £20) in respect of the death of taxpayer’s wife, or any member of family under 2.1 years of age.

I suppose that I shall have to accept the offer of the Treasurer, and be thankful. If the amendment does not operate as we desire we shall probably be able to make Further amendments to it when a comprehensive income tax bill comes before us in the early part of next session.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– I move -

That the following paragraph be added to the clause : -

by inserting after paragraph n of subsection 1 thereof the following paragraph : -

such part of the assessable income of a taxpayer whose taxable income does not exceed six hundred pounds -

as is paid by him to any legally qualified medical practitioner, public or private hospital, nurse or chemist in respect of any illness of, or operation upon the taxpayer or his wife or any of his children under the age of twenty-one years; and

not exceeding in the aggregate the sum of Twenty pounds as is paid by him to any undertaker for funeral expenses arising out of the death of the wife of the taxpayer or of any of his children under the age of twenty-one years.

That is a provision now in the Victorian act, which the Government is prepared to accept. It practically covers the amendment of which notice has been given by the honorable member for Maribyrnong (Mr. Fen ton).

Mr GABB:
Angus

.- I should like to know whether the deductions to which we are now agreeing will apply to incomes derived during the year ended the 30th June last. I make this inquiry because returns showing the income for that year are due to-day in South Australia. If the deductions for wire netting, and medical and funeral expenses are to be allowed for that year, what is the position of South Australian taxpayers ? I wish also to know whether the exemption of ?300 is to apply to the present or past financial year ?

Dr EARLE PAGE:
Treasurer · Cowper · CP

– The intention is to apply this bill to the present financial year, and for that reason the Government is trying to push it through the committee. When the honorable member for North Sydney. (Mr. W. M. Hughes) was speak- , ing he suggested delaying the bill until the end of the year, but if that were done no benefit would be derived in the assessments and returns for this year, and considerable delay would be occasioned in assessing the income tax. If the bill is carried a public notification will be made, and taxpayers will be asked to send in full details.

Mr Gabb:

– Then the taxpayers in South Australia who have furnished their returns to-night will have to furnish other returns in order to take advantage of the provisions of the bill.

Dr EARLE PAGE:

– They will have to send in additional details.

Amendment agreed to.

Sir NEVILLE HOWSE:
Calare

.- I move-

That the following paragraph be added to the clause : - “ ; and

  1. by inserting the following new para graph : -
  2. so much of the assessable income as the Commissioner is satisfied has been . donated by the taxpayer for research into the causes, prevention or cure of disease in human beings, animals or plants, to any authority which the Commissioner is satisfied is a public authority engaged in such research.”

It is the duty of the Government to carry out this work, and it will save expense if donations can be obtained for the purposes outlined in the amendment.

Amendment agreed to.

Clause, as amended, agreed to.

Clause 8 agreed to.

Clause 9 (Deductions to be allowed in certain cases).

Dr EARLE PAGE:
Treasurer · Cowper · CP

– This clause is inserted in the bill because the spirit and principle of the Income Tax Assessment Act is not to tax capital. The clause exempts from taxation any lease from the Commonwealth or a state being a perpetual lease without re-valuation, or a lease with a right of purchase. In future such leases will be regarded as practically freehold. This matter will be dealt with at greater length in a later bill dealing with leaseholds.

Clause agreed to.

Clause 10 agreed to.

Clause 11 (Date of payment of tax).

Dr EARLE PAGE:
Treasurer · Cowper · CP

– This amendment is inserted to meet the views advanced by the honorable member for Perth . (Mr. Mann) for the separation of the payment of taxation, both state and federal, as set out on’ the combined income tax form. The time for payment is extended from 30 days to 60 days.

Mr SCULLIN:
Yarra

.- I think 30 days is a fair period for payment. Money is worth something to a Government operating on a proper business footing. The loss of interest during the extra period of 30 days would be about £50,000 a year. Private firms are prepared to give a trade discount for payment within seven days, and a smaller trade discount for payment within 30 days, but no consideration at all after that period. I know that the Government does not give any discount. It is paying 61/2 per cent, for loans, and therefore this money should not be allowed to remain outstanding for 60 days. On the 31st June last there were uncollected over £5,000,000 in federal income tax and land tax, and if the period of payment is extended to 60 days the loss in interest will be much greater. I am opposed to the clause.

Mr MANN:
Perth

.- The clause does not go far enough. One of the great . objections to income tax is the fact that the whole of the tax is levied at one time, which is very often an awkward time, leading to the dislocation of a man’s domestic finance. One reason for the heavy indirect taxation is that under it the people do not know what they are paying. The direct taxation is much lighter, but the limited period of payment makes it unpopular. It would be far better if the payment for income tax were spread over four quarters of the year.

Sir Elliot Johnson:

– That would be a great convenience to many.

Mr MANN:

– That is so. I hope that the committee will adopt the amendment, because, while it does not go as far as I should like, it is certainly some improvement to the bill.

Mr GABB:
Angas

.- I am also opposed to the clause. I should like to know what is the position of certain people in South Australia who have not yet received their assessment for 1923. I understand that hundreds of assessments have not yet been issued. The Treasurer had a good deal to say about the economy that would be effected by the amalgamation of state and federal departments, but I am wondering what is going to happen to the South Australian taxpayers I have mentioned. Are we to assume that when they get their assessments, say, in January, 1925, they will have another 60 days within which to pay taxation that ought to have been paid within six months of June, 1923 ?

Clause agreed to.

Clause 12 (Liquidator to give notice).

Dr EARLE PAGE:
Treasurer · Cowper · CP

– The purpose of the clause is to ensure that sufficient money shall be left in the hands of a liquidator to pay the various taxes.

Clause agreed to.

Clause 13 agreed to.

Progress reported.

page 4906

ADJOURNMENT

Treasury Bills Issued in London - Survivors of “ Douglas Mawson “ - British Preferential Trade.

Dr EARLE PAGE:
Treasurer · Cowper · CP

– In moving -

That the House do now adjourn,

I wish to take this opportunity to inform the House that arrangements have been completed for the issue in London, on 1st October, of Commonwealth treasury-bills to the amount of £3,000,000. Of this total, £2,000,000 will have a currencyof three months, and will bear interest at 37/8 per cent., and £1,000,000 will have a currency of four months, bearing interest at 4 per cent. The bills are being issued to provide money for carrying out a programme of developmental works already approved by Parliament. These include, under the department of the Postmaster-General, provision of additional telegraphic and telephonic facilities throughout Australia.

Mr WEST:
East Sydney

.- I should like to know if the Prime Minister is in a, position to give honorable members further information with regard to the John Alce, which, it is understood, has left Port Darwin to assist in the search for the white women who are reported to be held captive by native tribes in Arnhemland, Northern Territory.

Mr MANN:
Perth

.- I am loath to detain the House. But I feel obliged to do so, as this is the only opportunity I may have to refer to a matter which, in my opinion, is of very great importance to Australia. To-day we listened to a statement made . by the Minister for Trade and Customs (Mr. Pratten) of the intentions of the Government with regard to the terms upon which British trade preference shall be granted. The fact that this matter has been dealt with by departmental regulations precludes the House from debating or expressing any opinion upon it.

Mr Prowse:

-It is quite wrong.

Mr MANN:

– As every honorable member is aware, there has been very widespread discussion on this important question, which must seriously affect trade between the Motherland and Australia. It is bound to have a very important effect upon Imperial trade relationships. In fact, I consider it one of the gravest questions that could engage the attention of this House. The trade preference agreement between Canada and Australia was thought to be of sufficient importance to justify the Minister in submitting a series of resolutions to this House. Although only one item was mentioned in the statement made to-day, I am inclined to think that in its operation it will have a more widespread effect upon British trade than all the proposals contained in the treaty with Canada, but owing to the form in which it was submitted, the House will have no opportunity to discuss it. I view with considerable alarm the effect of this proposal upon our trade. From what the Minister said to-day, I believe that very many features of it have not been fully considered, and they certainly have not been fully explained to honorable members. I regret that I am forced to take advantage of this opportunity to protest against the manner in which the business has been dealt with. I am perfectly well aware of course, that there is one way in which the House may express disapproval of what has been done. The regulation has not yet been passed. Presumably it will be passed within the next week or two, either just before or just after Parliament adjourns. The treaty will come into force on 1st April next, and Parliament will probably not be meeting again until about that time. The only way in which the House may alter the arrangement is by a definite motion, that the regulation be disallowed. That must be done within fifteen days after the gazettal of such regulation or, if Parliament be in recess, within fifteen days after it reassembles. Action then will probably be ineffective, for the simple reason that the regulation will have been in operation, and the necessary trade adjustments will have been made. Such an important matter involving our Imperial trade relationships should not be dealt with so lightly. A resolution by Cabinet should not go forth to the world as the studied and deliberate opinion of this House.

It may bo the opinion of the majority of honorable members that this action should he taken, but personally I do not think it is. It may be that the basis of preference should be altered, but I feel strongly that it should not be. At any rate, an opportunity should be given to the minority, however small, to express its disapproval, so that it cannot be represented to Great Britain that the people of Australia as a whole are in favour of taking this step, which, in my opinion, will prove to be one of the greatest hindrances to the future development of trade. It is a direct denial of the principle of preference to Great Britain, because it is increasing the obstacles in the way of trade with Great Britain.Whatever may be said to the contrary by the Minister for Trade and Customs to the effect that it is intended to stop foreign trade, it can easily be shown that the result may have the effect of diminishing British trade, and throwing a greater quantity into foreign channels. I desire to take the earliest opportunity available of recording my protest against such an important matter being settled without the House having an opportunity to debate it. Even if the regulation were passed immediately, there would be no opportunity to debate it. The proposal should have been submitted to the House just as were the Canadian tariff proposals, which I support, and which, with the infliction of this regulation in addition, may be the means of entirely prohibiting the importation of British newsprint, as the Canadian and British productions will come in on the same basis.

Mr Gabb:

– A freetrader does hot believe in any preference.

Mr MANN:

– I have no objection to (he Canadian proposals.

Mr SPEAKER (Rt Hon W A Watt:
BALACLAVA, VICTORIA

– The honorable member will realize that he is not entitled to discuss the subject of the proposed reciprocal trade arrangements between Australia and Canada, as a motion dealing with thai subject is on the notice-paper.

Mr MANN:

– I do not intend to discuss the merits of the proposal, but merely to state that the regulation to which I have referred, in addition to the trade arrangements with Canada which it is proposed to adopt, may result in the actual prohibition of the importation of British newsprint in favour of Canadian paper, which would he most undesirable.

Mr BRUCE:
Prime Minister and Minister for External Affairs · Flinders · NAT

– I have not yet any information from the source mentioned by the honorable member for East Sydney (Mr. West) which I can make available to the House and to the country.

The suggestion of the honorable member for Perth (Mr. Mann) that the proposal set out by the Minister for Trade and Customs (Mr. Pratten) this afternoon should not be dealt with by regulation, but that an opportunity should be afforded to the House to consider the action contemplated under the regulation, will receive the consideration of the Government. We will see if an opportunity can be given honorable members to discuss it.

Question resolved in the affirmative.

House adjourned at 10.54 p.m.

Cite as: Australia, House of Representatives, Debates, 30 September 1924, viewed 22 October 2017, <http://historichansard.net/hofreps/1924/19240930_reps_9_109/>.